<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 19, 1996
REGISTRATION NO. 333-09747
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
THE SABRE GROUP HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7375 75-2662240
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
</TABLE>
4255 AMON CARTER BOULEVARD
FORT WORTH, TEXAS 76155
(817) 931-7300
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
MICHAEL J. DURHAM
PRESIDENT AND CHIEF EXECUTIVE OFFICER
THE SABRE GROUP HOLDINGS, INC.
4255 AMON CARTER BOULEVARD
FORT WORTH, TEXAS 76155
(817) 931-7300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
Copies to:
<TABLE>
<S> <C> <C>
Anne H. McNamara, Esq. John B. Brady, Jr., Esq. Andrew D. Soussloff, Esq.
Senior Vice President Debevoise & Plimpton Sullivan & Cromwell
and General Counsel 875 Third Avenue 125 Broad Street
AMR Corporation New York, New York 10022 New York, New York 10004
4333 Amon Carter Blvd. (212) 909-6000 (212) 558-4000
Fort Worth, Texas 76155
(817) 963-1234
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold and
offers to buy may not be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an offer
to sell or the solicitation of an offer to buy and there shall not be any
sale of these securities in any State in which such offer, solicitation or
sale would be unlawful prior to registration or qualification under the
securities laws of such State.
SUBJECT TO COMPLETION, DATED SEPTEMBER 19, 1996
<TABLE>
<S> <C> <C>
LOGO 20,200,000 SHARES
THE SABRE GROUP HOLDINGS, INC.
CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
</TABLE>
-------------------
Of the 20,200,000 shares of Class A Common Stock offered, 16,160,000 shares
are being offered hereby in the United States and 4,040,000 shares are being
offered in a concurrent international offering outside the United States. The
initial public offering price and the aggregate underwriting discount per share
will be identical for both Offerings. Of the 20,200,000 shares of Class A Common
Stock being offered, less than 10% of the shares are reserved for sale to
directors, officers and employees of the Company, directors of AMR and certain
other persons. See "Underwriting."
All of the shares of Class A Common Stock offered hereby are being issued
and sold by the Company. The Company is a wholly-owned subsidiary of AMR
Corporation and, upon completion of the Offerings, AMR will own 100% of the
outstanding Class B Common Stock of the Company, which will represent
approximately 84.2% of the economic interest in the Company (approximately 82.2%
if the Underwriters' over-allotment options are exercised in full). See "Use of
Proceeds" and "Relationship with AMR and Certain Transactions."
Holders of Class A Common Stock generally have rights identical to those of
holders of Class B Common Stock, except that holders of Class A Common Stock are
entitled to one vote per share while holders of Class B Common Stock are
entitled to 10 votes per share on all matters submitted to a vote of
stockholders. Holders of Class A Common Stock are generally entitled to vote
with the holders of Class B Common Stock as one class on all matters as to which
the holders of Class B Common Stock are entitled to vote. Following the
Offerings, the shares of Class B Common Stock will represent approximately 98.2%
of the combined voting power of all classes of voting stock of the Company
(approximately 97.9% if the Underwriters' over-allotment options are exercised
in full). See "Description of Capital Stock."
Prior to the Offerings, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
of the Class A Common Stock will be between $20.00 and $23.00 per share. For
factors to be considered in determining the initial public offering price, see
"Underwriting."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE CLASS A COMMON STOCK.
The Class A Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "TSG," subject to official notice of issuance.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
---------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $ $ $
Total(3).......................... $ $ $
</TABLE>
- ---------------
(1) The Company and AMR have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
See "Underwriting."
(2) Before deducting estimated expenses of $1,350,000 payable by the Company.
(3) The Company has granted the U.S. Underwriters an option for 30 days to
purchase up to an additional 2,424,000 shares of Class A Common Stock at the
initial public offering price per share, less the underwriting discount,
solely to cover over-allotments. Additionally, the Company has granted the
International Underwriters a similar option with respect to an additional
606,000 shares as part of the concurrent international offering. If such
options are exercised in full, the total initial public offering price,
underwriting discount and proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
-------------------
The shares offered hereby are offered severally by the U.S. Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that the
certificates for the shares will be ready for delivery in New York, New York on
or about , 1996, against payment therefor in immediately available
funds.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
SALOMON BROTHERS INC
-------------------
The date of this Prospectus is , 1996.
<PAGE> 3
Date: 08/06/96 Page: 1
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GATEFOLD COVER
Logo: The SABRE Group
Head: A Leader in Travel Information Technology
Associate Names (Screened Back):
(Names of Travel Providers)
COPY: These companies represent just a few of the businesses that
utilize the SABRE global distribution system.
LEGAL: IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT
OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET
PRICE OF THE COMMON STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
<PAGE> 4
Date: 08/06/96 Page: 2
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INSIDE GATEFOLD SPREAD
Copy: The SABRE Group is a world leader in electronic distribution of
travel and is a leading provider of information technology
solutions for the airline industry. The SABRE Group's business
is focused on:
1. Electronic distribution of travel and travel-related
services around the globe, through one of the world's
largest privately-owned, real-time computer systems.
2. Information technology solutions, including software
development and product sales, transactions
processing, and consulting.
More than 350 airlines, 55 car rental agencies, and 30,000 hotel
properties use the comprehensive electronic marketplace created
by SABRE to reach more than 29,000 travel agency locations in
over 70 countries and, through the Internet and On Line
Services, over two million individual consumers worldwide.
CAPTIONS
Travel Agencies
Planet SABRE is designed to be a low cost, high performance,
Windows-based tool for the professional travel agent.
Corporations
SABRE Business Travel Solutions (BTS), scheduled for release in
the fourth quarter of 1996, will give corporations integrated
control over travel booking, policy management, expense
reporting and more.
Individual Consumers
Through Travelocity, millions of consumers can access the power
of SABRE on the Internet at HTTP://WWW.TRAVELOCITY.COM
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise indicated, references
herein to the "Company" include The SABRE Group Holdings, Inc. and its
consolidated subsidiaries and, for any period prior to the July 2, 1996
reorganization (the "Reorganization") of the businesses of AMR Corporation
("AMR"), the businesses of AMR constituting The SABRE Group, an operating unit
of AMR.
THE COMPANY
OVERVIEW
The Company is a world leader in the electronic distribution of travel
through its proprietary travel reservation and information system, SABRE(R), and
is the largest electronic distributor of travel in the United States. In
addition, the Company is a leading provider of solutions to the airline industry
and fulfills substantially all of the data processing, network and distributed
systems needs of American Airlines, Inc. ("American") and AMR's other
subsidiaries.
The Company believes that its competitive strengths give it a leadership
position in its markets and a foundation from which to pursue further growth.
During the last 20 years, the Company has developed core competencies that
include a comprehensive knowledge of the travel industry, the capability to
perform high-volume, high-reliability, real-time transactions processing and
expertise in the application of operations research, information technology and
industrial engineering skills to solve complex operations problems. These core
competencies enable the Company to create an efficient electronic marketplace
for the sale and purchase of travel and to offer a broad and deep array of
technological solutions to the airline industry. In providing its products and
services, the Company operates one of the largest, privately-owned, real-time
transactions processing systems in the world in its underground central computer
facility (the "Data Center"), which is connected to over 120,000 computer access
terminals and operates 24 hours a day, seven days a week. The SABRE system
maintains over 50 million air fares (updated five times per business day),
processes an average of 93 million requests for information per day and has
processed up to 4,969 requests for information per second (in July 1996).
The Company has generated consistent annual revenue growth, from $1,097
million in 1991 to $1,530 million in 1995, and operating earnings growth, from
$220 million in 1991 to $380 million in 1995. A majority of the Company's
revenues, 59.1%, is attributable to bookings made by travel agents using SABRE.
The Company has had long-standing relationships with most of its travel agency
subscribers. For example, approximately 97% of the travel agency locations that
were SABRE subscribers at the beginning of 1995 were SABRE subscribers at the
end of 1995. In addition, a significant portion of the Company's revenues, 24.2%
in 1995, is derived from information technology solutions provided to American
and its affiliates. Such services are currently provided to American and its
affiliates pursuant to an Information Technology Services Agreement, dated as of
July 1, 1996 (the "Technology Services Agreement"), which has a term of 10 years
for most services (three and five years for other services). See "Relationship
with AMR and Certain Transactions -- Contractual Arrangements."
The Company's non-affiliated customer revenues have grown at a 13.5%
compound annual rate during the last five years, to $982 million in 1995, and
have grown from 53.9% of total revenues in 1991 to 64.2% in 1995. The Company
expects that the proportion of its revenues represented by non-affiliated
customer revenues will continue to increase. The Company has identified several
opportunities for future revenue growth, including increasing the use of SABRE
outside of the United States, offering new products in emerging distribution
channels, such as corporate direct distribution and the Internet, expanding
participation of travel providers in SABRE and providing technology solutions
products and services more broadly.
3
<PAGE> 6
ELECTRONIC TRAVEL DISTRIBUTION
SABRE and other global distribution systems are the principal means of air
travel distribution in the United States and a growing means of air travel
distribution internationally. Through SABRE, travel agencies, corporate travel
departments and individual consumers ("subscribers") can access information on
and book reservations with airlines and other providers of travel and travel-
related products and services ("associates"). As of June 30, 1996, travel
agencies with more than 29,000 locations in over 70 countries on six continents
subscribed to SABRE, and more than 2.5 million individuals subscribed to
Travelocity(sm) and easySABRE(sm), the Company's consumer-direct products. SABRE
subscribers are able to book reservations with more than 350 airlines and, other
than through Travelocity, to make reservations with more than 55 car rental
companies and more than 190 hotel companies covering approximately 30,000 hotel
properties worldwide.
During 1995, more airline bookings in the United States were made through
SABRE than through any other global distribution system. The Company estimates
that in 1995 over 40% of all airline bookings made through travel agencies in
the United States were made through SABRE. In 1995, 65.8% of the Company's
revenues was generated by the electronic distribution of travel, primarily
through booking fees paid by associates.
INFORMATION TECHNOLOGY SOLUTIONS
The Company is a leading provider of solutions to the airline industry. The
Company also employs its airline expertise to offer solutions to other
industries that face similar complex operations issues, including the airport,
railroad, logistics, hospitality and financial services industries. The
solutions offered by the Company include software development and product sales,
transactions processing and consulting. The Company believes that its suite of
airline-related software solutions is the most comprehensive in the world. In
addition, pursuant to the Technology Services Agreement, the Company provides
data processing, network and distributed systems services to American and AMR's
other subsidiaries, fulfilling substantially all of their information technology
requirements. In 1995, 34.2% of the Company's revenues was generated by the
provision of information technology solutions.
MARKET POSITION AND STRATEGY
The Company intends to maintain its leadership positions and to expand its
product offerings in electronic travel distribution and information technology
solutions. The Company believes that it has many competitive strengths,
including (i) a strong market position as a world leader in, and the largest
provider in the United States of, the electronic distribution of travel, (ii)
established relationships with travel agencies and providers of travel products
and services, (iii) comprehensive product and service offerings in electronic
travel distribution and information technology solutions, (iv) a comprehensive
knowledge of the travel industry and (v) economies of scale and sizable
investments in its technological infrastructure and network. The Company intends
to use these strengths to achieve continued revenue and earnings growth. Key
components of this strategy include:
- INCREASING PENETRATION IN INTERNATIONAL TRAVEL DISTRIBUTION MARKETS. The
Company believes that the international market for travel and
travel-related products and services presents opportunities for the
Company to expand by building on its existing base in Europe and Latin
America and by pursuing additional opportunities in Asia. The Company
will pursue international opportunities directly and through the
formation of international alliances. The Company's revenues from its
travel distribution products outside the United States have grown at a
compound annual rate of 29.8% during the last five years, to $250
million in 1995.
- EXPANDING AND CUSTOMIZING ASSOCIATE PARTICIPATION. The Company plans to
continue to expand participation in SABRE by associates, such as air
charters, car rental companies, hotels, railroads and tour operators,
and has initiated an effort to increase the value provided
4
<PAGE> 7
to associates by tailoring available participation options to the needs of
different travel providers.
- ENHANCING THE VALUE OF THE TRAVEL DISTRIBUTION PRODUCT TO TRAVEL AGENTS.
The Company plans to maximize the value of its products to travel agents
by increasing the depth and breadth of information available through SABRE
and the ease of use and reliability of its products. The Company will also
continue to develop products to enhance the competitiveness of its travel
agent subscribers. For example, the Company has developed two user
interface products, Turbo SABRE(sm) and Planet SABRE(sm), that provide
travel agencies with greater productivity through data integration and
increased ease of use, respectively.
- PARTICIPATING IN EMERGING DISTRIBUTION CHANNELS. With products such as
Business Travel Solutions(sm) ("BTS"), which is scheduled for release in
the fourth quarter of 1996, and Travelocity, the Company intends to
continue to compete in emerging distribution channels, such as corporate
direct distribution, the Internet and computer on-line services.
- ENHANCING TECHNOLOGY AND OPERATING CAPABILITIES. The Company has budgeted
capital expenditures of over $210 million for 1996, which the Company
anticipates funding with operating cash flow. In addition, the Company has
begun a multi-year development effort, for which the Company has budgeted
over $100 million during the next five years, to improve SABRE's core
operating capabilities. The goals of this development effort are to
accelerate new product development, increase flexibility, power and
functionality for subscribers and associates, improve data management
capabilities, raise capacity levels and lower operating costs.
- ENHANCING THE COMPANY'S POSITION IN INFORMATION TECHNOLOGY SOLUTIONS. The
Company intends to expand its information technology solutions in the
airline industry and to employ its airline industry expertise to continue
to expand into other industries with similar complex operations issues.
- PURSUING STRATEGIC ACQUISITIONS AND ALLIANCES. The Company expects to
enhance its competitive position through strategic acquisitions of and
alliances with businesses that augment the Company's product offerings or
provide entry into new markets or access to new technologies. The Company
believes that it will generate sufficient cash flow beyond internal
capital requirements to fund significant acquisitions and alliances in the
future. During 1995, the Company generated approximately $215 million of
net cash flow from operating activities, after its internal capital
requirements were met.
RELATIONSHIP WITH AMR
The Company is a newly-formed Delaware corporation and, prior to the
Offerings, a direct wholly-owned subsidiary of AMR. AMR is also the parent
corporation of American and other subsidiaries. Upon completion of the
Offerings, AMR will own 100% of the outstanding Class B common stock, par value
$.01 per share, of the Company (the "Class B Common Stock"), representing
approximately 98.2% of the combined voting power of all classes of voting stock
of the Company (approximately 97.9% if the Underwriters' over-allotment options
are exercised in full). As long as AMR beneficially owns a majority of the
combined voting power, it will have the ability to elect all of the members of
the Board of Directors of the Company (the "Board of Directors") and thereby
ultimately to control the management and affairs of the Company.
Pursuant to the Reorganization consummated on July 2, 1996, the Company
became the successor to the businesses of The SABRE Group which were formerly
operated as divisions or subsidiaries of American or AMR. In connection with the
Reorganization, the Company issued an $850 million subordinated debenture (the
"Debenture") payable to American, which was transferred to AMR and the amount of
which exceeds the historical book value of the assets contributed by American
and AMR to the Company by $120.9 million. The Company will have $482 million of
5
<PAGE> 8
long-term indebtedness outstanding after approximately $368 million of the net
proceeds of the Offerings is used to repay a portion of such indebtedness. See
"Use of Proceeds" and Pro Forma Condensed Consolidated Financial Information.
The Company in the past has been and will continue to be dependent upon American
and its affiliates for a substantial portion of the Company's business. In
connection with the Reorganization, the Company has entered into certain
agreements with AMR and its affiliates (the "Affiliate Agreements"), the
financial terms of which were generally effective as of January 1, 1996. Those
agreements include the Technology Services Agreement pursuant to which the
Company will provide information technology services to American for a term of
10 years for most services (three and five years for others). On a pro forma
basis, giving effect to the Reorganization and the Affiliate Agreements as
though effective as of January 1, 1995, the Company's revenues for 1995 were
$1,463 million, representing a decrease of $66 million from historical 1995
revenues, and net income was $133 million, representing a decrease of $92
million from historical 1995 net income. See "Risk Factors -- Dependence on
American Airlines," "Risk Factors -- Relationship with AMR," "Relationship with
AMR and Certain Transactions -- Contractual Arrangements" and Pro Forma
Condensed Consolidated Financial Information.
6
<PAGE> 9
THE OFFERINGS
The offering hereby of 16,160,000 shares of Class A common stock, par value
$.01 per share, of the Company (the "Class A Common Stock" and, collectively
with the Class B Common Stock, the "Common Stock") initially being offered in
the United States (the "U.S. Offering") and the offering of 4,040,000 shares of
Class A Common Stock initially being offered in a concurrent international
offering outside of the United States (the "International Offering") are
collectively referred to as the "Offerings." The closing of each Offering is
conditioned upon the closing of the other Offering.
<TABLE>
<S> <C>
Class A Common Stock offered by the
Company(1)
U.S. Offering......................... 16,160,000 shares
International Offering................ 4,040,000 shares
Total......................... 20,200,000 shares
Common Stock to be outstanding after the
Offerings(1)
Class A Common Stock.................. 20,200,000 shares
Class B Common Stock.................. 107,374,000 shares
Total......................... 127,574,000 shares
Use of proceeds(2)...................... Approximately $368 million will be used to
repay a portion of the Debenture to AMR.
The remaining net proceeds will be used for
general corporate purposes.
Proposed NYSE symbol.................... TSG
Voting rights........................... The holders of Class A Common Stock
generally have rights identical to holders
of Class B Common Stock, except that
holders of Class A Common Stock are
entitled to one vote per share and holders
of Class B Common Stock are entitled to 10
votes per share. The Class A Common Stock
and Class B Common Stock generally will
vote together as a single class on all
matters except as otherwise required by
Delaware law. See "Description of Capital
Stock -- Common Stock -- Voting Rights."
Under certain circumstances, Class B Common
Stock will automatically convert to Class A
Common Stock. See "Relationship with AMR
and Certain Transactions" and "Description
of Capital Stock -- Common Stock -- Con-
version."
</TABLE>
- ---------------
(1) Exclusive of up to 3,030,000 shares of Class A Common Stock subject to
over-allotment options granted by the Company to the Underwriters. See
"Underwriting."
(2) After deducting the underwriting discount and estimated expenses of the
Offerings, and assuming no exercise of the Underwriters' over-allotment
options.
7
<PAGE> 10
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
Set forth below are the summary historical consolidated financial and other
data of the Company for the periods and dates indicated. This information should
be read in conjunction with the Consolidated Financial Statements, and the
related notes thereto, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996(4)
-------- -------- --------- -------- --------- --------- -------
(IN MILLIONS, EXCEPT OTHER DATA WHERE INDICATED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1):
Revenues........................... $1,097.1 $1,173.8 $ 1,258.2 $1,406.7 $ 1,529.6 $ 767.5 $838.3
Operating Expenses................. 876.9 929.5 1,004.5 1,056.5 1,149.2 548.0 640.7
-------- -------- --------- -------- --------- --------- ------
Operating Income................... $ 220.2 $ 244.3 $ 253.7 $ 350.2 $ 380.4 $ 219.5 $197.6
Other Income (Expense), net(2)..... (7.6) (173.2) (84.7) (26.1) (10.3) (10.4) (2.4)
-------- -------- --------- -------- --------- --------- ------
Income Before Income Taxes......... $ 212.6 $ 71.1 $ 169.0 $ 324.1 $ 370.1 $ 209.1 $195.2
Income Taxes....................... 77.6 38.8 69.0 126.9 144.2 82.0 76.1
-------- -------- --------- -------- --------- --------- ------
Income Before Cumulative Effect of
Accounting Change................ $ 135.0 $ 32.3 $ 100.0 $ 197.2 $ 225.9 $ 127.1 $119.1
Cumulative Effect of Accounting
Change(3)........................ -- 19.0 -- -- -- -- --
-------- -------- --------- -------- --------- --------- ------
Net Earnings....................... $ 135.0 $ 13.3 $ 100.0 $ 197.2 $ 225.9 $ 127.1 $119.1
======== ======== ========= ======== ========= ========= ======
BALANCE SHEET DATA (AT END OF
PERIOD)(1):
Current Assets..................... $ 55.1 $ 91.1 $ 107.1 $ 404.3 $ 271.2 $ 259.2 $449.6
Total Assets....................... 558.8 550.1 584.3 873.5 729.4 737.8 855.8
Current Liabilities(2)............. 108.5 154.2 346.4 503.2 218.6 176.5 225.8
Stockholders' Equity............... 411.0 244.7 158.0 289.5 432.1 477.8 551.2
OTHER DATA(1):
Operating Income as a Percentage of
Revenue.......................... 20.1% 20.8% 20.2% 24.9% 24.9% 28.6% 23.6%
Percentage of Revenue from
Non-affiliated Customers......... 53.9% 55.0% 56.6% 58.1% 64.2% 64.4% 68.8%
Reservations Booked Using
SABRE............................ 220.2 255.3 275.2 311.1 325.5 170.6 181.2
Net Cash Provided by
Operating Activities............. $ 315.3 $ 328.1 $ 332.4 $ 224.9 $ 391.8 $ 168.3 $143.2
Net Cash Used for Investing
Activities....................... $ (183.0) $ (122.4) $ (171.7) $ (177.3) $ (174.7) $ (105.4) $(41.5)
Net Cash Provided by (Used for)
Financing Activities(5).......... $ (130.9) $ (204.7) $ (160.7) $ 215.3 $ (385.2) $ (246.4) $ (9.4)
Capital Expenditures............... $ 171.0 $ 128.8 $ 176.6 $ 168.9 $ 164.6 $ 104.4 $ 82.0
</TABLE>
- ---------------
(1) The Company has significant transactions with AMR and American. See Notes 3
and 11 to the Consolidated Financial Statements.
(2) The operating results for the years ended December 31, 1992 and 1993 include
a provision for losses of $165 million and $71 million, respectively,
associated with a reservations system project and resolution of related
litigation. The balance sheets as of December 31, 1992 and 1993 include
current liabilities for the losses of $28 million and $133 million,
respectively. See Note 5 to the Consolidated Financial Statements.
(3) Effective January 1, 1992, the Company adopted FAS 106, "Accounting for
Postretirement Benefits Other Than Pensions," changing the method of
accounting for these benefits. The cumulative effect of adopting FAS 106 as
of January 1, 1992 was a charge of $19 million, net of income taxes of $10
million.
(4) The operating results for the six months ended June 30, 1996 reflect the
impact of the Affiliate Agreements, the financial terms of which were
effective as of January 1, 1996. See Note 11 to the Consolidated Financial
Statements.
(5) Consists of advances to or from affiliates and contributions from or
distributions to affiliates.
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<PAGE> 11
SUMMARY PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
Set forth below are the summary pro forma consolidated financial and other
data of the Company for the periods indicated. This information should be read
in conjunction with the Consolidated Financial Statements, and the related notes
thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Pro Forma Condensed Consolidated Financial
Information, and the related notes thereto, included elsewhere in this
Prospectus. The pro forma financial information below assumes the Reorganization
and Offerings were consummated, and the Affiliate Agreements were effective, on
January 1, 1995 with respect to the income statement data and at June 30, 1996
with respect to the balance sheet data. The pro forma information is presented
for illustrative purposes only and is not necessarily indicative of the
operating results or financial position that would have occurred if the
transactions had been consummated at the assumed dates, nor is it necessarily
indicative of future results of operations.
<TABLE>
<CAPTION>
PRO FORMA AS ADJUSTED FOR THE
REORGANIZATION, THE AFFILIATE
AGREEMENTS AND THE OFFERINGS
----------------------------------
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -----------------
1995 1995 1996
------------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
INCOME STATEMENT DATA(1):
Revenues.................................................... $1,463.3 $736.7 $832.2
Operating Expenses.......................................... 1,178.7 561.2 635.1
-------- ------ ------
Operating Income............................................ $ 284.6 $175.5 $197.1
Other Income (Expense), net................................. (39.8) (25.1) (17.3)
-------- ------ ------
Income Before Income Taxes.................................. $ 244.8 $150.4 $179.8
Income Taxes................................................ 95.4 59.1 70.2
-------- ------ ------
Net Earnings................................................ $ 149.4 $ 91.3 $109.6
======== ====== ======
Pro Forma Earnings Per Share(2)............................. $ 1.17 $ .72 $ .86
======== ====== ======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------
AS ADJUSTED
FOR THE
REORGANIZATION AS FURTHER
AND THE ADJUSTED
AFFILIATE FOR THE
AGREEMENTS OFFERINGS
-------------- ----------
(IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA(1):
Current Assets.................................................... $ 449.6 $ 490.5
Total Assets...................................................... 1,049.0 1,090.0
Current Liabilities............................................... 171.7 171.7
Debenture Payable to AMR.......................................... 850.0 481.8
Stockholders' Equity (Deficit).................................... (120.9) 288.2
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA AS ADJUSTED FOR THE
REORGANIZATION, THE AFFILIATE
AGREEMENTS AND THE OFFERINGS
-------------------------------
SIX MONTHS
ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ---------------
1995 1995 1996
------------ ----- -----
<S> <C> <C> <C>
OTHER DATA(1):
Operating Income as a Percentage of Revenue.................... 19.4% 23.8% 23.7%
Percentage of Revenue from Non-affiliated Customers............ 67.1% 67.1% 69.3%
</TABLE>
- ---------------
(1) The Company has significant transactions with AMR and American. See Notes 3
and 11 to the Consolidated Financial Statements.
(2) The Company was formed on June 25, 1996 and became a wholly-owned subsidiary
of AMR on July 2, 1996 in connection with the Reorganization. As part of the
Reorganization, AMR caused to be transferred to the Company the subsidiaries
and divisions through which AMR has historically conducted its electronic
travel distribution and information technology solutions operations. The pro
forma earnings per common share calculation is based upon weighted average
common shares outstanding after the Reorganization and the Offerings. See
Notes 10 and 11 to the Consolidated Financial Statements.
9
<PAGE> 12
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should carefully consider the following risk factors:
DEPENDENCE ON AMERICAN AIRLINES
The Company's revenues and earnings are highly dependent on its business
with American and its affiliates. In 1995, 35.8% of the Company's revenues was
generated by information technology solutions provided to American and its
affiliates and through booking fees paid by American for bookings on American
through SABRE (32.9% on a pro forma basis after giving effect to the financial
impact of the Affiliate Agreements). Pursuant to certain of the Affiliate
Agreements, the Company provides information technology solutions to American,
gains access to SABRE subscribers such as travel agencies and corporations
through marketing services provided by American and, under certain
circumstances, lends to and borrows from American. See "Relationship with AMR
and Certain Transactions." American is the largest single travel provider in
SABRE, generating booking fees that account for a substantial portion of the
Company's revenues.
The Company derives a substantial portion of its revenues from the
Technology Services Agreement, which has a base term that expires on June 30,
2006 for a majority of the services performed by the Company, with terms
expiring June 30, 1999 and June 30, 2001 for services that represented 5.7% and
0.5%, respectively, of the Company's total revenues for the six months ended
June 30, 1996. American is generally required to continue purchasing from the
Company services currently performed under the Technology Services Agreement for
the term applicable to such service, as specified in the preceding sentence. New
services, however, including most new applications development work, can be
competitively bid by American, with the Company having a right to bid on most of
such services. There can be no assurance that American will purchase new
services from the Company or that it will continue to purchase services from the
Company upon expiration of the Technology Services Agreement.
The Technology Services Agreement also provides for annual price
adjustments. For certain prices, adjustments are made according to formulas
that, commencing in 1998, are reset every two years and that may take into
account the market for similar services provided by other companies.
Consequently, downward market pressures on fees generally charged by computer
outsourcers or increased price competition for provision of services to the
airline industry, both of which the Company believes could occur, would have a
negative impact on the Company's future revenues under the Technology Services
Agreement.
Through subcontracting arrangements with American (the "Canadian
Subcontract"), the Company provides data processing and network and distributed
systems services to Canadian Airlines International ("Canadian"). American has
guaranteed payment to the Company of the fees the Company will be entitled to
receive pursuant to the terms of the Canadian Subcontract from Canadian in
payment for all such services actually performed by the Company. In addition,
American has agreed to reimburse the Company for any capitalized costs incurred
in connection with the implementation of such systems that remain unamortized in
the event of the termination or expiration of such subcontracting arrangement or
for a write down of such costs.
Pursuant to a Marketing Cooperation Agreement (the "Marketing Cooperation
Agreement"), American will provide marketing support for the Company's products
targeted to travel agencies until June 30, 2006 and will support the Company's
promotion of BTS until September 30, 2001 and the Company's promotion of
Travelocity and easySABRE until June 30, 2001. The Company relies on these
services to support its relationship with travel agents who may utilize SABRE
and to promote its products to those corporations and individuals who are
customers of American. With limited exceptions, however, American is not
restricted from distributing its airline products and services directly to
corporate or individual consumers through the Internet or otherwise. For
example, American has recently announced AAccess, an Internet product designed
to allow
10
<PAGE> 13
American to electronically distribute its products directly. American also
participates in other global distribution systems.
Under a credit agreement between the Company and American, dated as of July
1, 1996 (the "Credit Agreement"), designed to permit AMR to manage efficiently
the cash needs of its subsidiaries, the Company is required to lend to American
up to $100 million of excess cash if required by American to meet American's
daily cash needs, and American is required to lend to the Company (either from
its excess cash or from external borrowing facilities) up to $300 million if
required by the Company to meet the Company's daily cash needs. The Company will
be subject to the credit risk of American to the extent American makes
borrowings under the Credit Agreement.
American's collective bargaining agreement with the Allied Pilots
Association, the union that represents all of American's pilots (the "APA"),
became amendable on August 31, 1994. In January 1996, the APA filed a petition
with the National Mediation Board (the "NMB") to appoint a federal mediator. A
mediator was appointed and meetings with the APA, NMB and American were held
commencing in March 1996. On September 2, 1996, American and the APA announced
that they had concluded negotiations on a new labor agreement, subject to
ratification by the Board of Directors of the APA and the APA's members.
If American were to terminate early any of the Affiliate Agreements
discussed above, fail or otherwise become unable to fulfill its principal
obligations thereunder or determine not to renew certain of the Affiliate
Agreements, the Company's financial condition and results of operations would be
materially adversely affected.
COMPETITION
COMPETITION IN ELECTRONIC TRAVEL DISTRIBUTION
The markets in which the Company's electronic travel distribution business
operates are highly competitive. The Company's electronic travel distribution
business competes primarily against other large and well-established global
distribution systems. SABRE's principal competitors include Amadeus/System One,
Galileo/Apollo and Worldspan*, each of which is owned by a separate consortium
of airlines and offers many services similar to the Company's services.
Moreover, although certain barriers exist for any new global distribution
system -- barriers such as the need for significant capital investment to
acquire or develop the hardware, software and network facilities necessary to
operate effectively a global distribution system -- the Company is always faced
with the potential of new competitors, particularly as new channels for travel
distribution develop. Factors affecting competitive success of global
distribution systems include depth and breadth of information, ease of use,
reliability, subscriber and booking fees, service and incentives to travel
agents and range of products available to travel providers, travel agents and
consumers. The Company believes it competes effectively with respect to each of
these factors. Increased competition, however, could require the Company to
reduce prices, to increase spending on marketing or product development or
otherwise to take actions that might adversely affect its operating earnings.
Competitive factors could also lead the Company to change its billing
practices in response to pressure from travel providers who list their products
and services in SABRE. A change in billing practices might adversely affect the
Company's financial condition and results of operations.
Competition to attract and retain travel agent subscribers is particularly
intense. If the Company were unable to compete effectively and a portion of the
Company's travel agency subscribers accounting for a significant percentage of
bookings through SABRE were to cease using SABRE and begin utilizing other
systems, the Company's financial condition and results of operations would be
materially adversely affected.
- ---------------
* Amadeus, System One, Galileo, Apollo and Worldspan are trademarks of their
respective owners and are not trademarks of the Company.
11
<PAGE> 14
The Company believes that the potential for growth in the number of new
travel agent subscribers exists primarily outside the United States, where the
Company's market recognition is not as well developed as in the United States. A
number of trade barriers erected by foreign travel providers -- often
government-owned -- have restricted the ability of the Company to gain market
share abroad. These providers have on occasion precluded SABRE from offering
their products and services, thus making SABRE's product less attractive to
travel agencies in those markets than other global distribution systems that
have such capability. Additionally, some international markets are served by
other global distribution systems that have substantially greater market
presence than the Company or long-standing relationships with travel agency
subscribers or associates.
Although distribution through travel agents continues to be the primary
method of travel distribution, new channels are developing for distribution
directly to businesses and consumers through computer on-line services, the
Internet and private networks. The Company faces competition in these channels
not only from its principal competitors but also from possible new entrants in
the sale of travel products and also from travel providers, including American,
who distribute their products directly. For example, in July 1996, American
Express Co. and Microsoft Corp. announced an on-line travel booking service for
corporations, which they have scheduled for release in the first half of 1997.
The Company expects that this on-line travel booking service, while only in the
developmental stage, will eventually directly compete with BTS. In addition, the
Internet permits consumers to have direct access to travel providers, thereby
by-passing both traditional travel agents and global distribution systems such
as SABRE. Although the Company has positioned its BTS, Travelocity and easySABRE
products to compete in the emerging distribution channels, there can be no
assurance that the Company's products will compete successfully or that the
failure to compete successfully will not have a material adverse effect on the
financial condition and results of operations of the Company.
COMPETITION IN INFORMATION TECHNOLOGY SOLUTIONS
The Company's solutions business competes both against full-service
providers of technology outsourcing services and solutions companies, some of
which have considerably greater financial resources than the Company, and
against smaller companies that offer a limited range of services. Among the
Company's full service competitors are Electronic Data Systems, IBM/ISSC,
Unisys, Andersen Consulting and Lufthansa Systems. Many of these competitors
have formed strategic alliances with large companies in the travel industry, and
the Company's access to such potential customers is thus limited.
DEPENDENCE UPON TRAVEL INDUSTRY; SEASONALITY
The Company's earnings can be significantly affected by events in the
travel industry, from which the Company derives substantially all of its
revenues. Because a significant portion of those revenues are derived from
airline bookings, the Company's earnings are especially sensitive to events that
affect airline travel and the airlines that participate in the SABRE system. Any
event, including political instability, armed hostilities, recession, excessive
inflation, strikes, lockouts or other labor disturbances or other adverse
occurrence, that results in a significant decline in sales of travel products
through SABRE or in an overall downturn in the business and operations of the
Company's customers in the travel industry could have a material adverse effect
on the financial condition and results of operations of the Company.
The travel industry is seasonal in nature. Bookings, and thus fees charged
for bookings through SABRE, decrease significantly each year in the fourth
quarter, primarily in December, due to early bookings by customers for travel
during the holiday season and due to a decrease in business travel during the
holiday season.
12
<PAGE> 15
CHANGING TECHNOLOGY
The Company's future results will depend in part upon its ability to make
timely and cost-effective enhancements and additions to its technology and to
introduce new products and services that meet customer demands. The success of
current and new product and service offerings is dependent on several factors,
including proper identification of customer needs, cost, timely completion and
introduction, differentiation from offerings of the Company's competitors and
market acceptance. In addition, maintaining flexibility to respond to
technological and market dynamics may require substantial expenditures and lead
time. There can be no assurance that the Company will successfully identify and
develop new products or services in a timely manner, that products, technologies
or services developed by others will not render the Company's offerings obsolete
or noncompetitive or that the technologies in which the Company focuses its
research and development investments will achieve broad acceptance in the
marketplace.
DEPENDENCE ON FACILITIES AND NETWORK
SABRE and the Company's data processing and transactions processing
services are dependent on the Data Center. Although the Company has taken what
it considers to be sufficient precautions to protect this facility, a natural
disaster or other calamity that causes significant damage to the facility would
have a material adverse effect on the financial condition and results of
operations of the Company. See "Business -- Facilities."
The Company relies on several communications companies, both in the United
States and internationally, to provide network access between the Data Center
and SABRE access terminals. In particular, the Company relies upon Societe
Internationale de Telecommunications Aeronautiques ("SITA"), which is owned by a
consortium of airlines, including American, to maintain and develop its data
communications in the United States and Canada and to provide network services
in almost all locations served by the Company. Any failure or inability of SITA
or other companies to provide and maintain network access could have a material
adverse effect on the financial condition and results of operations of the
Company.
ACQUISITIONS AND INVESTMENTS
One component of the Company's strategy is to make strategic acquisitions
and to form strategic alliances. There can be no assurance that any acquisition
will be made, that any alliance will be formed, and, if any acquisitions or
alliances are so made or formed, that they will be successful. In addition,
acquisitions that the Company may make will involve risks, including the
successful integration and management of acquired technology, operations and
personnel. The integration of acquired businesses may also lead to the loss of
key employees of the acquired companies and diversion of management attention
from ongoing business concerns.
RELATIONSHIP WITH AMR
AMR currently owns all of the outstanding capital stock of the Company. See
"Relationship with AMR and Certain Transactions." Upon completion of the
Offerings, AMR will own 100% of the Company's outstanding Class B Common Stock,
representing approximately 98.2% of the combined voting power of all classes of
voting stock of the Company (approximately 97.9% if the Underwriters'
over-allotment options are exercised in full). As long as AMR beneficially owns
a majority of the combined voting power, it will have the ability to elect all
of the members of the Board of Directors and thereby ultimately to control the
management and affairs of the Company, including any determinations with respect
to acquisitions, dispositions, borrowings, issuances of Common Stock or other
securities of the Company or the declaration and payment of any dividends on the
Common Stock. In addition, AMR will be able to determine the outcome of any
matter submitted to a vote of the Company's stockholders for approval and to
cause or prevent a change in control of the Company.
13
<PAGE> 16
Although, in negotiating the Affiliate Agreements between the Company and
AMR, American and AMR's other subsidiaries, the parties endeavored to implement
market-based agreements, as a result of AMR's control of the Company, none of
such agreements resulted from "arm's-length" negotiations. There can be no
assurance that the Company would not have received more favorable terms from an
unaffiliated party. For a description of the Affiliate Agreements, see
"Relationship with AMR and Certain Transactions."
The Restated Certificate of Incorporation of the Company (the "Certificate
of Incorporation") provides that any amendment or termination of any agreement
or arrangement, or any new agreement or arrangement, between the Company and AMR
or its affiliates effected with the approval of a majority of the Company's
directors who are not officers of either the Company or AMR or directors of AMR
(the "Disinterested Directors"), or consistent with guidelines or standards
approved by the Disinterested Directors, or approved by the holders of a
majority of the Company's outstanding voting stock (not including that owned by
AMR) shall be deemed fair to the Company and its stockholders, provided that, if
such approval is not obtained, no presumption shall arise that such amendment or
termination (or new agreement) is not fair to the Company and its stockholders.
The Certificate of Incorporation also contains provisions allocating corporate
opportunities between AMR and the Company based primarily on the relationship to
the Company and AMR of the individual to whom an opportunity is presented. See
"Description of Capital Stock -- Certificate of Incorporation and Bylaw
Provisions."
Conflicts of interest may arise between the Company and AMR in a number of
areas relating to their past and ongoing relationships, including the nature and
quality of services rendered by the Company to AMR and its affiliates or by AMR
and its affiliates to the Company, potential competitive business activities,
shared marketing functions, tax and employee benefit matters, indemnity
agreements, registration rights, sales or distributions by AMR of all or any
portion of its ownership interest in the Company or AMR's ability to control the
management and affairs of the Company. There can be no assurance that AMR and
the Company will be able to resolve any potential conflict or that, if resolved,
the Company would not receive more favorable resolution if it were dealing with
an unaffiliated party. In addition, certain of the Affiliate Agreements contain
specific procedures for resolving disputes between the Company and AMR with
respect to the subject matter of those agreements. There can be no assurance
that more favorable results to the Company would not be obtained under different
procedures.
For as long as AMR desires to include the Company in its consolidated group
for federal income tax purposes, which requires that AMR own at least 80% of the
total voting power and stock with a value equal to at least 80% of the total
value of the Company, the Company may be constrained in its ability to raise
equity capital or to issue Common Stock in connection with acquisitions. For any
period of time that the Company continues to be part of AMR's consolidated
group, it will be jointly and severally liable for the federal income tax
liability of other members of the consolidated group and for funding and
termination liabilities applicable to the group's tax-qualified employee benefit
plans.
AMR could decide to sell or otherwise dispose of all or a portion of its
Class B Common Stock (or, upon conversion of the Class B Common Stock, the
resulting Class A Common Stock) at some future date, and there can be no
assurance that, in any transfer by AMR of a controlling interest in the Company,
any holders of Class A Common Stock will be allowed to participate in such
transaction or will realize any premium with respect to their shares of Class A
Common Stock. Sales or distribution by AMR of substantial amounts of Class B
Common Stock (or Class A Common Stock) in the public market or to its
stockholders could adversely affect prevailing market prices for the Class A
Common Stock. See "-- Shares Available for Future Sale," "Relationship with AMR
and Certain Transactions" and "Shares Eligible for Future Sale."
14
<PAGE> 17
INTERNATIONAL EXPANSION AND OPERATIONS
Pursuit of international growth opportunities may require significant
investments for an extended period before returns on such investments, if any,
are realized, and may require support of United States or local government
authorities. See "Business -- Electronic Travel Distribution -- Industry
Regulation." There can be no assurance as to the extent, if at all, that the
Company's plans to expand in international markets will be successful. The
Company's current international activities and prospects could be adversely
affected by factors such as reversals or delays in the opening of foreign
markets, exchange controls, currency and political risks and taxation. In
addition, the laws and policies of the United States affecting foreign trade,
investment and taxation could also adversely affect the Company's international
operations and growth.
UNITED STATES REGULATIONS; FUTURE PARTICIPATION OF CERTAIN AIRLINE ASSOCIATES IN
SABRE
Regulations promulgated by the U.S. Department of Transportation (the
"DOT") govern the relationship of SABRE with airlines and travel agencies. These
regulations (the "U.S. Regulations") generally require airlines affiliated with
global distribution systems to participate in the United States in other global
distribution systems that are affiliated with other airlines. More specifically,
the U.S. Regulations require any airline doing business in the United States
that owns five percent or more of a global distribution system (a
"GDS-Affiliated Airline"), to participate in any other global distribution
system doing business in the United States which is offered by an airline or an
airline affiliate (an "Airline-Affiliated System") at the same level as it does
in the system it owns and to provide data on its flights to the other
Airline-Affiliated System that is as complete, accurate and timely as the
information given to its own system, as long as the other Airline-Affiliated
System offers terms for participation that are commercially reasonable. Although
the Company believes the U.S. Regulations will be extended, the U.S. Regulations
are currently scheduled to expire on December 31, 1997. See
"Business -- Electronic Travel Distribution -- Industry Regulation."
If (i) SABRE were no longer offered or marketed to travel agents by any
airline or airline affiliate or (ii) the U.S. Regulations were to expire (or
were to be revised to eliminate the participation requirement described above),
GDS-Affiliated Airlines, such as Delta Air Lines, United Airlines, USAir,
Continental Airlines and British Airways, would no longer be legally required to
participate in SABRE at any level. Although the Company does not anticipate that
any of these airlines would, as a practical matter, discontinue listing their
flights in SABRE under such circumstances, there can be no assurance that any of
the airlines would continue to participate in SABRE, absent any legal
requirement, on the same commercial terms that prevail today. Decisions by
several airlines to discontinue listing their services in SABRE or a significant
reduction in revenues resulting from such decisions or resulting from the
absence of any legal requirement compelling participation could materially
adversely affect the financial condition and results of operations of the
Company.
NEWLY FORMED LEGAL ENTITY; HOLDING COMPANY STRUCTURE
The Company has existed in its present form only since July 2, 1996. Prior
to such time, although the businesses of the Company had been accounted for as a
separate unit of AMR, the Company had not operated as a separate legal entity.
The financial information included herein may not necessarily reflect what the
results of operations, financial position and cash flows would have been had the
Company been a separate entity during the periods presented.
In addition, the Company is a holding company and will thus rely primarily
on dividends and other intercompany transfers of funds from its subsidiaries for
any repayment of debt or, in the event dividends are declared, any payment of
dividends to the Company's stockholders. See "Dividend Policy." Although the
Company intends to retain its earnings to finance future growth and not to
declare any cash dividends in the foreseeable future, and although there are
currently no material contractual restrictions or legal prohibitions on
dividends or other intercompany transfers of funds to the Company by its
subsidiaries, the Company's subsidiaries could become subject to
15
<PAGE> 18
contractual restrictions or legal or regulatory impediments to the making of
dividends or such other transfers to the Company.
INTELLECTUAL PROPERTY RIGHTS
Some of the Company's significant assets are its software and other
proprietary information and intellectual property rights. The Company relies on
a combination of copyright and trademark laws, trade secrets, confidentiality
procedures and contractual provisions to protect these assets. The Company's
software and related documentation, however, are protected principally under
trade secret and copyright laws, which afford only limited protection. In
addition, the laws of some foreign jurisdictions may provide less protection
than the laws of the United States for the Company's proprietary rights.
Unauthorized use of the Company's intellectual property could have a material
adverse effect on the Company, and there can be no assurance that the Company's
legal remedies would adequately compensate it for the damages to its business
caused by such use.
The Company does not believe that any of its products infringe upon the
proprietary rights of third parties in any material respect. There can be no
assurance, however, that third parties will not claim infringement by the
Company with respect to current or future products. Any such claim, with or
without merit, could result in substantial costs and diversion of management
resources, and a successful claim could effectively block the Company's ability
to use or license its products in the United States or abroad or otherwise have
a material adverse effect on the financial condition and results of operations
of the Company.
Licenses for a number of software products have been granted to the
Company. Certain of these licenses, individually and in the aggregate, are
material to the business of the Company. Although management believes that the
risk that the Company will lose any material license is remote, any such loss
could have a material adverse effect on the financial condition and results of
operations of the Company. See "Business -- Intellectual Property."
POTENTIAL ANTI-TAKEOVER CONSIDERATIONS
Under the Company's Certificate of Incorporation, the Board of Directors
has the authority, without action by the Company's stockholders, to fix certain
terms and issue shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock"), and to issue rights to purchase securities or other property
from the Company. Actions of the Board of Directors pursuant to this authority
may have the effect of delaying, deterring or preventing a change in control of
the Company. Other provisions in the Company's Certificate of Incorporation and
in the Restated Bylaws (the "Bylaws") impose procedural and other requirements,
including the requirement that a vote of more than 80% of the voting stock of
the Company is necessary for stockholders to amend the Bylaws and certain
provisions of the Certificate of Incorporation. These requirements could make it
more difficult to effect certain corporate actions, including replacing
incumbent directors. In addition, the Board of Directors is divided into three
classes, each of which is to serve for a staggered three-year term after the
initial classification and election, and, after AMR ceases to be the beneficial
owner of an aggregate of at least a majority of the voting power of the Company,
incumbent directors may not be removed without cause, all of which may make it
more difficult for a third party to gain control of the Board of Directors. With
certain exceptions, Section 203 of the Delaware General Corporation Law (the
"DGCL") imposes certain restrictions on mergers and other business combinations
between the Company and any holder of 15% or more of the voting stock of the
Company. Section 203 does not apply to AMR's interest in the Company. See
"Description of Capital Stock -- Certificate of Incorporation and Bylaw
Provisions."
SHARES AVAILABLE FOR FUTURE SALE
Subject to applicable law, AMR will be free to sell any and all of the
shares of Common Stock it owns after completion of the Offerings. AMR and the
Company have agreed, however, subject to
16
<PAGE> 19
certain exceptions, not to sell or otherwise dispose of any shares of Common
Stock (other than the shares offered hereby or pursuant to employee stock option
plans which exist on, or are described herein to be implemented after, the date
of this Prospectus, or on conversion or exchange of convertible or exchangeable
securities outstanding on the date of this Prospectus) for a period of 180 days
after the date of this Prospectus without the prior written consent of Goldman,
Sachs & Co., on behalf of the Underwriters. In connection with the Offerings,
the Company and AMR have entered into an agreement which provides that AMR will
have certain rights to have shares of Common Stock owned by it after the
Offerings registered by the Company under the Securities Act of 1933, as amended
(the "Securities Act"), in order to permit the public sale of such shares. In
addition, beginning two years after AMR acquired its shares of Common Stock, AMR
will be permitted to sell in the public market specified amounts of such Common
Stock without registration pursuant to Rule 144 under the Securities Act ("Rule
144"). No prediction can be made as to the effect, if any, that future sales of
Common Stock by AMR, or the availability of Common Stock for future sale, will
have on the market price of the Class A Common Stock prevailing from time to
time. Sales of substantial amounts of Common Stock, or the perception that such
sales could occur, could adversely affect prevailing market prices for the Class
A Common Stock. See "Shares Eligible for Future Sale."
ABSENCE OF A PRIOR PUBLIC MARKET; VOLATILITY OF PRICE
Prior to the Offerings, there has been no public market for the Class A
Common Stock and there can be no assurance that an active trading market will
develop or be sustained. The initial public offering price of the Class A Common
Stock will be determined through negotiation between the Company and the
Underwriters and may not be indicative of the market price for the Class A
Common Stock after the Offerings. See "Underwriting."
The market price for the Class A Common Stock may be highly volatile. The
Company believes that factors such as announcements by it, or by its competitors
or travel providers, of quarterly variances in financial results could cause the
market price of the Class A Common Stock to fluctuate substantially. In
addition, the stock market may experience extreme price and volume fluctuations
which often are unrelated to the operating performance of specific companies.
Market fluctuations or perceptions regarding the Company's industry, as well as
general economic or political conditions, may adversely affect the market price
of the Class A Common Stock.
17
<PAGE> 20
THE COMPANY
The Company is a holding company incorporated in Delaware on June 25, 1996.
The SABRE Group, Inc. is the sole direct subsidiary of the Company and, pursuant
to the Reorganization, is the successor to the businesses of The SABRE Group,
which were previously operated as divisions or subsidiaries of American or AMR.
Upon completion of the Offerings, AMR will own 100% of the outstanding
Class B Common Stock, representing approximately 84.2% of the economic interest
in the Company and approximately 98.2% of the combined voting power of all
classes of voting stock of the Company (approximately 82.2% of the economic
interest and 97.9% of the combined voting power if the Underwriters'
over-allotment options are exercised in full). As long as AMR beneficially owns
a majority of the combined voting power, it will have the ability to elect all
of the members of the Board of Directors of the Company and thereby ultimately
to control the management and affairs of the Company. In connection with the
Reorganization, the Company issued the $850 million Debenture to American, which
was transferred to AMR as a dividend. Approximately $368 million of the net
proceeds of the Offerings will be used to repay a portion of such indebtedness.
See "Use of Proceeds" and Pro Forma Condensed Consolidated Financial
Information. The Company has been and will continue to be dependent upon
American and its affiliates for a substantial portion of the Company's business.
In connection with the Reorganization, the Company entered into the Affiliate
Agreements, including the Technology Services Agreement pursuant to which the
Company will provide information technology services to American for a term of
10 years for most services (three and five years for other services). See "Risk
Factors -- Dependence on American Airlines," "Risk Factors -- Relationship with
AMR" and "Relationship with AMR and Certain Transactions -- Contractual
Arrangements."
The Company's executive offices are located at 4255 Amon Carter Boulevard,
Fort Worth, Texas 76155, and its telephone number is (817) 931-7300.
USE OF PROCEEDS
The Company will receive approximately $409.1 million from the sale of the
20.2 million shares of Class A Common Stock in the Offerings based on an assumed
price to the public of $21.50 per share (after deducting underwriting
commissions and estimated expenses payable by the Company). Approximately $368
million of the net proceeds of the Offerings will be used to repay a portion of
the indebtedness represented by the Debenture payable by the Company to AMR. The
Debenture, which matures on September 30, 2004, bears interest, payable
semiannually, at a rate based on the sum of the six-month London Interbank
Offered Rate plus a margin determined by the Company's senior unsecured
long-term debt rating or, if such debt rating is not available, upon the
Company's ratio of debt to total capital. The Debenture was issued as part of
the Reorganization in connection with the transfer of the businesses of The
SABRE Group to the Company. In the judgment of the Company, the fair market
value of such businesses is at least equal to the Debenture, although the
Debenture exceeds the historical book value of the Company's assets by $120.9
million. See "Relationship with AMR and Certain Transactions." The remaining net
proceeds will be used for general corporate purposes.
18
<PAGE> 21
DIVIDEND POLICY
The Company currently intends to retain its earnings to finance future
growth and, therefore, does not anticipate paying any cash dividends on its
Common Stock in the foreseeable future. Any future determination as to the
payment of dividends will depend upon the future results of operations, capital
requirements and financial condition of the Company and such other factors as
the Board of Directors may consider, including any contractual or statutory
restrictions on the Company's ability to pay dividends.
DILUTION
The pro forma net tangible book value of the Company at June 30, 1996,
giving effect to the Reorganization, was a deficit of approximately $120.9
million, or $1.13 per share of Common Stock. Net tangible book value per share
of Common Stock represents the amount of total tangible assets less total
liabilities, divided by the total number of shares of Common Stock outstanding.
Dilution per share represents the difference between the amount per share
paid by purchasers of shares of Class A Common Stock in the Offerings and the
pro forma net tangible book value per share of Common Stock immediately after
the completion of the Offerings. After giving effect to the assumed sale of
approximately 20.2 million shares of Class A Common Stock at a price of $21.50
per share by the Company in the Offerings and the application of the estimated
net proceeds therefrom, the pro forma net tangible book value of the Company as
of June 30, 1996 would have been approximately $288.2 million, or $2.26 per
share. This represents an immediate dilution in pro forma net tangible book
value per share of $19.24 to investors who purchase shares of Class A Common
Stock in the Offerings. The following table illustrates the dilution in pro
forma net tangible book value per share to such investors:
<TABLE>
<S> <C> <C>
Initial public offering price per share................ $21.50
Pro forma net tangible book value per share as of June
30, 1996 after giving effect to the Reorganization... $(1.13)
------
Increase per share attributable to new investors....... $ 3.39
------
Pro forma net tangible book value per share as of June
30, 1996 after giving effect to the Offerings........ $ 2.26
------
Dilution per share to new investors.................... $19.24
======
</TABLE>
19
<PAGE> 22
CAPITALIZATION
The following table sets forth information regarding the consolidated
long-term debt and capitalization of the Company (i) at June 30, 1996, (ii) as
adjusted for the pro forma effects of the Reorganization and the financial
impact of the Affiliate Agreements and (iii) as further adjusted to reflect (x)
the reclassification of 1,000 shares of common stock, $.01 par value, of the
Company held by AMR into 107,374,000 shares of Class B Common Stock and (y) the
sale of 20,200,000 shares of Class A Common Stock in the Offerings at an assumed
initial public offering price of $21.50 per share and the application of the
estimated net proceeds therefrom. See "Use of Proceeds." This table should be
read in conjunction with the Consolidated Financial Statements of the Company
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------------------------
PRO FORMA AS
ADJUSTED FOR THE PRO FORMA AS
REORGANIZATION AND FURTHER ADJUSTED
AFFILIATE FOR THE
HISTORICAL AGREEMENTS(1) OFFERINGS(2)(3)
---------- ------------------ ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Note Payable to AMR............................. $ 54,102 $ -- $ --
Long-Term Debenture Payable to AMR.............. -- 850,000 481,843
Stockholders' Equity:
Preferred Stock: $.01 par value, 20,000,000
shares authorized; no shares issued........ -- -- --
Common Stock: $.01 par value; 1,000 shares
authorized; 1,000 shares issued and
outstanding................................ -- -- --
Class A Common Stock: $.01 par value;
250,000,000 shares authorized; 20,200,000
shares issued and outstanding, as
adjusted................................... -- -- 202
Class B Common Stock: $.01 par value;
107,374,000 shares authorized; 107,374,000
shares issued and outstanding, as
adjusted................................... -- -- 1,074
Additional Paid-in Capital.................... -- -- 407,788
Retained Earnings (Deficit)................... (120,876) (120,876)
Stockholder's Net Investment.................. 551,187 -- --
-------- --------- ---------
Total Stockholders' Equity
(Deficit)........................... $ 551,187 $ (120,876) $ 288,188
-------- --------- ---------
Total Capitalization.................. $ 605,289 $ 729,124 $ 770,031
======== ========= =========
</TABLE>
- ---------------
(1) Adjusted to reflect the Reorganization, including the issuance of the
Debenture to American, and the financial impact of the Affiliate
Agreements. American subsequently transferred the Debenture to AMR.
(2) Adjusted to reflect the transactions described in note (1) above, the
reclassification of 1,000 shares of common stock, $.01 par value, of the
Company held by AMR into 107,374,000 shares of Class B Common Stock and the
issuance of 20,200,000 shares of Class A Common Stock, assuming an offering
price of $21.50 per share, pursuant to the Offerings, resulting in net
proceeds of approximately $409 million after deducting underwriting
commissions and estimated expenses of the Offerings and to reflect the use
of approximately $368 million of the proceeds of the Offerings to repay a
portion of the Debenture.
(3) Excludes options to purchase the Company's Class A Common Stock outstanding
under the Company's Long-Term Incentive Plan. See Note 11 to the
Consolidated Financial Statements.
20
<PAGE> 23
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected financial information and other data set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements,
notes thereto and other financial information included elsewhere in this
Prospectus. The income statement data for the two years ended December 31, 1992,
and the balance sheet data as of December 31, 1991, 1992 and 1993, have been
derived from financial statements of the Company which have been audited by
Ernst & Young LLP, independent auditors. The income statement data for the three
years ended December 31, 1995, and the balance sheet data as of December 31,
1994 and 1995, have been derived from the Consolidated Financial Statements of
the Company included elsewhere in this Prospectus, which also have been audited
by Ernst & Young LLP, independent auditors, whose report thereon appears
elsewhere in this Prospectus. The selected financial data set forth below for
the six months ended June 30, 1995 and 1996 is derived from unaudited
consolidated interim financial statements of the Company. The unaudited interim
consolidated financial statements have been prepared on a basis consistent with
the Consolidated Financial Statements and, in the opinion of management, include
all adjustments, consisting of only normal recurring adjustments, necessary for
a fair presentation of such data. The results for the six month period ended
June 30, 1996 are not necessarily indicative of the results to be expected for
the full fiscal year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996(4)
-------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT OTHER DATA WHERE INDICATED)
INCOME STATEMENT DATA(1):
Revenues............................... $1,097.1 $1,173.8 $1,258.2 $1,406.7 $1,529.6 $ 767.5 $838.3
Operating Expenses..................... 876.9 929.5 1,004.5 1,056.5 1,149.2 548.0 640.7
-------- -------- -------- -------- -------- ------ ------
Operating Income....................... $ 220.2 $ 244.3 $ 253.7 $ 350.2 $ 380.4 $ 219.5 $197.6
Other Income (Expense), net(2)......... (7.6) (173.2) (84.7) (26.1) (10.3) (10.4) (2.4)
-------- -------- -------- -------- -------- ------ ------
Income Before Income Taxes............. $ 212.6 $ 71.1 $ 169.0 $ 324.1 $ 370.1 $ 209.1 $195.2
Income Taxes........................... 77.6 38.8 69.0 126.9 144.2 82.0 76.1
-------- -------- -------- -------- -------- ------ ------
Income Before Cumulative Effect of
Accounting Change.................... $ 135.0 $ 32.3 $ 100.0 $ 197.2 $ 225.9 $ 127.1 $119.1
Cumulative Effect of Accounting
Change(3)............................ -- 19.0 -- -- -- -- --
-------- -------- -------- -------- -------- ------ ------
Net Earnings........................... $ 135.0 $ 13.3 $ 100.0 $ 197.2 $ 225.9 $ 127.1 $119.1
======== ======== ======== ======== ======== ====== ======
BALANCE SHEET DATA
(AT END OF PERIOD)(1):
Current Assets......................... $ 55.1 $ 91.1 $ 107.1 $ 404.3 $ 271.2 $ 259.2 $449.6
Total Assets........................... 558.8 550.1 584.3 873.5 729.4 737.8 855.8
Current Liabilities(2)................. 108.5 154.2 346.4 503.2 218.6 176.5 225.8
Stockholder's Net Investment........... 411.0 244.7 158.0 289.5 432.1 477.8 551.2
OTHER DATA(1):
Operating Income as a Percentage of
Revenue.............................. 20.1% 20.8% 20.2% 24.9% 24.9% 28.6% 23.6%
Percentage of Revenue from
Non-affiliated Customers............. 53.9% 55.0% 56.6% 58.1% 64.2% 64.4% 68.8%
Reservations Booked Using SABRE........ 220.2 255.3 275.2 311.1 325.5 170.6 181.2
Net Cash Provided by Operating
Activities........................... $ 315.3 $ 328.1 $ 332.4 $ 224.9 $ 391.8 $ 168.3 $143.2
Net Cash Used for Investing
Activities........................... $ (183.0) $ (122.4) $ (171.7) $ (177.3) $ (174.7) $(105.4) $(41.5)
Net Cash Provided by (Used For)
Financing Activities(5).............. $ (130.9) $ (204.7) $ (160.7) $ 215.3 $ (385.2) $(246.4) $ (9.4)
Capital Expenditures................... $ 171.0 $ 128.8 $ 176.6 $ 168.9 $ 164.6 $ 104.4 $ 82.0
</TABLE>
- ---------------
(1) The Company has significant transactions with AMR and American. See Notes 3
and 11 to the Consolidated Financial Statements.
(2) The operating results for the years ended December 31, 1992 and 1993 include
a provision for losses of $165 million and $71 million, respectively,
associated with a reservation system project and resolution of related
litigation. The balance sheets as of December 31, 1992 and 1993 include
current liabilities for the losses of $28 million and $133 million,
respectively. See Note 5 to the Consolidated Financial Statements.
(3) Effective January 1, 1992, the Company adopted FAS 106, "Accounting for
Postretirement Benefits Other Than Pensions," changing the method of
accounting for those benefits. The cumulative effect of adopting FAS 106 as
of January 1, 1992 was a charge of $19 million, net of income taxes of $10
million.
(4) The operating results for the six months ended June 30, 1996 reflect the
impact of the Affiliate Agreements, the financial terms of which the parties
agreed to apply as of January 1, 1996. See Note 11 to the Consolidated
Financial Statements.
(5) Consists of advances to or from affiliates and contributions from or
distribution to affiliates.
21
<PAGE> 24
SELECTED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION
The pro forma financial information and other data below assume the
Reorganization and Offerings were consummated, and the Affiliate Agreements were
effective, on January 1, 1995. The pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the transactions had
been consummated at the assumed dates, nor is it necessarily indicative of
future results of operations. The unaudited interim and quarterly consolidated
financial statements have been prepared on a basis consistent with the
Consolidated Financial Statements and, in the opinion of management, include all
adjustments, consisting of only normal recurring adjustments, necessary for fair
presentation of such data. The pro forma information should be read in
conjunction with the Pro Forma Condensed Consolidated Financial Information, and
the related notes thereto, and the Consolidated Financial Statements, and the
related notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------
ADJUSTMENTS AS ADJUSTED
FOR THE FOR THE
REORGANIZATION, REORGANIZATION,
THE AFFILIATE THE AFFILIATE
AGREEMENTS AGREEMENTS
AND THE AND THE
HISTORICAL OFFERINGS OFFERINGS
---------- --------------- ---------------
(IN MILLIONS, EXCEPT PER SHARE AND OTHER DATA)
<S> <C> <C> <C>
INCOME STATEMENT DATA(1):
Revenues...................................... $ 1,529.6 $ (66.3)(3) $ 1,463.3
Operating Expenses............................ 1,149.2 29.5(4) 1,178.7
-------- ------- --------
Operating Income.............................. $ 380.4 $ (95.8) $ 284.6
Other Income (Expense), net................... (10.3) (29.5)(5) (39.8)
-------- ------- --------
Income Before Income Taxes.................... $ 370.1 $(125.3) $ 244.8
Income Taxes.................................. 144.2 (48.8) 95.4
-------- ------- --------
Net Earnings.................................. $ 225.9 $ (76.5) $ 149.4
======== ======= =========
Pro Forma Earnings Per Share(2)............... $ 1.17
=========
OTHER DATA(1):
Operating Income as a Percentage of
Revenue..................................... 24.9% 19.4%
Percentage of Revenue from Non-affiliated
Customers................................... 64.2 67.1
</TABLE>
22
<PAGE> 25
SELECTED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1995
---------------------------------------------------
ADJUSTMENTS AS ADJUSTED
FOR THE FOR THE
REORGANIZATION, REORGANIZATION,
THE AFFILIATE THE AFFILIATE
AGREEMENTS AGREEMENTS
AND THE AND THE
HISTORICAL OFFERINGS OFFERINGS
---------- --------------- ---------------
(IN MILLIONS, EXCEPT PER SHARE AND OTHER DATA)
<S> <C> <C> <C>
INCOME STATEMENT DATA(1):
Revenues.......................................... $767.5 $ (30.8)(3) $ 736.7
Operating Expenses................................ 548.0 13.2(4) 561.2
------ ------ ------
Operating Income.................................. $219.5 $ (44.0) $ 175.5
Other Income (Expense), net....................... (10.4) (14.7)(5) (25.1)
------ ------ ------
Income Before Income Taxes........................ $209.1 $ (58.7) $ 150.4
Income Taxes...................................... 82.0 (22.9) 59.1
------ ------ ------
Net Earnings...................................... $127.1 $ (35.8) $ 91.3
====== ====== ======
Pro Forma Earnings Per Share(2)................... $ .72
======
OTHER DATA(1):
Operating Income as a Percentage of Revenue....... 28.6% 23.8%
Percentage of Revenue from Non-affiliated
Customers....................................... 64.4 67.1
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
---------------------------------------------------
ADJUSTMENTS AS ADJUSTED
FOR THE FOR THE
REORGANIZATION, REORGANIZATION,
THE AFFILIATE THE AFFILIATE
AGREEMENTS AGREEMENTS
AND THE AND THE
HISTORICAL OFFERINGS OFFERINGS
---------- --------------- ---------------
(IN MILLIONS, EXCEPT PER SHARE AND OTHER DATA)
<S> <C> <C> <C>
INCOME STATEMENT DATA(1):
Revenues.......................................... $838.3 $ (6.1) $ 832.2
Operating Expenses................................ 640.7 (5.6)(4) 635.1
------ ------ ------
Operating Income.................................. $197.6 $ (0.5) $ 197.1
Other Income (Expense), net....................... (2.4) (14.9)(5) (17.3)
------ ------ ------
Income Before Income Taxes........................ $195.2 $ (15.4) $ 179.8
Income Taxes...................................... 76.1 (5.9) 70.2
------ ------ ------
Net Earnings...................................... $119.1 $ (9.5) $ 109.6
====== ====== ======
Pro Forma Earnings Per Share(2)................... $ .86
======
OTHER DATA(1):
Operating Income as a Percentage of Revenue....... 23.6% 23.7%
Percentage of Revenue from Non-affiliated
Customers....................................... 68.8 69.3
</TABLE>
23
<PAGE> 26
SELECTED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION -- (CONCLUDED)
<TABLE>
<CAPTION>
QUARTER ENDED:
--------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1995 1995 1996 1996
--------- -------- ------------- ------------ --------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA AND OTHER DATA WHERE INDICATED)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1):
Revenues...................... $ 368.6 $368.1 $ 375.8 $350.8 $ 420.8 $411.4
Operating Expenses............ 272.4 288.8 292.8 324.7 311.2 323.9
------ ------ ------ ------ ------ ------
Operating Income.............. $ 96.2 $ 79.3 $ 83.0 $ 26.1 $ 109.6 $ 87.5
Other Income (Expense),
net......................... (15.7) (9.4) (6.6) (8.1) (8.4) (8.9)
------ ------ ------ ------ ------ ------
Income Before Income Taxes.... $ 80.5 $ 69.9 $ 76.4 $ 18.0 $ 101.2 $ 78.6
Income Taxes.................. 31.3 27.8 29.4 6.9 39.3 30.9
------ ------ ------ ------ ------ ------
Net Earnings.................. $ 49.2 $ 42.1 $ 47.0 $ 11.1 $ 61.9 $ 47.7
====== ====== ====== ====== ====== ======
Pro Forma Earnings Per
Share(2).................... $ .39 $ .33 $ .37 $ .08 $ .48 $ .38
====== ====== ====== ====== ====== ======
OTHER DATA(1):
Operating Income as a
Percentage of Revenue....... 26.1% 21.5% 22.1% 7.4% 26.0% 21.3%
Reservations Booked Using
SABRE....................... 86.5 84.1 82.1 72.8 91.9 89.3
</TABLE>
- ---------------
(1) The Company has significant transactions with AMR and American. See Notes 3
and 11 to the Consolidated Financial Statements.
(2) The Company was formed on June 25, 1996 and became a wholly owned subsidiary
of AMR on July 2, 1996 in connection with the Reorganization. As part of the
Reorganization, AMR caused to be transferred to the Company the subsidiaries
and divisions through which AMR has historically conducted its electronic
travel distribution and information technology solutions operations. The pro
forma earnings per common share calculation is based upon weighted average
common shares outstanding after the Reorganization and the Offerings,
including equivalent shares related to options outstanding under the
Company's Long-Term Incentive Plan. See Notes 10 and 11 to the Consolidated
Financial Statements.
(3) Adjustments include a reduction in marketing support payments from American
and the effect of the Technology Services Agreement with American. See the
notes to the Pro Forma Condensed Consolidated Financial Information.
(4) Adjustments include the following items as applicable: employee travel
costs, marketing support payments, additional general expenses and a
reduction in rent expense. See the notes to the Pro Forma Condensed
Consolidated Financial Information.
(5) Adjustment represents additional interest expense resulting from the
issuance of the Debenture. See the notes to the Pro Forma Condensed
Consolidated Financial Information.
24
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company generated approximately 65.8% of its revenues in 1995 from
providing electronic travel distribution services using SABRE. As compensation
for services provided, fees are collected from associates for reservations
booked through SABRE. The booking fee per transaction that an associate pays to
the Company depends upon several factors, including the associate's level of
participation in SABRE and the types of products or services provided by the
associate. Booking fees in 1995 represented approximately 89.7% of revenues from
electronic travel distribution services. See "Business -- Electronic Travel
Distribution -- Associate Participation." The Company also derives revenues from
service contracts with subscribers, principally travel agencies, pursuant to
which the Company provides access to SABRE, hardware, software, hardware
maintenance and other support services.
Approximately 34.2% of the Company's revenues in 1995 was generated from
information technology solutions. Although solutions services have been provided
to more than 120 airlines or airline associations, approximately 79.5% of the
Company's revenues in 1995 from information technology solutions was from
American, other AMR affiliates and Canadian.
The following table sets forth revenues by affiliation and geographic
location as a percent of total revenues:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- -----------------
1993 1994 1995 1995 1996(1)
----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C>
Affiliation:
Non-affiliated Customers............. 56.6% 58.1% 64.2% 64.4% 68.8%
Affiliated Customers................. 43.4 41.9 35.8 35.6 31.2
----- ----- ----- ----- -----
Total........................ 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Geographical:
United States........................ 85.9% 85.0% 83.6% 83.9% 82.8%
International........................ 14.1 15.0 16.4 16.1 17.2
----- ----- ----- ----- -----
Total........................ 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Revenues for the six months ended June 30, 1996 reflect the financial impact
of the Affiliate Agreements entered into in connection with the
Reorganization, the financial terms of which were effective as of January 1,
1996.
Total revenues have grown at a compound annual growth rate of 10.3% for
1993 through 1995. Revenues from affiliated customers as a percent of total
revenues have declined as the Company's external business has grown. Revenues
from non-affiliated customers have grown at a compound annual growth rate of
17.4% for the three years ended December 31, 1995, to $982 million in 1995.
Revenues from affiliated customers remained relatively unchanged for the same
time period. The Company expects that the proportion of its revenues represented
by non-affiliated customer revenues will continue to increase. International
revenues have increased as a percent of total revenues. International revenues
have grown at a compound annual growth rate of 18.6% for the three-year period
ended December 31, 1995, to $250 million in 1995, while revenues from the United
States have grown at a compound annual growth rate of 8.8% over the same period,
to $1,279 million in 1995.
The Company's primary expenses from providing electronic travel
distribution services and information technology solutions consist of salaries,
benefits and other employee related costs, depreciation and amortization,
communication costs, equipment maintenance costs and subscriber
25
<PAGE> 28
incentives. Salaries, benefits and other employee related costs, depreciation
and amortization and communication costs represented over 70% of 1995 total
operating expenses. While salaries and benefits have grown at a rate similar to
that for revenues in order to support the Company's growth, depreciation and
amortization costs have grown at a rate slower than that for revenues primarily
due to the benefits of price and performance improvements for Data Center
equipment and subscriber equipment. In addition, communication expense decreased
due to rate reductions.
As a result, operating income as a percentage of revenue increased from
20.2% in 1993 to 24.9% in 1995. Operating income as a percentage of revenue for
both electronic travel distribution and information technology solutions was
approximately the same as the combined percentages for 1993, 1994 and 1995.
However, for the six months ended June 30, 1996, operating income as a
percentage of revenue from information technology solutions declined to
approximately 20% of revenues principally as a result of the new Technology
Services Agreement with American discussed below, while operating income as a
percentage of revenue for electronic travel distribution remained at
approximately 25%.
SEASONALITY
The following table sets forth quarterly financial and other data for the
Company:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN MILLIONS, EXCEPT WHERE INDICATED)
<S> <C> <C> <C> <C>
1994
Reservations Booked Using SABRE........... 80.3 80.7 80.4 70.1
Revenues.................................. $ 353.6 $ 349.9 $ 361.4 $ 341.8
Operating Income.......................... 97.9 93.3 108.0 50.9
Net Earnings.............................. 58.4 54.0 59.2 25.5
Operating Income as a Percent of Revenue.. 27.7% 26.7% 29.9% 14.9%
1995
Reservations Booked Using SABRE........... 86.5 84.1 82.1 72.8
Revenues.................................. $ 384.6 $ 383.1 $ 393.3 $ 368.6
Operating Income.......................... 118.1 101.4 108.2 52.8
Net Earnings.............................. 66.9 60.1 66.9 31.9
Operating Income as a Percent of Revenue.. 30.7% 26.5% 27.5% 14.3%
</TABLE>
The travel industry is seasonal in nature. Bookings, and thus fees charged
for bookings through SABRE, decrease significantly each year in the fourth
quarter, primarily in December, due to early bookings by customers for travel
during the holiday season and a decline in business travel during the holiday
season. Operating margins also decrease in the fourth quarter as revenues
decrease and expenses remain constant.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
REVENUES. Revenues for the six months ended June 30, 1996 compared to the
six months ended June 30, 1995 increased approximately $71 million, 9.2%, from
$767 million to $838 million.
Electronic travel distribution revenues increased approximately $63
million, 12.4%, from $512 million to $575 million primarily due to growth in
booking fees from associates from $460 million to $536 million. This growth was
driven by an overall increase in the price per booking charged to associates and
an increase in booking volumes worldwide.
Revenue from information technology solutions increased approximately $7
million, 2.9%, from $256 million to $263 million. Revenues from non-affiliated
customers increased approximately $11 million, offset by a decrease in revenues
from AMR of approximately $7 million for these services primarily due to
application of the financial terms of the Technology Services Agreement.
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OPERATING EXPENSES. Operating expenses increased $93 million, 16.9%, from
$548 million to $641 million during the six months ended June 30, 1996 as
compared to the six months ended June 30, 1995. This increase was primarily
attributable to an increase in salaries and benefits, the Affiliate Agreements
as discussed above and subscriber incentive expenses. Salaries and benefits
increased primarily due to an overall increase of 8% in the average number of
employees necessary to support the Company's revenue growth and new product
development.
The Company and AMR and American agreed to apply the financial terms of the
Marketing Cooperation Agreement, Travel Privileges Agreement and Corporate
Travel Agreement as of January 1, 1996, which resulted in an increase in
operating expenses of approximately $19 million for the six months ended June
30, 1996. Subscriber incentive expenses increased in order to maintain and
expand the Company's travel agency subscriber base.
OPERATING INCOME. Operating income decreased $22 million, 10.0%, from $219
million to $197 million. Operating margins decreased from 28.6% to 23.6%
primarily due to the impact of the Affiliate Agreements.
OTHER EXPENSES. Other expenses decreased $8 million due to a reduction in
the losses from joint ventures in which the Company owns an interest accounted
for under the equity method.
INCOME TAXES. The provision for income taxes was $76 million and $82
million for the six months ended June 30, 1996 and 1995, respectively. The
decrease in the provision for income taxes corresponds with the decrease in net
income before the provision for income taxes.
NET EARNINGS. Net earnings decreased $8 million, 6.3%, from $127 million to
$119 million, primarily due to the decrease in operating income.
1995 COMPARED TO 1994
REVENUES. Revenues for 1995 as compared to 1994 increased approximately
$123 million, 8.7%, from $1,407 million to $1,530 million.
Electronic travel distribution revenues increased approximately $101
million, 11.1%, from $906 million to $1,007 million. The increase was primarily
attributable to growth in booking fees from associates from $810 million to $904
million. This growth was driven by an overall increase in the price per booking
charged to associates, a migration of associates to higher participation levels
within SABRE and an increase in booking volumes primarily attributable to
international expansion in Europe and Latin America.
Revenues from information technology solutions increased approximately $22
million, 4.4%, from $501 million to $523 million. Revenues from information
technology solutions provided to Canadian under the agreement between AMS
Holdings, Inc., an AMR subsidiary, and Canadian, which began generating revenues
in November 1994, increased $36 million due to the impact of a full year of
services provided under the agreement. These increases were offset by a decrease
in revenues from such services provided to AMR primarily due to a change in the
pricing structure implemented in 1995.
OPERATING EXPENSES. Operating expenses increased $93 million, 8.8%, from
$1,056 million to $1,149 million. The increase was primarily attributable to an
increase in salaries and benefits, travel service costs from American and
subscriber incentive expenses. Salaries and benefits increased due to an overall
increase of 4% in the average number of employees necessary to support the
Company's revenue growth, annual salary increases and an increase in the
provision for incentive compensation. Travel service costs from American
increased due to the increase in the number of employees and an increase in the
negotiated rates with American. See Note 3 to the Consolidated Financial
Statements. Subscriber incentive expenses increased in order to maintain and
expand the Company's travel agency subscriber base.
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INTEREST EXPENSE. Interest income or expense was credited or charged to the
Company by AMR based on the balance at the end of each month in cash equivalents
and note payable to AMR. Cash equivalents represented cash held by American for
the Company or advanced from American to the Company. Interest expense decreased
$10 million primarily due to a capital infusion from AMR during 1995. See Note 3
to the Consolidated Financial Statements.
OPERATING INCOME. Operating income increased $30 million, 8.6%, from $350
million to $380 million. Operating margins were at 24.9% for both 1995 and 1994
due to revenues and expenses increasing at substantially the same rate.
OTHER EXPENSES. Other expenses decreased $6 million due to a reduction in
the losses from joint ventures in which the Company owns an interest accounted
for under the equity method.
INCOME TAXES. The provision for income taxes was $144 million and $127
million in 1995 and 1994, respectively. See Note 4 to the Consolidated Financial
Statements for additional information regarding taxes.
NET EARNINGS. Net earnings increased $29 million, 14.6%, from $197 million
to $226 million, primarily due to the increase in operating income.
1994 COMPARED TO 1993
REVENUES. Revenues for 1994 as compared to 1993 increased approximately
$149 million, 11.8%, from $1,258 million to $1,407 million.
Electronic travel distribution revenues increased approximately $121
million, 15.4%, from $785 million to $906 million. The increase was primarily
attributable to growth in booking fees from associates from $676 million to $810
million. This growth was driven by increases in booking volumes and increases in
the price per booking charged to associates. The increase in booking volumes was
related to fare initiatives by domestic air carriers which increased travel and,
thus, reservations made through SABRE.
Revenues from information technology solutions increased $28 million, 5.9%,
from $473 million to $501 million. Revenues from information technology
solutions provided to AMR increased due to a change in the pricing structure
implemented in 1994. Revenues for information technology solutions provided to
Canadian under the agreement between AMS Holdings, Inc., a subsidiary of AMR,
and Canadian, which began producing revenues in November 1994, were $8 million
in 1994.
OPERATING EXPENSES. Operating expenses increased $52 million, 5.2%, from
$1,004 million to $1,056 million, due to an increase in salaries and benefits,
travel service costs from American, subscriber incentive expenses, legal and
professional fees and management service fees charged to the Company by AMR.
Salaries and benefits increased due to an increase of 6% in the average number
of employees necessary to support the Company's revenue growth, annual salary
increases and an increase in the provision for incentive compensation. Travel
service costs increased due to the increase in the number of employees and an
increase in the negotiated rates with American. See Note 3 to the Consolidated
Financial Statements. Subscriber incentive expenses increased in order to
maintain and expand the Company's travel agency subscriber base. Legal and
professional fees increased due to a nonrecurring restructuring charge recorded
in 1994. Management service fees charged to the Company by AMR increased
primarily due to the increase in the number of employees and growth in legal
services provided to the Company by AMR.
OPERATING INCOME. Operating income increased $96 million, 38.0%, from $254
million to $350 million. Operating margins increased from 20.2% to 24.9% due to
the increase in revenues of 11.8%, while expenses increased only 5.2%.
LOSS ON PARTNERSHIP SETTLEMENT. Loss on the partnership settlement of $71
million in 1993 represented a nonrecurring cost related to the settlement of
litigation regarding a partnership
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formed to design and develop a computer reservation system for the auto rental
and hotel industries. See Note 5 to the Consolidated Financial Statements.
INTEREST EXPENSE. Interest expense increased $8 million primarily due to
cash advances from American for the loss on the partnership settlement mentioned
above.
OTHER EXPENSES. Other expenses increased $5 million due to additional
losses incurred by joint ventures in which the Company owns an interest
accounted for under the equity method.
INCOME TAXES. The provision for income taxes was $127 million and $69
million in 1994 and 1993, respectively. See Note 5 to the Consolidated Financial
Statements for additional information regarding taxes.
NET EARNINGS. Net earnings increased $97 million, 97.2%, from $100 million
to $197 million, primarily due to the increase in operating income.
LIQUIDITY AND CAPITAL RESOURCES
The Company had substantial liquidity at June 30, 1996, with $187 million
and $224 million in cash and cash equivalents and working capital, respectively.
At December 31, 1995, cash and cash equivalents and working capital were $95
million and $53 million, respectively. Prior to July 2, 1996, the Company's cash
and cash equivalents were held for the Company by American. Cash equivalents
were immediately charged or credited to the Company upon recording certain
transactions, including transactions with American for airline booking fees and
purchases of goods and services.
Effective with the Reorganization on July 2, 1996, the Company began
maintaining a cash management system and cash and investment accounts separate
from American. Transactions with American no longer result in the recording of
cash equivalents, but are settled through intercompany billings, with payment
due in 30 days. American performs cash management services for the Company under
the Management Services Agreement. The Company invests the cash in short-term
marketable securities, consisting primarily of certificates of deposit, bankers'
acceptances, commercial paper, corporate notes and government notes. For cash
management purposes, the Company and American have entered into the Credit
Agreement.
The Company has financed its operations through cash generated from
operations. The Company's net cash provided by operating activities of $143
million for the six months ended June 30, 1996 was primarily attributable to net
income partially offset by an increase in accounts receivable partially due to
the seasonality of bookings in the fourth quarter. The Company's net cash
provided by operating activities of $392 million in 1995 was primarily
attributable to net income. Net cash provided by operating activities in 1994
was $225 million, which included expenditures of $158 million relating to the
partnership settlement discussed in "-- Results of Operations -- 1994 Compared
to 1993 -- Loss on Partnership Settlement" and Note 5 to the Consolidated
Financial Statements.
Investing activities have primarily been related to purchases of computer
equipment to be provided to subscribers of SABRE and for use in data processing
services, and investments in joint ventures primarily associated with
international expansion in Mexico and Japan. Capital expenditures for the six
months ended June 30, 1996 were $82 million and for the year ended December 31,
1995 were $165 million.
Net property and equipment as shown on the balance sheet as of June 30,
1996 decreased approximately $34 million from December 31, 1995. This decrease
was primarily due to the sale of certain computer network equipment with a cost
of approximately $100 million and a net book value of approximately $25 million
to a third party at a price approximating net book value. The sale of this
equipment is not expected to have a significant impact on the Company's future
results of operations.
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In 1995, certain of The SABRE Group entities, from which the Company was
formed, distributed $394 million to American, in their capacity as divisions or
subsidiaries of American or AMR. Also during 1995, AMR contributed $245 million
to the Company in order to adequately capitalize certain of The SABRE Group
entities. In addition, a note payable to AMR of $54 million was established
during 1995, which was capitalized in 1996 in connection with the
Reorganization. Proceeds from the contribution and note payable were used to
reduce cash advances from AMR.
The Company expects that the principal use of funds in the foreseeable
future will be for capital expenditures, software product development,
acquisitions and working capital. Capital expenditures will consist of purchases
of equipment for the Data Center, as well as computer equipment, printers,
fileservers and workstations to support (i) updating subscriber equipment
primarily for travel agencies, (ii) expansion of the subscriber base and (iii)
new product capital requirements. The Company has budgeted capital expenditures
of approximately $210 million for 1996. Beyond 1996, the Company expects that
capital expenditures will range from $210 million to $240 million annually. The
Company expects to incur approximately $40 million of nonrecurring capital
expenditures in 1997 for the refurbishment of its facilities and the scheduled
replacement of a major computer processor at the Data Center. The Company
believes available balances of cash and cash equivalents combined with cash
flows from operations are sufficient to meet the Company's capital requirements.
The Company currently intends to retain its earnings to finance future
growth and, therefore, does not anticipate paying any cash dividends on its
Common Stock in the foreseeable future. Any determination as to the payment of
dividends will depend upon the future results of operations, capital
requirements and financial condition of the Company and its subsidiaries and
such other factors as the Board of Directors of the Company may consider,
including any contractual or statutory restrictions on the Company's ability to
pay dividends.
AFFILIATE AGREEMENTS WITH AMR AND AMERICAN
The Company and AMR and American have entered into the Affiliate
Agreements, which include the Technology Services Agreement for the provision of
information technology services to American by the Company, the Marketing
Cooperation Agreement for the provision by American of marketing support for the
Company's products targeted toward travel agencies and American's support of the
Company's promotion of BTS, Travelocity and easySABRE, an agreement for the
provision of management services by American to the Company (the "Management
Services Agreement") and agreements for the provision of travel services by
American to the Company and its employees (the "Travel Privileges Agreement" and
"Corporate Travel Agreement"). See "Relationship With AMR and Certain
Transactions -- Contractual Arrangements" and Note 11 to the Consolidated
Financial Statements for a description of each agreement.
On a pro forma basis giving effect to the financial impact of the
Technology Services Agreement as of January 1, 1995, information technology
solutions represented approximately 32.6% of the Company's revenues in 1995, of
which approximately 77.5% was from American, other AMR affiliates and Canadian.
The base term of the Technology Services Agreement expires June 30, 2006.
The terms of the services to be provided by the Company to American, however,
vary. For the six months ended June 30, 1996, revenues from services provided
under the Technology Services Agreement with a service term of (i) three years
represented approximately 5.7% of total revenues, (ii) five years represented
approximately 0.5% of total revenues and (iii) 10 years represented
approximately 16.8% of total revenues.
The Affiliate Agreements generally establish pricing and service terms and
certain agreements, including the Technology Services Agreement, provide for
periodic price adjustments that may take into account the market for similar
services. Commencing in 1998, the formulas for annually adjusting certain rates
under the Technology Services Agreement will be adjusted every two years
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through negotiations of the parties which are to be guided by benchmarking
procedures set forth in the Technology Services Agreements. The resulting rates
may represent an increase or decrease over the previous rates. The financial
terms of the Affiliate Agreements were applied to the Company's operations
commencing January 1, 1996, and the application thereof resulted in a reduction
in revenues and an increase in expenses for the six months ended June 30, 1996
as compared to the six months ended June 30, 1995.
The Company has also entered into a Tax-Sharing Agreement with AMR, dated
as of July 1, 1996 (the "Tax-Sharing Agreement"), which in most respects
formalizes the Company's previous arrangements with AMR and which the Company
does not expect to have a material impact on future operating results.
The impacts of the Affiliate Agreements, as well as other impacts resulting
from the Reorganization and Offerings, are presented in the Pro Forma Condensed
Consolidated Balance Sheet for June 30, 1996 and the Pro Forma Condensed
Consolidated Statements of Income for the six months ended June 30, 1995 and
1996 and the year ended December 31, 1995. The pro forma information is
presented for illustrative purposes only and is not necessarily indicative of
the operating results or financial position that would have occurred if the
transactions had been consummated as presented in the Pro Forma Condensed
Consolidated Financial Information, nor is it necessarily indicative of future
results of operations.
PRO FORMA RESULTS OF OPERATIONS
PRO FORMA SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO PRO FORMA SIX MONTHS
ENDED JUNE 30, 1995
REVENUES. Pro forma revenues for the six months ended June 30, 1996
compared to the six months ended June 30, 1995 increased approximately $95
million, 13.0%, from $737 million to $832 million.
Pro forma electronic travel distribution revenues increased approximately
$74 million, 14.7%, from $501 million to $575 million. The increase was
primarily attributable to growth in booking fees from associates from $460
million to $536 million. This growth was driven by an overall increase in the
price per booking charged to associates and an increase in booking volumes
worldwide.
Pro forma revenues from information technology solutions increased
approximately $22 million, 9.3%, from $235 million to $257 million, primarily
due to growth in solutions services provided to AMR and non-affiliated
customers.
OPERATING EXPENSES. Pro forma operating expenses increased $74 million,
13.2%, from $561 million to $635 million during the six months ended June 30,
1996 as compared to the six months ended June 30, 1995. This increase was
primarily attributable to an increase in salaries and benefits and subscriber
incentive expenses. Salaries and benefits increased primarily due to an overall
increase of 8% in the average number of employees necessary to support the
Company's revenue growth and new product development. Subscriber incentive
expenses increased in order to maintain and expand the Company's travel agency
subscriber base.
OPERATING INCOME. Pro forma operating income from operations increased $22
million, 12.3%, from $175 million to $197 million. Operating margins remained
stable due to the increase in revenues of 13.0%, while expenses increased 13.2%.
OTHER EXPENSES. Pro forma other expenses decreased $8 million primarily due
to a reduction in the losses from joint ventures in which the Company owns an
interest accounted for under the equity method.
INCOME TAXES. The pro forma provision for income taxes was $70 million and
$59 million for the six months ended June 30, 1996 and 1995, respectively. The
increase in the provision for income taxes corresponds with the increase in net
income before the provision for income taxes.
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NET EARNINGS. Pro forma net earnings increased $18 million, 20.2%, from $91
million to $109 million, primarily due to the increase in operating income.
PRO FORMA 1995
The Company's 1995 revenues decreased approximately $66 million, 4.3%, from
$1,530 million on an historical basis to $1,463 million on a pro forma basis.
This decrease is due to the effect of the Marketing Cooperation Agreement
eliminating certain marketing support payments of $21 million made by American
to the Company during 1995 combined with a pro forma $45 million decrease in
revenues for services provided to American to reflect the terms specified in the
Technology Services Agreement.
Operating expenses increased approximately $30 million, 2.6%, from $1,149
million on an historical basis to $1,179 million on a pro forma basis. This
increase is primarily a result of the pro forma effects of the $20 million
marketing fee to be paid to American by the Company under the terms of the
Marketing Cooperation Agreement; an increase in employee travel costs of $26
million under the terms of the Travel Privileges Agreement and Corporate Travel
Agreement, combined with the Company's inability to use American's existing
discounts for flights on other airlines; and an increase of $5 million in
general and administrative costs associated with administration of the various
Affiliate Agreements and the inability of the Company to receive American's
discount on shipping and handling services. The above increases are partially
offset by a $12 million reduction in communication expenses from SITA under the
terms of the Technology Services Agreement and a decrease in rent expense, net
of increased depreciation and property tax expenses, of $9 million, resulting
from the transfer of ownership of certain buildings, including the related
furniture and fixtures, to the Company from American.
As a result of the decreased revenues and the increased operating expenses,
operating income decreased $96 million from $380 million, 24.8%, historically to
$285 million, 19.4%, on a pro forma basis.
Other expenses increased $29 million on a pro forma basis as a result of
the recognition of interest expense on the Debenture held by AMR.
Pro forma net earnings of $149 million represent a decrease of $76 million
from historical net earnings of $226 million. This decrease is attributable to
the decreased revenues and increased operating expenses discussed above,
combined with increased interest expense from the Debenture partially offset by
a $49 million decrease in income tax expense.
EFFECTS OF THE REORGANIZATION, AFFILIATE AGREEMENTS WITH AMR AND AMERICAN AND
THE OFFERINGS ON LIQUIDITY AND CAPITAL RESOURCES
In connection with the Reorganization, the Company issued the Debenture to
American. The Debenture is a floating rate subordinated debenture due September
30, 2004, with a principal amount of $850 million. American subsequently
transferred the Debenture to AMR. Because the assets and liabilities of the
divisions and subsidiaries of American transferred to the Company are included
in the historical financial statements of the Company, this transaction resulted
in the Company recognizing a deficit in stockholder's equity subsequent to the
Reorganization. See Note 1 and Note 11 to the Consolidated Financial Statements.
A portion of the net proceeds from the Offerings will be used to repay a portion
of the Debenture. See "Use of Proceeds."
The interest rate on the Debenture will be 7.2% through September 30, 1996,
and thereafter will be based on the sum of the six-month London Interbank
Offered Rate plus a margin determined by the Company's senior unsecured
long-term debt rating or, if such debt rating is not available, upon the
Company's ratio of net debt to total capital. The interest rate will be
determined at the beginning of each six-month period beginning October 1 and
April 1 and accrued interest will be payable each
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September 30 and March 31. The Company may prepay the principal balance in whole
or in part at any time prior to December 31, 1996 and thereafter on any interest
payment date.
For cash management purposes, the Company, American and AMR entered into
the Credit Agreement which established a line of credit whereby the Company is
required to borrow from American, and American is required to lend to the
Company, any amounts required by the Company to fund its daily cash
requirements. In addition, American may, but is not required to, borrow from the
Company to fund its daily cash requirements and the Company is required to lend
to American if the Company has excess cash available. The maximum available
amount that the Company may borrow under the Credit Agreement at any time is
$300 million and, for American, $100 million, and, in the case of the Company as
lender, is limited to the lender's excess cash available. If the Company's
credit rating is better than "B" on the Standard & Poor's Ratings Service Scale
(or an equivalent thereof) or American has excess cash to lend to the Company,
the interest rate to be charged to the Company will be the sum of (a) the higher
of (i) American's average rate of return on short-term investments for the month
in which borrowings occurred or (ii) the actual rate of interest paid by
American to borrow funds to make the loan to the Company under the Credit
Agreement, plus (b) an additional spread based upon the Company's credit risk.
If the Company's credit rating is "B" or below on the Standard & Poor's Ratings
Service Scale (or an equivalent thereof) and American does not have excess cash
to lend to the Company, the interest rate to be charged to the Company will be
the lower of (a) the sum of (i) the borrowing cost incurred by American to draw
on its revolving credit facility to make the advance plus (ii) an additional
spread based on the Company's credit risk or (b) the sum of(i) the cost at which
the Company could borrow funds from an independent party plus (ii) one half of
the margin American pays to borrow under its revolving credit facility. The
Company believes the interest rate charged under this agreement by American may,
from time to time, be slightly above the rate at which the Company could borrow
externally; however, no standby fees for the line of credit will be required to
be paid by either party.
The net proceeds to the Company from its sale of shares of Class A Common
Stock pursuant to the Offerings will be approximately $409.1 million (after
deducting underwriting commissions and estimated expenses payable by the
Company) based on an assumed price to the public of $21.50 per share . The net
proceeds will be used to repay a portion of the Debenture discussed above and
for general corporate purposes. See "Use Of Proceeds."
INFLATION
The Company believes that inflation has not had a material effect on its
results of operations.
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BUSINESS
The Company is a world leader in the electronic distribution of travel
through its proprietary travel reservation and information system, SABRE, and is
the largest electronic distributor of travel in the United States. In addition,
the Company is a leading provider of solutions to the airline industry and
fulfills substantially all of the data processing, network and distributed
systems needs of American, AMR's other subsidiaries and Canadian.
The Company believes that its competitive strengths give it a leadership
position in its markets and a foundation from which to pursue further growth.
During the last 20 years, the Company has developed core competencies that
include a comprehensive knowledge of the travel industry, the capability to
perform high-volume, high-reliability, real-time transactions processing and
expertise in the application of operations research, information technology and
industrial engineering skills to solve complex operations problems. These core
competencies enable the Company to create an efficient electronic marketplace
for the sale and purchase of travel and to offer a broad and deep array of
technological solutions to the airline industry. In providing its products and
services, the Company operates one of the largest, privately-owned, real-time
transactions processing systems in the world in its underground central computer
facility, which is connected to over 120,000 computer access terminals and
operates 24 hours a day, seven days a week. The SABRE system maintains over 50
million air fares (updated five times per business day), processes an average of
93 million requests for information per day and has processed up to 4,969
requests for information per second (in July 1996).
ELECTRONIC TRAVEL DISTRIBUTION
OVERVIEW
SABRE and other global distribution systems are the principal means of air
travel distribution in the United States and a growing means of air travel
distribution internationally. Through SABRE, travel agencies, corporate travel
departments and individual consumers can access information on and book
reservations with airlines and other providers of travel and travel-related
products and services. As of June 30, 1996, travel agencies with more than
29,000 locations in over 70 countries on six continents subscribed to SABRE, and
more than 2.5 million individuals subscribed to Travelocity and easySABRE, the
Company's consumer-direct products. SABRE subscribers are able to book
reservations with more than 350 airlines and, other than through Travelocity, to
make reservations with more than 55 car rental companies and more than 190 hotel
companies covering approximately 30,000 hotel properties worldwide.
During 1995, more airline bookings in the United States were made through
SABRE than through any other global distribution system. The Company estimates
that in 1995 over 40% of all airline bookings made through travel agencies in
the United States were made through SABRE. In 1995, 65.8% of the Company's
revenues was generated by the electronic distribution of travel, primarily
through booking fees paid by associates.
SABRE
SABRE, like other global distribution systems, creates an electronic market
place where travel providers display information about their products and
warehouse and manage inventory. Subscribers -- principally travel agencies but
also business travel departments and individual consumers -- access information
and purchase travel products and services. In 1995, more than 600 travel
providers displayed information about their products and services through SABRE,
and the Company estimates that $40 billion in travel products and services were
reserved through SABRE.
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The following diagram depicts the purchase and sale of travel products and
services through SABRE:
[Sabre Travel Graph]
SABRE, first developed in the 1960's, was one of the world's first
electronic airline reservation systems. SABRE evolved from American's internal
reservation system into a global distribution system when SABRE's content was
expanded to include additional airlines and other travel providers. Computer
reservation terminals were placed in travel agencies beginning in 1976, and
consumer direct access to SABRE became available through computer on-line
services in 1985 and on the Internet in 1996.
In addition to providing information to subscribers about airlines and
other travel providers and their products and services, SABRE reports
transaction information from subscriber-generated sales back to the provider
from which such products and services were purchased. This allows travel
providers to manage inventory and yields. SABRE also allows travel agency
subscribers to print airline tickets, boarding passes and itineraries.
Additionally, SABRE provides subscribers with travel information on matters such
as currency, health and visa requirements, weather and sightseeing.
By accessing the SABRE system, a subscriber can, from a single source,
obtain schedule, availability and pricing information from multiple travel
providers for complex travel itineraries. A typical SABRE
transaction -- consisting of an information request by a subscriber, a search in
SABRE and a response to the subscriber -- averages less than two seconds in
elapsed time. SABRE's "one-stop shopping" capabilities permit a consumer to
locate, price, compare and purchase the travel products and services that best
satisfy the traveler's requirements.
ASSOCIATE PARTICIPATION
The Company derives its electronic travel distribution revenues primarily
from booking fees paid by associates for reservations for their products and
services made through SABRE (unless the
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reservations are later cancelled). In addition to airlines, associates include
car rental companies, hotel companies, railroads, tour operators, ferry
companies and cruise lines, which participate in SABRE through products designed
for such associates, such as CARS Plus(sm), SHAARP Plus(sm), SABRErail(sm),
SABRE TourGuide(R), SABRE Navigator(sm) and SABRE CruiseDirector(R),
respectively. SABRE subscribers can also purchase travel insurance or book
theater tickets or limousines through SABRE. In 1995, 59.1% of the Company's
revenues was generated through booking fees.
Depending upon the level of participation or "functionality" at which they
participate in SABRE, airlines and other associates display, warehouse, manage
and sell their inventory in SABRE. The booking fee per transaction paid by an
associate to the Company depends upon several factors, including the associate's
level of participation in SABRE and the type of products or services provided by
the associate. Airlines are provided with a wide range of participation levels
from which to choose. The lowest level of functionality for airlines -- Basic
Booking Request(SM) -- is aimed at the low-cost "no-frills" carriers and
provides schedules and electronic booking only. Higher levels of functionality
for airlines, such as Direct Connect Availability(SM), provide greater levels of
communication between SABRE and associates, thus enabling SABRE to provide
subscribers with more detailed information and to provide associates with
improved inventory management. For an associate selecting one of the higher
levels of participation, SABRE provides subscribers with a direct connection to
the associate's internal reservation system, allowing SABRE to provide real-time
information and allowing the associate to optimize revenue for each flight.
Car rental companies and hotel operators are provided with similar levels
of participation from which to select. From 1991 to 1995, the number of bookings
for car rental companies and hotels grew at a compound annual rate of 16.9%. The
Company intends to pursue continued growth in such bookings by, among other
things, emphasizing in its marketing the various levels of functionality that
the Company can provide to car rental companies and hotel companies.
The Company also provides associates, upon request, marketing data derived
from SABRE bookings for fees that vary depending on the amount and type of
information provided.
Although most of the world's airlines are SABRE associates, the Company
believes that the market for associate participation in SABRE has room for
growth, both through the addition of non-airline associates and through
upgrading by associates to higher levels of functionality in SABRE. In marketing
to associates, the Company emphasizes SABRE's global distribution capabilities,
the ability of associates to display information at no charge until a booking is
made and SABRE's extensive subscriber network.
SUBSCRIBER ACCESS
The Company provides subscribers with access to SABRE which enables them to
electronically locate, price, compare and purchase travel products and services
provided by associates. The Company tailors the interface and functionality of
SABRE to the needs of its different types of subscribers. Marketing is targeted
to travel agencies, corporations and individual consumers.
TRAVEL AGENTS. The Company provides travel agents with the hardware,
software, technical support and other services that travel agents need to access
SABRE in return for fees that vary based on the number of bookings generated by
the travel agency. Such fees are payable over the term of the travel agent's
agreement with the Company, which term is generally five years in the United
States and Latin America, three years in Canada and one year in Europe. In 1995,
approximately 4.3% of the Company's revenues was generated by fees from travel
agent subscribers.
Because travel agencies have differing needs, based on, among other things,
volume and location, the Company has modified the SABRE interface to meet the
specific needs of different categories of travel agents. Travel agents can
choose SABRE interfaces that range from simple, text-based systems to
feature-laden graphical interfaces. For instance, using its expertise in its
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solutions services business, the Company developed Turbo SABRE, an advanced
point-of-sale interface that allows for screen customization and reservations
sales process structuring and eliminates SABRE-specific commands, thereby
reducing keystrokes and training requirements for high-volume travel agencies
who may need high levels of functionality. Turbo SABRE also provides data
sources other than SABRE, such as back office hosts or LAN databases.
Planet SABRE, which the Company intends to introduce in the fourth quarter
of 1996, is a graphical interface consisting of a suite of Windows* applications
comprised of a graphical launch pad, which allows the user to move to any
function with one or two clicks of a mouse, a customizer feature, which allows
travel agencies to tailor Planet SABRE to meet their own specific needs, a
tutorial, online help, a place to store notes about clients, destinations or
procedures and a suggestion system. Planet SABRE transforms SABRE from a complex
command-oriented system to an all-graphic interface with continued access to the
SABRE host system and its capabilities.
SABRE interfaces are available in English, Spanish, Portuguese, French,
German, Italian and Japanese, with a Chinese version currently in development.
In addition, the Company offers travel agencies back-office accounting systems
and further supports travel agencies by offering a simplified method to develop
and place their own marketing presence on the World Wide Web.
The Company markets SABRE to travel agencies domestically and
internationally principally using a sales force of approximately 480 employees.
Presently, more than 14,500 travel agency locations in the United States use
SABRE and, in 1995, more airline bookings in North America were made using SABRE
than through any other global distribution system. Based upon internal
estimates, the Company believes that, in 1995, more than 40% of all airline
bookings made through travel agencies in the United States were made using
SABRE. The 10 largest travel agencies in the United States subscribe to SABRE,
although they also subscribe to another global distribution system as well. The
Company estimates that, in 1995, of all bookings made by these 10 travel
agencies, more than 55% were made using SABRE. The Company has had long-standing
relationships with most of its travel agency subscribers. For example,
approximately 97% of the travel agency locations that were SABRE subscribers at
the beginning of 1995 were SABRE subscribers at the end of 1995.
CORPORATIONS. The Company provides Commercial SABRE to travel agencies to
supply to corporations with which they work closely. Using Commercial SABRE, a
traveler inputs booking details on a personal computer, which are then
transmitted to the SABRE travel agent who reviews the travel plans, makes the
reservations and issues the travel documents.
The Company also will provide SABRE to corporations through Business Travel
Solutions. BTS, designed for corporate travel managers, is a fully-integrated
suite of personal computer-based planning modules for travel planning,
pre-travel decision-making and back-end travel expense reporting. BTS's various
modules will provide corporations with tools to manage travel costs, to ensure
compliance with corporate travel policies and to provide expense reporting,
information regarding vendor relationships, ease of access for booking and quick
and flexible distribution of tickets.
BTS is presently being tested by Cap Gemini, Digital Equipment Corp., First
Data Corp. and Sysco Systems, Inc. BTS is scheduled for release in the fourth
quarter of 1996. The Company intends to market BTS initially to Fortune 1,000
companies through a distribution network and its direct sales force and
currently expects to be able to install the full product suite of BTS by the end
of 1996. The Company believes that substantial opportunities exist for the
marketing and implementation of BTS because it provides efficiencies over other
products available today and because only a small percentage of corporations
currently have direct access to a global distribution system.
- ---------------
* Windows is a registered trademark of Microsoft Corp.
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INDIVIDUAL CONSUMERS. In order to enhance its array of electronic travel
distribution products and services, the Company formed its SABRE Interactive
division to develop opportunities for consumer-direct travel distribution via
personal computer, cable television and other media. The Company believes that,
because presently only a small percentage of individual consumers in the United
States and worldwide directly purchase travel and travel-related services
electronically, substantial growth opportunities exist in the individual
consumer market.
For over 10 years, the Company has been a leader in providing consumers the
ability to directly purchase travel electronically. Through the Company's
Travelocity and easySABRE products, individual consumers can, for no fee (other
than any normal on-line fees that may be charged by a computer on-line service),
obtain access to destination information, compare prices and select travel
products from their personal computers at their own pace.
Travelocity was developed and is being marketed jointly by the Company and
Worldview Systems Corporation ("Worldview") pursuant to a strategic alliance
agreement scheduled to expire on December 31, 1998. Travelocity, which is
accessible through computer on-line services and the Internet, provides
information on the availability of requested products and services and booking
capabilities through SABRE, as well as destination information compiled by
Worldview. Travelocity presently offers flight schedules, reservations and
purchase capabilities for all airlines available in SABRE. Hotel and car rental
reservation and purchase capabilities are expected to be available in the fourth
quarter of 1996. Over 200,000 Travelocity web pages provide destination
information, including details on thousands of restaurants, museums, hotels, bed
& breakfasts, condominiums, golf courses and business services. Travelocity
users may share their travel experiences and gain information about travelers'
experiences through chat groups, conferences and postings managed by noted
travel writers and correspondents. Travelocity users may also purchase
merchandise such as luggage, travel guides and travel accessories. The Internet
address for Travelocity is http://www.travelocity.com.
From its launch on March 12, 1996 at the Cyber Cafe in New York City until
August 24, 1996, Travelocity had logged more than 2.4 million visits to its web
site, and its users had viewed more than 29 million pages in the site.
Currently, more than 248,000 members subscribe to Travelocity.
The Company introduced easySABRE in 1985 as one of the world's first home
booking systems for travel. easySABRE is available through a number of computer
on-line information systems such as Prodigy, CompuServe and AT&T Easy Link
Services.* With easySABRE, consumers can, for no fee (other than any normal
on-line fees that may be charged by the computer on-line service), view travel
reservation information and make bookings directly in SABRE. easySABRE has a
membership of more than 2.5 million, of which more than 120,000 members are
active users each month.
After reservations are made through either Travelocity or easySABRE, if a
ticket is needed, the consumer may have a travel agent issue the ticket, have
the Company's customer service center issue the ticket and deliver it to the
consumer or call the travel provider directly. The Company receives booking fees
from travel providers for purchases of their travel products and services
pursuant to reservations made through Travelocity and easySABRE.
INTERNATIONAL MARKETING. The Company believes that, because almost all
United States travel agencies currently subscribe to one or more global
distribution systems, the primary areas of growth for SABRE among travel
agencies are outside the United States. As a result, the Company is actively
involved in marketing SABRE internationally either directly or through joint
venture or distributorship arrangements, depending upon the dynamics of the
particular international market targeted. The Company is presently focusing its
marketing efforts in Europe and Latin America and anticipates increasing its
marketing efforts in Asia.
- ---------------
* Prodigy, CompuServe and AT&T Easy Link Services are the trademarks of their
respective owners and are not trademarks of the Company.
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The Company has entered into various distribution agreements and joint
venture arrangements with businesses resident in foreign countries to increase
its international presence. The Company's global marketing partners include
principally foreign airlines that may have influence over the choice of a global
distribution system by travel agents in such airlines' primary markets and
entities that operate smaller global distribution systems or other
travel-related network services. Included among the Company's international
distribution and joint venture arrangements are arrangements covering Japan with
Japan Airlines, China with the Civil Aviation Administration of China, Israel
with El Al, India with Air India and Indian Airlines, Australia with Qantas
Airways, Ansett Airlines and Air New Zealand, Mexico with Aeromexico and
Mexicana de Aviacion and the Middle East with Gulf Air. The Company believes
that continued development of marketing, licensing, joint venture and other
arrangements with non-U.S. airlines and distribution systems will aid in the
expansion of SABRE outside of the United States.
Through its marketing efforts, the Company has placed SABRE in
approximately 16,500 travel agency locations in the United States and Canada,
3,900 locations in Europe, 3,000 locations in Latin America, 2,800 locations in
Asia, 1,700 locations in the South Pacific, 800 locations in the Caribbean, 650
locations in the Middle East and 8 locations in Africa. From 1991 to 1995, the
Company's bookings volumes outside the United States grew at a 28.2% compound
annual rate, excluding Mexico and Japan, where SABRE is marketed, and booking
fees are recognized, by separate legal entities in which the Company is part
owner. The map set forth below illustrates SABRE's current international market
presence.
NUMBER OF TRAVEL AGENCY LOCATIONS
[MAP]
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STRATEGY
The Company has developed a five-part strategy to maintain and expand its
position in the global travel distribution market and to maintain its operating
margins.
- INCREASING PENETRATION IN INTERNATIONAL TRAVEL DISTRIBUTION MARKETS. The
Company believes that the international market for travel and related
products and services presents opportunities for the Company to expand its
business by building on its existing base in Europe and Latin America and
by pursuing opportunities in Asia. The Company will pursue international
opportunities directly and through the formation of international
alliances. The Company's revenues from its travel distribution business
outside the United States have grown at a compound annual rate of 29.8%
during the last five years, to $250 million in 1995.
- EXPANDING AND CUSTOMIZING ASSOCIATE PARTICIPATION. The Company plans to
continue to expand participation in SABRE by associates, such as air
charters, car rental companies, hotels, railroads and tour operators, and
has initiated an effort to increase the value provided to associates by
tailoring available participation options to the needs of different travel
providers.
- ENHANCING THE VALUE OF THE TRAVEL DISTRIBUTION PRODUCT TO TRAVEL AGENTS.
The Company plans to maximize the value of its products to travel agents
by increasing the depth and breadth of information available through SABRE
and the ease of use and reliability of its products. The Company will also
continue to develop products to enhance the competitiveness of its travel
agent subscribers. For example, the Company has developed two user
interface products, Turbo SABRE and Planet SABRE, that provide travel
agencies with greater productivity through data integration and increased
ease of use, respectively.
- PARTICIPATING IN EMERGING DISTRIBUTION CHANNELS. With products such as
BTS, which is scheduled for release in the fourth quarter of 1996, and
Travelocity, the Company intends to continue to compete in emerging
distribution channels, such as corporate direct distribution, the Internet
and computer on-line services.
- PURSUING ALLIANCES WITH LARGE AGENCIES. The Company intends to form
strategic alliances with large travel agency chains where appropriate to
meet its growth objectives.
- ENHANCING TECHNOLOGY AND OPERATING CAPABILITIES. The Company has budgeted
capital expenditures of over $210 million for 1996, which the Company
anticipates funding with operating cash flow. In addition, the Company has
begun a multi-year development effort, for which the Company has budgeted
over $100 million during the next five years, to improve SABRE's core
operating capabilities. The goals of this development effort are to
accelerate new product development, increase flexibility, power and
functionality for subscribers and associates, improve data management
capabilities, raise capacity levels and lower operating costs.
COMPETITION
The Company competes in electronic travel distribution primarily against
other large and well-established global distribution systems. SABRE's principal
competitors include Amadeus/System One, Galileo/Apollo and Worldspan.
Amadeus/System One is owned by Air France, Continental Airlines, Iberia and
Lufthansa. Galileo/Apollo is owned by United Airlines, British Airways,
Swissair, KLM Royal Dutch and USAir, among others. The Canadian affiliate of
Galileo/Apollo is owned by Air Canada. Worldspan is owned by Delta, Northwest
and TWA and is affiliated with ABACUS, an Asian global distribution system. Each
of these competitors offers many products and services similar to those of the
Company.
Moreover, although certain barriers exist for any new provider of
electronic commerce -- barriers such as the need for significant capital
investment to acquire or develop the hardware,
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software and network facilities necessary to operate effectively a global
distribution system -- the Company is always faced with the potential of new
competitors, particularly as new channels for travel distribution develop.
Competition to attract and retain travel agent subscribers, which continue
to be the primary method of travel distribution, is very intense. Factors
affecting competitive success of global distribution systems include depth and
breadth of information, ease of use, reliability, service and incentives to
travel agents and range of products available to travel providers, travel agents
and consumers. Because SABRE was named the "World's Leading Computer
Reservations System" for the third year in a row at the 1996 World Travel
Awards, the Company believes it competes effectively as to these factors.
Although distribution through travel agents continues to be the primary
method of travel distribution, new channels of distribution are developing
directly to businesses and consumers through computer on-line services, the
Internet and private networks. The Company faces competition in these channels
not only from its principal competitors but also from possible new entrants in
the sale of travel products and from travel providers that distribute their
products directly. For example, in July 1996, American Express Co. and Microsoft
Corp. announced an on-line travel booking service for corporations, which they
have scheduled for release in the first half of 1997. The Company expects that
this on-line travel booking service, while only in the developmental stage, will
eventually directly compete with BTS. In addition, the Internet permits
consumers to have direct access to travel providers, thereby by-passing both
traditional travel agents and global distribution systems such as SABRE. The
Company has positioned its BTS, Travelocity and easySABRE products to compete in
these emerging distribution channels.
With easySABRE, the Company was one of the first companies to introduce
global distribution system access through a computer on-line service. The
Company believes that it continues to be a market leader in providing access
through computer on-line services and that this leadership in the market, as
well as its 10 years of experience marketing easySABRE, provide the Company an
advantage in marketing Travelocity.
In addition, the Company believes that BTS, Travelocity and easySABRE enjoy
an advantage over products distributed directly by travel suppliers because the
Company's display of travel products is not biased in favor of any particular
provider. Also, the breadth and depth of the content of the Company's products
permit one-stop shopping rather than requiring access to several different sites
to compare prices and then book a single trip.
INDUSTRY REGULATION
More than half of the Company's electronic travel distribution business is
generated by travel agencies located in the United States. Airline-Affiliated
Systems have been subject to regulations promulgated by the DOT since November
1984. The current form of the U.S. Regulations was adopted in 1992. The U.S.
Regulations will expire on December 31, 1997, unless they are extended.
The U.S. Regulations govern the relationships of Airline-Affiliated Systems
with GDS-Affiliated Airlines and travel agencies. Therefore, the U.S.
Regulations would not apply to SABRE if SABRE were not offered or marketed to
travel agencies by American or any other airline or airline affiliate, such as
the Company. Additionally, the U.S. Regulations do not apply with respect to the
use of a global distribution system by consumers and business travel
departments. Accordingly, the U.S. Regulations do not currently apply to BTS,
Travelocity or easySABRE.
One of the principal requirements of the U.S. Regulations is that displays
of airline services by Airline-Affiliated Systems must be nondiscriminatory.
This means that the global distribution system may not use carrier identity in
ordering the display of services or in building connecting flights. Travel
agencies, however, may utilize software to override the neutral displays of an
Airline-Affiliated System.
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Airline-Affiliated Systems are required to charge the same fees to all air
carriers for the same level of service and to update information for all air
carriers with the same degree of care and timeliness and to provide, on request,
information on fee arrangements. Any mechanism for the sale of airline products
offered to one or more air carriers must be offered to all other air carriers on
nondiscriminatory terms.
The U.S. Regulations also govern relationships between Airline-Affiliated
Systems and travel agents. The U.S. Regulations mandate, among other things,
that contracts between travel agency subscribers and an Airline-Affiliated
System be for no longer than five years. The rules also forbid an
Airline-Affiliated System from impeding a travel agent's use of another system
by, for example, making it a breach of contract for an agency to fail to make a
designated minimum number of bookings. The rules do allow, however, systems to
provide a credit against monthly fees to travel agents who achieve certain
booking thresholds, with the agency being obligated to pay the system for any
shortfall. The U.S. Regulations also forbid Airline-Affiliated Systems from
entering into contracts with travel agents containing exclusivity clauses or
that require the agency to maintain a certain percentage of computer terminals
or bookings for a particular system, vis-a-vis other systems.
The rules prohibit GDS-Affiliated Airlines from linking the payment of
commissions to travel agents to the travel agent's use of the system with which
the GDS-Affiliated Airline is affiliated. Further, an Airline-Affiliated System
may not ban travel agents from using software provided by third parties in
connection with the system's equipment, unless that software threatens to impair
the integrity of the system.
The U.S. Regulations require any GDS-Affiliated Airline doing business in
the United States to participate in competing Airline-Affiliated Systems at the
same level as it does in its affiliated system and to provide data on its
flights to competing Airline-Affiliated Systems that is as complete, accurate
and timely as the information given to its affiliated system, as long as the
competing system offers terms for participation that are commercially
reasonable.
Although GDS-Affiliated Airlines are required by the U.S. Regulations to
participate in competing Airline-Affiliated Systems at the same level of
functionality, non GDS-Affiliated Airlines are not subject to the same
requirement. Thus many global distribution systems include in their associate
agreements parity clauses, which generally require an airline participating in a
global distribution system to participate in that system at as high a level of
functionality as in any competitive system. On August 14, 1996, the DOT issued a
notice of proposed rulemaking (an "NPRM") proposing a prohibition on the use of
parity clauses by global distribution systems but suggesting that such clauses
could still be enforced as to airlines that own or market a global distribution
system. The NPRM is a result of a Petition for Rulemaking filed by Alaska
Airlines. See "Business -- Legal Proceedings." The Company has filed comments on
the NPRM, in which the Company states that it is opposed to the prohibition on
parity clauses. See "Risk Factors -- United States Regulations; Future
Participation of Certain Airline Associates in SABRE."
Additionally, the DOT has issued an NPRM that proposes two rules. The first
proposed rule would require each global distribution system to offer a display
that lists flights without giving on-line connections any preference over
interline connections. The second proposed rule would require that any display
offered by a global distribution system be based on criteria rationally related
to consumer preferences. The Company has not yet filed comments with the DOT
with regard to this NPRM.
The Company also has operations in Australia, Canada and the European
Union. The overall approach of the regulations for global distribution systems
in each of these three jurisdictions is similar to that of the United States. In
each of these jurisdictions, rules require nondiscriminatory displays of airline
services and nondiscriminatory booking fees, and forbid airlines affiliated with
global distribution systems from linking travel agency commissions to the use of
a particular system.
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Further, these rules forbid airlines affiliated with global distribution systems
from discriminating against competing systems with respect to the data that they
furnish.
There are, however, unique aspects of each set of rules. The current
Canadian and European Union rules do apply to Travelocity and easySABRE. The
European rules also dictate the precise order in which flights must be displayed
and permit travel agents to cancel their subscription agreements at the end of
the first year of the contract. The Canadian rules forbid contracts with travel
agencies of more than three years in duration and forbid certain uses of
carriers' sales forces for promoting global distribution systems. The European
rules are presently under review and are expected to be revised within the next
year. The Company does not anticipate that any revision will materially affect
its operations in Europe.
The Company also has operations in the Caribbean, Latin America and Asia.
In jurisdictions in those regions, there is no regulation of global distribution
systems for travel products.
The Company currently does business in more than 70 countries outside the
U.S. The DOT, in conjunction with the U.S. Department of State, is charged with
assuring fair and open access for U.S. air carriers, and U.S. global
distribution systems owned by airlines, to overseas markets. In this regard, the
DOT has provided assistance to the Company in entering several overseas markets.
This assistance by the DOT to SABRE could cease if SABRE were not offered to
travel agencies by American or another airline or an airline affiliate.
The regulations in Australia, Canada and the European Union also contain,
in varying degrees, remedies the Company can use to assist in the eradication of
discriminatory practices that may impede the Company's access to the regulated
market.
INFORMATION TECHNOLOGY SOLUTIONS
OVERVIEW
The Company is a leading provider of solutions to the airline industry. The
Company also employs its airline expertise to offer solutions to other
industries that face similar complex operations issues, including the airport,
railroad, logistics, hospitality and financial services industries. The
solutions offered by the Company include software development and product sales,
transactions processing and consulting. The Company believes that its suite of
airline-related software solutions is the most comprehensive in the world. In
addition, pursuant to the Technology Services Agreement, the Company provides
data processing, network and distributed systems services to American and AMR's
other subsidiaries, fulfilling substantially all of their information technology
requirements. In 1995, 34.2% of the Company's revenues was generated by the
provision of information technology solutions, and 24.2% of the Company's
revenues was generated by information technology solutions services provided to
American and its affiliates.
SOLUTIONS
The Company offers a comprehensive set of solutions to the airline
industry. These solutions include: (i) consulting, which includes capabilities
ranging from reengineering to functional consulting; (ii) software development,
sales and licensing, which includes individual sales of specific products as
well as custom development and integration; and (iii) full solutions
outsourcing, which includes a full range of solutions. In providing solutions,
the Company depends mainly upon its technical personnel and senior management.
Recruiting and retaining capable personnel, particularly those with expertise in
operations research, information technology and industrial engineering, is vital
to the provision of solutions by the Company.
The Company combines the expertise of its operations research, information
technology and industrial engineering professionals to offer to the airline
industry a wide array of consulting services, including business planning and
analysis, information technology services, flight technical services and
business process design services.
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The Company's solutions have helped American become one of the most
technologically advanced airlines in the world. The Company has provided
solutions to over 120 additional airlines or airline associations. These
solutions have many applications for airlines. For instance, (i) with Fare
Action Evaluator(sm), airlines can seek to enhance revenue using statistical and
database sources that estimate the economic implications of fare actions before
they are implemented, (ii) with AIRPRICE(sm), airlines can analyze and manage
fares and react to competitors' changes, (iii) with AIRFLITE(sm), airlines can
determine superior flight schedules and (iv) with AIRCREWS(sm), airlines can
improve crew member scheduling thus reducing staffing costs.
The Company also provides real-time transactions processing services
whereby the Company provides access to its hardware and software to airlines for
reservations, flight operations, departure control and other related services.
Local computer terminals at a customer's location are linked to the Company's
mainframes, and the Company maintains and operates the entire system on a secure
and confidential basis. As of June 30, 1996, under such arrangements, the
Company provides to more than 60 airlines -- including Southwest Airlines, Gulf
Air and Alaska Airlines -- versions of one or more of the Company's systems for
reservations, flight operations, passenger handling and cargo booking and
tracking.
Building on its base of experience established in the development of
solutions for the airline industry, the Company has extended its software
solutions and consulting businesses to other industries, particularly those that
face complex operations issues similar to the airline industry, including the
airport, hospitality, logistics, railroad and financial services industries. For
example, the Company worked closely with SNCF, the French national railroad, to
design, develop and install a passenger railway reservations system, which is
now accessed by more than 25,000 ticketing devices throughout Europe. The
Company and SNCF are now jointly marketing this software to other passenger
railroads. Other clients in industries outside of the airline industry include
the United States Navy, Roadway Express, Air Products and Chemicals, Club Med,
NationsBank, John Alden Insurance, Avis Rent A Car, Ryder Truck and, most
recently, Hyatt Hotels. For Hyatt, all of the hotel management company's
software maintenance and development functions have been outsourced to the
Company, in connection with an alliance with Computer Sciences Corporation,
which has undertaken to provide a broad variety of data processing services to
Hyatt for an initial five-year term. The Company will also commercialize Hyatt's
existing systems, including its computer reservation and property management
systems, and market them to third parties in collaboration with Computer
Sciences Corporation.
The Company distributes its solutions and consulting services through a
sales and marketing organization with offices in eight cities on four continents
(Dallas, Tulsa, Vancouver, London, Paris, Kuwait, Hong Kong and Sydney). The
Company also maintains agency relationships to support sales efforts in key
markets, including India, China and the Middle East. To date, the Company has
provided business solutions to more than 250 clients located in more than 50
countries.
TECHNOLOGY SERVICES
The Company, through its SABRE Computer Services division ("SCS"), provides
data processing, network and distributed systems services to American and AMR's
other subsidiaries. The Company fulfills substantially all of American's data
processing requirements and manages all voice and data communication services
for American and AMR's other subsidiaries, including data networks, voice
networks and radio services. The Company also provides American with the
services required to design, install, operate and maintain its range of local
area networks, desktop, mobile computing and peripheral devices. This includes
the design, installation, operation and maintenance of American's airport
operations. In 1995, the Company introduced SABRE Wireless(SM), which provides
American's airport personnel the ability to access SABRE from mobile devices.
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As part of the Reorganization, the Company entered into the Technology
Services Agreement with American to provide these services for a term of 10
years for most services (three and five years for others). See "Relationship
with AMR and Certain Transactions -- Contractual Arrangements." Although the
Company has no current plans to offer data processing or network services to
other customers, the Company has the capacity to explore future opportunities.
STRATEGY
The Company has developed a three-part strategy to maintain its position as
one of the world's leading providers of solutions to the airline industry and to
expand its core competencies to become one of the leading providers of solutions
to other industries.
- ENHANCING LEADERSHIP IN AIR TRAVEL SOLUTIONS. The Company believes that,
although it already provides its airline customers with a complete line of
products, it can enhance its market leadership by improving the depth and
breadth of its airline-related software product line and by expanding its
airline consulting business through internal development, license
agreements and acquisitions.
- EMPLOYING EXPERTISE INTO OTHER INDUSTRIES. The Company has over 20 years'
experience in applying its operations research, information technology and
industrial engineering skills in the airline industry. The Company intends
to build upon this experience and to leverage its expertise into other
industries, such as oil and gas, logistics, insurance and manufacturing,
with similar complex operations issues. As the Company's suite of
solutions expands, the Company believes that it will also be able to
provide non-airline customers with comprehensive services including
software development and product sales, transactions processing and
consulting.
- PURSUING ADDITIONAL STRATEGIC RELATIONSHIPS. The Company intends to
pursue alliances with leading information systems outsourcers to provide
complete information technology outsourcing, with the Company providing
the solutions outsourcing.
COMPETITION
The Company in information technology solutions competes both against
full-service providers of technology outsourcing and solutions companies, some
of which have considerably greater financial resources than the Company, and
against smaller companies that offer a limited range of products. Among the
Company's full-service competitors are Electronic Data Systems, IBM/ISSC,
Unisys, Andersen Consulting and Lufthansa Systems. Many of these competitors
have formed strategic alliances with large companies in the travel industry, and
the Company's access to such potential customers is thus limited. The Company
believes that its competitive position in the travel industry is enhanced by its
experience in developing systems for American, by its ability to offer not only
software applications but also systems development, integration and maintenance
and transactions processing services, and because it can offer to customers what
it believes to be the most comprehensive suite of software solutions for the
airline industry.
INTELLECTUAL PROPERTY
In connection with the Reorganization, American transferred to the Company
the software utilized in the operation of the business of The SABRE Group. This
software, along with other software, proprietary information and intellectual
property rights, are significant assets of the Company. The Company relies on a
combination of copyright and trademark laws, trade secrets, confidentiality
procedures and contractual provisions to protect these assets. The Company's
software and related documentation, however, are protected principally under
trade secret and copyright laws, which afford only limited protection. In
addition, the laws of some foreign jurisdictions may provide less protection
than the laws of the United States for the Company's proprietary rights.
Unauthorized use of the Company's intellectual property could have a material
adverse effect
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on the Company, and there can be no assurance that the Company's legal remedies
would adequately compensate it for the damages to its business caused by such
use.
Licenses for a number of software products have been granted to the
Company. Certain of these licenses, individually and in the aggregate, are
material to the business of the Company.
FACILITIES
The Company's principal executive offices are located in Fort Worth, Texas,
primarily in two buildings, one of which is owned by the Company and one of
which is leased from the Dallas/Fort Worth International Airport Board pursuant
to a lease that expires in 2023, subject to four renewal options, exercisable by
the Company, of five years duration each. The Company also leases office
facilities in approximately 70 other locations worldwide. The Company's Data
Center is located in an underground facility in Tulsa, Oklahoma. The land on
which the Data Center is located is leased from the Tulsa Airport Improvements
Trust, a public trust organized under the laws of the State of Oklahoma,
pursuant to a lease that expires in 2038.
SABRE and the Company's data processing services and transactions
processing are dependent on the Company's central computer operations and
information processing facility located in the Data Center, which contains over
120,000 square feet of space and houses fifteen mainframes having 12,639
gigabytes of storage and 3,371 MIPS of processing power. The SABRE system, which
is connected to over 120,000 computer access terminals and operates non-stop
throughout the year, maintains over 50 million air fares (updated five times per
business day), averages 93 million requests for information per day and has
processed up to 4,969 requests for information per second (in July 1996). The
Company also utilizes a computer center located in one of its office buildings
in Fort Worth (the "Fort Worth Center"). At the Fort Worth Center, the Company
operates and manages a wide variety of processors and computer systems as well
as server based and client/server distributed systems.
The Company's travel agency and corporate subscribers connect to SABRE
through leased access circuits. These leased access circuits, in turn, connect
to the domestic and international data networks leased by the Company from SITA,
which connect to the Data Center.
The Company believes that its office facilities will be adequate for its
immediate needs and that additional or substitute space is available if needed
to accommodate expansion. The Company also believes that its Data Center, Fort
Worth Center and network access will be adequate for its immediate and
foreseeable needs. The Company, however, continuously invests in research and
development to upgrade these facilities to meet changing technological needs.
LEGAL PROCEEDINGS
In June 1996, American Trans Air, Inc. filed suit against American in the
U.S. District Court for the Southern District of Indiana, Indianapolis Division
seeking a refund of $400,000 in booking fees it claims were charged for
illegitimate bookings. Prior to the filing by American Trans Air of its lawsuit,
America West Airlines Inc. had used a similar claim of illegitimate bookings to
withhold over $1.0 million in booking fees payable to American. American and
SABRE Associates, Inc., an affiliate of the Company, filed suit in the District
Court of Tarrant County, Texas, 153rd Judicial District, to recover the unpaid
booking fees from America West. In connection with the Reorganization, the
Company is the successor in interest to American in both of these cases. The
claims of both American Trans Air, Inc. and America West relate to booking fees
charged by the Company, and commonly charged by other providers in the
electronic travel distribution industry, for "passive bookings," which are
bookings initially made directly with a travel provider (rather than through a
travel agent) and subsequently ticketed through SABRE or another global
distribution system. If both American Trans Air and America West prevail on
their claims of illegitimate booking fees, other associates may also make
similar claims. The Company believes, however, that passive booking fees are
properly charged pursuant to its contracts with associates. The Company intends
to
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vigorously defend its actions in this regard and believes that the claims of
American Trans Air, Inc. and America West can be successfully defended or
resolved without any material adverse effect on the Company's financial
condition or results of operations.
Alaska Airlines has filed a Petition for Rulemaking with the DOT seeking a
rule that would bar a global distribution system from requiring airlines that
are not GDS-Affiliated Airlines to participate in such system at the same level
of functionality as the airline participates in other global distribution
systems. The Company believes that this Petition for Rulemaking is a result of a
breach of contract suit brought by American against Alaska Airlines in 1994 in
the U.S. District Court for the Northern District of Texas. In its complaint,
American alleged that Alaska Airlines breached its participating carrier
agreement by obtaining greater functionality from other global distribution
systems than it obtained from SABRE. American is seeking declaratory relief.
This lawsuit has been stayed for over a year as the parties try to negotiate
settlement. In connection with the Reorganization, the Company is the successor
in interest to American in this litigation. See "-- Electronic Travel
Distribution -- Industry Regulation."
EMPLOYEES
As of June 30, 1996, the Company had approximately 7,900 full-time
employees. A central part of the Company's philosophy is to attract and maintain
a highly capable staff. The Company considers its current employee relations to
be good. None of the Company's employees are represented by a labor union.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, their present
positions and their ages with the Company are as follows:
Robert L. Crandall........ Mr. Crandall was elected Chairman of the Board of
Directors of the Company in July 1996. He has been
Chairman of the Board and Chief Executive Officer of
AMR Corporation since 1985, President of AMR since
its formation in 1982 and Chairman of the Board and
Chief Executive Officer of American since 1985. Mr.
Crandall was President of American from 1980 to 1995.
Mr. Crandall is also a director of Halliburton
Company. Age 60.
Michael J. Durham......... Mr. Durham was elected a director, President and
Chief Executive Officer of the Company in July 1996.
Mr. Durham was also elected President and Chief
Executive Officer of The SABRE Group, Inc. in July
1996. Mr. Durham was elected President of The SABRE
Group in 1995. Mr. Durham was Senior Vice President
and Treasurer of AMR and Senior Vice
President -- Finance and Chief Financial Officer of
American from 1989 to 1995. Age 45.
Gerard J. Arpey........... Mr. Arpey was elected a director of the Company in
July 1996. He has been Senior Vice President of AMR
since 1992 and Chief Financial Officer of AMR since
1995. Mr. Arpey was Vice President of American from
1989 to 1995. Age 38.
Anne H. McNamara.......... Mrs. McNamara was elected a director of the Company
in August 1996. Mrs. McNamara has been Senior Vice
President and General Counsel of AMR since 1988. Mrs.
McNamara is a director of Louisville Gas & Electric
Company and of LG&E Energy Corp. and serves on the
compensation and nominating/development committees of
both companies. Age 48.
Bradford J. Boston........ Mr. Boston was elected Senior Vice President -- SABRE
Computer Services of the Company in July 1996. Mr.
Boston was also elected President -- SABRE Computer
Services for The SABRE Group, Inc. in July 1996. Mr.
Boston was President -- SABRE Computer Services, a
division of The SABRE Group, from June 1996 to July
1996. Prior to that time, Mr. Boston was Senior Vice
President for American Express Travel Related
Services from 1994 to 1996, was Senior Vice President
of Visa International's Visanet operations from 1993
to 1994, and was Vice President of Systems
Development for United Airlines/Covia Partnership
from 1991 to 1993. Age 42.
Thomas M. Cook............ Mr. Cook was elected Senior Vice President -- SABRE
Decision Technologies of the Company in July 1996.
Mr. Cook was also elected President -- SABRE Decision
Technologies for The SABRE Group, Inc. in July 1996.
Mr. Cook was President -- SABRE Decision
Technologies, a division of The SABRE Group, from its
formation in 1994 to 1996. For American, Mr. Cook was
President -- Decision Technologies from 1988 to 1994.
Age 56.
Terrell B. Jones.......... Mr. Jones was elected Senior Vice President -- SABRE
Interactive and Chief Information Officer of the
Company in July 1996. Mr. Jones was also elected
President -- SABRE Interactive and Chief Informa-
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tion Officer for The SABRE Group, Inc. in July 1996.
Mr. Jones served as President -- SABRE Computer
Services, a division of The SABRE Group, from 1993 to
1996 and as President -- SABRE Interactive, a
division of The SABRE Group, from 1995 to 1996. For
American, Mr. Jones served as Managing Director and
Division Vice President -- SCS Systems Planning &
Development from 1991 to 1993, and as Managing
Director & Vice President -- STIN Product Development
from 1987 to 1991. Age 48.
Jeffrey G. Katz........... Mr. Katz was elected Senior Vice President -- SABRE
Travel Information Network of the Company in July
1996. Mr. Katz was also elected President -- SABRE
Travel Information Network for The SABRE Group, Inc.
in July 1996. Mr. Katz was President -- SABRE Travel
Information Network, a division of The SABRE Group,
from 1993 to July 1996. For American, Mr. Katz served
as Division Managing Director -- Passenger Sales from
1991 to 1993. Age 41.
T. Patrick Kelly.......... Mr. Kelly was elected Senior Vice President, Chief
Financial Officer and Treasurer of the Company and of
The SABRE Group, Inc. in July 1996. Mr. Kelly was
Senior Vice President -- SABRE Group Planning from
1995 to July 1996. For American, Mr. Kelly served as
Vice President -- Financial Planning & Analysis from
1993 to 1995, Managing Director -- SABRE Development
Services from 1992 to 1993, and Managing
Director -- Financial Planning from 1990 to 1992. Age
39.
Andrew B. Steinberg....... Mr. Steinberg has agreed to serve as Senior Vice
President, General Counsel and Corporate Secretary of
the Company as of the date of the consummation of the
Offerings. Mr. Steinberg has served as an associate
general counsel of American since 1994 and will
resign from that position upon becoming Senior Vice
President, General Counsel and Corporate Secretary of
the Company. From 1991 to 1994, Mr. Steinberg was a
senior attorney with American. Age 37.
Following the consummation of the Offerings, the Company intends to elect
five additional directors, two of whom are directors but not employees or
officers of AMR and three of whom are neither employees or officers of the
Company or AMR nor directors of AMR.
INFORMATION REGARDING THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors is divided into three classes of directors, with
each class elected to a three-year term every third year and holding office
until their successors are elected and qualified. Mr. Crandall's present term as
Chairman of the Board will expire at the Company's annual meeting of
stockholders to be held in 1999. Mr. Durham's present term as a director will
expire at the Company's annual meeting of stockholders to be held in 1999. Mr.
Arpey's present term as a director will expire at the Company's annual meeting
of stockholders to be held in 1998. Mrs. McNamara's present term as a director
will expire at the Company's annual meeting of stockholders to be held in 1997.
The Bylaws authorize the Board of Directors to designate three committees,
an Executive Committee, an Audit Committee and a Compensation/Nominating
Committee. The Board of Directors has designated an Executive Committee and
will, upon the consummation of the Offerings, designate an Audit Committee and a
Compensation/Nominating Committee. In addition, the Board of Directors may, from
time to time, designate one or more Special Committees, which shall have such
duties and may exercise such powers as are granted to it by the Board of
Directors.
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The Executive Committee will consist of four or more members, including the
Chairman of the Board and the Chief Executive Officer. The Executive Committee
has and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the Company, with the exception of
such powers and authority as may be specifically reserved to the Board by law or
by resolution adopted by the Board of Directors.
The Audit Committee, which will be composed entirely of directors who are
not employees or officers of the Company or AMR or directors of AMR, will review
and recommend the selection of independent auditors, the fees to be paid to such
auditors, the adequacy of the audit and accounting procedures of the Company and
such other matters as may be specifically delegated to the Audit Committee by
the Board of Directors. In this connection, the Audit Committee shall, at its
request, meet with representatives of the independent auditors and with the
financial officers of the Company separately or jointly.
The Compensation/Nominating Committee, which will be composed entirely of
directors who are neither employees nor officers of the Company, will review and
make recommendations with respect to the management remuneration policies of the
Company including salary rates and fringe benefits of elected officers, other
remuneration plans such as incentive compensation, deferred compensation and
stock option plans, directors' compensation and benefits and such other matters
as may be specifically delegated to the Compensation/Nominating Committee by the
Board of Directors. In addition, the Compensation/Nominating Committee will make
recommendations to the Board of Directors concerning suitable candidates for
election to the Board of Directors, with respect to assignments to committees of
the Board of Directors, and with respect to promotions, changes and succession
among the senior management of the Company. In making recommendations for
suitable candidates for election to the Board of Directors, the
Compensation/Nominating Committee will consider nominees for election
recommended by stockholders.
COMPENSATION OF DIRECTORS
Directors who are not executive officers of the Company or AMR will receive
an annual retainer of $25,000 for Board of Directors and committee service and a
fee of $1,000 for each meeting of the Board of Directors or any committee
thereof attended.
It is anticipated that, prior to the consummation of the Offerings, the
Board of Directors will adopt, effective on the consummation of the Offerings, a
Directors' Stock Incentive Plan (the "SIP").
The SIP will provide for an annual award of options to purchase 3,000
shares of the Company's Class A Common Stock to each director who is neither an
officer nor an employee of the Company, AMR or any subsidiary thereof (a
"Non-Employee Director") who is in office on the first business day after each
annual meeting of stockholders occurring during the term of the SIP (an "Annual
Award"). The options, which will have an exercise price equal to the fair market
value of the Class A Common Stock on the date of grant, will vest pro rata over
a five-year period, as long as the Non-Employee Director is in office on the
first business day after each annual meeting of stockholders. Notwithstanding
the vesting provisions of the previous sentence, if a Non-Employee Director
ceases to be a director due to death or disability before all options are
vested, the Non-Employee Director's options shall vest immediately upon death or
disability. Each option will expire on the earlier of (i) the date the
Non-Employee Director ceases to be a director of the Company, if for any reason
other than death, disability or retirement or (ii) three years from the date the
Non-Employee Director ceases to be a director of the Company due to death,
disability or retirement; provided, however, that if the Non-Employee Director
dies within the three-year period following disability or retirement, as
applicable, the option will expire no later than 12 months after the
Non-Employee Director's death.
The SIP will also provide for a one-time award of options to purchase
10,000 shares of the Company's Class A Common Stock to a new Non-Employee
Director upon his or her initial election
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to the Board of Directors (a "New Director"). This grant will be made on the
business day immediately following the annual meeting at or after which such New
Director is elected to the Board (the "Election Award"). Options granted as an
Election Award, which will have an exercise price equal to the fair market value
of the Class A Common Stock on the date of grant, will vest in the same manner
as options granted as an Annual Award. The Election Award will be in addition to
the Annual Award.
A maximum of 350,000 shares may be issued under the SIP, subject to
appropriate adjustments in the event of certain corporate transactions,
including but not limited to reorganizations, stock dividends and splits. The
SIP will be administered, and may be amended, by the Board of Directors.
No income will be realized by the Non-Employee Director at the time options
are granted. Generally, upon exercise of an option, the Non-Employee Director
will realize ordinary income in an amount equal to the difference between the
price paid for the shares and the fair market value of the shares on the date of
exercise. The Company will be entitled to a tax deduction in the same amount.
Any appreciation (or depreciation) after the date of the exercise will be either
short-term or long-term capital gain or loss, depending on the length of time
that the Non-Employee Director has held the shares.
EXECUTIVE COMPENSATION
Prior to the Reorganization, a majority of the employees of the Company,
including the five most highly compensated executive officers of the Company,
who are named below, were compensated by American. Following the Reorganization,
the executive officers and all other employees of the Company will be
compensated solely by the Company, and the executive officers of the Company
will no longer participate in any of American's compensation plans, except with
regard to certain equity awards granted by AMR as described below and with
regard to American's fixed benefit retirement plan, in which the employees of
the Company will participate until December 31, 1996.
The Company's compensation program will be administered by the
Compensation/Nominating Committee. The Company's executive officers will receive
annual cash compensation in the form of a base salary and will participate in a
formula-based incentive compensation plan that is tied to the Company's
financial performance. In addition, the Company's executive officers and other
key employees will be eligible to participate in the Company's Long-Term
Incentive Plan (the "LTIP"). The Company's executive officers will also
participate in one or more retirement plans, the parameters of which are
presently under consideration by the Company.
For the fiscal year ended December 31, 1995, the five most highly
compensated officers of the Company whose aggregate remuneration exceeded
$100,000 were Michael J. Durham, Thomas M. Cook, Terrell B. Jones, Jeffrey G.
Katz and T. Patrick Kelly (the "named executive officers"). See "-- Compensation
of the Named Executive Officers in 1995." Bradford J. Boston was appointed
Senior Vice President -- SABRE Computer Services on June 1, 1996. As base salary
for 1996, Mr. Durham will receive $393,583, Mr. Cook will receive $259,499, Mr.
Jones will receive $243,700, Mr. Katz will receive $187,243 and Mr. Kelly will
receive $186,883. Mr. Boston will receive a base salary of $132,750 for the
seven months commencing June 1, 1996, the date of commencement of his employment
with the Company.
The Company's incentive compensation plan provides that each of the named
executive officers, along with other key employees, will be eligible to receive
cash bonus awards only if specified financial performance goals are met by the
Company. The target bonus payable to a participant under the incentive
compensation plan is based upon that individual's job classification at the
Company, but the actual amount of the award is based on a subjective evaluation
of such individual's performance. No bonus payment may exceed 100% of the
individual's base salary.
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THE COMPANY'S LONG-TERM INCENTIVE PLAN
It is anticipated that, prior to the consummation of the Offerings, the
Board of Directors will adopt, and AMR, as the Company's sole stockholder, will
approve, effective upon the consummation of the Offerings, the LTIP.
LTIP awards may be made to key employees, including officers of the
Company, its subsidiaries and affiliates but may not be granted to any director
who is not also an employee of the Company, its subsidiaries or affiliates. The
number of employees participating in the LTIP will vary from year to year.
Initially 13.0 million shares of Class A Common Stock will be authorized to
be issued under the LTIP. The Company presently intends, however, that as long
as AMR beneficially owns at least 80% of the economic interest, and 80% of the
voting power, of the Company, the Company will only issue such number of shares
under the LTIP as will permit AMR to retain at least 80% of the economic
interest, and 80% of the voting power, of the Company.
If shares subject to an option under the LTIP cease to be subject to such
option, or if shares awarded under the LTIP are forfeited, or an award otherwise
terminates without a payment being made to the participant in the form of Class
A Common Stock, such shares will again be available for future distribution
under the LTIP. In the event of certain changes in the Company's capital
structure affecting the Class A Common Stock, the LTIP Committee may make
appropriate adjustments in the number of shares that may be awarded and in the
number of shares covered by options and other awards then outstanding under the
LTIP, and, where applicable, the exercise price of awards under the LTIP.
The LTIP will be administered by a committee consisting of no fewer than
two members of the Board of Directors (the "LTIP Committee"). The LTIP Committee
will have the authority to grant the following types of awards under the LTIP:
(1) stock options, (2) stock appreciation rights, (3) restricted stock, (4)
deferred stock, (5) stock purchase rights, (6) other stock-based awards. Each of
these awards may be granted alone or in conjunction with, or in tandem with,
other awards under the LTIP and/or cash awards outside the LTIP.
1. STOCK OPTIONS. Incentive stock options and non-qualified stock options
may be granted for such number of shares as the LTIP Committee shall determine,
except that no participant may be granted stock options in any 12 month period
for more than 400,000 shares. Stock options are exercisable at such times and
subject to such terms and conditions as the LTIP Committee determines and over a
term (not in excess of 10 years) determined by the LTIP Committee. Except as
otherwise determined by the LTIP Committee, the exercise price for any option
may not be less than 100% of the fair market value of the Company's Class A
Common Stock as of the date of grant.
Unless otherwise determined by the LTIP Committee, only options that are
exercisable on a participant's date of termination, death, disability or
retirement may be subsequently exercised. Upon an employee's voluntary
resignation or termination for cause, such employee's stock options generally
will terminate. If the employee is involuntarily terminated without cause, stock
options generally will be exercisable for three months following such
termination. The LTIP provides that stock options generally will be exercisable
for three years following termination of employment due to death, disability or
retirement; provided, however, that if the employee dies within the three-year
period following disability or retirement, as applicable, the option will expire
12 months after the employee's death. In no event, however, will a stock option
remain exercisable past its original term.
2. STOCK APPRECIATION RIGHTS. Stock Appreciation Rights ("SARs") may be
granted in conjunction with all or part of a stock option and will be
exercisable only when the underlying stock option is exercisable. Once an SAR
has been exercised, the portion of the stock option underlying the SAR
terminates. The LTIP Committee may grant SARs that become exercisable only in
the event of a Change in Control or Potential Change in Control of the Company
and may provide that such SARs
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may be cashed out on the basis of the Change in Control Price, as such terms are
defined in the LTIP.
Upon exercise of an SAR, the LTIP Committee, at its discretion, will pay
the employee in cash, Class A Common Stock or a combination thereof, an amount
equal to the excess of the then fair market value of the stock over the exercise
price, multiplied by the number of SARs being exercised.
3. RESTRICTED STOCK. The vesting of restricted stock may be conditioned
upon such factors as the LTIP Committee may determine. The LTIP Committee
determines the period during which restricted stock is subject to forfeiture. At
grant, the LTIP Committee may provide for other awards, payable either in stock
or cash, to ensure payment of a minimum value at the time the restrictions
lapse.
4. DEFERRED STOCK. The LTIP Committee determines the periods during which
the deferred stock is subject to forfeiture. The vesting of deferred stock may
be conditioned upon the attainment of specific performance goals or such other
factors as the LTIP Committee may determine. The LTIP Committee may provide for
other awards, payable either in stock or cash, to ensure payment of a minimum
value at the time the deferral limitations lapse, subject to such performance,
service and/or other terms and conditions as the LTIP Committee may specify.
5. STOCK PURCHASE RIGHTS. The LTIP Committee may grant to eligible
individuals rights to purchase the Company's Class A Common Stock at (a) the
fair market value, (b) 50% of the fair market value, (c) book value or (d) par
value, all such values being determined as of the date of grant. The LTIP
Committee may condition such rights, or their exercise, on such terms and
conditions as it sees fit. Rights to purchase stock will be exercisable for a
period to be determined by the LTIP Committee, except that the period may not be
greater than 30 days.
6. OTHER STOCK-BASED AWARDS. The LTIP Committee may also grant other types
of awards that are valued, in whole or in part, by reference to or otherwise
based on the Company's Class A Common Stock. Such awards will be made upon such
terms and conditions as the LTIP Committee in its discretion may provide.
The LTIP will also permit the LTIP Committee to pay cash amounts to any
executive officer (within the meaning of Section 16(a) of the Securities
Exchange Act of 1934, as amended) upon the achievement, in whole or in part, of
performance goals or objectives established in writing by the LTIP Committee
with respect to such performance periods as the LTIP Committee shall determine.
Any such goals or objectives shall be based on one or more of the Performance
Criteria, as defined in the LTIP. The maximum amount of any such cash payment to
any single officer with respect to any 12 month period shall not exceed the
lesser of (i) $1,000,000 or (ii) twice the officer's annual base salary as in
effect on the last day of the preceding fiscal year.
If there is a Change in Control or a Potential Change in Control, all
awards that are not then vested will become vested and any restrictions or
limitations will lapse. Stock options, SARs, limited SARs, restricted stock,
deferred stock, stock purchase rights and other stock-based awards will, unless
otherwise determined by the LTIP Committee in its sole discretion, be cashed out
on the basis of the Change in Control Price.
The following is a brief summary of the federal income tax consequences of
awards made under the LTIP based upon the federal income tax laws in effect on
the date hereof. This summary is not intended to be exhaustive and does not
describe state or local tax consequences.
Incentive Stock Options. No taxable income is realized by the participant
upon the grant or exercise of an incentive stock option (an "ISO"). If a
participant does not sell the stock received upon the exercise of an ISO ("ISO
Shares") for at least two years from the date of grant and within one year from
the date of exercise, when the shares are sold any gain (loss) realized will be
long-term capital gain (loss). In such circumstances, no deduction will be
allowed to the Company for federal income tax purposes.
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If ISO Shares are disposed of prior to the expiration of the holding
periods described above, the participant generally will realize ordinary income
at that time equal to the excess, if any, of the fair market value of the shares
at exercise (or, if less, the amount realized on the disposition of the shares)
over the price paid for such ISO Shares. The Company will be entitled to deduct
any such recognized amount. Any further gain or loss realized by the participant
will be taxed as short-term or long-term capital gain or loss. Subject to
certain exceptions for disability or death, if an ISO is exercised more than
three months following the termination of the participant's employment, the
option will generally be taxed as a non-qualified stock option.
Non-Qualified Stock Options. No income is realized by the participant at
the time a non-qualified stock option is granted. Generally upon exercise of a
non-qualified stock option, the participant will realize ordinary income in an
amount equal to the difference between the price paid for the shares and the
fair market value of the shares on the date of exercise. The Company will be
entitled to a tax deduction in the same amount. Any appreciation (or
depreciation) after the date of the exercise will be either short-term or
long-term capital gain or loss, depending on the length of time that the
participant has held the shares.
Stock Appreciation Rights. No income will be realized by a participant in
connection with the grant of an SAR. When the SAR is exercised, the participant
will generally be required to include as taxable ordinary income in the year of
exercise an amount equal to the amount of cash and the fair market value of any
shares received. The Company will be entitled to a deduction at the time and in
the amount included in the participant's income by reason of the exercise. If
the participant receives Class A Common Stock upon exercise of any SAR, the
post-exercise appreciation or depreciation will be treated in the same manner
discussed above under Non-Qualified Stock Options.
Restricted Stock. A participant receiving restricted stock generally will
recognize ordinary income in the amount of the fair market value of the
restricted stock at the time the stock is no longer subject to forfeiture, less
any consideration paid for the stock. The Company will be entitled to a
deduction at the same time and in the same amount. The holding period to
determine whether the participant has long-term or short-term gain or loss on a
subsequent sale generally begins when the stock is no longer subject to
forfeiture, and the participant's tax basis for such shares will generally equal
the fair market value of such shares on such date.
However, a participant may elect, under Section 83(b) of the Internal
Revenue Code of 1986, as amended (the "Code"), within 30 days of the grant of
the stock, to recognize taxable ordinary income on the date of grant equal to
the excess of the fair market value of the shares of restricted stock
(determined without regard to the restrictions) over the purchase price of the
restricted stock. By reason of such an election, the participant's holding
period will commence on the date of grant, and the participant's tax basis will
be equal to the fair market value of the shares on that date (determined without
regard to restrictions). Likewise, the Company generally will be entitled to a
deduction at that time in the amount that is taxable as ordinary income to the
participant. If shares are forfeited after making such an election, the
participant will be entitled to a deduction or loss for tax purposes only in an
amount equal to the purchase price, if any, of the forfeited shares.
Deferred Stock. A participant receiving deferred stock generally will be
subject to tax at ordinary income rates on the fair market value of the deferred
stock on the date that the stock is distributed to the participant, and the
capital gain or loss holding period for such stock will also commence on that
date. The Company generally will be entitled to a deduction in the amount that
is taxable as ordinary income to the participant.
ANTICIPATED GRANTS TO THE EXECUTIVE OFFICERS FOR 1996
On the date of the consummation of the Offerings, the Company will make
one-time grants to the named executive officers in connection with the Offerings
and annual grants as part of their annual compensation. The grants will be
comprised of (i) options to purchase Class A Common Stock, (ii) restricted stock
and (iii) performance shares, which are shares of Class A Common
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Stock (and a type of deferred stock) that will be issued in the first quarter of
1999 based upon the Company's attainment of pre-determined financial objectives
over the period from 1996 to 1998 ("Performance Shares"). A portion of each of
the one-time grants of options is an acceleration of grants that would otherwise
be made, and will reduce the number of options to be granted, to the named
executive officers and to Mr. Boston in 1997.
The Company anticipates that upon the consummation of the Offerings: (i)
approximately $1,500,000 in options to purchase shares of Class A Common Stock,
calculated using a modified Black-Scholes model, and $338,500 in Performance
Shares, valued based upon the Offering price of the Class A Common Stock, will
be granted to Mr. Durham; (ii) approximately $662,700 in options to purchase
Class A Common Stock, $175,200 in Performance Shares and $55,800 in restricted
stock will be granted to Mr. Cook; (iii) approximately $475,300 in options to
purchase Class A Common Stock and $175,300 in Performance Shares will be granted
to Mr. Jones; (iv) approximately $450,000 in options to purchase Class A Common
Stock and $169,700 in Performance Shares will be granted to Mr. Katz; (v)
approximately $450,000 in options to purchase Class A Common Stock and $166,400
in Performance Shares will be granted to Mr. Kelly; and (vi) approximately
$280,000 in options to purchase Class A Common Stock will be granted to Mr.
Boston.
CONVERSION OF AMR EQUITY COMPENSATION TO CLASS A COMMON STOCK
Upon consummation of the Offerings, except as noted below, each employee
will have the opportunity to have all unexercised or unvested stock awards from
AMR held by such employee converted into stock awards of the Company and vest
under the original time schedule applicable with respect to such awards. Each of
the officers of the Company has elected to convert his AMR equity awards into
awards payable in Class A Common Stock.
Performance shares of AMR common stock that will be issued in the first
quarter of 1998 based upon the Company's attainment of pre-determined cash flow
objectives over the period from January 1, 1995 to December 31, 1997 will vest
according to their original performance metric and time frame. However, upon
vesting, payment to employees of the Company will be made using shares of Class
A Common Stock. The number of shares of Class A Common Stock to be issued will
equal the number of shares of AMR common stock to be issued multiplied by the
market price of AMR common stock on the date of the pricing of the Offerings and
divided by the Offering price.
Stock options to purchase AMR common stock will be exchanged on the date of
the consummation of the Offerings for options to purchase Class A Common Stock
of equal in-the-money value.
Career equity, awarded by AMR, is an award of deferred common stock that
vests generally at retirement. Most of the shares of career equity held by
employees of the Company will convert, on the date of consummation of the
Offerings, into some combination of options to purchase Class A Common Stock and
restricted shares of Class A Common Stock.
Two forms of AMR stock awards will not be altered in connection with the
Offerings. Performance shares of AMR common stock relating to the period from
January 1, 1994 through December 31, 1996 (issuable in the first quarter of
1997) will be paid in shares of AMR common stock when and if payment is due. In
addition, each share of AMR restricted stock held by each employee of the
Company, other than Mr. Boston, will complete its vesting according to its
original vesting schedule and will be converted to restricted shares of Class A
Common Stock. Pursuant to his terms of employment, Mr. Boston's AMR restricted
stock will convert into shares of restricted stock of the Company of equal
value.
55
<PAGE> 58
EMPLOYMENT AGREEMENTS
The Company has entered into an agreement (the "Durham Agreement") with Mr.
Durham, which provides that Mr. Durham will be employed by the Company for a
term of three years from the date of the Offerings. In the event that the
Company terminates Mr. Durham's employment during the term of the Durham
Agreement without cause, Mr. Durham would receive a severance payment equal to
the greater of (i) one year's salary and incentive compensation or (ii) the
total amount of salary remaining for the term of the Durham Agreement, and all
outstanding stock awards would continue vesting through the greater of one year
or the remainder of the term of the Durham Agreement. Mr. Durham and the Company
have also agreed that Mr. Durham will receive travel privileges from American
until June 30, 2008, and thereafter as a retiree if he retires on or prior to
June 30, 2008, subject to limited exceptions.
The Company has assumed the obligations of American under agreements
originally entered into by American with Mr. Cook and Mr. Jones (the "Officer
Agreements"). Mr. Cook's agreement provides that Mr. Cook will be employed by
the Company as an officer until October 31, 2000. Mr. Jones' agreement provides
that Mr. Jones will be employed by the Company as an officer until April 18,
2000, subject to extension by the Company to no later than April 18, 2004.
Pursuant to the Officer Agreements, the Company reserves the right to remove Mr.
Cook or Mr. Jones as an officer and to retain him as an employee for consulting
services during the remainder of the term of the applicable Officer Agreement.
Such officer's base salary as a consultant would be the rate in effect at the
time of his removal as an officer and such salary would continue for the
remainder of the term of the applicable Officer Agreement. Pursuant to the
Officer Agreements, each of Mr. Cook and Mr. Jones is entitled to receive
specified amounts of incentive compensation under AMR's Long Term Incentive
Plan, along with other specified benefits customarily provided to officers of
the Company. Each of Mr. Cook and Mr. Jones has agreed that the incentive
compensation to be awarded under AMR's Long Term Incentive Plan will instead be
granted in awards of Class A Common Stock pursuant to the LTIP.
RETIREMENT PLANS
Each employee of the Company will continue to participate in American's
fixed benefit retirement plan until December 31, 1996, as described below. After
that time, the Company will implement The SABRE Group Retirement Plan (the
"SGRP") and the Legacy Pension Plan (the "LPP").
Until December 31, 1996, each employee of the Company will participate in
American's fixed benefit retirement plan (the "Fixed Benefit Retirement Plan"),
which complies with the Employee Retirement Income Security Act of 1974
("ERISA") and qualifies for federal exemption under the Internal Revenue Code of
1986 (the "Code"). Until December 31, 1996, the named executive officers of the
Company are eligible for additional retirement benefits under the Supplemental
Executive Retirement Plan (the "SERP"). The SERP provides pension benefits
(calculated upon the basis of final average base salary, incentive compensation
payments and performance returns) to which officers of the Company would be
entitled but for the limit of $120,000 on the maximum annual benefit payable
under ERISA and the Code and the limit on the maximum amount of compensation
that may be taken into account under the Company's basic pension program
($150,000 for 1995).
56
<PAGE> 59
The following table shows typical annual benefits payable under the Fixed
Benefit Retirement Plan and the SERP, based upon retirement in 1995 at age 65,
to persons in specified remuneration and credited years of service
classifications. Annual retirement benefits set forth below are subject to
reduction for Social Security benefits.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ANNUAL RETIREMENT BENEFITS
--------------------------------------------------------
FINAL CREDITED YEARS OF SERVICE
AVERAGE --------------------------------------------------------
SALARY 15 20 25 30 35
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$250,000............................. $ 75,000 $100,000 $125,000 $150,000 $175,000
300,000............................. 90,000 120,000 150,000 180,000 210,000
400,000............................. 120,000 160,000 200,000 240,000 280,000
500,000............................. 150,000 200,000 250,000 300,000 350,000
600,000............................. 180,000 240,000 300,000 360,000 420,000
700,000............................. 210,000 280,000 350,000 420,000 490,000
800,000............................. 240,000 320,000 400,000 480,000 560,000
</TABLE>
As of December 31, 1995, the named executive officers had the following
credited years of service: Mr. Durham: 15.5; Mr. Cook: 12.5; Mr. Katz: 14.5; Mr.
Jones: 16.0; Mr. Kelly: 10.5.
Commencing January 1, 1997, employees of the Company who were under the age
of 40 as of November 1, 1996 will participate in the SGRP. Employees who were
over the age of 40 as of November 1, 1996 will have the option of participating
in the SGRP or the LPP. The SGRP is a plan qualified under Section 401(k) of the
Code. Pursuant to the SGRP, the Company will contribute monthly 2.75% of each
employee's base pay to the SGRP. In addition, the Company will match 50 cents of
each dollar contributed by an employee, up to 6% of the employee's base pay. The
employee will vest in the Company contributions after three years of service
with the Company, including service for AMR affiliates. The employee is
immediately vested in his or her own contributions and in the matching
contributions of the Company. The amount that any employee will be entitled to
receive upon retirement will be subject to the amount of that employee's
contributions, the investment selections of the employee and the returns
thereon.
The LPP is substantially identical to American's Fixed Benefit Retirement
Plan. All benefits earned by employees of the Company under American's Fixed
Benefit Retirement Plan will be transferred to the LPP effective December 31,
1996. Upon retirement, benefits under the LPP will be calculated based upon base
pay for the five years closest to retirement. For employees who participate in
the SGRP, benefits payable under the LPP will be based upon credited years of
service as of December 31, 1996. However, employees in the SGRP will continue to
earn years of service for purposes of determining vesting and early retirement
benefits under the LLP.
The Company anticipates that, prior to January 1, 1997, it will adopt a
supplemental executive retirement plan for its officers and directors. Although
the form of the supplemental executive retirement plan is under consideration,
the Company anticipates that the benefits payable thereunder will be similar to
those payable under American's SERP. As such, typical annual benefits payable to
officers who participate in the LPP and the SERP will be similar to those
indicated on page 55 for participation in American's plans.
EMPLOYEE STOCK PURCHASE PLAN
It is anticipated that, prior to the consummation of the Offerings, the
Board of Directors will adopt, and AMR as the sole stockholder will approve, a
Stock Purchase Plan (the "Stock Purchase Plan") for employees of the Company who
are based in the United States and in certain foreign jurisdictions, and who
otherwise meet the requirements specified in Section 423 of the Code. Through
the Stock Purchase Plan, eligible employees will have the opportunity to
purchase shares of Class A Common Stock semi-annually at a 15% discount from the
prevailing market price on the
57
<PAGE> 60
first or last day of the applicable six-month period, whichever is lower.
Pursuant to the Stock Purchase Plan, each employee will be permitted to acquire
annually Class A Common Stock with an aggregate maximum purchase price equal to
2% of that employee's base pay, subject to applicable limitations under the
Code.
EXECUTIVE TERMINATION BENEFITS AGREEMENTS
The Company will have, effective as of the closing of the Offerings,
executive termination benefits agreements (the "termination benefits
agreements") with seven of its officers, including all of the named executive
officers. The benefits provided by the termination benefits agreements are
triggered by the termination of the individual who is a party to a termination
benefits agreement (i) within three years following a change in control of the
Company, if the individual's employment with the Company is terminated other
than for cause or if the individual terminates his or her employment with "good
reason" or (ii) within one year following a change in control of the Company, if
the individual terminates his or her employment with the Company; provided,
however, that if the individual's employment is terminated for cause or as a
consequence of death or disability, the termination benefits agreement is not
triggered. Under the terms of the termination benefits agreements, a change in
control of the Company is deemed to occur (i) if a third party, other than AMR
or an affiliate, acquires 20% or more of the combined voting power of the
Company's then outstanding securities with respect to the election of directors
of the Company, (ii) upon the occurrence of a transaction that requires
stockholder approval and involves the acquisition of the Company (through the
purchase of assets or by merger or otherwise) by an entity other than the
Company, a subsidiary thereof, AMR or an affiliate thereof or (iii) if during
any 24-month period the individuals who, at the beginning of such period,
constitute the Board of Directors of the Company cease for any reason other than
death to constitute at least a majority thereof and the new directors of the
Company were not elected with the approval of the individuals who, at the
beginning of such period, constitute the Board of Directors. A change in control
would not occur in the event that AMR distributes its Class B Common Stock (or
upon conversion of such Class B Common Stock, the resulting Class A Common
Stock) to its stockholders or sells such Common Stock to the public in an
underwritten public offering. The termination benefits agreements provide that
upon such termination, the individual will receive, in a lump sum payment, the
sum of (i) two times the greater of (A) the executive's annual base salary at
the Termination Date or (B) the executive's effective annual base salary
immediately prior to the change in control, plus (ii) two times the greater of
(x) the median annual bonus awarded to the executive under the LTIP or any other
bonus plan or (y) 50% of the highest median target bonus rate applicable to the
executive for any period during such prior three-year period, multiplied by the
annual applicable base salary determined under (i) above, and certain other
miscellaneous benefits. The amount of termination benefits will be adjusted if
the executive is within two years of his 65th birthday as of the date of
termination. In addition, upon a change in control, the vesting and
exercisability of stock awards will be accelerated (for example, deferred and
restricted stock will immediately vest and all stock options will become
immediately exercisable). Finally, the individual will be reimbursed for excise
taxes, if any, paid pursuant to Section 280G of the Code (or its successor
provision) and for federal income tax paid on such excise tax reimbursement.
58
<PAGE> 61
COMPENSATION OF THE NAMED EXECUTIVE OFFICERS IN 1995
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth the compensation for
the fiscal year ended December 31, 1995 paid by American to the individuals who,
as of December 31, 1995, were the five most highly compensated officers of the
Company whose aggregate current remuneration exceeded $100,000.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------- --------------------------------------
AWARDS PAYOUTS
------------------------ ----------
RESTRICTED SECURITIES
STOCK UNDERLYING LTIP ALL OTHER
NAME SALARY BONUS AWARDS(1) OPTIONS PAYOUTS(2) COMPENSATION(3)
- -------------------- --------- --------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Durham.............. $ 360,417 $ 116,000 0 5,500 $ 60,000 $ 9,443
Cook................ 239,944 90,321 0 13,000 16,200 8,384
Katz................ 166,402 81,426 0 3,000 16,200 3,266
Jones............... 224,583 96,697 0 5,000 16,200 6,078
Kelly............... 167,142 50,000 0 3,000 13,500 2,551
</TABLE>
- ---------------
(1) The following table sets forth certain information concerning outstanding
stock awards:
DEFERRED AND RESTRICTED STOCK -- TOTAL SHARES AND VALUES
<TABLE>
<CAPTION>
TOTAL NUMBER OF AGGREGATE MARKET VALUE OF
DEFERRED AND RESTRICTED DEFERRED AND RESTRICTED
SHARES HELD AT SHARES HELD AT
NAME DECEMBER 31, 1995(A) DECEMBER 31, 1995(B)
-------------------------------------- ----------------------- -------------------------
<S> <C> <C>
Durham................................ 51,000 $ 3,777,213
Cook.................................. 24,900 1,844,169
Katz.................................. 14,000 1,036,882
Jones................................. 21,050 1,559,026
Kelly................................. 14,800 1,096,132
</TABLE>
- ---------------
a) Consists of shares awarded under AMR's restricted stock plan that will
vest in years 1996-1997, shares of deferred common stock issued under
AMR's Long-Term Incentive Plan ("AMR's LTIP") that vest at retirement
and shares of deferred common stock issued under AMR's LTIP that vest
upon AMR's attainment of pre-determined cash flow objectives over a
three year performance period.
b) Based on the average market price of AMR common stock, $74.063, on the
NYSE on December 29, 1995.
(2) Represents performance returns, granted with respect to deferred shares,
that are payable annually in cash, and are based, in part, on AMR's prior
five-year average return on investment.
(3) Represents the full amount of premiums paid under a split-dollar life
insurance arrangement whereby AMR would recover certain premiums paid.
59
<PAGE> 62
STOCK OPTIONS GRANTED
The following table sets forth information concerning stock options granted
during 1995 by AMR to the named executive officers. The hypothetical present
values of stock options granted in 1995 are calculated under a modified
Black-Scholes model, a mathematical formula used to value options. The actual
amount, if any, realized upon the exercise of stock options will depend upon the
amount by which the market price of AMR's common stock on the date of exercise
exceeds the exercise price. There is no assurance that the hypothetical present
value of stock options reflected in this table will actually be realized.
OPTIONS/SARS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------
% OF TOTAL
SECURITIES OPTIONS/SARS HYPOTHETICAL
UNDERLYING GRANTED TO EXERCISE OR PRESENT VALUE
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION AT DATE
NAME GRANTED FISCAL YEAR PER SHARE DATE(1) OF GRANT(2)
----------- ------------ ------------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Durham....................... 5,500 1.2% $ 74.6875 7/20/05 $ 221,595
Cook......................... 13,000 2.9 65.0625 4/24/05 456,272
Katz......................... 3,000 0.7 74.6875 7/20/05 120,870
Jones........................ 5,000 1.1 65.0625 4/24/05 175,489
Kelly........................ 3,000 0.7 74.6875 7/20/05 120,870
</TABLE>
- ---------------
(1) Options have a term of ten years, have an exercise price equal to the
average market price of AMR's common stock on the date of grant and become
exercisable at the rate of 20% per year over a five-year period.
(2) The modified Black-Scholes model used to calculate the hypothetical values
at date of grant considers a number of factors to estimate the option's
present value, including the stock's historical volatility calculated using
the average daily market price of AMR's common stock over a one-year period
prior to the grant date, the exercise period of the option, interest rates
and the stock's expected dividend yield. The assumptions used in the
valuation of the options were: stock price volatility -- 25.942%, exercise
period -- 10 years, interest rate -- 6.28%, and dividend yield -- 10%.
60
<PAGE> 63
STOCK OPTION EXERCISES AND
DECEMBER 31, 1995 STOCK OPTION VALUE
The following table sets forth certain information concerning options to
purchase AMR common stock during 1995 exercised by the named executive officers
and the number and value of unexercised in-the-money options at December 31,
1995. The actual amount, if any, realized upon exercise of stock options will
depend upon the amount by which the market price of AMR's common stock on the
date of exercise exceeds the exercise price. There is no assurance that the
values of unexercised in-the-money options (whether exercisable or
unexercisable) reflected in this table will actually be realized.
STOCK OPTION EXERCISES AND
DECEMBER 31, 1995 STOCK OPTION VALUE
<TABLE>
<CAPTION>
NO. OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED ON VALUE OPTIONS AT IN THE MONEY OPTIONS
NAME EXERCISE REALIZED DECEMBER 31, 1995 AT DECEMBER 31, 1995(1)
----------- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
Durham................ 3,000 $ 60,000 31,100/16,900 $398,158/$130,080
Cook.................. 5,600 120,988 5,600/18,400 41,052/ 182,459
Katz.................. 1,600 46,500 6,400/ 8,500 73,716/ 64,378
Jones................. 1,300 27,769 6,400/10,400 79,941/ 108,305
Kelly................. 0 0 6,100/ 8,400 92,266/ 63,303
</TABLE>
- ---------------
(1) Based on the average market price of AMR common stock, $74.063, on the NYSE
on December 29, 1995.
LONG TERM INCENTIVE PLAN AWARDS
Set forth below are the awards granted in 1995 under AMR's LTIP.
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF PERIOD NON-STOCK PRICE-BASED PLANS
PERFORMANCE UNTIL ------------------------------
NAME SHARES(1) ----------- PAYOUT THRESHOLD TARGET MAXIMUM
----------- ----------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
Durham........................ 5,600 12/31/97 0 5,600 16,800
Cook.......................... 2,200 12/31/97 0 2,200 6,600
Katz.......................... 2,000 12/31/97 0 2,000 6,000
Jones......................... 1,900 12/31/97 0 1,900 5,700
Kelly......................... 2,900 12/31/97 0 2,900 8,700
</TABLE>
- ---------------
(1) Performance shares awarded to the named executive officers in 1995 were
granted pursuant to AMR's LTIP under the performance share program
applicable to The SABRE Group.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation information with respect to the named executive officers for
1995 reflects compensation earned prior to the Reorganization. During 1995, the
Company had no Compensation/Nominating Committee.
61
<PAGE> 64
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDER
As of the date of this Prospectus, no shares of Class A Common Stock are
outstanding. After completion of the Offerings, the only shares of Class A
Common Stock that will be outstanding are those that will be issued in the
Offerings (including any shares issued if the Underwriters' over-allotment
options are exercised) and those issued under the Company's employee and
director plans. See "Management." The table below sets forth certain information
with respect to the expected beneficial ownership of the Class B Common Stock of
the Company before and after completion of the Offerings by each beneficial
owner of more than 5% of the outstanding shares of Class B Common Stock and by
the Company's directors and executive officers.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BEFORE OFFERINGS BENEFICIAL OWNERSHIP AFTER OFFERINGS
--------------------------------------------- ----------------------------------------------
PERCENT OF PERCENT PERCENT PERCENT OF PERCENT PERCENT
CLASS B OF OF CLASS B OF OF
NUMBER OF COMMON ECONOMIC VOTING NUMBER OF COMMON ECONOMIC VOTING
NAME OF BENEFICIAL OWNER SHARES STOCK INTEREST POWER SHARES STOCK INTEREST POWER
- ------------------------------ ----------- ---------- -------- ------- ----------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AMR Corporation(1)............ 107,374,000 100% 100% 100% 107,374,000 100% 84.2%(2) 98.2%(2)
4333 Amon Carter Blvd.,
Fort Worth, Texas 76155
All directors and executive
officers as a group (9
persons).................... -- -- -- -- -- -- (3) (3)
</TABLE>
- ---------------
(1) The Board of Directors of AMR exercises sole voting and dispositive power
over the shares of Class B Common Stock held of record by AMR.
(2) If the Underwriters' over-allotment options are exercised in full, AMR would
beneficially own 82.2% of the economic interest and 97.9% of the voting
power after the Offerings.
(3) Directors participating in the SIP and the executive officers will receive
equity awards payable in shares of Class A Common Stock pursuant to the
Company's director and employee plans. The exact number of shares to be
issued in connection therewith, and the resulting percentage ownership,
cannot be calculated until the Offering price and the price of AMR common
stock on the date of pricing of the Offerings are known. For information on
the grants to be made, see "Management."
The following table sets forth certain information with respect to the
beneficial ownership, as of September 18, 1996, of AMR's equity securities by
each of the Company's named executive officers and directors and by all of the
Company's directors and executive officers as a group. The table includes all
shares of AMR's common stock held of record or in street name, plus options
granted but unexercised under AMR's director and employee stock option plans.
The directors and officers of the Company individually beneficially own less
than 1% of any class of equity securities of AMR.
<TABLE>
<CAPTION>
COMMON SHARES
NAME OWNED
--------------------------------------------------------------------- -------------
<S> <C>
Robert L. Crandall................................................... *
Michael J. Durham.................................................... *
Gerard J. Arpey...................................................... *
Anne H. McNamara..................................................... *
Thomas M. Cook....................................................... *
Terrell B. Jones..................................................... *
Jeffrey G. Katz...................................................... *
T. Patrick Kelly..................................................... *
All directors and executive officers as a group (9 persons).......... *
</TABLE>
- ---------------
* Each director and officer and the directors and officers of the Company
collectively beneficially own less than 1% of the outstanding common stock of
AMR.
62
<PAGE> 65
RELATIONSHIP WITH AMR AND CERTAIN TRANSACTIONS
FORMATION OF THE COMPANY; INDEBTEDNESS TO AMR
The Company was formed on June 25, 1996 and became a subsidiary of American
on July 2, 1996 in connection with the Reorganization by AMR of the businesses
of its operating unit known as The SABRE Group. As part of the Reorganization,
all of the businesses of The SABRE Group, including the businesses operated as
divisions or subsidiaries of American or AMR, were combined in subsidiaries of
the Company, and the Company and its subsidiaries were dividended by American to
AMR. Since the dividend, AMR has owned all of the Company's outstanding capital
stock.
In connection with the Reorganization, the Company issued the $850 million
Debenture to American, the amount of which exceeds the historical book value of
the assets contributed by American and AMR to the Company by $120.9 million.
American transferred the Debenture to AMR in exchange for a portion of a note of
American held by AMR. The Debenture, which matures on September 30, 2004, bears
interest, payable semiannually, at a rate based on the sum of the six-month
London Interbank Offered Rate plus a margin determined by the Company's senior
unsecured long-term debt rating or, if such debt rating is not available, by the
Company's ratio of debt to total capital. The Company has the right to prepay
the principal amount of the Debenture in whole or in part at any time prior to
December 31, 1996 and thereafter on interest payment dates, and will use
approximately 90% of the net proceeds of the Offerings to prepay part of the
Debenture. See "Use of Proceeds."
Also in connection with the Reorganization, the Company and American
entered into an Intercompany Agreement (the "Indemnification Agreement")
pursuant to which each party indemnified the other for certain obligations
relating to the Reorganization. Pursuant to the Indemnification Agreement, the
Company indemnified American for liabilities assumed in the Reorganization,
against third party claims asserted against American as a result of American's
prior ownership of assets or operation of businesses contributed to the Company
and for losses arising from or in connection with the Company's lease of
property from American. In exchange, American indemnified the Company for
specified liabilities retained by it in the Reorganization, against third party
claims against the Company relating to American's businesses and asserted
against the Company as a result of the ownership or possession by American prior
to the Reorganization of any asset contributed to the Company in the
Reorganization and for losses arising from or in connection with American's
lease of property from the Company.
COMMON STOCK OWNERSHIP
AMR currently owns all of the outstanding capital stock of the Company.
Upon completion of the Offerings, AMR will own 100% of the Company's outstanding
Class B Common Stock, which will represent approximately 98.2% of the combined
voting power of the Company's outstanding Common Stock (approximately 97.9% if
the Underwriters' over-allotment options are exercised in full). As long as AMR
beneficially owns a majority of the combined voting power, it will have the
ability to elect all of the members of the Board of Directors and thereby
ultimately to control the management and affairs of the Company, including any
determinations with respect to acquisitions, dispositions, borrowings, issuances
of Common Stock or other securities of the Company or the declaration and
payment of any dividends on the Common Stock. In addition, AMR will be able to
determine the outcome of any matter submitted to a vote of the Company's
stockholders for approval and to cause or prevent a change in control.
Although, in negotiating the Affiliate Agreements between the Company and
AMR, American and AMR's other subsidiaries, the parties endeavored to implement
market-based agreements, as a result of AMR's control of the Company, none of
the Affiliate Agreements resulted from "arm's-length" negotiations. There can be
no assurance that the Company would not have received more favorable terms from
an unaffiliated party.
63
<PAGE> 66
Conflicts of interest may arise from time to time between the Company and
AMR in a number of areas relating to their past and ongoing relationships,
including the nature and quality of services provided by the Company to AMR and
its affiliates or by AMR or its affiliates to the Company, potential competitive
business activities, shared marketing functions, tax and employee benefit
matters, indemnity agreements, registration rights, sales or distributions by
AMR of all or any portion of its ownership interest in the Company or AMR's
ability to control the management and affairs of the Company. There can be no
assurance, however, that AMR and the Company will be able to resolve any
potential conflict or that, if resolved, the Company would not receive more
favorable resolution if it were dealing with an unaffiliated party. In addition,
certain of the Affiliate Agreements contain specific procedures for resolving
disputes between the Company and AMR with respect to the subject matter of those
agreements. There can be no assurance that a more favorable result to the
Company would not be obtained under a different procedure.
AMR could decide to sell or otherwise dispose of all or a portion of its
holdings of the Company's Class B Common Stock (or, upon the conversion of the
Class B Common Stock into Class A Common Stock, the resulting Class A Common
Stock) at some future date. Furthermore, there can be no assurance that, in any
transfer by AMR of a controlling interest in the Company, any holders of Class A
Common Stock will be allowed to participate in such transaction or will realize
any premium with respect to their shares of Class A Common Stock.
CONTRACTUAL ARRANGEMENTS
TECHNOLOGY SERVICES AGREEMENT
The Company is a party to the Technology Services Agreement with American
to provide American with certain information technology services. The base term
of the Technology Services Agreement expires June 30, 2006. The term of the
services to be provided by the Company to American, however, varies. The Company
will provide: (i) Data Center services, data network services, application
development and existing application maintenance and enhancement services until
June 30, 2006; (ii) services relating to existing client server operations until
June 30, 2001; and (iii) distributed systems services, radio services and voice
network services until June 30, 1999. The provision of these services is
anticipated to generate approximately $380 million in revenue in 1996.
In addition, AMS Holdings, Inc., a subsidiary of AMR, and Canadian have
entered into an agreement pursuant to which AMR and American supply to Canadian
various services, including technology services. Under the Canadian Subcontract,
the Company, as subcontractor through American, will be a principal provider of
technology services to Canadian.
The Technology Services Agreement provides for annual price adjustments.
For certain prices, adjustments are made according to formulas which, commencing
in 1998, are reset every two years and which may take into account the market
for similar services provided by other companies.
With limited exceptions, under the Technology Services Agreement, the
Company will continue to be the exclusive provider of all information technology
services provided by the Company to American immediately prior to the execution
of the Technology Services Agreement. Any new information technology services,
including most new application development services, required by American can be
outsourced pursuant to competitive bidding by American or performed by American
on its own behalf. With limited exceptions, the Company has the right to bid on
all new services for which American solicits bids. Additionally, American may
continue to perform development and enhancement work currently performed by it
for itself.
All new software developed by the Company pursuant to the Technology
Services Agreement will be jointly owned by the Company and American (the
"Jointly Owned Software"). Except as set forth below, the Company will have the
perpetual, irrevocable and exclusive right to market, display and otherwise
commercially exploit the Jointly Owned Software. However, during the term of the
Technology Services Agreement the Company will, for Jointly Owned Software
solely funded by American and for certain enhancements to existing software,
offset fees otherwise payable by
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American to the Company by an amount equal to 20% of the license fees or
equivalent compensation that the Company receives. In addition, after the
expiration or termination of the Technology Services Agreement, the Company is
required to pay American a royalty for all Jointly Owned Software that was
funded solely by American. American shall have the right to use the Jointly
Owned Software for itself and its commuter airline affiliates and shall be
entitled to market its right to use such product in marketing its services as
described in the next paragraph.
American has the right to market to third parties airline services that are
supported by the Company's information technology. Generally, such support by
the Company will be billed to American at the rates set forth in the Technology
Services Agreement plus any extraordinary costs of the Company associated with
the provision of such services. However, if a significant portion of the value
of the marketed services is driven by the Company's support, and the service is
not related to airport operations or airline alliances, then the compensation to
the Company will be negotiated by American and the Company.
After July 1, 2000, American may terminate the Technology Services
Agreement for convenience if American determines the agreement is no longer
advantageous for any reason. If it does so, American will be required to pay a
termination fee equal to the sum of all amounts then due under the Technology
Services Agreement, including wind-down costs, book value of dedicated assets
and a significant percentage of estimated lost profits. American may also
terminate the Technology Services Agreement without penalty, in whole or in part
depending upon circumstances, for egregious breach by the Company of its
obligations or for serious failure to perform critical or significant services.
If the Company is acquired by a company other than AMR or American with more
than $1 billion in annual airline transportation revenue, then American may
terminate the Technology Services Agreement without paying any termination fee.
Additionally, if American were to dispose of any portion of its business or any
affiliate accounting for more than 10% of the Company's fees from American, then
American shall either cause such divested business or affiliate to be obligated
to use the Company's services in accordance with the Technology Services
Agreement or pay a proportionate termination fee.
Under certain circumstances, American can also request that the Company
exclude third parties from using a product and pay the Company's cost of
excluding third party customers.
The parties have agreed to apply the financial terms of the Technology
Services Agreement as of January 1, 1996.
MANAGEMENT SERVICES AGREEMENT
The Company and American are parties to the Management Services Agreement,
dated July 1, 1996 pursuant to which American performs various management
services for the Company, including treasury, risk management and tax, and
similar administrative services, that American has historically provided to the
Company. The Company expects to pay American approximately $21 million for such
services in 1996, subject to adjustment based on service levels and negotiated
prices. Amounts charged to the Company under this agreement approximate
American's cost of providing the services plus a margin. The Management Services
Agreement will expire on June 30, 1999 unless terminated earlier by either party
if American and the Company are no longer under common control or by American if
the Technology Services Agreement is terminated. Except for certain services
relating to consolidated operations or corporate policy of AMR, which the
Company is required to purchase during the term of the Management Services
Agreement, the Company or American may terminate any service with prior notice
of either three or six months, depending on the annual price of the service. The
parties have agreed to apply the financial terms of the Management Services
Agreement as of January 1, 1996.
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TAX SHARING AGREEMENT
The Company and AMR have entered into the Tax Sharing Agreement which
provides for the allocation of tax liabilities during the tax periods the
Company is part of consolidated federal, state and local income tax returns
filed by AMR. In addition, the Tax Sharing Agreement sets out certain benefits
and obligations of the Company and AMR for tax matters relating to periods
before the Reorganization and for certain benefits and obligations that would
affect the Company or AMR in the future if the Company ceased to be a member of
AMR's consolidated group for federal income tax purposes. The Tax Sharing
Agreement generally requires the Company to pay to AMR the amount of federal,
state and local income taxes that the Company would have paid had it ceased to
be a member of the AMR consolidated tax group for periods after the
Reorganization. The Company is jointly and severally liable for the federal
income tax of AMR and the other companies included in the consolidated return
for all periods in which the Company is included in the AMR consolidated group.
AMR has agreed, however, to indemnify the Company for any liability for taxes
reported or required to be reported on a consolidated return.
Except for certain items specified in the Tax Sharing Agreement, AMR
generally retains any potential tax benefit carryforwards, and remains obligated
to pay all taxes, attributable to periods before the Reorganization. The Tax
Sharing Agreement also grants the Company certain limited participation rights
in any dispute with tax authorities.
MARKETING COOPERATION AGREEMENT
The Company and American are parties to the Marketing Cooperation
Agreement, dated as of July 1, 1996, pursuant to which American will provide
marketing support for 10 years for the Company's Professional SABRE product
targeted to travel agencies and for five years for BTS, Travelocity and
easySABRE. The Marketing Cooperation Agreement may be terminated by either party
prior to June 30, 2006 if the other party fails to perform its obligations
thereunder.
Under the Marketing Cooperation Agreement, American's marketing efforts
will include ongoing promotional programs to assist in the sale of those SABRE
products, development with the Company of an annual sales plan, sponsorship of
sales/promotional events and the targeting of potential customers. The Company
will pay American for its marketing support for Professional SABRE a fee, the
amount of which may increase or decrease, depending on total SABRE booking
volumes generated by certain Professional SABRE subscribers in the U.S., the
Caribbean and elsewhere and on SABRE's market share of travel agency bookings in
those areas. That fee will range between $20 million and $30 million for 1996
and between $10 million and $30 million thereafter. As payment for American's
support of the Company's promotion of BTS, Travelocity and easySABRE, the
Company will pay American a marketing fee based upon booking volumes through
those products. The amounts payable under the preceding sentence are expected to
range from approximately $1 million in the first year of the Marketing
Cooperation Agreement to approximately $12 million in the fifth year.
Additionally, the Company has guaranteed to American certain cost savings in the
fifth year of the Marketing Cooperation Agreement. If American does not achieve
those savings, the Company will pay American any shortfall, up to a maximum of
$50 million. The parties have agreed to apply the financial terms of the
Marketing Cooperation Agreement as of January 1, 1996.
NON-COMPETITION AGREEMENT
The Company, AMR and American have entered into a Non-Competition
Agreement, dated July 1, 1996 (the "Non-Competition Agreement"), pursuant to
which AMR and American, on behalf of themselves and certain, but not all, of
their subsidiaries, have agreed to limit their competition with the Company's
businesses of (i) electronic travel distribution, (ii) development, maintenance,
marketing and licensing of software for travel agency, travel, transportation
and logistics management, (iii) computer system integration, (iv) development,
maintenance and operation of a data
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processing center providing data processing services to third parties and (v)
travel industry, transportation and logistics consulting services relating
primarily to computer technology and automation. Under the Non-Competition
Agreement, American and AMR may develop, operate, market and provide in
compliance with all applicable laws an American Airlines branded electronic
travel distribution that gives a display preference to American's flights. The
Non-Competition Agreement prohibits American or AMR, however, from providing
such system to any travel agency that generated 25% or more of its bookings
through SABRE during the preceding six calendar months. Additionally, in the
event any airline competing with American engages in an activity in connection
with such airline's transportation business, and if the restrictions imposed by
the Non-Competition Agreement would prevent American from engaging in the same
activity and place American at a disadvantage, then American may engage in such
activity, subject to American and the Company consulting about means to mitigate
the effect on the Company of American's engaging in such activity. American and
AMR may also license to third parties any software that is owned by AMR,
American or other AMR affiliates in response to a request or offer from such
third parties. The Non-Competition Agreement expires on December 31, 2001.
American may terminate the Non-Competition Agreement, however, as to the
activities described in clauses (ii) through (v) of this paragraph upon 90 days
notice to the Company if the Technology Services Agreement is terminated by
American as a result of an egregious breach thereof by the Company.
TRAVEL AGREEMENTS
The Company and American are parties to the Travel Privileges Agreement,
dated July 1, 1996, pursuant to which the Company is entitled to purchase
personal travel for its employees and retirees at reduced fares. The Company
estimates that its cost for such services during 1996 will be approximately $15
million. The Travel Privileges Agreement will expire on June 30, 2008. The
Company and American are also parties to the Corporate Travel Agreement, dated
July 1, 1996, pursuant to which the Company receives discounts for certain
flights purchased on American. In exchange, the Company must use American for a
certain percentage of its air travel as compared to all other air carriers
combined. If the Company fails to meet the applicable percentage on an average
basis over any calendar quarter, American may terminate the agreement upon 60
days' notice. The Company estimates that its costs for such services during 1996
will be approximately $32 million. The Corporate Travel Agreement will expire on
June 30, 1998. The parties have agreed to apply the financial terms of the
Travel Privileges Agreement and the Corporate Travel Agreement as of January 1,
1996.
CREDIT AGREEMENT
In order to allow AMR to manage efficiently the cash needs of its
subsidiaries, the Company, AMR and American are parties to the Credit Agreement
pursuant to which the Company is required to borrow from American, and American
is required to lend to the Company, any amount required by the Company to fund
its daily cash requirements. In addition, American may, but is not required to,
borrow from the Company to fund its daily cash requirements, and the Company is
required, with minor exceptions, to lend to American if the Company has excess
cash available. The maximum amount that the Company may borrow at any time from
American under the Credit Agreement is $300 million. The maximum amount that
American may borrow at any time from the Company under the Credit Agreement is
$100 million. If the Company's credit rating is better than "B" on the Standard
& Poor's Ratings Service scale (or an equivalent thereof) or American has excess
cash to lend to the Company, the interest rate to be charged to the Company will
be the sum of (a) the higher of (i) American's average rate of return on
short-term investments for the month in which borrowings occurred or (ii) the
actual rate of interest paid by American to borrow funds to make a loan to the
Company under the Credit Agreement, plus (b) an additional spread based upon the
Company's credit risk. If the Company's credit rating is "B" or below on the
Standard & Poor's Ratings Service scale (or an equivalent thereof) and American
does not have excess cash to lend to the Company, the interest rate to be
charged to the Company will be the lower of (a) the sum of
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(i) the borrowing cost incurred by American to draw on its revolving credit
facility to make the advance plus (ii) an additional spread based on the
Company's credit risk or (b) the sum of (i) the cost at which the Company could
borrow funds from an independent party plus (ii) one half of the margin American
pays to borrow under its revolving credit facility. The Company believes that
the interest rate it will be charged by American could, at times, be slightly
above the rate at which the Company could borrow externally; however, no standby
fees for the Credit Agreement will be required to be paid by either party. The
interest rate to be charged to American will be the Company's average investment
rate for the months in which borrowing occurred plus an additional spread based
upon American's credit risk. On any business day that either party has excess
cash available, it must use that cash to repay any outstanding loans it has
under the Credit Agreement. Loans under the Credit Agreement are not intended as
long-term financing. At the end of each quarter, regardless of whether it has
excess cash available, American must pay all amounts owing under the Credit
Agreement to the Company. The Credit Agreement will terminate on June 30, 1999,
unless earlier terminated at the election of one of the parties upon the
occurrence of certain events, including the termination of the Management
Services Agreement or the cessation of AMR's beneficial ownership of 50% or more
of the capital stock of either the Company or American. The Company has certain
rights of offset against the $850,000,000 Debenture and other debt owed by the
Company to American and AMR if American fails to make quarterly and final
payments when due under the Credit Agreement.
OTHER AGREEMENTS
In addition to the agreements set forth above, the Company and AMR are
parties to a Registration Rights Agreement described under "Shares Eligible for
Future Sale." Additionally, the Company and American are parties to a
Participating Carrier Agreement pursuant to which American participates as an
associate in SABRE. This Participating Carrier Agreement with American is in
substantially the same form as each other Participating Carrier Agreement to
which the Company is a party. The Company and American are also parties to a
Software Marketing Agreement pursuant to which the Company may not sell or
license specified applications to certain competitors of American. The Company
also has, or expects to enter into, other agreements with American or other AMR
affiliates, pursuant to which the Company does not expect to receive or pay
material amounts.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 250,000,000 shares
of Class A Common Stock, 107,374,000 shares of Class B Common Stock and
20,000,000 shares of Preferred Stock. None of the Class A Common Stock or
Preferred Stock is outstanding as of the date hereof. Of the 250,000,000 shares
of Class A Common Stock authorized, 20,200,000 are being offered in the
Offerings (23,230,000 shares if the Underwriters' over-allotment options are
exercised in full), 107,374,000 shares will be reserved for issuance upon
conversion of Class B Common Stock into Class A Common Stock and 3,250,000
shares have been reserved for issuance pursuant to certain employee benefits
plans. See "Management -- Compensation of Directors" and "Management --
Executive Compensation -- The Company's Long-Term Incentive Plan." Of the
107,374,000 shares of Class B Common Stock authorized, 107,374,000 will be
outstanding and held by AMR upon consummation of the Offerings. The following
summary description of the capital stock of the Company is qualified by
reference to the Certificate of Incorporation and Bylaws of the Company, copies
of which are filed as exhibits to the Registration Statement.
COMMON STOCK
VOTING RIGHTS.
The holders of Class A Common Stock and Class B Common Stock generally have
identical rights except that holders of Class A Common Stock are entitled to one
vote per share while holders of Class B Common Stock are entitled to 10 votes
per share on all matters to be voted on by
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stockholders. Holders of shares of Class A Common Stock and Class B Common Stock
are not entitled to cumulate their votes in the election of directors.
Generally, all matters to be voted on by stockholders must be approved by a
majority (or, in the case of election of directors, by a plurality) of the votes
entitled to be cast by all shares of Class A Common Stock and Class B Common
Stock present in person or represented by proxy, voting together as a single
class, subject to any voting rights granted to holders of any Preferred Stock.
Except as otherwise provided by law, and subject to any voting rights granted to
holders of any outstanding Preferred Stock, amendments to the Company's
Certificate of Incorporation generally must be approved by a majority of the
combined voting power of all Class A Common Stock and Class B Common Stock
voting together as a single class. However, amendments to the Company's
Certificate of Incorporation that would alter or change the powers, preferences
or special rights of the Class A Common Stock or the Class B Common Stock so as
to affect them adversely also must be approved by a majority of the votes
entitled to be cast by the holders of the shares affected by the amendment,
voting as a separate class. Notwithstanding the foregoing, any amendment to the
Company's Certificate of Incorporation to increase the authorized shares of any
class or authorize the creation, authorization or issuance of any securities
convertible into, or warrants or options to acquire, shares of any such class or
classes of stock shall be approved by the affirmative vote of the holders of a
majority of the Common Stock, voting together as a single class.
Effective as of the first time at which AMR shall cease to be the
beneficial owner of an aggregate of at least a majority of the voting power of
the Voting Stock (as defined herein) of the Company then outstanding (the
"Trigger Date"), amendments to certain provisions of the Certificate of
Incorporation will require the approval of 80% of the combined voting power of
all Class A Common Stock and Class B Common Stock, voting together as a single
class.
DIVIDENDS.
Holders of Class A Common Stock and Class B Common Stock will share in an
equal amount per share in any dividend declared by the Board of Directors,
subject to any preferential rights of any outstanding Preferred Stock. Dividends
consisting of shares of Class A Common Stock and Class B Common Stock may be
paid only as follows: (i) shares of Class A Common Stock may be paid only to
holders of Class A Common Stock and shares of Class B Common Stock may be paid
only to holders of Class B Common Stock and (ii) shares shall be paid
proportionally with respect to each outstanding share of Class A Common Stock
and Class B Common Stock.
CONVERSION.
Each share of Class B Common Stock is convertible while held by AMR or any
of its subsidiaries at such holder's option into one share of Class A Common
Stock. Following the occurrence of a Tax-Free Spin-Off (as hereinafter defined),
if any, shares of Class B Common Stock shall not be convertible into shares of
Class A Common Stock at the option of the holder thereof.
Except as provided below, any shares of Class B Common Stock transferred to
a person other than AMR or any of its subsidiaries or the Class B Transferee (as
defined below) shall automatically convert to shares of Class A Common Stock
upon such disposition. Shares of Class B Common Stock representing more than a
50% economic interest in the Company transferred by AMR or any of its
subsidiaries in a single transaction to one unrelated person (the "Class B
Transferee") or any subsidiary of the Class B Transferee shall not automatically
convert to shares of Class A Common Stock upon such disposition. Any shares of
Class B Common Stock retained by AMR or its subsidiaries following any such
transfer of shares of Class B Common Stock to the Class B Transferee shall
automatically convert into shares of Class A Common Stock upon such transfer.
Shares of Class B Common Stock transferred to stockholders of AMR or
stockholders of the Class B Transferee in a transaction intended to be on a
tax-free basis (a "Tax-Free Spin-Off") under the Code shall not convert to
shares of Class A Common Stock upon the occurrence of such Tax-Free Spin-Off.
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Following a Tax-Free Spin-Off, shares of Class B Common Stock shall be
transferred as Class B Common Stock, subject to applicable laws; provided,
however, that shares of Class B Common Stock shall automatically convert into
shares of Class A Common Stock on the fifth anniversary of the Tax-Free
Spin-Off, unless prior to such Tax-Free Spin-Off, AMR, or the Class B
Transferee, as the case may be, delivers to the Company an opinion of counsel
reasonably satisfactory to the Company to the effect that such conversion could
adversely affect the ability of AMR, or the Class B Transferee, as the case may
be, to obtain a favorable ruling from the Internal Revenue Service that the
transfer would be a Tax-Free Spin-Off. If such an opinion is received, approval
of such conversion shall be submitted to a vote of the holders of the Common
Stock as soon as practicable after the fifth anniversary of the Tax-Free
Spin-Off, unless AMR or the Class B Transferee, as the case may be, delivers to
the Company an opinion of counsel reasonably satisfactory to the Company prior
to such anniversary that such vote could adversely affect the status of the
Tax-Free Spin-Off, including the ability to obtain a favorable ruling from the
Internal Revenue Service; if such opinion is so delivered, such vote shall not
be held. Approval of such conversion will require the affirmative vote of the
holders of a majority of the shares of both Class A Common Stock and Class B
Common Stock present and voting, voting together as a single class, with each
share entitled to one vote for such purpose. No assurance can be given that such
conversion would be consummated. The requirement to submit such conversion to a
vote of the holders of the Common Stock is intended to ensure that tax-free
treatment of the Tax-Free Spin-Off is preserved should the Internal Revenue
Service challenge such automatic conversion as violating the 80% vote
requirement currently required by the Code for a tax-free spin-off.
OTHER RIGHTS.
On liquidation, dissolution or winding up of the Company, after payment in
full of the amounts required to be paid to holders of Preferred Stock, if any,
all holders of Common Stock, regardless of class, are entitled to share ratably
in any assets available for distribution to holders of shares of Common Stock.
No shares of either class of Common Stock are subject to redemption or have
preemptive rights to purchase additional shares of Common Stock.
Upon consummation of the Offerings, all the outstanding shares of Class A
Common Stock and Class B Common Stock will be legally issued, fully paid and
nonassessable.
PREFERRED STOCK
As of the date of this Prospectus, no shares of Preferred Stock are
outstanding. The Board of Directors may authorize the issuance of Preferred
Stock in one or more series and may determine, with respect to any such series,
the designations, powers, preferences and rights of such series, and the
qualifications, limitations and restrictions thereof, including (i) the
designation of the series; (ii) the number of shares of the series, which number
the Board of Directors may thereafter (except where otherwise provided in the
designations for such series) increase or decrease (but not below the number of
shares of such series then outstanding); (iii) whether dividends, if any, will
be cumulative or noncumulative and the dividend rate of the series; (iv) the
conditions upon which and the dates at which dividends, if any, will be payable,
and the relation which such dividends, if any, shall bear to the dividends
payable on any other class or classes of stock; (v) the redemption rights and
price or prices, if any, for shares of the series; (vi) the terms and amounts of
any sinking fund provided for the purchase or redemption of shares of the
series; (vii) the amounts payable on and the preferences, if any, of shares of
the series, in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company; (viii) whether the
shares of the series will be convertible into shares of any other class or
series, or any other security, of the Company or any other corporation, and, if
so, the specification of such other class or series or such other security, the
conversion price or prices or rate or rates, any adjustments thereof, the date
or dates as of which such shares shall be convertible and all other terms and
conditions upon which
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such conversion may be made; (ix) restrictions on the issuance of shares of the
same series or of any other class or series; and (x) the voting rights, if any,
of the holders of shares of such series.
The Company believes that the ability of the Board of Directors to issue
one or more series of Preferred Stock will provide the Company with flexibility
in structuring possible future financings and acquisitions and in meeting other
corporate needs that might arise. The authorized shares of Preferred Stock will
be available for issuance without further action by the Company's stockholders,
unless such action is required by applicable law or the rules of any stock
exchange or automated quotation system on which the Company's securities may be
listed or traded. The NYSE currently requires stockholder approval as a
prerequisite to listing shares in several instances, including where the present
or potential issuance of shares could result in an increase in the number of
shares of common stock outstanding, or in the amount of voting securities
outstanding, of at least 20%.
Although the Board of Directors has no intention at the present time of
doing so, it could issue a series of Preferred Stock that could, depending on
the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt. The Board of Directors will make any determination to
issue such shares based on its judgment as to the best interests of the Company
and its stockholders. The Board of Directors, in so acting, could issue
Preferred Stock having terms that could discourage a potential acquiror from
making, without first negotiating with the Board of Directors, an acquisition
attempt through which such acquiror may be able to change the composition of the
Board of Directors, including a tender offer or other transaction that some, or
a majority, of the Company's stockholders might believe to be in their best
interests or in which stockholders might receive a premium for their stock over
the then current market price of such stock.
BUSINESS COMBINATION STATUTE
As a corporation organized under the laws of the State of Delaware, the
Company will be subject to Section 203 of the DGCL, which restricts certain
business combinations between the Company and an "interested stockholder" (in
general, a stockholder owning 15% or more of the Company's outstanding voting
stock) or its affiliates or associates for a period of three years following the
time that the stockholder becomes an "interested stockholder." The restrictions
do not apply if (i) prior to an interested stockholder becoming such, the Board
of Directors approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in any person becoming an
interested stockholder, such interested stockholder owns at least 85% of the
voting stock of the Company outstanding at the time the transaction commenced
(excluding shares owned by certain employee stock ownership plans and persons
who are both directors and officers of the Company) or (iii) at or subsequent to
the time an interested stockholder becomes such, the business combination is
both approved by the Board of Directors and authorized at an annual or special
meeting of the Company's stockholders, not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock not owned
by the interested stockholder. Because AMR became an interested stockholder at a
time when the restrictions did not apply, the restrictions will not apply to any
business combination with AMR.
Under certain circumstances, Section 203 of the DGCL makes it more
difficult for a person who would be an "interested stockholder" to effect
various business combinations with a corporation for a three-year period,
although the stockholders may elect to exclude a corporation from the
restrictions imposed thereunder. The Certificate of Incorporation of the Company
does not exclude the Company from the restrictions imposed under Section 203 of
the DGCL. It is anticipated that the provisions of Section 203 of the DGCL may
encourage companies interested in acquiring the Company to negotiate in advance
with the Board of Directors, since the stockholder approval requirement would be
avoided if a majority of the directors then in office approves, prior to the
date on which a stockholder becomes an interested stockholder, either the
business combination or the transaction which results in the stockholder
becoming an interested stockholder.
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CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
The summary set forth below describes certain provisions of the Certificate
of Incorporation and Bylaws. The summary is qualified in its entirety by
reference to the provisions of the Certificate of Incorporation and Bylaws,
copies of which have been filed as exhibits to the Registration Statement of
which this Prospectus forms a part.
Certain of the provisions of the Certificate of Incorporation and Bylaws
discussed below may have the effect, either alone or in combination with the
provisions of Section 203 discussed above, of making more difficult or
discouraging a tender offer, proxy contest or other takeover attempt that is
opposed by the Board of Directors but that a stockholder might consider to be in
such stockholder's best interest. Those provisions include (i) restrictions on
the rights of stockholders to remove directors, (ii) prohibitions against
stockholders calling a special meeting of stockholders or acting by unanimous
written consent in lieu of a meeting and (iii) requirements for advance notice
of actions proposed by stockholders for consideration at meetings of the
stockholders. In addition, the Certificate of Incorporation contains provisions
relating to the allocation of certain corporate opportunities and resolution of
certain potential conflicts of interest. See "-- Corporate Opportunity and
Conflict of Interest Policies."
CLASSIFIED BOARD OF DIRECTORS; REMOVAL; NUMBER OF DIRECTORS; FILLING
VACANCIES
The Certificate of Incorporation and Bylaws of the Company provide that the
Board of Directors -- except for directors who may be elected by the holders of
Preferred Stock or any other series or class of stock -- will be divided into
three classes of directors, with the classes to be as nearly equal in number as
possible. One class is to be originally elected for a term expiring at the
annual meeting of stockholders to be held in 1997, another class is to be
originally elected for a term expiring at the annual meeting of stockholders to
be held in 1998 and another class is to be originally elected for a term
expiring at the annual meeting of stockholders to be held in 1999. Each director
is to hold office until his or her successor is duly elected and qualified.
Commencing with the 1997 annual meeting of stockholders, directors elected to
succeed directors whose terms then expire will be elected for a term of office
to expire at the third succeeding annual meeting of stockholders after their
election, with each director to hold office until such person's successor is
duly elected and qualified.
The Bylaws provide that, subject to any rights of holders of Preferred
Stock or any other series or class of stock to elect directors under specified
circumstances, the number of directors will be fixed from time to time
exclusively pursuant to a resolution adopted by directors constituting a
majority of the total number of directors that the Company would have if there
were no vacancies on the Board of Directors (the "Whole Board"), with the Whole
Board consisting of not more than twelve nor less than three directors. The
Bylaws also provide that, subject to any rights of holders of Preferred Stock or
any other series or class of stock, and unless the Board of Directors otherwise
determines, any vacancies will be filled only by the affirmative vote of a
majority of the remaining directors, even if less than a quorum. Accordingly,
absent an amendment to the Bylaws, the Board of Directors could prevent any
stockholder from enlarging the Board of Directors and filling the new
directorships with such stockholder's own nominees.
The Certificate of Incorporation and Bylaws of the Company provide that,
subject to the rights of holders of Preferred Stock or any other series or class
of stock to elect directors under specified circumstances, effective as of the
Trigger Date, directors may be removed only for cause and only upon the
affirmative vote of holders of at least 80% of the voting power of all the then
outstanding shares of stock entitled to vote generally in the election of
directors ("Voting Stock"), voting together as a single class; provided however,
that prior to the Trigger Date, directors may be removed, without cause, with
the affirmative vote of the holders of at least a majority of the voting power
of the then outstanding Voting Stock, voting together as a class.
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The classification of directors will have the effect of making it more
difficult for stockholders to change the composition of the Board of Directors.
At least two annual meetings of stockholders, instead of one, will generally be
required to effect a change in a majority of the Board of Directors. Such a
delay may help ensure that the Company's directors, if confronted by a holder
attempting to force a proxy contest, a tender or exchange offer, or an
extraordinary corporate transaction, would have sufficient time to review the
proposal as well as any available alternatives to the proposal and to act in
what they believe to be the best interest of the stockholders. The
classification provisions will apply to every election of directors, however,
regardless of whether a change in the composition of the Board of Directors
would be beneficial to the Company and its stockholders and whether or not a
majority of the Company's stockholders believe that such a change would be
desirable.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of the Company, even though such an attempt might
be beneficial to the Company and its stockholders. The classification of the
Board of Directors could thus increase the likelihood that incumbent directors
will retain their positions. In addition, because the classification provisions
may discourage accumulations of large blocks of the Company's stock by
purchasers whose objective is to take control of the Company and remove a
majority of the Board of Directors, the classification of the Board of Directors
could tend to reduce the likelihood of fluctuations in the market price of the
Common Stock that might result from accumulations of large blocks. Accordingly,
stockholders could be deprived of certain opportunities to sell their shares of
Common Stock at a higher market price than might otherwise be the case.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The Certificate of Incorporation and Bylaws of the Company provide that,
effective as of the Trigger Date, and subject to the rights of any holders of
Preferred Stock or any other series or class of stock to elect additional
directors under specified circumstances, stockholder action can be taken only at
an annual or special meeting of stockholders and stockholder action may not be
taken by written consent in lieu of a meeting. The Bylaws provide that, subject
to the rights of holders of any series of Preferred Stock to elect additional
directors under specified circumstances, special meetings of stockholders can be
called only by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board or the Chairman of the Board; provided that, prior
to the Trigger Date, special meetings can also be called at the request of the
holders of a majority of the voting power of the then outstanding Voting Stock.
Effective as of the Trigger Date, stockholders are not permitted to call a
special meeting or to require that the Board of Directors call a special meeting
of stockholders. Moreover, the business permitted to be conducted at any special
meeting of stockholders is limited to the business brought before the meeting
pursuant to the notice of meeting given by the Company.
The provisions of the Certificate of Incorporation and Bylaws of the
Company prohibiting stockholder action by written consent and permitting special
meetings to be called only by the Chairman or at the request of a majority of
the Whole Board may have the effect, as of the Trigger Date, of delaying
consideration of a stockholder proposal until the next annual meeting. The
provisions would also prevent the holders of a majority of the voting power of
the Voting Stock from unilaterally using the written consent procedure to take
stockholder action. Moreover, a stockholder could not force stockholder
consideration of a proposal over the opposition of the Chairman or a majority of
the Whole Board by calling a special meeting of stockholders prior to the time
such parties believe such consideration to be appropriate.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER
PROPOSALS
The Company's Bylaws establish an advance notice procedure for stockholders
to make nominations of candidates for election as directors or bring other
business before an annual meeting of stockholders of the Company (the
"Stockholder Notice Procedure").
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The Stockholder Notice Procedure provides that only persons who are
nominated by, or at the direction of, the Board of Directors, or by a
stockholder who has given timely written notice containing specified information
to the Secretary of the Company prior to the meeting at which directors are to
be elected, will be eligible for election as directors of the Company. The
Stockholder Notice Procedure also provides that at an annual meeting only such
business may be conducted as has been brought before the meeting by, or at the
direction of, the Chairman or the Board of Directors or by a stockholder who has
given timely written notice containing specified information to the Secretary of
the Company of such stockholder's intention to bring such business before such
meeting. Under the Stockholder Notice Procedure, for notice of stockholder
nominations or proposals to be made at an annual meeting to be timely, such
notice must be received by the Company not less than 90 days nor more than 120
days prior to the first anniversary of the previous year's annual meeting (or,
in the event that the date of the annual meeting is advanced by more than 20
days or delayed by more than 70 days from such anniversary date, not earlier
than the 120th day prior to such meeting and not later than the later of (x) the
90th day prior to such meeting and (y) the 10th day after public announcement of
the date of such meeting is first made). Notwithstanding the foregoing, in the
event that the number of directors to be elected is increased and there is no
public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Company at least 100 days
prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice will be timely, but only with respect to nominees for any
new positions created by such increase, if it is received by the Company not
later than the 10th day after such public announcement is first made by the
Company. Under the Stockholder Notice Procedure, for notice of a stockholder
nomination to be made at a special meeting at which directors are to be elected
to be timely, such notice must be received by the Company not earlier than the
120th day before such meeting and not later than the later of (x) the 90th day
prior to such meeting and (y) the 10th day after public announcement of the date
of such meeting is first made. If the Chairman of the Board or other officer
presiding at a meeting determines at or prior to the meeting that a person was
not nominated or other business was not brought before the meeting in accordance
with the Stockholder Notice Procedure, such person will not be eligible for
election as a director, or such business will not be conducted at such meeting,
as the case may be.
By requiring advance notice of nominations by stockholders, the Stockholder
Notice Procedure will afford the Board of Directors an opportunity to consider
the qualifications of the proposed nominees and, to the extent deemed necessary
or desirable by the Board of Directors, to inform stockholders about such
qualifications. By requiring advance notice of other proposed business, the
Stockholder Notice Procedure will also provide a more orderly procedure for
conducting annual meetings of stockholders and, to the extent deemed necessary
or desirable by the Board of Directors, will provide the Board of Directors with
an opportunity to inform stockholders, prior to such meetings, of any business
proposed to be conducted at such meetings, together with any recommendations as
to the Board of Directors' position regarding action to be taken with respect to
such business, so that stockholders can better decide whether to attend such a
meeting or to grant a proxy regarding the disposition of any such business.
Although the Bylaws do not give the Board of Directors any power to approve
or disapprove stockholder nominations for the election of directors or proposals
for action, they may have the effect of precluding a contest for the election of
directors or the consideration of stockholder proposals if the proper procedures
are not followed, and of discouraging or deterring a third party from conducting
a solicitation of proxies to elect its own slate of directors or to approve its
own proposal, without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to the Company and its stockholders.
The Stockholder Notice Procedure does not apply to AMR and its affiliates
prior to the Trigger Date.
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AMENDMENTS
The Certificate of Incorporation and Bylaws require that, effective as of
the Trigger Date, any amendment to the provisions of the Bylaws or to certain
provisions of the Certificate of Incorporation, including those provisions
discussed above, must be approved by the holders of at least 80% of the Voting
Stock. This requirement, as of the Trigger Date, will prevent a stockholder with
only a majority of the Common Stock from avoiding the requirements of the
provisions discussed above by amending or repealing such provisions. The
Certificate of Incorporation further provides that the Bylaws may be amended by
the Company's Board of Directors.
LIABILITY OF DIRECTORS; INDEMNIFICATION
The Certificate of Incorporation provides that a director will not be
personally liable for monetary damages to the Company or its stockholders for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for paying a dividend or approving a stock
repurchase in violation of Section 174 of the DGCL or (iv) for any transaction
from which the director derived an improper personal benefit. Any amendment or
repeal of such provision shall not adversely affect any right or protection of a
director existing under such provision for any act or omission occurring prior
to such amendment or repeal.
The Bylaws provide that the Company will indemnify any person who was or is
a party to any threatened, pending or completed action, suit or proceeding
because he or she is or was a director or officer of the Company, or is or was
serving at the request of the Company as a director or officer of another
corporation, partnership or other enterprise. The Bylaws provide that this
indemnification will be from and against expenses, judgments, fines and amounts
paid in settlement by the indemnitee. However, this indemnification will only be
provided if the indemnitee acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
Company.
CORPORATE OPPORTUNITY AND CONFLICT OF INTEREST POLICIES
In order to address certain potential conflicts of interest between the
Company and AMR, the Certificate of Incorporation contains provisions concerning
the conduct of certain affairs of the Company as they may involve AMR and its
subsidiaries (other than the Company and its subsidiaries) and their respective
officers and directors, and the powers, rights, duties and liabilities of the
Company and its subsidiaries and their respective officers, directors and
stockholders in connection therewith. In general, these provisions recognize
that the Company and AMR and their respective subsidiaries may engage in the
same or similar business activities and lines of business and have an interest
in the same areas of corporate opportunities and that the Company and AMR and
their subsidiaries will continue to have contractual and business relations with
each other (including service of officers and directors of AMR as directors of
the Company). See "Management -- Directors and Executive Officers."
For purposes of these provisions, the terms "Company" and "AMR" include
their subsidiaries and other entities in which they respectively beneficially
own, directly or indirectly, 50 percent or more of the outstanding voting
securities or interests (except that "AMR" does not include the Company and its
subsidiaries and such other entities), and, in the case of AMR, all successors
to AMR by way of merger, consolidation or sale of all or substantially all its
assets.
The Certificate of Incorporation provides that any person purchasing or
otherwise acquiring any interest in any shares of capital stock of the Company
shall be deemed to have notice of and to have consented to these provisions.
CORPORATE OPPORTUNITY POLICY. The Certificate of Incorporation provides
that, except as AMR may otherwise agree in writing, AMR will have the right (i)
to engage in the same or similar business
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<PAGE> 78
activities or lines of business as the Company, (ii) to do business with any
potential or actual client, customer or supplier of the Company and (iii) to
employ or engage any officer or employee of the Company. Neither AMR nor any
officer or director thereof will be liable to the Company or its stockholders
for breach of any fiduciary duty by reason of these activities.
If AMR acquires knowledge of a potential transaction or matter that may be
a corporate opportunity for both AMR and the Company, AMR will have no duty to
communicate that opportunity to the Company. Furthermore, AMR will not be liable
to the Company or its stockholders because AMR pursues or acquires that
corporate opportunity for itself, directs that corporate opportunity to another
person or entity or does not present that corporate opportunity to the Company.
If a director or officer of the Company who is also a director or officer
of AMR acquires knowledge of a potential transaction or matter that may be a
corporate opportunity for both the Company and AMR, the Certificate of
Incorporation requires that the director or officer of the Company act in good
faith in accordance with the following three-part policy, and a director or
officer so acting is deemed to have acted reasonably and in good faith and fully
to have satisfied his or her duties of loyalty and fiduciary duties to the
Company and its stockholders with respect to such opportunity.
First, a corporate opportunity offered to any person who is a director but
not an officer of the Company and who is also an officer (whether or not a
director) of AMR will belong to AMR, unless the opportunity is expressly offered
to that person primarily in his or her capacity as a director of the Company, in
which case the opportunity will belong to the Company.
Second, a corporate opportunity offered to any person who is an officer
(whether or not a director) of the Company and who is also a director but not an
officer of AMR will belong to the Company, unless the opportunity is expressly
offered to that person primarily in his or her capacity as a director of AMR, in
which case the opportunity will belong to AMR.
Third, a corporate opportunity offered to any other person who is either an
officer of both the Company and AMR or a director of both the Company and AMR
will belong to AMR or to the Company, as the case may be, if the opportunity is
expressly offered to the person primarily in his or her capacity as an officer
or director of AMR or of the Company, respectively. Otherwise, the opportunity
will belong to AMR.
Under the Certificate of Incorporation, any corporate opportunity that
belongs to AMR or to the Company pursuant to the foregoing policy will not be
pursued by the other (or directed by the other to another person or entity)
unless and until AMR or the Company, as the case may be, determines not to
pursue the opportunity. If the party to whom the corporate opportunity belongs
does not, however, within a reasonable period of time, begin to pursue, or
thereafter continue to pursue, such opportunity diligently and in good faith,
the other party may pursue such opportunity (or direct it to another person or
entity).
A director or officer of the Company who acts in accordance with the
foregoing three-part policy: (i) will be deemed fully to have satisfied his or
her fiduciary duties to the Company and its stockholders with respect to such
corporate opportunity; (ii) will not be liable to the Company or its
stockholders for any breach of fiduciary duty by reason of the fact that AMR
pursues or acquires such opportunity for itself or directs such corporate
opportunity to another person or does not communicate information regarding such
opportunity to the Company; (iii) will be deemed to have acted in good faith and
in a manner he or she reasonably believes to be in the best interests of the
Company; and (iv) will be deemed not to have breached his or her duty of loyalty
to the Company or its stockholders and not to have derived an improper benefit
therefrom.
Under the Certificate of Incorporation, "corporate opportunities"
potentially allocable to the Company consist of business opportunities which (i)
the Company is financially able to undertake; (ii) are, from their nature, in
the Company's line or lines of business and are of practical advantage to the
Company; and (iii) are ones in which the Company has an interest or reasonable
expectancy.
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<PAGE> 79
In addition, "corporate opportunities" do not include transactions in which the
Company or AMR is permitted to participate pursuant to any agreement between the
Corporation and AMR that is in effect as of the time any equity security of the
Company is held of record by any person other than AMR or subsequently entered
into with the approval of the Disinterested Directors.
For purposes of these corporate opportunity provisions, a director of the
Company who is chairman of the Board of Directors (or a committee thereof) or
chief executive officer will not be deemed to be an officer of the Company by
reason of holding such position, unless such person is a full-time employee of
the Company.
CONFLICT OF INTERESTS POLICY. The Certificate of Incorporation provides
that no contract, agreement, arrangement or transaction between the Company and
AMR or any customer or supplier or any entity in which a director of the Company
has a financial interest (a "Related Entity"), or between the Company and one or
more of the directors or officers of the Company, AMR or any Related Entity, or
any amendment, modification or termination thereof, will be voidable solely
because AMR or such customer or supplier, any Related Entity, or any one or more
of the officers or directors of the Company, AMR or any Related Entity are
parties thereto, or solely because any such directors or officers are present at
or participate in the meeting of the Board of Directors or committee thereof
which authorizes the contract, agreement, arrangement, transaction, amendment,
modification or termination (each, a "Transaction") or solely because their
votes are counted for such purpose, if a specified standard is satisfied. That
standard will be satisfied, and AMR, the Related Entity and the directors and
officers of the Company, AMR or the Related Entity (as applicable) will be
deemed to have acted reasonably and in good faith (to the extent such standard
is applicable to such person's conduct) and fully to have satisfied any duties
of loyalty and fiduciary duties they may have to the Company and its
stockholders with respect to such transaction if any of the following four
requirements are met:
(i) the material facts as to the Transaction are disclosed or known to
the Board of Directors or the committee thereof that authorizes the
Transaction, and the Board of Directors or such committee in good faith
approves the Transaction by a majority of the Disinterested Directors on
the Board of Directors or such committee, even if the Disinterested
Directors are less than a quorum;
(ii) the material facts as to the Transaction are disclosed or known
to the holders of Voting Stock entitled to vote thereon, and the
Transaction is specifically approved by vote of the holders of a majority
of the then outstanding Voting Stock not owned by AMR or such Related
Entity, voting together as a single class;
(iii) the Transaction is effected pursuant to guidelines which are in
good faith approved by a majority of the Disinterested Directors on the
Board of Directors or the applicable committee thereof or by vote of the
holders of a majority of the then outstanding Voting Stock not owned by AMR
or such Related Entity, voting together as a single class; or
(iv) the Transaction is fair to the Company as of the time it is
approved by the Board of Directors, a committee thereof or the stockholders
of the Company.
The Certificate of Incorporation also provides that any such Transaction
authorized, approved or effected, and each of such guidelines so authorized or
approved, as described in (i), (ii) or (iii) above, shall be deemed to be
entirely fair to the Company and its stockholders; provided that, if such
authorization or approval is not obtained, or such Transaction is not so
effected, no presumption shall arise that such Transaction or guideline is not
fair to the Company and its stockholders. In addition, the Certificate of
Incorporation provides that AMR shall not be liable to the Company or its
stockholders for breach of any fiduciary duty that AMR may have by reason of the
fact that AMR takes any action in connection with any transaction between AMR
and the Company.
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<PAGE> 80
Effective as of the Trigger Date, the affirmative vote of the holders of
more than 80 percent of the outstanding Voting Stock, voting together as a
single class, will be required to alter, amend or repeal any of these conflict
of interest or corporate opportunity provisions in a manner adverse to the
interests of AMR.
RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY
The Certificate of Incorporation authorizes the Board of Directors to
create and issue rights entitling the holders thereof to purchase from the
Company shares of capital stock or other securities or property. The times at
which and terms upon which such rights are to be issued would be determined by
the Board of Directors and set forth in the contracts or instruments that
evidence such rights. The authority of the Board of Directors with respect to
such rights includes, but is not limited to, determination of (i) the purchase
price of the capital stock to be purchased upon exercise of such rights; (ii)
provisions relating to the times at which and the circumstances under which such
rights may be exercised or sold or otherwise transferred, either together with
or separately from, any other stock or other securities of the Company; (iii)
provisions which adjust the number or exercise price of such rights or amount or
nature of the stock receivable upon exercise of such rights in the event of a
combination, split or recapitalization of any stock of the Company, a change in
ownership of the Company's stock or other securities or a reorganization,
merger, consolidation, sale of assets or other occurrence relating to the
Company or any stock of the Company, and provisions restricting the ability of
the Company to enter into any such transaction absent an assumption by the other
party or parties thereto of the obligations of the Company under such rights;
(iv) provisions which deny the holder of a specified percentage of the
outstanding securities of the Company the right to exercise such rights and
cause such rights held by such holder to become void; (v) provisions which
permit the Company to redeem or exchange such rights; and (vi) the appointment
of the rights agent with respect to such rights. This provision is intended to
confirm the authority of the Board of Directors to issue such share purchase
rights or other rights to purchase stock or securities of the Company or any
other corporation.
LISTING
The Class A Common Stock has been approved for listing on the New York
Stock Exchange under the symbol "TSG," subject to official notice of issuance.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is First Chicago
Trust Company of New York.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offerings, there has been no market for the Common Stock of
the Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect prevailing market prices.
Upon completion of the Offerings, the Company will have 20,200,000 shares
of Class A Common Stock issued and outstanding (23,230,000 if the Underwriters'
over-allotment options are exercised in full) and 107,374,000 shares of Class B
Common Stock issued and outstanding. All of the shares of Class A Common Stock
to be sold in the Offerings will be freely tradable without restrictions or
further registration under the Securities Act, except that shares purchased by
an "affiliate" of the Company (as that term is defined in Rule 144) will be
subject to the resale limitations of Rule 144. All of the outstanding shares of
Class B Common Stock are owned by AMR and have not been registered under the
Securities Act and may not be sold in the absence of an effective registration
statement under the Securities Act other than in accordance with Rule 144 or
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another exemption from registration ("Restricted Shares"). Restricted Shares
will become eligible for resale in the public market at various dates in the
future.
The Restricted Shares will constitute "restricted securities" within the
meaning of Rule 144 promulgated under the Securities Act and will be eligible
for sale in the open market after the Offerings subject to the contractual
lockup provisions and applicable requirements of Rule 144 described below. In
addition, for as long as AMR is able to cause a majority of the Company's Board
of Directors to be elected, it will be able to cause the Company at any time to
register under the Securities Act all or a portion of the Common Stock owned by
it, in which event such shares could be sold publicly upon the effectiveness of
any such registration without restriction. AMR may also, at any time following
the contractual lockup provisions described below, sell any or all of the Class
B Common Stock in a private placement without regard to the Rule 144
restrictions described below.
In general, under Rule 144 as currently in effect, if a period of at least
two years has elapsed between the later of the date on which "restricted shares"
(as that phrase is defined in Rule 144) were acquired from the Company and the
date on which they were acquired from an "affiliate" of the Company (an
"Affiliate", as that term is defined in Rule 144), then the holder of such
restricted shares (including an Affiliate) is entitled to sell a number of
shares within any three-month period that does not exceed the greater of (i) one
percent of the then outstanding shares of the Common Stock or (ii) the average
weekly reported volume of trading of the Common Stock during the four calendar
weeks preceding such sale. Sales under Rule 144 are also subject to certain
requirements pertaining to the manner of such sales, notices of such sales and
the availability of current public information concerning the Company.
Affiliates may sell shares not constituting restricted shares in accordance with
the foregoing volume limitations and other requirements but without regard to
the two-year period. Under Rule 144(k), if a period of at least three years has
elapsed between the later of the date on which restricted shares were acquired
from the Company and the date on which they were acquired from an Affiliate, a
holder of such restricted shares who is not an Affiliate at the time of the sale
and has not been an Affiliate for at least three months prior to the sale would
be entitled to sell the shares immediately without regard to the volume
limitations and other conditions described above. The foregoing description of
Rule 144 is not intended to be a complete description thereof.
Sales of significant amounts of the Common Stock, or the perception that
such sales could occur, could have an adverse impact on the market price of the
Class A Common Stock. The Company has agreed that during the period beginning on
the date of this Prospectus and continuing to and including the date 180 days
after the date of this Prospectus, it will not offer, sell, contract to sell or
otherwise dispose of any shares of Class A Common Stock, any securities of the
Company that are substantially similar to the shares of the Class A Common Stock
or that are convertible or exchangeable into Class A Common Stock or securities
that are substantially similar to the shares of the Class A Common Stock (other
than pursuant to employee stock option plans existing, or on conversion or
exchange of convertible or exchangeable securities outstanding, on the date of
this Prospectus) without the prior written consent of Goldman, Sachs & Co., on
behalf of the U.S. Underwriters, except for the shares of Class A Common Stock
offered in connection with the Offerings. AMR has agreed that during the period
beginning on the date of this Prospectus and continuing to and including the
date 180 days after the date of this Prospectus, it will not offer, sell,
contract to sell or otherwise dispose of any shares of Class A Common Stock, any
securities of the Company that are substantially similar to the shares of Class
A Common Stock, or that are convertible or exchangeable into Class A Common
Stock or securities that are substantially similar to the shares of Class A
Common Stock without the prior written consent of Goldman, Sachs & Co., on
behalf of the U.S. Underwriters. See "Underwriting."
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The Company and AMR are also parties to the Registration Rights Agreement
pursuant to which AMR may demand registration under the Securities Act of shares
of the Company's capital stock held by it at any time subject to its agreement
not to sell any shares prior to the expiration of 180 days from the date of this
Prospectus. The Company may postpone such a demand under certain circumstances.
In addition, AMR may request the Company to include shares of the Company's
capital stock held by it in any registration proposed by the Company of such
capital stock under the Securities Act.
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<PAGE> 83
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the U.S. Underwriters named below, and
each of such U.S. Underwriters, for whom Goldman, Sachs & Co., J.P. Morgan
Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon
Brothers Inc are acting as representatives, has severally agreed to purchase
from the Company, the respective number of shares of Class A Common Stock set
forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF CLASS A
UNDERWRITER COMMON STOCK
----------- ----------------
<S> <C>
Goldman, Sachs & Co. .......................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
J.P. Morgan Securities Inc. ................................
Salomon Brothers Inc .......................................
---------
Total............................................. 16,160,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The U.S. Underwriters propose to offer the shares of Class A Common Stock
in part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $ per share. The U.S. Underwriters may
allow, and such dealers may reallow, a concession not in excess of $
per share to certain brokers and dealers. After the shares of Class A Common
Stock are released for sale to the public, the offering price and other selling
terms may from time to time be varied by the representatives.
At the request of the Company, the Underwriters have reserved less than 10%
of the shares of the Class A Common Stock offered hereby for sale at the public
offering price to the directors, officers and employees of the Company,
directors of AMR and certain other persons. The number of shares available to
the general public will be reduced to the extent persons purchase such reserved
shares. Any reserved shares not so purchased will be offered by the Underwriters
to the general public on the same terms as other shares offered by this
Prospectus.
The Company and AMR have entered into an underwriting agreement (the
"International Underwriting Agreement") with the underwriters of the
international offering (the "International Underwriters") providing for the
concurrent offer and sale of 4,040,000 shares of Class A Common Stock in an
international offering outside the United States. The offering price and
aggregate underwriting discounts and commissions per share for the two offerings
are identical. The closing of the offering made hereby is a condition to the
closing of the international offering, and vice versa. The representatives
acting on behalf of the International Underwriters are Goldman Sachs
International, Merrill Lynch International, J.P. Morgan Securities Ltd. and
Salomon Brothers International Limited.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution of
the shares offered hereby and subject to certain exceptions, it will offer, sell
or deliver the shares of Class A Common Stock, directly or indirectly, only in
the United States of America (including the States and District of Columbia),
its territories, its possessions and other areas subject to its jurisdiction
(the "United States") and to U.S. persons, which term shall mean, for purposes
of this paragraph: (a) any individual who is a resident of the United States or
(b) any corporation, partnership or other entity organized in or under the
81
<PAGE> 84
laws of the United States or any political subdivision thereof and whose office
most directly involved with the purchase is located in the United States. Each
of the International Underwriters has agreed pursuant to the Agreement Between
that, as a part of the distribution of the shares offered as a part of the
international offering, and subject to certain exceptions, it will (i) not,
directly or indirectly, offer, sell or deliver shares of Class A Common Stock
(a) in the United States or to any U.S. persons or (b) to any person who it
believes intends to reoffer, resell or deliver the shares in the United States
or to any U.S. persons, and (ii) cause any dealer to whom it may sell such
shares at any concession to agree to observe a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Class A Common Stock as may be mutually agreed. The price of any shares so sold
shall be the initial public offering price, less an amount not greater than the
selling concession.
The Company has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of
2,424,000 additional shares of Class A Common Stock solely to cover
over-allotments, if any. If the U.S. Underwriters exercise their over-allotment
option, the U.S. Underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of shares to be purchased by each of them, as shown in the foregoing
table, bears to the 16,160,000 shares of Class A Common Stock offered hereby.
The Company has granted the International Underwriters a similar option to
purchase up to an aggregate of 606,000 additional shares of Class A Common
Stock.
The Company has agreed, during the period beginning from the date of this
Prospectus and continuing to and including the date 180 days after the date of
this Prospectus, not to offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock, any securities of the Company that are substantially
similar to the shares of Common Stock or that are convertible or exchangeable
into Common Stock or securities that are substantially similar to the shares of
Common Stock (other than pursuant to employee stock option plans which exist on,
or are described herein to be implemented after, the date of this Prospectus, or
on conversion or exchange of convertible or exchangeable securities outstanding
on the date of this Prospectus) without the prior written consent of Goldman,
Sachs & Co., on behalf of the Underwriters, except for the shares of Class A
Common Stock offered in connection with the Offerings. AMR has agreed, during
the period beginning from the date of this Prospectus and continuing to and
including the date 180 days after the date of this Prospectus, not to offer,
sell, contract to sell or otherwise dispose of any shares of Common Stock, any
securities of the Company that are substantially similar to the shares of Common
Stock or that are convertible or exchangeable into Common Stock or securities
that are substantially similar to the shares of Common Stock without the prior
written consent of Goldman, Sachs & Co., on behalf of the Underwriters.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares of
Class A Common Stock offered by them.
Prior to this Offering, there has been no public market for the shares of
Class A Common Stock. The initial public offering price was negotiated among the
Company and the representatives of the U.S. Underwriters and the International
Underwriters. Among the factors considered in determining the initial public
offering price of the Class A Common Stock, in addition to prevailing market
conditions, were the Company's historical performance, estimates of the business
potential and earnings prospects of the Company, an assessment of the Company's
management and the consideration of the above factors in relation to market
valuations of companies in related businesses.
The Class A Common Stock has been approved for listing on the New York
Stock Exchange under the symbol "TSG," subject to official notice of issuance.
In order to meet one of the
82
<PAGE> 85
requirements for listing the Class A Common Stock on the New York Stock
Exchange, the Underwriters have undertaken to sell lots of 100 or more shares to
a minimum of 2,000 beneficial holders.
This Prospectus may be used by underwriters and dealers in connection with
offers and sales of the Class A Common Stock, including shares initially sold in
the International Offering, to persons located in the United States.
The Underwriters perform investment banking and financial advisory and
other financial services for the Company, AMR and their affiliates from time to
time.
The Company and AMR have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act.
83
<PAGE> 86
CERTAIN UNITED STATES TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a discussion of certain of the anticipated United States
federal income and estate tax consequences of the ownership and disposition of
Class A Common Stock applicable to Non-U.S. Holders. A "Non-U.S. Holder" is any
corporation, individual, partnership, estate or trust that is, as to the United
States, a foreign corporation, a non-resident alien individual, a foreign
partnership or a foreign estate or trust. This discussion does not deal with all
aspects of United States federal income and estate taxation that may be relevant
to Non-U.S. Holders in light of their particular circumstances and does not deal
with state, local and non-U.S. tax consequences. Prospective non-U.S. investors
should consult their own tax advisors regarding the United States and other tax
consequences of owning and disposing of Class A Common Stock.
DIVIDENDS
Generally, any dividend paid to a Non-U.S. Holder with respect to Class A
Common Stock will be subject to United States withholding tax at a rate of 30%
of the amount of the dividend, or at a lesser applicable treaty rate. However,
if the dividend is effectively connected with a United States trade or business
of a Non-U.S. Holder, it will be subject to the regular United States federal
income tax, rather than the 30% withholding tax, except as otherwise provided in
an applicable treaty. Under certain circumstances, any such effectively
connected dividends received by a foreign corporation may also be subject to an
additional branch profits tax.
Under current Treasury regulations, dividends paid to an address in a
foreign country are generally presumed to be paid to a resident of such country
for purposes of determining the applicability of a treaty rate. However,
Treasury Regulations proposed to be effective for payments made after December
31, 1997 (the "Proposed Regulations"), which have not finally been adopted,
would require a Non-U.S. Holder to file a form to obtain the benefit of any
applicable tax treaty providing for a lower rate of withholding tax on
dividends. Such form would contain the holder's name and address and certain
other information.
SALES OF CLASS A COMMON STOCK
Generally, a Non-U.S. Holder will not be subject to United States federal
income or withholding tax on any gain realized upon the sale of Class A Common
Stock unless (i) the gain is effectively connected with a United States trade or
business of the Non-U.S. Holder, or (ii) in the case of a Non-U.S. Holder who is
an individual and holds the Class A Common Stock as a capital asset, such
Non-U.S. Holder is present in the United States for a period or periods
aggregating 183 days or more during the taxable year of the sale and certain
other conditions are satisfied, or (iii) the Company is or has been a "United
States real property holding corporation" for federal income tax purposes (which
the Company does not believe it is or has been) and certain other conditions are
satisfied, and no treaty exception is applicable.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, dividends paid to Non-U.S. Holders with respect to Class A
Common Stock outside the United States that are subject to the 30% withholding
tax or the reduced treaty rate of withholding tax will be exempt from any backup
withholding tax. Otherwise, backup withholding of United States federal income
tax at a rate of 31% may apply to dividends paid with respect to the Class A
Common Stock to holders that are not "exempt recipients" and that fail to
provide certain information (including the holder's taxpayer identification
number) in the manner required by United States law and applicable regulations.
The payment of the proceeds of the disposition of Class A Common Stock by a
Non-U.S. Holder to or through a United States office of a broker will be subject
to information reporting and backup withholding at a rate of 31% unless the
owner certifies, in a suitable form, as to its non-U.S. tax
84
<PAGE> 87
status or otherwise establishes an exemption. The payment of the proceeds of the
disposition to or through a non-U.S. office of a broker will not be subject to
backup withholding, but may be subject to information reporting if the broker is
(i) a U.S. person, (ii) a foreign person that is a controlled foreign
corporation for United States tax purposes, or (iii) a foreign person 50% or
more of whose gross income for a specified 3-year period is effectively
connected with the conduct of a trade or business within the United States.
The Proposed Regulations will, if adopted, alter the foregoing rules in
certain respects. Among other things, the Proposed Regulations provide certain
presumptions under which a Non-U.S. Holder may be subject to backup withholding
in the absence of required certifications.
ESTATE TAX
Class A Common Stock that is beneficially owned by an individual who is
neither a citizen nor a resident of the United States at the time of death will
be included in such holder's gross estate for United States federal estate tax
purposes, unless an applicable treaty provides otherwise.
VALIDITY OF CLASS A COMMON STOCK
The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company by Debevoise & Plimpton, New York, New York, and for
the Underwriters by Sullivan & Cromwell, New York, New York.
EXPERTS
The consolidated financial statements and financial statement schedule of
the Company as of December 31, 1994 and December 31, 1995 and for each of the
three years in the period ended December 31, 1995 appearing in this Prospectus
and the Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 (the "Registration Statement") under the Securities Act with respect to the
shares of Class A Common Stock offered hereby. For the purposes hereof, the term
"Registration Statement" means the original registration statement and any and
all amendments thereto. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules thereto.
For further information with respect to the Company and such Common Stock,
reference is hereby made to such Registration Statement, including exhibits
thereto, which can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the Regional Offices of the Commission at Seven World Trade Center, New
York, New York 10048 and 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material also can be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
http://www.sec.gov.
Statements contained in the Prospectus as to the contents of any contract
or other document are not necessarily complete, and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference.
85
<PAGE> 88
The Company is not currently subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a
result of the offering of the Company's Class A Common Stock, the Company will
become subject to the reporting requirements of the Exchange Act. The Company
intends to furnish its stockholders with annual reports containing financial
statements audited by independent accountants and with quarterly reports
containing interim financial information for each of the first three quarters of
each year.
TRADEMARKS
The following registered and unregistered trademarks used herein are owned
by the Company or one of its subsidiaries: SABRE, Travelocity, easySABRE, Turbo
SABRE, Planet SABRE, SABRE Business Travel Solutions, SABRE BTS, CARS Plus,
SHAARP Plus, SABRErail, SABRE TourGuide, SABRE Navigator, SABRE CruiseDirector,
Basic Booking Request, Direct Connect Availability, Fare Action Evaluator,
AIRPRICE, AIRCREWS, AIRFLITE and SABRE Wireless.
86
<PAGE> 89
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Pro Forma Condensed Consolidated Financial Information............................... F-2
Pro Forma Condensed Consolidated Balance Sheet for June 30, 1996................... F-3
Pro Forma Condensed Consolidated Statement of Income for the year ended December
31, 1995........................................................................ F-4
Pro Forma Condensed Consolidated Statement of Income for the six months ended June
30, 1995........................................................................ F-5
Pro Forma Condensed Consolidated Statement of Income for the six months ended June
30, 1996........................................................................ F-6
Notes to Pro Forma Condensed Consolidated Financial Statements..................... F-7
Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors.................................. F-9
Consolidated Balance Sheets for December 31, 1995 and 1994 and June 30, 1996....... F-10
Consolidated Statements of Income and Stockholder's Net Investment for the years
ended December 31, 1995, 1994 and 1993 and the six months ended June 30, 1996
and 1995........................................................................ F-11
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994
and 1993 and the six months ended June 30, 1996 and 1995........................ F-12
Notes to Consolidated Financial Statements......................................... F-13
</TABLE>
F-1
<PAGE> 90
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The accompanying pro forma condensed consolidated financial statements are
based upon the historical financial statements of the Company and assume the
Reorganization and the Affiliate Agreements and the Offerings were consummated
at June 30, 1996, with respect to the unaudited pro forma condensed consolidated
balance sheet and on January 1, 1995 with respect to the unaudited pro forma
condensed consolidated statements of income.
The pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the operating results or financial position
that would have occurred if the transactions had been consummated as presented
in the accompanying pro forma condensed consolidated financial statements, nor
is it necessarily indicative of future results of operations.
The pro forma condensed consolidated financial statements should be read in
conjunction with the Consolidated Financial Statements and related notes thereto
of the Company included elsewhere herein.
F-2
<PAGE> 91
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
UNAUDITED
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA AS PRO FORMA
FOR THE ADJUSTED FOR THE PRO FORMA AS FURTHER
REORGANIZATION REORGANIZATION ADJUSTMENTS ADJUSTED
AND AFFILIATE AND AFFILIATE FOR THE FOR THE
HISTORICAL AGREEMENTS AGREEMENTS OFFERINGS OFFERINGS
---------- -------------- ---------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents........................... $ 187,089 $ 187,089 $ 409,064(h) $ 227,996
(368,157)(i)
Accounts receivable, net............................ 209,697 209,697 209,697
Prepaid expenses.................................... 12,075 12,075 12,075
Deferred income taxes............................... 40,717 40,717 40,717
--------- ---------- --------- ----------
TOTAL CURRENT ASSETS.......................... 449,578 449,578 40,907 490,485
PROPERTY AND EQUIPMENT
Buildings and leasehold improvements................ 11,243 $ 281,399(c) 292,642 292,642
Furniture, fixtures and equipment................... 4,460 16,430(c) 20,890 20,890
Service contract equipment.......................... 545,355 545,355 545,355
Computer equipment.................................. 318,928 318,928 318,928
--------- --------- ---------- --------- ----------
879,986 297,829 1,177,815 0 1,177,815
Less accumulated depreciation and amortization...... (533,740) (104,621)(c) (638,361) (638,361)
--------- --------- ---------- --------- ----------
TOTAL PROPERTY AND EQUIPMENT.................. 346,246 193,208 539,454 0 539,454
OTHER ASSETS.......................................... 59,997 59,997 59,997
--------- --------- ---------- --------- ----------
TOTAL ASSETS.................................. $ 855,821 $ 193,208 $1,049,029 $ 40,907 $1,089,936
========= ========= ========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.................................... $ 44,853 $ 44,853 $ 44,853
Accrued compensation and related benefits........... 41,972 41,972 41,972
Other accrued liabilities........................... 84,829 84,829 84,829
Note payable to AMR................................. 54,102 $ (54,102)(d) -- --
--------- --------- ---------- ----------
TOTAL CURRENT LIABILITIES..................... 225,756 (54,102) 171,654 171,654
DEFERRED INCOME TAXES................................. 24,876 34,115(c) 36,449 36,449
(19,500)(g)
(3,042)(f)
PENSION BENEFITS...................................... -- 50,000(g) 50,000 50,000
OTHER POSTRETIREMENT BENEFITS......................... 40,627 7,800(f) 48,427 48,427
OTHER LIABILITIES..................................... 13,375 13,375 13,375
DEBENTURE PAYABLE to AMR.............................. -- 850,000(e) 850,000 $(368,157)(i) 481,843
STOCKHOLDERS' EQUITY
Preferred Stock: $0.01 par value; 20,000,000 shares
authorized; no shares issued...................... -- -- --
Common Stock
$0.01 par value; 1,000 shares authorized and
issued and outstanding.......................... -- --(a) -- --(h) --
Class A: $0.01 par value; 250,000,000 shares
authorized; 20,200,000 shares issued and
outstanding..................................... -- -- 202(h) 202
Class B: $0.01 par value; 107,374,000 shares
authorized; 107,374,000 shares issued and
outstanding..................................... -- -- 1,074(h) 1,074
Additional paid-in-capital.......................... -- -- 407,788(h) 407,788
Formation of Company.............................. --(a)
Reclassify AMR's net investment................... 551,187(b)
Contribution of assets by American................ 159,093(c)
Note payable capitalized.......................... 54,102(d)
Issuance of Debenture to AMR...................... (764,382)(e)
Retained earnings (deficit)......................... -- (120,876) (120,876)
Issuance of Debenture to AMR...................... (85,618)(e)
Postretirement flight benefits.................... (4,758)(f)
Net pension liability............................. (30,500)(g)
Stockholder's net investment...................... 551,187 (551,187)(b) -- --
--------- --------- ---------- --------- ----------
TOTAL STOCKHOLDERS' EQUITY.................... 551,187 (672,063) (120,876) 409,064 288,188
--------- --------- ---------- --------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.... $ 855,821 $ 193,208 $1,049,029 $ 40,907 $1,089,936
========= ========= ========== ========= ==========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
F-3
<PAGE> 92
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS AS ADJUSTED PRO FORMA
FOR THE FOR THE PRO FORMA AS FURTHER
REORGANIZATION REORGANIZATION ADJUSTMENTS ADJUSTED
AND AFFILIATE AND AFFILIATE FOR THE FOR THE
HISTORICAL AGREEMENTS AGREEMENTS OFFERINGS OFFERINGS
---------- -------------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues
Electronic travel distribution............. $1,006,926 $ 986,057 $ 986,057
Marketing support payments............... $ (20,869)(j)
Information technology solutions........... 522,690 477,290 477,290
Technology Services Agreement............ (45,400)(k)
---------- --------- ---------- ----------
Total revenues....................... 1,529,616 (66,269) 1,463,347 1,463,347
Operating expenses
Cost of revenues........................... 1,041,475 1,067,283 1,067,283
Technology Services Agreement............ (11,750)(k)
Employee travel costs -- American........ 13,159(l)
Employee travel costs -- other
airlines............................... 6,480(m)
Additional marketing support............. 20,000(j)
Additional general expenses.............. 4,230(n)
Reduction in rent expense................ (7,295)(o)
Additional postretirement expense........ 984(p)
Selling, general and administrative........ 107,717 111,466 111,466
Employee travel costs -- American........ 3,492(l)
Employee travel costs -- other
airlines............................... 1,620(m)
Additional general expenses.............. 410(n)
Reduction in rent expense................ (2,019)(o)
Additional postretirement expense........ 246(p)
---------- --------- ---------- ----------
Total operating expenses............. 1,149,192 29,557 1,178,749 1,178,749
---------- --------- ---------- ----------
Operating income............................. 380,424 (95,826) 284,598 284,598
Other income (expense), net.................. (10,349) (56,011)(q) (66,360) $26,599(s) (39,761)(t)
---------- --------- ---------- -------- ----------
Income before provision for income taxes..... 370,075 (151,837) 218,238 26,599 244,837
Provision for income taxes................... 144,224 (59,216)(r) 85,008 10,374(r) 95,382
---------- --------- ---------- -------- ----------
Net earnings................................. $ 225,851 $ (92,621) $ 133,230 $16,225 $ 149,455
========== ========= ========== ======== ==========
Pro forma earnings per common share data:
Earnings per common share.................. $ 1.18(u) $ 1.17(v)
========== ==========
Average common and common equivalent shares
outstanding.............................. 112,996(u) 127,574(v)
========== ==========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
F-4
<PAGE> 93
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1995
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS AS ADJUSTED PRO FORMA
FOR THE FOR THE PRO FORMA AS FURTHER
REORGANIZATION REORGANIZATION ADJUSTMENTS ADJUSTED
AND AFFILIATE AND AFFILIATE FOR THE FOR THE
HISTORICAL AGREEMENTS AGREEMENTS OFFERINGS OFFERINGS
---------- -------------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues
Electronic travel distribution............... $511,739 $501,475 $501,475
Marketing support payments................. $(10,264)(j)
Information technology solutions............. 255,792 235,261 235,261
Technology Services Agreement.............. (20,531)(k)
-------- -------- -------- --------
Total revenues......................... 767,531 (30,795) 736,736 736,736
Operating expenses
Cost of revenues............................. 499,758 511,388 511,388
Technology Services Agreement.............. (5,867)(k)
Employee travel costs -- American.......... 5,297(l)
Employee travel costs -- other airlines.... 3,240(m)
Additional marketing support............... 10,000(j)
Additional general expenses................ 2,115(n)
Reduction in rent expense.................. (3,647)(o)
Additional postretirement expense.......... 492(p)
Selling, general and administrative.......... 48,323 49,856 49,856
Employee travel costs -- American.......... 1,404(l)
Employee travel costs -- other airlines.... 810(m)
Additional general expenses................ 205(n)
Reduction in rent expense.................. (1,009)(o)
Additional postretirement expense.......... 123(p)
-------- -------- -------- --------
Total operating expenses............... 548,081 13,163 561,244 561,244
-------- -------- -------- --------
Operating income............................... 219,450 (43,958) 175,492 175,492
Other income (expense), net.................... (10,415) (27,977)(q) (38,392) $13,300(s) (25,092)(t)
-------- -------- -------- -------- --------
Income before provision for income taxes....... 209,035 (71,935) 137,100 13,300 150,400
Provision for income taxes..................... 81,978 (28,055)(r) 53,923 5,187(r) 59,110
-------- -------- -------- -------- --------
Net earnings................................... $127,057 $(43,880) $ 83,177 $ 8,113 $ 91,290
======== ======== ======== ======== ========
Pro forma earnings per common share data:
Earnings per common share.................... $ .74(u) $ .72(v)
======== ========
Average common and common equivalent shares
outstanding................................ 112,996(u) 127,574(v)
======== ========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
F-5
<PAGE> 94
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA AS
ADJUSTMENTS ADJUSTED FOR PRO FORMA
FOR THE THE PRO FORMA AS FURTHER
REORGANIZATION REORGANIZATION ADJUSTMENTS ADJUSTED
AND AFFILIATE AND AFFILIATE FOR THE FOR THE
HISTORICAL AGREEMENTS AGREEMENTS OFFERINGS OFFERINGS
---------- -------------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues
Electronic travel distribution............... $574,982 $574,982 $574,982
Information technology solutions............. 263,307 257,209 257,209
Technology Services Agreement.............. $ (6,098)(k)
-------- -------- -------- --------
Total revenues............................... 838,289 (6,098) 832,191 832,191
Operating expenses
Cost of revenues............................. 576,599 570,909 570,909
Technology Services Agreement.............. $ (6,098)(k)
Employee travel costs -- other airlines.... 3,240(m)
Additional general expenses................ 615(n)
Reduction in rent expense.................. (3,939)(o)
Additional postretirement expense.......... 492(p)
Selling, general and administrative.......... 64,101 64,146 64,146
Employee travel costs -- other airlines.... 810(m)
Additional general expenses................ 205(n)
Reduction in rent expense.................. (1,093)(o)
Additional postretirement
expense.................................. 123(p)
-------- -------- -------- --------
Total operating expenses..................... 640,700 (5,645) 635,055 635,055
-------- -------- -------- --------
Operating income............................... 197,589 (453) 197,136 197,136
Other income (expense), net.................... (2,399) (28,170)(q) (30,569) $13,300(s) (17,269)(t)
-------- -------- -------- -------- --------
Income before provision for income taxes....... 195,190 (28,623) 166,567 13,300 179,867
Provision for income taxes..................... 76,140 (11,163)(r) 64,977 5,187(r) 70,164
-------- -------- -------- -------- --------
Net earnings................................... $119,050 $(17,460) $101,590 $ 8,113 $109,703
======== ======== ======== ======== ========
Pro forma earnings per common share data:
Earnings per common share.................... $ .90(u) $ .86(v)
======== ========
Average common and common equivalent shares
outstanding................................ 112,996(u) 127,574(v)
======== ========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
F-6
<PAGE> 95
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying pro forma condensed consolidated balance sheet reflects
the following pro forma adjustments for the Reorganization and the Affiliate
Agreements and the Offerings as if such transactions had been consummated on
June 30, 1996.
(a) To record the formation of the Company pursuant to which the Company
issued 1,000 shares of Common Stock to American, which dividended them to AMR.
Prior to the issuance of Class A Common Stock pursuant to the terms of the
Offerings, AMR owned 100% of the outstanding shares of Common Stock. Immediately
prior to the Offerings, Common Stock held by AMR will be converted to Class B
Common Stock.
(b) To reclassify AMR's net investment to additional paid-in-capital in
connection with the legal formation of the Company.
(c) To record the contribution by American to the Company of buildings and
furniture and fixtures with a historical cost to American of approximately $298
million and accumulated depreciation of approximately $104 million and the
related deferred income taxes.
(d) To record the capitalization of a note payable to AMR of approximately
$54 million.
(e) To record the issuance to American of the $850 million floating rate
subordinated Debenture due September 30, 2004. The Debenture was subsequently
distributed to AMR.
(f) To record the estimated liability to be assumed and the related
deferred income taxes for the Company's obligation to provide post-retirement
flight benefits to certain employees of the Company pursuant to the Travel
Privileges Agreement with American effective July 1, 1996.
(g) To record the estimated net pension liability to be assumed, and the
related deferred income taxes, as a result of the spin-off of the portion of the
American sponsored pension plan attributable to the Company's employees from the
American pension plan to a new pension plan to be sponsored by the Company. The
pro forma net pension liability to be assumed is based on a preliminary
estimate, prepared by the Company's actuaries, of the amounts of pension
obligations and plan assets attributable to employees of the Company. The actual
obligation assumed will depend upon the amounts of pension obligations and plan
assets, as determined by the Company's actuaries, at the date that the spin-off
occurs. Such spin-off is expected to occur effective January 1, 1997.
(h) To record the issuance of 20,250,000 shares of Class A Common Stock of
the Company at an assumed offering price of $21.50 per share pursuant to the
Offerings, resulting in net proceeds of approximately $410 million after
deducting underwriting commissions and estimated expenses of the Offerings and
to record the conversion of Common Stock held by AMR to Class B Common Stock.
(i) To record the use of 90% of the proceeds of the Offerings to repay a
portion of the Debenture.
The accompanying pro forma condensed consolidated statements of income for
the year ended December 31, 1995 and the six months ended June 30, 1995 and 1996
reflect the following pro forma adjustments assuming the Reorganization and the
Affiliate Agreements and the Offerings had been consummated on January 1, 1995.
(j) To record the estimated increase in marketing costs paid to American
and decrease in marketing support payments from American as a result of the
Marketing Cooperation Agreement with American, the financial terms of which the
parties have agreed to apply as of January 1, 1996, regarding marketing support
for the Company's products targeted to travel agencies, and support for the
Company's promotion of Business Travel Solutions, and Travelocity and easySABRE.
The increase in marketing costs is recorded at the minimum of $20 million
required in the agreement.
F-7
<PAGE> 96
However, this amount may increase to $30 million in the first year and could
range from $10 million to $30 million in the second year and thereafter
depending on whether certain booking thresholds are reached by American.
(k) To record the estimated reduction in revenues as a result of the
Technology Services Agreement with American, the financial terms of which the
parties have agreed to apply as of January 1, 1996 and to record the estimated
reduction in revenues from American and associated reduction in communication
expenses due to SITA billing American directly effective July 1, 1996, as
provided for in the Technology Services Agreement. The agreement established
pricing and service terms associated with the Company's information technology
services provided to American. Additional periodic price adjustments are also
defined in the agreement based on the market for similar services provided by
other companies.
(l) To record the estimated increase in travel costs as a result of the
Travel Privileges Agreement and Corporate Travel Agreement with American, the
financial terms of which the parties have agreed to apply as of January 1, 1996.
These agreements allow the Company to purchase personal and business travel for
its employees at reduced fares. The agreements provide pricing and service terms
at a smaller discount than was in effect in 1995.
(m) To record the estimated increase in travel costs on airlines other than
American. The Company is no longer eligible to participate in discounts provided
to American by other airlines effective with the Reorganization. The Company is
attempting to negotiate an agreement with other airlines for discounts similar
to American's.
(n) To record the estimated increase in employee related costs and other
general and administrative costs associated with the Affiliate Agreements with
AMR and American and their administration. Amount includes an increase in
shipping and handling expenses resulting from the Company's inability, effective
with the Reorganization, to receive American's discount rate for these services.
(o) To record the estimated decrease in rent expense paid to American due
to the transfer of ownership of buildings and furniture and fixtures to the
Company. This decrease is partially offset by depreciation expense and property
taxes which will be incurred by the Company as a result of ownership of these
facilities.
(p) To record the estimated increase in post-retirement benefit costs
associated with the Travel Privileges Agreement with American which provides
certain retired employees of the Company flight privileges in exchange for a
fixed fee per retiree.
(q) To record the estimated interest expense associated with the $850
million Debenture, partially offset by a reduction in interest expense from the
forgiveness of a note payable of $54 million by AMR in connection with the
Reorganization, calculated based on the average interest rate the Company would
have incurred during the year.
(r) To record the estimated tax impact of pre-tax income statement
adjustments at the Company's effective tax rate of 39%.
(s) To record the estimated decrease in interest expense resulting from the
partial repayment of the Debenture with the proceeds of the Offerings.
(t) For each 1/8 of 1% increase in interest rates, the impact would be an
annual change in interest expense of approximately $600,000.
(u) The pro forma earnings per common share data is calculated using the
shares of common stock outstanding after the Reorganization, assuming the
conversion of shares of Common Stock held by AMR into approximately 107.4
million shares of Class B Common Stock, adjusted for the number of shares of
Class A Common Stock that would have to be issued to generate sufficient funds
to repay the portion of the Debenture that i) exceeds the book value of assets
contributed to the Company in the Reorganization (approximately $120.9 million)
and ii) will be repaid out of the proceeds from the Offering.
F-8
<PAGE> 97
(v) The pro forma earnings per common share data is calculated using the
weighted average shares of common stock outstanding after the Offerings. The
dilutive impact of common equivalent shares related to stock awards and options
outstanding under the Company's 1996 Long-Term Incentive Plan is not significant
for the periods presented.
F-9
<PAGE> 98
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholder
The SABRE Group Holdings, Inc.
We have audited the accompanying consolidated balance sheets of The SABRE
Group Holdings, Inc. (a wholly-owned subsidiary of AMR Corporation) and
subsidiaries as of December 31, 1994 and 1995, and the related consolidated
statements of income and stockholder's net investment and cash flows for each of
the three years in the period ended December 31, 1995. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The SABRE Group Holdings, Inc. and subsidiaries at December 31, 1994 and 1995,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
January 15, 1996,
except as to Note 1, for which
the date is July 22, 1996
F-10
<PAGE> 99
THE SABRE GROUP HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
----------------------- JUNE 30, 1996
1994 1995 -------------
--------- --------- (UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents......................... $ 262,956 $ 94,861 $ 187,089
Accounts receivable, less allowance for
uncollectible accounts of $3,042, $4,822 and
$4,307 at December 31, 1994 and 1995 and June
30, 1996, respectively......................... 114,026 138,972 209,697
Prepaid expenses.................................. 2,604 5,851 12,075
Deferred income taxes............................. 24,705 31,539 40,717
--------- --------- -----------
TOTAL CURRENT ASSETS...................... 404,291 271,223 449,578
PROPERTY AND EQUIPMENT
Buildings and leasehold improvements.............. 18,107 12,250 11,243
Furniture, fixtures and equipment................. 6,044 6,049 4,460
Service contract equipment........................ 490,113 529,918 545,355
Computer equipment................................ 453,295 422,050 318,928
--------- --------- -----------
967,559 970,267 879,986
Less accumulated depreciation and amortization.... (566,155) (589,549) (533,740)
--------- --------- -----------
TOTAL PROPERTY AND EQUIPMENT........................ 401,404 380,718 346,246
OTHER ASSETS........................................ 67,810 77,465 59,997
--------- --------- -----------
TOTAL ASSETS.............................. $ 873,505 $ 729,406 $ 855,821
========== ========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable.................................. $ 40,365 $ 53,716 $ 44,853
Accrued compensation and related benefits......... 33,514 33,696 41,972
Other accrued liabilities......................... 60,760 77,071 84,829
Payable to AMR.................................... 302,895 -- --
Note payable to AMR............................... 65,663 54,102 54,102
--------- --------- -----------
TOTAL CURRENT LIABILITIES................. 503,197 218,585 225,756
DEFERRED INCOME TAXES............................... 36,494 30,943 24,876
OTHER POSTRETIREMENT BENEFITS....................... 33,180 37,960 40,627
OTHER LIABILITIES................................... 11,170 9,781 13,375
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Stockholder's net investment...................... 289,464 432,137 551,187
--------- --------- -----------
TOTAL STOCKHOLDER'S EQUITY................ 289,464 432,137 551,187
--------- --------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY.................................. $ 873,505 $ 729,406 $ 855,821
========== ========== ===========
</TABLE>
See notes to the consolidated financial statements.
F-11
<PAGE> 100
THE SABRE GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND STOCKHOLDER'S NET INVESTMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ --------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
Electronic travel distribution............ $ 785,074 $ 905,908 $1,006,926 $ 511,739 $574,982
Information technology solutions.......... 473,074 500,771 522,690 255,792 263,307
---------- ---------- ---------- --------- --------
Total revenues..................... 1,258,148 1,406,679 1,529,616 767,531 838,289
Operating expenses
Cost of revenues.......................... 919,873 955,120 1,041,475 499,758 576,599
Selling, general and administrative....... 84,600 101,406 107,717 48,323 64,101
---------- ---------- ---------- --------- --------
Total operating expenses........... 1,004,473 1,056,526 1,149,192 548,081 640,700
---------- ---------- ---------- --------- --------
Operating income............................ 253,675 350,153 380,424 219,450 197,589
Other income (expense)
Loss on partnership settlement............ (71,242) -- -- -- --
Interest income (expense), net............ (1,390) (8,913) 1,265 1,114 939
Other, net................................ (12,112) (17,180) (11,614) (11,529) (3,338)
---------- ---------- ---------- --------- --------
Income before provision for income taxes.... 168,931 324,060 370,075 209,035 195,190
Provision for income taxes.................. 68,969 126,899 144,224 81,978 76,140
---------- ---------- ---------- --------- --------
Net earnings................................ 99,962 197,161 225,851 127,057 119,050
Stockholder's net investment at beginning of
the year.................................. 244,704 157,966 289,464 289,464 432,137
Contributions from affiliates............... -- -- 310,329 310,329 --
Distributions to affiliates................. (186,700) (65,663) (393,507) (249,049) --
---------- ---------- ---------- --------- --------
Stockholder's net investment at end of the
year...................................... $ 157,966 $ 289,464 $ 432,137 $ 477,801 $551,187
========== ========== ========== ========= ========
</TABLE>
See notes to the consolidated financial statements.
F-12
<PAGE> 101
THE SABRE GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings............................... $ 99,962 $ 197,161 $ 225,851 $ 127,057 $119,050
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation and amortization............ 170,698 174,953 171,471 88,155 87,782
Deferred income taxes.................... (12,287) 50,232 (12,385) -- (15,245)
Loss on partnership settlement........... 71,242 -- -- -- --
Other.................................... 12,090 7,534 7,865 6,503 3,474
Changes in operating assets and
liabilities:
Accounts receivable.................... (14,112) (28,685) (24,946) (33,821) (70,725)
Prepaid expenses....................... 2,599 (1,401) (3,247) (5,037) (6,222)
Other assets........................... (8,445) (41,420) (6,002) (5,368) 11,617
Accrued compensation and related
benefits............................. 6,395 14,618 182 (11,872) 8,276
Accounts payable and other accrued
liabilities.......................... 52,668 8,449 29,662 (335) (1,105)
Partnership settlement................. (45,122) (158,400) -- -- --
Postretirement benefits................ 5,654 4,790 4,780 2,810 2,666
Other liabilities...................... (8,911) (2,884) (1,389) 188 3,595
--------- --------- --------- --------- --------
Net cash provided by operating
activities............................... 332,431 224,947 391,842 168,280 143,163
INVESTING ACTIVITIES
Additions to property and equipment........ (176,557) (168,875) (164,580) (104,411) (82,001)
Acquisition of other investments........... (5,020) (21,087) (16,318) (4,631) (513)
Proceeds from sales of equipment........... 9,874 12,663 6,169 3,609 41,010
--------- --------- --------- --------- --------
Net cash used for investing activities..... (171,703) (177,299) (174,729) (105,433) (41,504)
FINANCING ACTIVITIES
Net cash advances from (to) affiliates..... 25,972 215,308 (236,367) (241,985) (9,431)
Contributions from affiliates.............. -- -- 244,666 244,666 --
Distributions to affiliates................ (186,700) -- (393,507) (249,049) --
--------- --------- --------- --------- --------
Net cash provided by (used for) financing
activities............................... (160,728) 215,308 (385,208) (246,368) (9,431)
--------- --------- --------- --------- --------
Net increase (decrease) in cash
equivalents.............................. -- 262,956 (168,095) (183,521) 92,228
Cash and cash equivalents at beginning of
the period............................... -- -- 262,956 262,956 94,861
--------- --------- --------- --------- --------
Cash and cash equivalents at end of the
period................................... $ -- $ 262,956 $ 94,861 $ 79,435 $187,089
========= ========= ========= ========= ========
Supplemental cash flow information:
Cash payments to affiliates for income
taxes................................ $ 94,336 $ 138,886 $ 148,322 $ 81,978 $ 90,396
========= ========= ========= ========= ========
Interest payments to affiliates........ $ 1,390 $ 8,913 $ -- $ -- $ --
========= ========= ========= ========= ========
</TABLE>
See notes to the consolidated financial statements.
F-13
<PAGE> 102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
1. GENERAL INFORMATION
The SABRE Group Holdings, Inc. (the "Company") is a holding company. Its
sole direct subsidiary is The SABRE Group, Inc., which, pursuant to the
Reorganization (defined below), is the successor to the businesses of The SABRE
Group which were previously operated as subsidiaries or divisions of American or
AMR. The SABRE Group was formed by AMR to capitalize on synergies of combining
AMR's information technology businesses under common management.
On July 2, 1996, AMR reorganized the businesses of The SABRE Group (the
"Reorganization"). As part of the Reorganization, the Company was formed as a
subsidiary of American Airlines, Inc. ("American"), the businesses of The SABRE
Group formerly operated as divisions and subsidiaries of American or AMR were
combined under the Company and the Company and its subsidiaries were dividended
by American to AMR. See Note 11 regarding the transactions related to the
implementation of the Reorganization.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The Consolidated Financial Statements have been
prepared using AMR's historical basis in the assets and liabilities of the
Company. The Consolidated Financial Statements reflect the results of
operations, financial condition and cash flows of the Company as a component of
AMR and may not be indicative of actual results of operations and financial
position of the Company under other ownership. Management believes the
consolidated income statements include a reasonable allocation of administrative
costs, which are described in Note 3, incurred by AMR on behalf of the Company.
CONSOLIDATION -- All significant accounts and transactions among the
consolidated entities have been eliminated. For financial reporting purposes,
the equity accounts of the previous divisions of American and subsidiaries of
AMR have been accumulated into a single disclosure caption entitled
Stockholder's Net Investment.
INTERIM FINANCIAL DATA -- The Consolidated Financial Statements for the six
months ended June 30, 1995 and 1996 have been prepared without audit. In the
opinion of management, all adjustments, which include only normal recurring
adjustments, necessary to present fairly the consolidated balance sheet as of
June 30, 1996 and the consolidated statements of income and stockholder's net
investment and cash flows for the six months ended June 30, 1995 and 1996 have
been made. Interim period results are not necessarily indicative of the results
to be achieved for the full year.
CASH AND CASH EQUIVALENTS -- Prior to July 2, 1996, the Company's cash and
cash equivalents were held for the Company by American. Cash equivalents are
immediately charged or credited to the Company upon recording certain
transactions, including airline booking fees and other transactions with
American, and purchases of goods and services. Cash equivalents are carried at
cost plus accrued interest, which approximates fair value. See Note 11 regarding
the Company's cash balances subsequent to June 30, 1996.
F-14
<PAGE> 103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
DEPRECIATION AND AMORTIZATION -- The Company's depreciation and
amortization policies are as follows:
<TABLE>
<S> <C>
Property and Equipment:
Buildings....................................... 30 years
Service contract equipment...................... 3 to 5 years
Computer equipment.............................. 3 to 5 years
Furniture and fixtures.......................... 5 to 15 years
Leasehold improvements.......................... Lesser of lease term or useful life
Purchased software.............................. 3 to 5 years
Other Assets:
Internally developed software................... 3 to 5 years
</TABLE>
Property and equipment are stated at cost less accumulated depreciation and
amortization, which is calculated on the straight-line basis. Service contract
equipment consists of hardware provided primarily to subscribers of SABRE.
Depreciation of property and equipment totaled approximately $169 million, $168
million and $163 million in 1993, 1994 and 1995, respectively. Other assets are
amortized on the straight-line basis over the periods indicated.
DEFERRED CONTRACT COSTS -- Included in other assets are costs incurred in
connection with an agreement between AMS Holdings, Inc., a subsidiary of AMR
("AMS"), and Canadian Airlines International ("Canadian") to provide a variety
of management, technical and administrative services. The Company incurred and
deferred approximately $41 million and $9 million in costs associated with the
installation and implementation of SABRE and other systems for Canadian during
1994 and 1995, respectively, under the terms of this twenty year service
contract. Pursuant to the terms of the contract, the Company is allowed to
recover these costs plus a margin over the first ten years of the contract. As a
result, these costs are included in cost of revenues over such recovery period.
Approximately $0.7 million and $5 million of these deferred costs were charged
to operations in 1994 and 1995, respectively. American has agreed to reimburse
the Company for any unrecovered costs incurred in connection with the
implementation of such systems in the event of the termination of the provision
of services to Canadian.
REVENUE RECOGNITION -- The Company provides electronic travel distribution
services using SABRE, one of the largest privately owned real-time computer
systems in the world. As compensation for electronic travel distribution
services provided, fees are collected from airline, car rental and hotel vendors
("associates") for reservations booked through SABRE. The fee per booking
charged to an associate is dependent upon the level of functionality within
SABRE at which the associate participates. Revenue for travel reservations is
recognized at the time of the booking of the reservation, net of estimated
future cancellations. At December 31, 1994 and 1995 the Company had recorded
booking fee cancellation reserves of approximately $9 million and $15 million,
respectively. Revenue for car rental and hotel bookings is recognized at the
time the reservation is used by the customer. The Company also enters into
service contracts with subscribers (primarily travel agencies) to provide access
to SABRE, hardware, software, hardware maintenance and other support services.
Fees billed on service contracts are recognized as revenue in the month earned.
The Company provides information technology solutions to AMR and companies
in the travel industry and other industries worldwide. Revenue from data
processing services is recognized in the month earned. Revenue from software
license fees for standard software products is recognized when the software is
delivered, provided no significant future vendor obligations exist and
collection is probable. The Company recognizes revenue on long-term software
development and consulting contracts under the percentage of completion method
of accounting. Losses, if any, on long-term contracts are recognized when the
current estimate of total contract costs indicates a loss
F-15
<PAGE> 104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
on a contract is probable. Fixed fees for software maintenance are recognized
ratably over the life of the contract.
INCOME TAXES -- The entities comprising the Company are included in the
consolidated federal income tax return of AMR. Prior to July 1, 1996, under the
terms of AMR's tax sharing policy, the Company paid AMR an amount equal to the
income tax payments that it would have been obligated to pay if it had filed
separate income tax returns. See Note 11 regarding the Company's tax sharing
agreement subsequent to June 30, 1996.
The Company computes its provision for deferred income taxes using the
liability method as if it were a separate taxpayer. Under the liability method,
deferred income tax assets and liabilities are determined based on differences
between financial reporting and income tax bases of assets and liabilities and
are measured using the enacted tax rates and laws. The measurement of deferred
tax assets is adjusted by a valuation allowance, if necessary, to recognize the
future tax benefits to the extent, based on available evidence, it is more
likely than not they will be recognized.
RESEARCH AND DEVELOPMENT COSTS -- All costs in the software development
process which are classified as research and development costs, which have not
been material, are expensed as incurred until technological feasibility has been
established. Once technological feasibility has been established, such costs are
capitalized until the product is ready for service.
CONCENTRATION OF CREDIT RISK -- The Company's customers are worldwide,
primarily in the United States, Europe and Canada, and are concentrated in the
travel industry. Approximately 43%, 42% and 36% of revenues in 1993, 1994 and
1995, respectively, are related to American and other subsidiaries of AMR. The
Company generally does not require security or collateral from its customers as
a condition of sale. The Company maintains an allowance for losses based upon
the expected collectibility of all accounts receivable. See Note 8.
USE OF ESTIMATES -- The preparation of these financial statements in
conformity with generally accepted accounting principles requires that certain
amounts be recorded based on estimates and assumptions made by management.
Actual results could differ from these estimates and assumptions.
STOCK AWARDS AND OPTIONS -- The Company accounts for stock awards and
options (including awards of AMR stock and stock options) in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." No compensation expense is recognized for stock option grants if the
exercise price of the stock option grants is at or above the fair market value
of the underlying stock on the date of grant. Compensation expense relating to
other stock awards is recognized over the period during which the employee
renders service to the Company necessary to earn the award.
3. RELATED PARTY TRANSACTIONS
Certain of The SABRE Group entities from which the Company was formed
distributed, in their capacity as divisions of American, $394 million in 1995 to
American. Also during 1995, AMR contributed $245 million to the Company and a
note payable to AMR of $66 million was capitalized in order to adequately
capitalize certain of The SABRE Group entities from which the Company was
formed. Proceeds from the contribution were used to reduce cash advances from
AMR.
In conjunction with the capital infusion discussed above, amounts payable
to AMR of approximately $54 million were converted to intercompany notes payable
in 1995, upon which the Company was charged interest expense at an average rate
of 9.9%. The payable to AMR of approximately
F-16
<PAGE> 105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
$303 million at December 31, 1994 represents an amount due to AMR upon demand.
The carrying amount of the notes payable to AMR is equivalent to the fair market
value.
American allocates interest income or expense monthly to the Company based
on the net balance of cash equivalents and the payable to AMR at the average
rate earned by American's portfolio of short-term marketable securities. The
allocation may not be representative of what the Company would earn or pay if
its cash were held externally. Cash payments for interest are equivalent to net
interest expense.
Revenues from American and other subsidiaries of AMR were $546 million,
$590 million and $548 million in 1993, 1994 and 1995, respectively, and $273
million and $261 million for the six months ended June 30, 1995 and 1996,
respectively.
Operating expenses are charged to the Company by American and other
subsidiaries of AMR to cover certain employee benefits, facilities rental,
marketing services, management services, legal fees and certain other
administrative costs based on employee headcount or actual usage of facilities
and services. Amounts charged to the Company for these expenses approximate the
cost of such services provided by third parties. Travel service costs for travel
by the Company's employees for personal and business travel are charged to the
Company based on rates negotiated with American. Personal travel costs are
incurred by the Company only because it is affiliated with American. If the
Company were not affiliated with American, this flight privilege would most
likely not be available to employees. It is estimated that travel costs, had the
Company not been affiliated with American, for 1993, 1994 and 1995 would have
been approximately $26 million, $32 million, and $34 million, respectively, and
for the six months ended June 30, 1995 and June 30, 1996 would have been
approximately $14 million in each period. Expenses charged to the Company by
affiliates are as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- --------------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Employee benefits........ $ 64,268 $ 64,240 $ 68,743 $34,583 $ 43,492
Facilities rental........ 27,294 30,117 29,385 14,631 16,343
Marketing cooperation.... -- -- -- -- 10,802
Management services...... 10,302 16,431 16,508 7,660 9,698
Other administrative
costs.................. 7,625 10,660 11,377 5,957 4,521
Travel services.......... 9,920 18,056 28,761 11,584 20,653
-------- -------- -------- -------- --------
$119,409 $139,504 $154,774 $74,415 $105,509
======== ======== ======== ======== ========
</TABLE>
See Note 11 regarding contractual agreements entered into with AMR and
American subsequent to December 31, 1995.
Substantially all employees of the Company are eligible to participate in a
tax-qualified pension plan sponsored by American. The defined benefit plan
provides benefits for participating employees based on years of service and
average compensation for a specified period of time before retirement. Costs
associated with employee participation in this plan are determined based upon
employee headcount and are allocated to the Company by American. American's
annual allocation of costs to the Company for such benefits was approximately $9
million, $11 million and $9 million in 1993, 1994 and 1995, respectively. The
Company is jointly and severally liable with AMR and other members of AMR's
consolidated group for applicable funding and termination liabilities of the
plan.
F-17
<PAGE> 106
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
The historical financial statements of the Company do not reflect the portion of
the net obligation of the defined benefit plan sponsored by American
attributable to employees of the Company.
In addition to providing pension benefits, American provides certain health
care and life insurance benefits to retired employees. The amount of health care
benefits is limited to lifetime maximums as outlined in the plan. Substantially
all employees of the Company may become eligible for these benefits if they
satisfy eligibility requirements during their working lives. Certain employee
groups make contributions toward funding a portion of their retiree health care
benefits during their working lives. American funds benefits as incurred and
began, effective January 1993, to match employee prefunding. American's annual
allocation of costs to the Company for such benefits was approximately $6
million, $9 million and $5 million in 1993, 1994 and 1995, respectively. The
Company is jointly and severally liable with AMR and other members of AMR's
consolidated group for funding postretirement benefit liabilities.
Net other postretirement benefit costs allocated to the Company by AMR for
the year ended December 31, 1995 consisted of the following (in thousands):
<TABLE>
<S> <C>
Service cost -- benefits earned during the period................. $2,620
Interest cost on accumulated other postretirement benefit
obligation...................................................... 2,420
Return on assets.................................................. (160)
Net amortization and deferral..................................... (100)
------
Net other postretirement benefit cost............................. $4,780
======
</TABLE>
The following table summarizes the funded status of the plan, as allocated
to the Company by AMR, reconciled to the accrued other postretirement benefit
liabilities recognized in the Company's balance sheet at December 31, 1995 (in
thousands):
<TABLE>
<S> <C>
Fully eligible active participants............................ $ (7,210)
Other active participants..................................... (34,350)
--------
Accumulated other postretirement benefit obligation........... (41,560)
Plan assets at fair value..................................... 3,650
--------
Accumulated other postretirement benefit obligation in excess
of plan assets.............................................. (37,910)
Unrecognized net loss......................................... 1,680
Unrecognized prior service benefit............................ (1,730)
--------
Accrued other postretirement benefit cost..................... $(37,960)
========
</TABLE>
Plan assets consist primarily of shares of a mutual fund managed by AMR.
Future benefit costs were estimated assuming per capita cost of covered
medical benefits would increase at an eight percent annual rate decreasing
gradually to a four percent annual growth rate in 2000 and thereafter. A one
percent increase in this annual trend rate would have increased the accumulated
other postretirement benefit obligation at December 31, 1995, by approximately
$5 million and 1995 other postretirement benefit cost by approximately $1
million. The weighted average discount rate used in estimating the accumulated
other postretirement benefit obligation was 7.25%.
The Company will provide personal flight privileges to retired employees
through an agreement with American. Because flight privileges do not result in
any significant incremental costs for
F-18
<PAGE> 107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
American, the cost of providing this privilege to the Company's employees is not
included in the liability for postretirement benefits at December 31, 1995. See
Note 11.
See Note 11 regarding the Company's benefits and the agreements for
benefits provided by AMR and American subsequent to the Reorganization.
4. INCOME TAXES
The provision for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Federal, current.................................. $ 63,202 $ 52,655 $133,575
Federal, deferred................................. (11,121) 50,856 (11,792)
State and local, current.......................... 16,066 20,348 21,936
State and local, deferred......................... (1,166) (624) (593)
Foreign, current.................................. 1,988 3,664 1,098
-------- -------- --------
$ 68,969 $126,899 $144,224
======== ======== ========
</TABLE>
The provision for income taxes differs from amounts computed at the
statutory federal income tax rate as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
------- -------- --------
<S> <C> <C> <C>
Statutory income tax provision...................... $59,126 $113,420 $129,526
State income taxes, net of federal benefit.......... 7,845 12,275 13,581
Foreign tax credit.................................. -- (719) --
Valuation allowance................................. 2,831 1,559 449
Other, net.......................................... (833) 364 668
------- -------- --------
$68,969 $126,899 $144,224
======== ========= =========
</TABLE>
F-19
<PAGE> 108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
The components of the Company's deferred tax assets and liabilities as of
December 31, 1994 and 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Postretirement benefits other than pensions................. $ 14,092 $ 16,100
Net operating loss carryforwards............................ 10,202 9,979
Equipment obsolescence reserve.............................. 5,380 8,976
Booking fee cancellation reserve............................ 3,763 5,754
Reserve for partnership settlement.......................... 9,517 2,745
Other....................................................... 13,447 15,425
-------- --------
Total deferred tax assets........................... 56,401 58,979
Deferred tax liabilities:
Depreciation and amortization............................... (29,879) (25,254)
Software development costs.................................. (18,525) (21,017)
Other....................................................... (8,863) (740)
-------- --------
Total deferred tax liabilities...................... (57,267) (47,011)
Valuation allowance........................................... (10,923) (11,372)
-------- --------
Net deferred tax asset (liability)............................ $(11,789) $ 596
======== ========
Current deferred income tax asset............................. $ 24,705 $ 31,539
Noncurrent deferred income tax liability...................... (36,494) (30,943)
-------- --------
Net deferred tax asset (liability)............................ $(11,789) $ 596
======== ========
</TABLE>
At December 31, 1995, the Company has net operating loss carryforwards of
approximately $95 million for state income tax purposes, primarily arising from
the settlement of litigation regarding certain partnership agreements, as more
fully described in Note 5. The litigation and resulting net operating loss
carryforwards occurred in an entity that was formerly a subsidiary of AMR. If
not utilized, these carryforwards will expire beginning in 1996.
For financial reporting purposes, a valuation allowance of approximately
$11 million has been recognized which principally relates to the state income
tax net operating loss carryforwards and certain other deferred tax assets which
are subject to limitations as to utilization due to the legal structure of the
entity in which the losses originated.
5. PARTNERSHIP SETTLEMENT
Other expense in 1993 includes a provision of approximately $71 million for
losses associated with a reservation system project and resolution of related
litigation. Settlement agreements entered into included $42 million in travel
credits.
In December 1994, the Company paid American approximately $26 million which
represented the present value of the remaining travel credits. In return,
American agreed to assume the liability of providing the partners all travel
services as set forth by the settlement agreements.
6. COMMITMENTS AND CONTINGENCIES
Certain service contracts with significant subscribers contain booking fee
productivity clauses and other provisions which allow subscribers to receive
various amounts of additional equipment and other services from the Company at
no cost to the subscribers. The Company establishes
F-20
<PAGE> 109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
liabilities for these commitments as the subscribers satisfy the applicable
contractual terms. The service contracts are priced so that the additional
airline and other booking fees generated over the life of the contract will
exceed the cost of the equipment and other services. Accrued subscriber
incentives at December 31, 1994 and 1995 were approximately $15 million and $17
million, respectively.
The Company leases certain facilities and equipment under various operating
leases with third parties. At December 31, 1995, future minimum lease payments
required under these operating leases with terms in excess of one year are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
--------------------------------------------------------------
<S> <C>
1996.......................................................... $21,131,000
1997.......................................................... 2,527,000
1998.......................................................... 563,000
1999.......................................................... 209,000
</TABLE>
Rental expense, excluding facilities rented from affiliates, was
approximately $22 million, $27 million and $25 million for the years ended
December 31, 1993, 1994 and 1995, respectively.
The Company is involved in certain disputes arising in the ordinary course
of business. Although the ultimate resolution of these matters cannot be
reasonably estimated at this time, management does not believe that they will
have a material adverse effect on the financial condition or results of
operations of the Company.
7. STOCK AWARDS
Under AMR's 1988 Long-Term Incentive Plan (the "AMR LTIP"), officers and
key employees of the Company may be granted stock options, stock appreciation
rights, restricted stock, deferred stock, stock purchase rights and/or other
stock based awards in common stock, par value $1 per share, of AMR ("AMR Common
Stock").
Options to purchase shares of AMR Common Stock ("AMR Options") have been
granted to officers and key employees of the Company. Options granted are
exercisable at the market value upon grant, generally becoming exercisable over
one to five years following the date of grant, and expiring ten years from the
date of grant. At December 31, 1995, there were approximately 309,000 AMR
Options outstanding held by officers and key employees of the Company, of which
approximately 209,000 were exercisable. The AMR Options have exercise prices
ranging from $40.9375 to $78.0625 per share of AMR Common Stock, with a total
exercise value of approximately $19 million.
Certain officers and key employees of the Company have been awarded
approximately 217,000 shares of deferred AMR Common Stock ("AMR Career Equity
Shares") at no cost, to be issued upon the individual's retirement from AMR.
In conjunction with AMR's 1988 Long-Term Incentive Plan, certain officers
and key employees of the Company have also been awarded, at no cost,
approximately 140,000 shares of deferred $1 par value AMR Common Stock ("AMR
Performance Shares"). The AMR Performance Shares vest over a three-year
performance period based on performance metrics of AMR and the Company, as
defined in the plan. Awards of AMR Performance Shares will terminate on December
31, 1997.
See Note 11 regarding stock awards and options subsequent to the Offering.
F-21
<PAGE> 110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
8. GEOGRAPHICAL ANALYSIS
The Company is a global company, deriving revenues from worldwide
operations. Data relating to the Company's operations by geographic area is set
forth below (in thousands).
<TABLE>
<CAPTION>
UNITED
STATES FOREIGN TOTAL
---------- -------- ----------
<S> <C> <C> <C>
1993
Revenues................................... $1,080,190 $177,958 $1,258,148
Operating income........................... 232,870 20,805 253,675
Identifiable assets........................ 498,137 43,055 541,192
1994
Revenues................................... $1,196,291 $210,388 $1,406,679
Operating income........................... 313,636 36,517 350,153
Identifiable assets........................ 533,163 52,923 586,086
1995
Revenues................................... $1,279,471 $250,145 $1,529,616
Operating income........................... 345,262 35,162 380,424
Identifiable assets........................ 534,626 61,080 595,706
</TABLE>
Operating income from operations consists of revenues less operating
expenses, including an allocation for corporate expenses. Operating income
excludes loss on partnership settlement, interest income (expense) net, and
other income (expense) net. Cash equivalents and deferred tax assets are
excluded from identifiable assets.
9. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the unaudited quarterly financial information
for the years ended December 31, 1994 and 1995 (in thousands).
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1994
Revenues.......................... $353,567 $349,943 $361,382 $341,787
Operating income.................. 97,941 93,316 108,011 50,885
Net earnings...................... 58,422 54,018 59,179 25,542
1995
Revenues.......................... $384,466 $383,065 $393,148 $368,937
Operating income.................. 118,091 101,359 108,192 52,782
Net earnings...................... 66,927 60,130 66,855 31,939
</TABLE>
The travel industry is seasonal in nature. Bookings, and thus booking fees
charged for the use of SABRE, decrease significantly each year in the fourth
quarter, primarily in December, due to customers booking earlier in the year for
travel during the holiday season and a decline in business travel during the
holiday season.
10. PROPOSED PUBLIC OFFERING OF COMMON STOCK (UNAUDITED)
On August 7, 1996, the Company's Board of Directors authorized management
of the Company to file a Registration Statement with the Securities and Exchange
Commission for an initial public offering of the Company's Class A Common Stock.
On , 1996 the Company's Board of
F-22
<PAGE> 111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
Directors authorized management to sell up to shares of the Company's
Class A Common Stock through an initial public offering. Concurrently, the
Company's Common Stock held by AMR was converted to Class B Common Stock. The
Company contemplates using approximately 90% of the proceeds from such offering
to retire a portion of the Debenture discussed in Note 11.
11. THE REORGANIZATION AND AFFILIATE AGREEMENTS (UNAUDITED)
The following transactions were consummated in connection with the
Reorganization:
CAPITALIZATION -- The Company was incorporated as a Delaware Corporation
and a direct wholly-owned subsidiary of American, which subsequently dividended
capital stock of the Company to AMR. The Company has 1,000 authorized shares of
Common Stock with a par value of $.01 per share, of which 1,000 shares of Common
Stock were issued to American and dividended to AMR. In conjunction with the
Offerings, the shares of Common Stock held by AMR will be converted to shares of
Class B Common Stock. Common Stock sold under the Offerings will be Class A
Common Stock. The Company also has 20,000,000 authorized shares of preferred
stock with a par value of $.01 per share. No preferred shares have been issued.
LONG-TERM DEBT -- On July 2, 1996, in connection with the Reorganization,
American transferred to the Company certain divisions and subsidiaries of
American through which AMR previously conducted its information technology
businesses, and in return the Company issued to American a floating rate
subordinated debenture due September 30, 2004 with a principal amount of $850
million (the "Debenture") and common stock representing 100% of the equity
ownership interest in the Company. American subsequently exchanged the Debenture
for a portion of a note payable by American to AMR. Because the assets and
liabilities of the divisions and subsidiaries of American transferred to the
Company are included in the historical financial statements of the Company, this
transaction resulted in a reduction of Stockholders' Equity.
The interest rate on the Debenture will be 7.2% through September 30, 1996
and thereafter will be based on the sum of the six-month London Interbank
Offered Rate (LIBOR rate) plus a margin determined based upon the Company's
senior unsecured long-term debt rating or, if such debt rating is not available,
upon the Company's ratio of net debt to total capital. The interest rate will be
determined at the beginning of each six-month period beginning October 1 and
April 1 and accrued interest will be payable each September 30 and March 31. The
Company may prepay the principal balance in whole or in part at any time prior
to December 31, 1996 and thereafter at any interest payment date.
CASH AND CASH EQUIVALENTS -- Effective with the Reorganization, the Company
began maintaining a separate cash management system and separate cash and
investment accounts from American. Transactions with American no longer result
in immediate charges and credits to the Company's cash equivalents, but are
settled through intercompany billings with payment due in 30 days. American
manages the Company's cash management system under the Management Services
Agreement discussed below. The Company invests excess cash in short-term
marketable securities, consisting primarily of certificates of deposit, bankers'
acceptances, commercial paper, corporate notes and government notes.
NOTE PAYABLE TO AMR -- On July 1, 1996, a note payable to AMR at June 30,
1996 of approximately $54 million was capitalized.
PROPERTY AND EQUIPMENT -- On July 1, 1996, American contributed buildings,
furniture and fixtures in addition to those discussed above to the Company with
a cost value of approximately $298 million and a net book value of $193 million.
F-23
<PAGE> 112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
TECHNOLOGY SERVICES AGREEMENT -- The Company is a party to the Technology
Services Agreement with American, dated July 1, 1996, to provide American with
certain information technology services. The base term of the Technology
Services Agreement expires June 30, 2006. The terms of the services to be
provided by the Company to American, however, vary. The Company will provide:
(i) Data Center services, data network services, application development and
existing application maintenance and enhancement services until June 30, 2006;
(ii) services relating to existing client server operations until June 30, 2001;
and (iii) device support, distributed systems services, radio services and
reservations and flight information network services until June 30, 1999.
In addition, AMS and Canadian have entered into an agreement pursuant to
which AMR and American supply to Canadian various services, including technology
services. Under the Canadian Subcontract, the Company, as subcontractor through
American, will be a principal provider of technology services to Canadian.
The Technology Services Agreement provides for annual price adjustments.
For certain prices, adjustments are made according to formulas which, commencing
in 1998, are reset every two years and which may take into account the market
for similar services provided by other companies. The resulting rates may
reflect an increase or decrease over the previous rates.
With limited exceptions, under the Technology Services Agreement, the
Company will continue to be the exclusive provider of all information technology
services provided by the Company to American immediately prior to the execution
of the Technology Services Agreement. Any new information technology services,
including most new application development services, requested by American can
be outsourced pursuant to competitive bidding by American or performed by
American on its own behalf. With limited exceptions, the Company has the right
to bid on all new services for which American solicits bids. Additionally,
American may continue to perform development and enhancement work that it is
currently performing on its own behalf.
After July 1, 2000, American may terminate the Technology Services
Agreement for convenience if American determines the agreement is no longer
advantageous for any reason. If it does so, American will be required to pay a
termination fee equal to the sum of all amounts then due under the Technology
Services Agreement, including wind-down costs, book value of dedicated assets
and a significant percentage of estimated lost profits. American may also
terminate the Technology Services Agreement without penalty, in whole or in part
depending upon circumstances, for egregious breach by the Company of its
obligations or for serious failure to perform critical or significant services.
If the Company is acquired by a company other than AMR or American with more
than $1 billion in annual airline transportation revenue, then American may
terminate the Technology Services Agreement without paying any termination fee.
Additionally, if American were to dispose of any portion of its business or any
affiliate accounting for more than 10% of the Company's fees from American, then
American shall either cause such divested business or affiliate to be obligated
to use the Company's services in accordance with the Technology Services
Agreement or pay a proportionate termination fee.
The parties have agreed to apply the financial terms of the Technology
Services Agreement as of January 1, 1996. Absent the agreement, revenues for the
six months ended June 30, 1996 would have been $16 million greater than stated
in the Consolidated Statement of Income.
MANAGEMENT SERVICES AGREEMENT -- The Company and American are parties to a
Management Services Agreement, dated July 1, 1996 (the "Management Services
Agreement"), pursuant to which American performs various management services for
the Company, including treasury, risk management and tax, and similar
administrative services, that American has historically provided to the Company.
The Management Services Agreement will expire on June 30, 1999 unless terminated
earlier if American and the Company are no longer under common control or if the
Technology
F-24
<PAGE> 113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
Services Agreement is terminated early. Amounts charged to the Company under
this agreement approximate American's cost of providing the services plus a
margin. The parties have agreed to apply the financial terms of the Management
Services Agreement as of January 1, 1996. The application of these terms did not
materially impact expenses for the six months ended June 30, 1996.
MARKETING COOPERATION AGREEMENT -- The Company and American are parties to
the Marketing Cooperation Agreement, dated as of July 1, 1996, pursuant to which
American will provide marketing support for 10 years for the Company's
Professional SABRE products targeted to travel agencies and for five years for
BTS, Travelocity and easySABRE. The Marketing Cooperation Agreement may be
terminated by either party prior to June 30, 2006 only if the other party fails
to perform its obligations thereunder.
Under the Marketing Cooperation Agreement, American's marketing efforts
will include ongoing promotional programs to assist in the sale of those SABRE
products, development with the Company of an annual sales plan, sponsorship of
sales/promotional events and the targeting of potential customers. For calendar
year 1996, the Company will pay American for its marketing support for
Professional SABRE a fee, the amount of which may increase or decrease,
depending on total SABRE booking volumes generated by certain Professional SABRE
subscribers in the U.S., the Caribbean and elsewhere and on SABRE's market share
of travel agency bookings in those areas. That fee will range between $20
million and $30 million for 1996 and between $10 million and $30 million
thereafter. As payment for American's support of the Company's promotion of BTS,
Travelocity and easySABRE, the Company will pay American a marketing fee based
upon booking volume. Additionally, the Company has guaranteed to American
certain cost savings in the fifth year of the Marketing Cooperation Agreement.
If American does not achieve those savings, the Company will pay American any
shortfall, up to a maximum of $50 million.
The parties have agreed to apply the financial terms of the Marketing
Cooperation Agreement as of January 1, 1996. The application of these terms
resulted in an increase in expenses of approximately $11 million for the six
months ended June 30, 1996. Absent the cancellation of the marketing support
payments from American for passenger support, revenues would have been
approximately $10 million greater for the six months ended June 30, 1996.
NON-COMPETITION AGREEMENT -- The Company, AMR and American have entered
into a Non-Competition Agreement, dated July 1, 1996 (the "Non-Competition
Agreement"), pursuant to which AMR and American, on behalf of themselves and
certain of their subsidiaries, have agreed to limit their competition with the
Company's businesses of (i) electronic travel distribution, (ii) development,
maintenance, marketing and licensing of software for travel agency, travel,
transportation and logistics management, (iii) computer system integration, (iv)
development, maintenance and operation of a data processing center providing
data processing services to third parties and (v) travel industry,
transportation and logistics consulting services relating primarily to computer
technology and automation. Under the Non-Competition Agreement, American and AMR
may develop, operate, market and provide in compliance with all applicable laws
an American Airlines branded electronic travel distribution system that gives a
display preference to American's flights. The Non-Competition Agreement
prohibits American or AMR, however, from providing such system to any travel
agency that generated 25% or more of its bookings through SABRE during the
preceding six calendar months. Additionally, in the event any airline competing
with American engages in an activity in connection with such airline's
transportation business, and if the restrictions imposed by the Non-Competition
Agreement would prevent American from engaging in the same activity and place
American at a disadvantage, then American may engage in such activity, subject
to American and the Company consulting about means to mitigate the effect on the
F-25
<PAGE> 114
Date: 08/06/96 Page: 3
- --------------------------------------------------------------------------------
BACK INSIDE COVER
COPY: The SABRE Group has provided information technology solutions to
more than 250 clients in over 50 countries around the world.
Industries served range from travel and transportation to
hospitality, logistics, and financial services. SABRE offers
solutions ranging from software development and product sales,
to transaction processing and consulting - solutions such as
designing software for scheduling traffic through the English
Channel tunnel and providing information technology solutions to
American Airlines.
<PAGE> 115
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................ 3
Risk Factors.................................. 10
The Company................................... 18
Use of Proceeds............................... 18
Dividend Policy............................... 19
Dilution...................................... 19
Capitalization................................ 20
Selected Historical Consolidated Financial
Information................................. 21
Selected Pro Forma Condensed Consolidated
Financial Information....................... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 25
Business...................................... 33
Management.................................... 47
Security Ownership of Management and Principal
Stockholder................................. 60
Relationship with AMR and Certain
Transactions................................ 61
Description of Capital Stock.................. 66
Shares Eligible for Future Sale............... 76
Underwriting.................................. 79
Certain United States Tax Considerations for
Non-United States Holders................... 82
Validity of Class A Common Stock.............. 83
Experts....................................... 83
Additional Information........................ 83
Trademarks.................................... 84
Index to Financial Statements................. F-1
</TABLE>
THROUGH AND INCLUDING , 1996 (THE 25TH DAY AFTER THE DATE OF
THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
20,200,000 SHARES
THE SABRE GROUP
HOLDINGS, INC.
CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
---------------------
[LOGO]
---------------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
SALOMON BROTHERS INC
REPRESENTATIVES OF THE UNDERWRITERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 116
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC registration fee............................................................. $189,656
NASD filing fee.................................................................. 30,500
NYSE listing fee................................................................. 175,600
Blue Sky fees and expenses....................................................... 26,000
Attorneys' fees and expenses..................................................... 375,000
Accountants' fees and expenses................................................... 250,000
Transfer Agent's and Registrar's fees and expenses............................... 10,000
Printing and engraving expenses.................................................. 270,000
Miscellaneous.................................................................... 23,244
--------
Total.................................................................. 1,350,000
</TABLE>
The amounts set forth above are estimates except for the SEC registration
fee, the NASD filing fee and the NYSE listing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a Delaware corporation may indemnify directors and
officers and certain other individuals against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by any such person in connection with any threatened, pending or
completed action, suit or proceeding (other than an action by or in the right of
the corporation) in which such person is involved because such person is a
director or officer of the corporation, if such person acted in good faith and
in a manner that such person reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that such person's conduct was
unlawful. No indemnification shall be made to an officer or director or other
qualified individual if such person shall have been adjudged to be liable to the
corporation unless such person acted in good faith and in a manner that such
person reasonably believed to be in or not opposed to the best interest of the
corporation and only to the extent the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought, determines that
despite the adjudication of liability such person is fairly and reasonably
entitled to such indemnification. If such person is successful on the merits or
otherwise in defense of any action, then Section 145 provides that such person
shall be indemnified against expenses including attorneys' fees actually and
reasonably incurred by that person in connection therewith. Section 102(b)(7) of
the DGCL provides that the liability of a director may not be limited or
eliminated for the breach of such director's duty of loyalty to the corporation
or its stockholders, for such director's intentional acts or omissions not in
good faith, for such director's concurrence in or vote for an unlawful payment
of a dividend or unlawful stock purchase or redemption or for any improper
personal benefit derived by the director from any transaction.
The Company's Bylaws provide that the Company will indemnify any person who
was or is a party (or is threatened to be made a party) to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
or has agreed to serve at the request of the Company as a director or officer of
the Company, or is or was serving or has agreed to serve at the request of the
Company as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or by reason of any action alleged to have
been taken or omitted in such capacity. The Company's Bylaws further
II-1
<PAGE> 117
provide that the Company may indemnify any person who was or is a party (or is
threatened to be made a party) to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she is or was or has agreed to become an employee
or agent of the Company, or is or was serving or has agreed to serve at the
request of the Company as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of any
action alleged to have been taken or omitted in such capacity.
The indemnification referred to in the preceding paragraph will be from and
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by the indemnitee or on his or
her behalf in connection with such action, suit or proceeding and any appeal
therefrom. However, such indemnification will only be provided if the indemnitee
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Company and, with respect to any
criminal action, suit or proceeding, had no reasonable cause to believe his or
her conduct was unlawful. Notwithstanding the preceding two sentences, in the
case of an action or suit by or in the right of the Company to procure a
judgment in its favor (a) the indemnification referred to in this paragraph will
be limited to expenses (including attorneys' fees) actually and reasonably
incurred by such person in the defense or settlement of such action or suit, and
(b) no indemnification will be made in respect of any claim, issue or matter as
to which such person will have been adjudged to be liable to the Company unless,
and only to the extent that, the Delaware Court of Chancery (or the court in
which such action or suit was brought) determines upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Delaware Court of Chancery (or such other court) deems proper. To the
extent that a director, officer, employee or agent of the Company has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to above or in defense of any claim, issue or matter
therein, he or she will be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him or her in connection therewith.
Expenses incurred by a director or officer in defending a civil or criminal
action, suit or proceeding will be paid by the Company in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director or officer to repay such amount if it will
ultimately be determined that he or she is not entitled to be indemnified by the
Company. Such expenses incurred by other employees and agents may be so paid
upon such terms and conditions, if any, as the Board of Directors deems
appropriate.
The indemnification described in the preceding two paragraphs will not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, will continue as to a person who has
ceased to be a director, officer, employee or agent and will inure to the
benefit of the heirs, executors and administrators of such a person.
The Company will purchase and maintain insurance on behalf of any person
who is or was or has agreed to serve at the request of the Company as a director
or officer of the Company, or is or was serving at the request of the Company as
a director or officer of another corporation, partnership, joint venture, trust
or other enterprise against any liability asserted against, and incurred by, him
or her or on his or her behalf in any such capacity, or arising out of his or
her status as such, whether or not the Company would have the power to indemnify
him or her against such liability under the provisions of the Bylaws; provided,
however, such insurance must be available on acceptable terms, which
determination shall be made by a vote of a majority of the Board of Directors.
II-2
<PAGE> 118
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with its formation on June 25, 1996, and the July 1996
reorganization of The SABRE Group businesses, the Company issued 1,000 shares of
Common Stock and an $850 million Debenture to American in exchange for certain
operating divisions and the capital stock of subsidiaries of American. American
immediately transferred the Debenture to AMR in exchange for a portion of a
debenture of American held by AMR and distributed its shares of the Company's
Common Stock to AMR as a tax-free dividend. Those shares were subsequently
reclassified into 110,563,953 shares of Class B Common Stock. Based on the
relationship between the Company and AMR Corporation and other factors, the
Company believes that these issuances and distributions were exempt from
registration under the Securities Act of 1933, as amended.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Schedule II, Valuation and Qualifying
Account Page S-1
All other financial statement schedules are omitted because they are not
applicable or the required information is shown in the consolidated financial
statements or notes thereto.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ---------- ----------------------------------------------------------------------------------
<C> <S>
1.1 -- Form of U.S. Underwriting Agreement.
1.2 -- Form of International Underwriting Agreement.
3.1 -- Form of Restated Certificate of Incorporation of Registrant.(1)
3.2 -- Form of Restated Bylaws of Registrant.(1)
4.1 -- Form of Registration Rights Agreement between Registrant and AMR Corporation.
4.2 -- Specimen Certificate representing Class A Common Stock.(1)
5.1 -- Opinion of Debevoise & Plimpton as to the legality of the Class A Common
Stock.(2)
10.1 -- Form of Registration Rights Agreement between Registrant and AMR Corporation
(See Exhibit 4.1).
10.2 -- Intercompany Agreement, dated as of July 2, 1996, among Registrant, The SABRE
Group, Inc. TSGL Holding, Inc., TSGL-SCS, Inc., TSGL, Inc., SABRE
International, Inc., SABRE Services Columbia, LTDA and American Airlines,
Inc.(1)
10.3 -- Management Services Agreement, dated as of July 1, 1996, between The SABRE
Group, Inc. and American Airlines, Inc.(3)
10.4 -- Credit Agreement, dated as of July 1, 1996, between Registrant, The SABRE
Group, Inc., AMR Corporation and American Airlines, Inc.(1)
10.5 -- $850,000,000 Subordinated Debenture, dated July 2, 1996, executed by Registrant
and payable to AMR Corporation.(1)
10.6 -- Information Technology Services Agreement, dated July 1, 1996, between The
SABRE Group, Inc. and American Airlines, Inc.(3)
10.7 -- Non-competition Agreement, dated July 1, 1996, among Registrant, The SABRE
Group, Inc., AMR Corporation and American Airlines, Inc.(1)
10.8 -- Marketing Cooperation Agreement, dated as of July 1, 1996, between The SABRE
Group, Inc. and American Airlines, Inc.(3)
10.9 -- Tax Sharing Agreement, dated July 1, 1996, between The SABRE Group, Inc. and
American Airlines, Inc.(1)
10.10 -- Travel Privileges Agreement, dated as of July 1, 1996, between The SABRE Group,
Inc. and American Airlines, Inc.(3)
10.11 -- Corporate Travel Agreement, dated July 25, 1996, between The SABRE Group, Inc.
and American Airlines, Inc.(1)(3)
10.12 -- Software Marketing Agreement, dated September 10, 1996, among Registrant, The
SABRE Group, Inc. and AMR Corporation.(3)
</TABLE>
II-3
<PAGE> 119
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ---------- ----------------------------------------------------------------------------------
<C> <S>
10.13 -- Canadian Technical Services Subcontract, dated as of July 1, 1996, between The
SABRE Group Inc. and American Airlines, Inc.(3)
10.14 -- Form of Participating Carrier Agreement between The SABRE Group, Inc. and
American Airlines, Inc.(1)
10.15 -- Investment Agreement, dated September 11, 1996, between The SABRE Group, Inc.
and AMR Investment Services, Inc.(1)(3)
10.16 -- Assignment and Amendment Agreement, dated as of July 1, 1996, among The SABRE
Group, Inc., American Airlines, Inc. and the Dallas-Fort Worth International
Airport Board.(1)
10.17 -- American Airlines Special Facilities Lease Agreement, dated October 1, 1972,
between American Airlines, Inc. and the Dallas-Fort Worth Regional Airport
Board, as amended by Supplemental Agreements Nos. 1-5.(1)
10.18 -- Assignment Agreement, dated as of July 1, 1996, between The SABRE Group, Inc.
and American Airlines, Inc.(1)
10.19 -- Sublease, dated June 1, 1958, between American Airlines, Inc. and the Trustees
of the Tulsa Municipal Airport Trust, as amended by Amendments Nos. 1-12.(1)
10.20 -- Assignment Agreement, dated as of July 1, 1996, between The SABRE Group, Inc.
and American Airlines, Inc.(1)
10.21 -- Amended and Restated Sublease Agreement, dated May, 1996, between American
Airlines, Inc. and the Tulsa Airports Improvement Trust.(1)
10.22 -- Assignment Agreement, dated as of July 1, 1996, between The SABRE Group, Inc.
and American Airlines, Inc.(1)
10.23 -- Office Lease Agreement, dated January 19, 1996, between American Airlines, Inc.
and Maguire/Thomas Partners -- Westlake/Southlake Partnership.(1)
10.24 -- American Airlines, Inc. Supplemental Executive Retirement Plan dated November
16, 1994, incorporated by reference to Exhibit 10(mmm) to AMR Corporation's
report on Form 10-K for the year ended December 31, 1994, file number 1-8400.
10.25 -- Form of Long-Term Incentive Plan.(1)
10.26 -- Form of Directors' Stock Incentive Plan.(1)
10.27 -- Form of Executive Termination Benefits Agreement.
10.28 -- Employment Agreement, dated August 30, 1996, between The SABRE Group, Inc. and
Michael J. Durham.(1)
10.29 -- Employment Agreement, dated September 7, 1995, between American Airlines, Inc.
and Thomas M. Cook.(1)
10.30 -- Employment Agreement, dated May 7, 1996, between American Airlines, Inc. and
Terrell B. Jones.(1)
10.31 -- Letter Agreement, dated July 15, 1996, between Registrant and Thomas M.
Cook.(1)
10.32 -- Letter Agreement, dated July 15, 1996, between Registrant and Terrell B.
Jones.(1)
21.1 -- Subsidiaries of Registrant.(1)
23.1 -- Consent of Debevoise & Plimpton (included in the opinion set forth in Exhibit
5.1).(2)
23.2 -- Consent of Ernst & Young LLP.
24.1 -- Power of Attorney.(1)
27.1 -- Financial Data Schedule.(1)
</TABLE>
- ---------------
(1) Previously filed.
(2) To be filed by amendment.
(3) Item for which confidential treatment is requested.
II-4
<PAGE> 120
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the U.S. Underwriting Agreement and the
International Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
II-5
<PAGE> 121
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has duly caused this Amendment No. 2 to the Registration
Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto
duly authorized, in Fort Worth, Texas on September 18, 1996.
The SABRE Group Holdings, Inc.
By: /s/ MICHAEL J. DURHAM
-----------------------------------
Name: Michael J. Durham
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 has been signed by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE (CAPACITY) DATE
- --------------------------------------------- ---------------------------- -------------------
<C> <S> <C>
* Chairman of the Board of September 18, 1996
- --------------------------------------------- Directors
Robert L. Crandall
/s/ MICHAEL J. DURHAM President and Chief September 18, 1996
- --------------------------------------------- Executive Officer and
Michael J. Durham Director (Principal
Executive Officer and
Director)
* Senior Vice President, September 18, 1996
- --------------------------------------------- Chief Financial Officer
T. Patrick Kelly and Treasurer (Principal
Financial Officer and
Principal Accounting
Officer)
* Director September 18, 1996
- ---------------------------------------------
Gerard J. Arpey
* Director September 18, 1996
- ---------------------------------------------
Anne H. McNamara
*By: /s/ MICHAEL J. DURHAM
- ---------------------------------------------
Michael J. Durham
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 122
THE SABRE GROUP HOLDINGS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ------------------------------------- ------------ -------- -------- ---------- -----------
ADDITIONS
-------------------
CHARGED
TO CHARGED
BALANCE AT COSTS TO
BEGINNING OF AND OTHER BALANCE AT
CLASSIFICATION YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR
- ------------------------------------- ------------ -------- -------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Allowance for uncollectible
accounts........................ $3,042 $5,909 $ -- $ (4,129) $ 4,822
Reserve for booking fee
cancellations................... 9,479 4,609 1,228 (502) 14,814
YEAR ENDED DECEMBER 31, 1994
Allowance for uncollectible
accounts........................ 4,819 4,306 -- (6,083) 3,042
Reserve for booking fee
cancellations................... 6,213 3,535 300 (569) 9,479
YEAR ENDED DECEMBER 31, 1993
Allowance for uncollectible
accounts........................ 6,097 2,732 -- (4,010) 4,819
Reserve for booking fee
cancellations................... 5,875 1,044 -- (706) 6,213
</TABLE>
S-1
<PAGE> 123
EXHIBIT LIST
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ---------- ----------------------------------------------------------------------------------
<C> <S>
1.1 -- Form of U.S. Underwriting Agreement.
1.2 -- Form of International Underwriting Agreement.
3.1 -- Form of Restated Certificate of Incorporation of Registrant.(1)
3.2 -- Form of Restated Bylaws of Registrant.(1)
4.1 -- Form of Registration Rights Agreement between Registrant and AMR Corporation.
4.2 -- Specimen Certificate representing Class A Common Stock.(1)
5.1 -- Opinion of Debevoise & Plimpton as to the legality of the Class A Common
Stock.(2)
10.1 -- Form of Registration Rights Agreement between Registrant and AMR Corporation
(See Exhibit 4.1).
10.2 -- Intercompany Agreement, dated as of July 2, 1996, among Registrant, The SABRE
Group, Inc. TSGL Holding, Inc., TSGL-SCS, Inc., TSGL, Inc., SABRE
International, Inc., SABRE Services Columbia, LTDA and American Airlines,
Inc.(1)
10.3 -- Management Services Agreement, dated as of July 1, 1996, between The SABRE
Group, Inc. and American Airlines, Inc.(3)
10.4 -- Credit Agreement, dated as of July 1, 1996, between Registrant, The SABRE
Group, Inc., AMR Corporation and American Airlines, Inc.(1)
10.5 -- $850,000,000 Subordinated Debenture, dated July 2, 1996, executed by Registrant
and payable to AMR Corporation.(1)
10.6 -- Information Technology Services Agreement, dated July 1, 1996, between The
SABRE Group, Inc. and American Airlines, Inc.(3)
10.7 -- Non-competition Agreement, dated July 1, 1996, among Registrant, The SABRE
Group, Inc., AMR Corporation and American Airlines, Inc.(1)
10.8 -- Marketing Cooperation Agreement, dated as of July 1, 1996, between The SABRE
Group, Inc. and American Airlines, Inc.(3)
10.9 -- Tax Sharing Agreement, dated July 1, 1996, between The SABRE Group, Inc. and
American Airlines, Inc.(1)
10.10 -- Travel Privileges Agreement, dated as of July 1, 1996, between The SABRE Group,
Inc. and American Airlines, Inc.(3)
10.11 -- Corporate Travel Agreement, dated July 25, 1996, between The SABRE Group, Inc.
and American Airlines, Inc.(1)(3)
10.12 -- Software Marketing Agreement, dated September 10, 1996, among Registrant, The
SABRE Group, Inc. and AMR Corporation.(3)
10.13 -- Canadian Technical Services Subcontract, dated as of July 1, 1996, between The
SABRE Group Inc. and American Airlines, Inc.(3)
10.14 -- Form of Participating Carrier Agreement between The SABRE Group, Inc. and
American Airlines, Inc.(1)
10.15 -- Investment Agreement, dated September 11, 1996, between The SABRE Group, Inc.
and AMR Investment Services, Inc.(1)(3)
10.16 -- Assignment and Amendment Agreement, dated as of July 1, 1996, among The SABRE
Group, Inc., American Airlines, Inc. and the Dallas-Fort Worth International
Airport Board.(1)
10.17 -- American Airlines Special Facilities Lease Agreement, dated October 1, 1972,
between American Airlines, Inc. and the Dallas-Fort Worth Regional Airport
Board, as amended by Supplemental Agreements Nos. 1-5.(1)
10.18 -- Assignment Agreement, dated as of July 1, 1996, between The SABRE Group, Inc.
and American Airlines, Inc.(1)
10.19 -- Sublease, dated June 1, 1958, between American Airlines, Inc. and the Trustees
of the Tulsa Municipal Airport Trust, as amended by Amendments Nos. 1-12.(1)
</TABLE>
<PAGE> 124
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ---------- ----------------------------------------------------------------------------------
<C> <S>
10.20 -- Assignment Agreement, dated as of July 1, 1996, between The SABRE Group, Inc.
and American Airlines, Inc.(1)
10.21 -- Amended and Restated Sublease Agreement, dated May, 1996, between American
Airlines, Inc. and the Tulsa Airports Improvement Trust.(1)
10.22 -- Assignment Agreement, dated as of July 1, 1996, between The SABRE Group, Inc.
and American Airlines, Inc.(1)
10.23 -- Office Lease Agreement, dated January 19, 1996, between American Airlines, Inc.
and Maguire/Thomas Partners -- Westlake/Southlake Partnership.(1)
10.24 -- American Airlines, Inc. Supplemental Executive Retirement Plan dated November
16, 1994, incorporated by reference to Exhibit 10(mmm) to AMR Corporation's
report on Form 10-K for the year ended December 31, 1994, file number 1-8400.
10.25 -- Form of Long-Term Incentive Plan.(1)
10.26 -- Form of Directors' Stock Incentive Plan.(1)
10.27 -- Form of Executive Termination Benefits Agreement.
10.28 -- Employment Agreement, dated August 30, 1996, between The SABRE Group, Inc. and
Michael J. Durham.(1)
10.29 -- Employment Agreement, dated September 7, 1995, between American Airlines, Inc.
and Thomas M. Cook.(1)
10.30 -- Employment Agreement, dated May 7, 1996, between American Airlines, Inc. and
Terrell B. Jones.(1)
10.31 -- Letter Agreement, dated July 15, 1996, between Registrant and Thomas M.
Cook.(1)
10.32 -- Letter Agreement, dated July 15, 1996, between Registrant and Terrell B.
Jones.(1)
21.1 -- Subsidiaries of Registrant.(1)
23.1 -- Consent of Debevoise & Plimpton (included in the opinion set forth in Exhibit
5.1).(2)
23.2 -- Consent of Ernst & Young LLP.
24.1 -- Power of Attorney.(1)
27.1 -- Financial Data Schedule.(1)
</TABLE>
- ---------------
(1) Previously filed.
(2) To be filed by amendment.
(3) Item for which confidential treatment is requested.
<PAGE> 1
EXHIBIT 1.1
S&C Draft of September 16, 1996
THE SABRE GROUP HOLDINGS, INC.
CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
, 1996
Goldman, Sachs & Co.,
J.P. Morgan Securities Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Salomon Brothers Inc,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
The SABRE Group Holdings, Inc. (the "Company"), a Delaware corporation and
a wholly owned subsidiary of AMR Corporation, a Delaware corporation ("AMR"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an
aggregate of 16,160,000 shares (the "Firm Shares") and, at the election of the
Underwriters, up to 2,424,000 additional shares (the "Optional Shares") of
Class A Common Stock, par value $.01 per share ("Stock"), of the Company (the
Firm Shares and the Optional Shares that the Underwriters elect to purchase
pursuant to Section 2 hereof being collectively called the "Shares").
It is understood and agreed to by all parties that the Company is
concurrently entering into an agreement (the "International Underwriting
Agreement") providing for the sale by the Company of up to a total of 4,646,000
shares of Stock (the "International Shares"), including the overallotment
option thereunder, through arrangements with certain underwriters outside the
United States named in Schedule I to the International Underwriting Agreement
(the "International Underwriters"), for whom Goldman Sachs International, J.P.
Morgan Securities Ltd., Merrill Lynch International and Salomon Brothers
International Limited are acting as lead managers. Anything herein or therein
to the contrary notwithstanding, the respective closings under this Agreement
and the International Underwriting Agreement are hereby expressly made
conditional on one another. The Underwriters hereunder and the International
Underwriters are simultaneously entering into an Agreement between U.S. and
International Underwriting
<PAGE> 2
Syndicates (the "Agreement between Syndicates") which provides, among other
things, for the transfer of shares of Stock between the two syndicates. Two
forms of prospectus are to be used in connection with the offering and sale of
shares of Stock contemplated by the foregoing, one relating to the Shares
hereunder and the other relating to the International Shares. The latter form
of prospectus will be identical to the former except for certain substitute
pages. Except as used in Sections 2, 3, 4, 9 and 11 herein, and except as the
context may otherwise require, references hereinafter to the Shares shall
include all the shares of Stock which may be sold pursuant to either this
Agreement or the International Underwriting Agreement, and references herein to
any prospectus whether in preliminary or final form, and whether as amended or
supplemented, shall include both the U.S. and the international versions
thereof.
1. (a) The Company represents and warrants to, and agrees with,
each of the Underwriters that:
(i) A registration statement on Form S-1 (File
No. 333-09747) (as amended prior to the date hereof, the
"Initial Registration Statement") in respect of the Shares has
been filed with the Securities and Exchange Commission (the
"Commission"); the Initial Registration Statement and any
post-effective amendment thereto, each in the form heretofore
delivered to you, and, excluding exhibits thereto, to you for
each of the other Underwriters, have been declared effective
by the Commission in such form; other than a registration
statement, if any, increasing the size of the offering (a
"Rule 462(b) Registration Statement"), filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended (the
"Act"), which became effective upon filing, no other document
with respect to the Initial Registration Statement has
heretofore been filed with the Commission; and no stop order
suspending the effectiveness of the Initial Registration
Statement, any post-effective amendment thereto or the Rule
462(b) Registration Statement, if any, has been issued and no
proceeding for that purpose has been initiated or threatened
by the Commission (any preliminary prospectus included in the
Initial Registration Statement or filed with the Commission
pursuant to Rule 424(a) of the rules and regulations of the
Commission under the Act is hereinafter called a "Preliminary
Prospectus"; the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any,
including all exhibits thereto and including the information
contained in the form of final prospectus filed with the
Commission pursuant to Rule 424(b) under the Act in accordance
with Section 5(a)(i) hereof and deemed by virtue of Rule 430A
under the Act to be part of the Initial Registration Statement
at the time it was declared effective, each as amended at the
time such part of the Initial Registration Statement became
effective or such part of the Rule 462(b) Registration
Statement, if any, became or hereafter becomes effective, are
hereinafter individually and collectively called the
"Registration Statement"; and such final prospectus, in the
form first filed
2
<PAGE> 3
pursuant to Rule 424(b) under the Act, is hereinafter called
the "Prospectus");
(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and
each Preliminary Prospectus, at the time of filing thereof,
conformed in all material respects to the requirements of the
Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made
in reliance upon and in conformity with information furnished
in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein;
(iii) The Registration Statement conforms, and the
Prospectus and any further amendments or supplements to the
Registration Statement or the Prospectus will conform, in all
material respects to the requirements of the Act and the rules
and regulations of the Commission thereunder and do not and
will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the
applicable filing date as to the Prospectus and any amendment
or supplement thereto, contain an untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made
in reliance upon and in conformity with information furnished
in writing to the Company by an Underwriter through Goldman,
Sachs & Co. expressly for use therein;
(iv) The consolidated financial statements (including
the related notes and supporting schedules) of the Company and
its subsidiaries included in the Registration Statement, any
Preliminary Prospectus and the Prospectus present fairly the
consolidated financial condition, results of operations and
cash flows of the entities purported to be shown thereby as of
the dates and for the periods indicated, comply as to form in
all material respects with the applicable accounting
requirements of the Act and the rules and regulations
thereunder and have been prepared in accordance with generally
accepted accounting principles, applied on a consistent basis
through the periods indicated; the pro forma financial
statements included in the Prospectus comply in all material
respects with the Act and the rules and regulations thereunder
and no other pro forma financial statements or schedules are
required by the Act or the rules and regulations thereunder to
be included in the Registration Statement, any of the
Preliminary Prospectuses or the
3
<PAGE> 4
Prospectus; the pro forma adjustments have been properly
applied to the historical amounts in the computation of such
pro forma financial statements; the assumptions described in
the notes to such pro forma financial statements provide a
reasonable basis for presenting the significant direct effects
of the transactions reflected therein; and the pro forma
adjustments give appropriate effect to those assumptions;
(v) Neither the Company nor any of its significant
subsidiaries (as such term is defined in Rule 1- 02 of
Regulation S-X promulgated under the Act) has sustained since
the date of the latest audited financial statements included
in the Prospectus any loss or interference with its business
that is material to the Company and its subsidiaries taken as
a whole from fire, explosion, flood or other calamity, whether
or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than
as set forth or contemplated in the Prospectus; and, since the
respective dates as of which information is given in the
Registration Statement and the Prospectus, except as otherwise
stated therein, there has not been any change in the capital
stock or long-term debt of the Company or any of its
subsidiaries or any material adverse change in the condition,
financial or otherwise, results of operations or general
affairs of the Company and its subsidiaries taken as a whole;
(vi) The Company is a corporation duly incorporated and
validly existing in good standing under the laws of the State
of Delaware, has the corporate power and authority to own its
properties and conduct its business as described in the
Prospectus and is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each
other jurisdiction in which it owns or leases properties or
conducts any business so as to require such qualification, or
is subject to no material liability or disability by reason of
the failure to be so qualified in any such jurisdiction;
(vii) Each subsidiary of the Company is a corporation
duly incorporated and validly existing in good standing under
the laws of its jurisdiction of incorporation, has full
corporate power and authority under such laws to own its
properties and to conduct its business as such business is
described in the Prospectus and is duly qualified to do
business as a foreign corporation in good standing in all
other jurisdictions in which such qualification is required,
or is subject to no material liability or disability by reason
of the failure to be so qualified in such jurisdictions; and
all of the issued and outstanding capital stock of each such
corporation has been duly authorized and validly issued, is
fully paid and non-assessable and is owned by the Company,
directly or through subsidiaries, free and clear of any liens,
encumbrances, equities or claims;
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<PAGE> 5
(viii) The Company has an authorized capitalization as
set forth in the Prospectus, and all of the issued shares of
capital stock of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and
conform to the description of the Stock contained in the
Prospectus;
(ix) The Shares have been duly and validly authorized
by the Company and, when issued and delivered against payment
therefor as provided herein and in the International
Underwriting Agreement, will be duly and validly issued, fully
paid and non-assessable and will conform to the description of
the Stock contained in the Prospectus;
(x) The issuance, sale and delivery of the Shares by
the Company, the execution and delivery of this Agreement and
the International Underwriting Agreement by the Company, the
consummation by the Company of the transactions herein and
therein contemplated, and the compliance by the Company with
the terms of this Agreement and the International Underwriting
Agreement do not and will not violate, conflict with, or
result in a breach of, any of the terms or provisions of, or
constitute a default under, (A) the Certificate of
Incorporation or By-Laws of the Company or any of its
subsidiaries, (B) any indenture, mortgage, or other agreement
or instrument to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries
is bound or to which any of their respective properties are
subject, except for such violations, conflicts with, breaches
and defaults as would not individually or in the aggregate
have a material adverse effect on the Company and its
subsidiaries taken as a whole or materially and adversely
affect the consummation of the transactions contemplated by
this Agreement or the International Underwriting Agreement, or
(C) any applicable law, rule, regulation, judgment, order or
decree of any government, governmental instrumentality or
court, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or any of their respective
properties; and no consent, approval, authorization,
registration, qualification or order of any government,
governmental instrumentality or court, domestic or foreign, is
required for valid authorization, issuance, sale and delivery
of the Shares, the valid authorization, execution, delivery
and performance of this Agreement and the International
Underwriting Agreement or the consummation by the Company of
the transactions contemplated by this Agreement and the
International Underwriting Agreement, except such as are
required under the Act, the securities or Blue Sky laws of the
various states in the United States or the securities or
similar laws of any foreign jurisdiction;
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<PAGE> 6
(xi) This Agreement and the International Underwriting
Agreement have been duly authorized, executed and delivered by
the Company and constitute valid and binding obligations of
the Company;
(xii) Neither the Company nor any of its subsidiaries
is in violation of its Certificate of Incorporation or By-laws
or in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which it is a party or by
which it or any of its properties may be bound, except for
such violations and defaults as would not individually or in
the aggregate have a material adverse effect on the Company
and its subsidiaries taken as a whole;
(xiii) The Company and its subsidiaries have good and
marketable title in fee simple to all material real property
and good title to all material personal property owned by
them, in each case free and clear of all liens, encumbrances
and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property
and do not materially interfere with the use made and proposed
to be made of such property by the Company and its
subsidiaries; and any material real property and material
personal property held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material
and do not materially interfere with the use made and proposed
to be made of such property and buildings by the Company and
its subsidiaries;
(xiv) The Company and its subsidiaries own, or possess
adequate rights to use, all patents, trademarks, service
marks, trade names, copyrights and licenses (including the
names, "SABRE", "Travelocity", "easySABRE", "TurboSABRE",
"PlanetSABRE", "Business Travel Solutions", "CARS Plus",
"SHAARP Plus", "SABRErail", "SABRE TourGuide", "SABRE
Navigator", "SABRE CruiseDirector", "Basic Booking Request",
"Direct Connect Availability", "Fair Action Evaluator",
"AIRPRICE", "AIRCREWS", "AIRFLITE" and "SABRE Wireless")
necessary to conduct their businesses currently and as
proposed in the Prospectus to be conducted, and neither the
Company nor its subsidiaries has received any notice of
infringement of or conflict with (or knows of any such
infringement or conflict with) asserted rights of others with
respect to such patents, trademarks, service marks,
tradenames, copyrights or licenses, except for such failures
to own or possess and such infringements and conflicts as
would not individually or in the aggregate have a material
adverse effect on the Company and its subsidiaries taken as a
whole or materially affect the ability of the Company and its
subsidiaries to conduct their businesses currently and as
proposed in the Prospectus to be conducted;
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<PAGE> 7
(xv) The statements set forth in the Prospectus under
the caption "Description of Capital Stock", insofar as they
purport to constitute a summary of the terms of the Stock, and
under the captions "Relationship with AMR and Certain
Transactions" and "Certain United States Tax Considerations
for Non-United States Holders", insofar as they purport to
describe the provisions of the laws and documents referred to
therein, are accurate and complete;
(xvi) Other than as set forth in the Prospectus, there
are no legal or governmental proceedings pending to which the
Company or any of its subsidiaries is a party or of which any
property of the Company or any of its subsidiaries is the
subject which could reasonably be expected to individually or
in the aggregate have a material adverse effect on the
consolidated financial position, stockholders' equity or
results of operations of the Company and its subsidiaries
taken as a whole; and, to the best of the Company's knowledge,
no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(xvii) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or
affiliate located in Cuba within the meaning of Section
517.075, Florida Statutes;
(xviii) The Shares have been approved for listing on the
New York Stock Exchange, subject to official notice of
issuance; and
(xix) Ernst & Young LLP, who reported on the annual
consolidated financial statements of the Company included in
the Registration Statement and the Prospectus, are independent
auditors as required by the Act and the rules and regulations
of the Commission thereunder.
(b) AMR represents and warrants to, and agrees with, each of the
Underwriters that:
(i) The Initial Registration Statement and any
post-effective amendment thereto, each in the form heretofore
delivered to you, and, excluding exhibits thereto, to you for
each of the other Underwriters, have been declared effective
by the Commission in such form; other than a Rule 462(b)
Registration Statement, if any, increasing the size of the
offering, filed pursuant to Rule 462(b) under the Act, which
became effective upon filing, no other document with respect
to the Initial Registration Statement has heretofore been
filed with the Commission; and no stop order suspending the
effectiveness of the Initial Registration Statement, any
post-effective amendment thereto or the Rule 462(b)
Registration Statement, if
7
<PAGE> 8
any, has been issued and no proceeding for that purpose has
been initiated or threatened by the Commission;
(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and
each Preliminary Prospectus, at the time of filing thereof,
conformed in all material respects to the requirements of the
Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made
in reliance upon and in conformity with information furnished
in writing to the Company by an Underwriter through Goldman,
Sachs & Co. expressly for use therein;
(iii) The Registration Statement conforms, and the
Prospectus and any further amendments or supplements to the
Registration Statement or the Prospectus will conform, in all
material respects to the requirements of the Act and the rules
and regulations of the Commission thereunder and do not and
will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the
applicable filing date as to the Prospectus and any amendment
or supplement thereto, contain an untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made
in reliance upon and in conformity with information furnished
in writing to the Company by an Underwriter through Goldman,
Sachs & Co. expressly for use therein;
(iv) The consolidated financial statements (including
the related notes and supporting schedules) of the Company and
its subsidiaries included in the Registration Statement, any
Preliminary Prospectus and the Prospectus present fairly the
consolidated financial condition, results of operations and
cash flows of the entities purported to be shown thereby as of
the dates and for the periods indicated, comply as to form in
all material respects with the applicable accounting
requirements of the Act and the rules and regulations
thereunder and have been prepared in accordance with generally
accepted accounting principles, applied on a consistent basis
through the periods indicated; the pro forma financial
statements included in the Prospectus comply in all material
respects with the Act and the rules and regulations thereunder
and no other pro forma financial statements or schedules are
required by the Act or the rules and regulations thereunder to
be included in the Registration Statement, any of the
Preliminary Prospectuses or the
8
<PAGE> 9
Prospectus, and the pro forma adjustments have been properly
applied to the historical amounts in the computation of such
pro forma financial statements; the assumptions described in
the notes to such pro forma financial statements provide a
reasonable basis for presenting the significant direct effects
of the transactions reflected therein; and the pro forma
adjustments give appropriate effect to those assumptions;
(v) Since the respective dates as of which
information is given in the Registration Statement and the
Prospectus, except as otherwise stated therein, there has not
been any change in the capital stock or long-term debt of the
Company or any of its subsidiaries or any material adverse
change in the condition, financial or otherwise, results of
operations or general affairs of the Company and its
subsidiaries taken as a whole; and
(vi) This Agreement and the International Underwriting
Agreement have been duly authorized, executed and delivered by
AMR and constitute valid and binding obligations of AMR.
2. Subject to the terms and conditions herein set forth, (a) the
Company agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company,
at a purchase price of $........................ per share, the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto and
(b) in the event and to the extent that the Underwriters shall exercise the
election to purchase Optional Shares as provided below, the Company agrees to
issue and sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company, at the
purchase price per share set forth in clause (a) of this Section 2, that
portion of the number of Optional Shares as to which such election shall have
been exercised (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying such number of Optional Shares by a fraction, the
numerator of which is the maximum number of Optional Shares which such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of Optional Shares that all of the Underwriters are entitled to purchase
hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 2,424,000 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering over-
allotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the
Company, given within a period of 30 calendar days after the date of this
Agreement, setting forth the aggregate number of Optional Shares to be
purchased and the date on which such Optional Shares are to be delivered, as
determined by you but in no event earlier than the First Time of Delivery (as
defined in
9
<PAGE> 10
Section 4 hereof) or, unless you and the Company otherwise agree in writing,
earlier than two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm
Shares, the several Underwriters propose to offer the Firm Shares for sale upon
the terms and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder,
in definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request in writing upon at least two New York
Business Days' prior notice to the Company, shall be delivered by or on behalf
of the Company to Goldman, Sachs & Co., for the account of such Underwriter,
against payment by or on behalf of such Underwriter of the purchase price
therefor by wire transfer of same day funds payable to the order of the
Company. The Company will cause the certificates representing the Shares to be
made available for checking and packaging at least one New York Business Day
prior to the Time of Delivery (as defined below) with respect thereto at the
office of Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004 (the
"Designated Office"). The time and date of such delivery and payment shall be,
with respect to the Firm Shares, 9:30 a.m., New York City time, on
............., 1996 or such other time and date as Goldman, Sachs & Co. and the
Company may agree upon in writing, and, with respect to the Optional Shares,
9:30 a.m., New York City time, on the date specified by Goldman, Sachs & Co. in
the written notice given by Goldman, Sachs & Co. of the Underwriters' election
to purchase such Optional Shares, or such other time and date as Goldman, Sachs
& Co. and the Company may agree upon in writing. Such time and date for
delivery of the Firm Shares is herein called the "First Time of Delivery", such
time and date for delivery of the Optional Shares, if not the First Time of
Delivery, is herein called the "Second Time of Delivery", and each such time
and date for delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or
on behalf of the parties hereto pursuant to Section 6 hereof, including the
cross receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 6(h) hereof, will be delivered at the offices
of [Sullivan & Cromwell, 125 Broad Street, New York, New York 10004] (the
"Closing Location"), and the Shares will be delivered at the Designated Office,
all at such Time of Delivery. A meeting will be held at the Closing Location
at 2:00 p.m., New York City time, on the New York Business Day next preceding
such Time of Delivery, at which meeting the final drafts of the documents to be
delivered pursuant to the preceding sentence will be available for review by
the parties hereto. For the purposes of this Section 4, "New York Business
Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is
not a day on which banking institutions in New York are generally authorized or
obligated by law or executive order to close.
5. (a) The Company agrees with each of the
Underwriters:
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<PAGE> 11
(i) To prepare the Prospectus in a form approved by you
and to file such Prospectus pursuant to Rule 424(b) under the Act
not later than the Commission's close of business on the second
business day following the execution and delivery of this
Agreement, or, if applicable, such earlier time as may be
required by Rule 430A(a)(3) under the Act; to make no further
amendment or any supplement to the Registration Statement or
Prospectus prior to the last Time of Delivery which shall be
reasonably disapproved by you promptly after reasonable notice
thereof; to advise you, promptly after it receives notice
thereof, (i) of the time of filing and effectiveness of any
post-effective amendment to the Registration Statement, (ii) of
the mailing or the delivery to the Commission for filing of any
supplement to the Prospectus and to furnish you with copies
thereof, (iii) of any request by the Commission for any amendment
of the Registration Statement or any amendment or supplement to
the Prospectus or for any additional information, (iv) of the
issuance by the Commission of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or
prospectus or the institution or threatening of any proceeding
for that purpose and (v) of the suspension of the qualification
of the Shares for sale in any jurisdiction or the institution or
threatening of any proceeding for such purpose; and to use its
best efforts to prevent the issuance of any such stop order or of
any order preventing or suspending the use of any Preliminary
Prospectus or prospectus or suspending any such qualification
and, if issued, to obtain as soon as possible the withdrawal
thereof;
(ii) Prior to 10:00 a.m, New York City time, on the New
York Business Day next succeeding the date of this Agreement and
from time to time, to furnish the Underwriters with copies of the
Prospectus in New York City in such quantities as you may
reasonably request, and, if the delivery of a prospectus is
required at any time prior to the expiration of nine months after
the time of issue of the Prospectus in connection with the
offering or sale of the Shares and if at such time any event
shall have occurred as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made when such Prospectus is
delivered, not misleading, or, if for any other reason it shall
be necessary during such period to amend or supplement the
Prospectus in order to comply with the Act, to notify you and
upon your request to prepare and furnish without charge to each
Underwriter and to any dealer in securities as many copies as you
may from time to time reasonably request of an amended Prospectus
or a supplement to the Prospectus which will correct such
statement or omission or effect such compliance; and in case any
Underwriter is required to deliver a prospectus in connection
with sales of any of the Shares at any time nine months or more
after the time of issue of the Prospectus, upon your request but
at the expense of such Underwriter, to prepare and deliver to
such Underwriter as many
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<PAGE> 12
copies as you may request of an amended or supplemented
Prospectus complying with Section 10(a)(3) of the Act;
(iii) Promptly from time to time to use its best efforts
to qualify the Shares for offering and sale under the securities
laws of such jurisdictions as you may reasonably request and to
comply with such laws so as to permit the continuance of sales
and dealings therein in such jurisdictions for as long as
required for the distribution of the Shares; the Company,
however, shall not be obligated to qualify as a foreign
corporation or file any general consent to service of process
under the laws of any such jurisdiction or subject itself to
taxation as doing business in any such jurisdiction;
(iv) To make generally available to its security
holders, as soon as practicable, but not later than 45 days after
the end of the twelve-month period beginning at the end of the
fiscal quarter of the Company during which the effective date of
the Initial Registration Statement occurs, and if different, the
twelve-month period beginning at the end of the fiscal quarter of
the Company during which the effective date of the Rule 462(b)
Registration Statement, if any, occurs, an earnings statement of
the Company and its subsidiaries (which need not be audited and
shall be in form complying with Section 11(a) of the Act and the
rules and regulations thereunder, including, at the option of the
Company, Rule 158) covering such twelve-month period);
(v) During the period beginning from the date hereof
and continuing to and including the date 180 days after the date
of the Prospectus, not to offer, sell, contract to sell or
otherwise dispose of, except as provided hereunder and under the
International Underwriting Agreement, Stock, any securities of
the Company that are substantially similar to the Shares,
including but not limited to any securities that are convertible
into or exchangeable for, or that represent the right to receive,
Stock or any such substantially similar securities (other than
(i) securities offered, sold, contracted to be sold or otherwise
disposed of by the Company pursuant to stock option, incentive or
purchase plans maintained for its directors, officers and/or
employees, which plans exist on, or are described in the
Prospectus to be implemented after, the date of this Agreement
and (ii) securities offered, sold, contracted to be sold or
otherwise disposed of upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the
date of this Agreement), without your prior written consent;
(vi) To furnish to its stockholders as soon as
practicable after the end of each fiscal year an annual report
(including a balance sheet and statements of income,
stockholders' equity and cash flows of the Company and its
consolidated subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of
the first three quarters of each fiscal year (beginning with the
fiscal quarter ending after the effective date of the Initial
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<PAGE> 13
Repgistration Statement), consolidated summary financial
information of the Company and its subsidiaries for such quarter
in reasonable detail;
(vii) During a period of five years from the effective
date of the Initial Registration Statement, to furnish to you
copies of all reports or other communications (financial or
other) furnished to stockholders, and to deliver to you (i) as
soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any
national securities exchange on which any class of securities of
the Company is listed; and (ii) such additional information
concerning the business and financial condition of the Company as
you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the
accounts of the Company and its subsidiaries are consolidated in
reports furnished to its stockholders generally or to the
Commission);
(viii) To use the net proceeds received by it from the sale
of the Shares pursuant to this Agreement and the International
Underwriting Agreement in the manner specified in the Prospectus
under the caption "Use of Proceeds";
(ix) To use its best efforts to list, subject to notice
of issuance, the Shares on the New York Stock Exchange;
(x) To file with the Commission such reports on Form SR
as may be required by Rule 463 under the Act; and
(xi) If the Company elects to rely upon Rule 462(b), the
Company shall file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) by 10:00 p.m.,
Washington, D.C. time, on the date of this Agreement, and the
Company shall at the time either pay to the Commission the filing
fee for the Rule 462(b) Registration Statement or give
irrevocable instructions for the payment of such fee pursuant to
Rule 111(b) under the Act.
(b) AMR agrees with each of the Underwriters:
(i) For so long as AMR owns more than 50% of the Company,
to cause the Company to perform all of its obligations hereunder;
and
(ii) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of
the Prospectus, not to offer, sell, contract to sell or otherwise
dispose of, except as provided hereunder and under the
International Underwriting Agreement, Stock, any securities of
the Company that are substantially similar to the Shares,
including but not limited to any securities that are convertible
into or exchangeable for, or that represent the right
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<PAGE> 14
to receive, Stock or any such substantially similar securities,
without your prior written consent.
6. The obligations of the Underwriters hereunder, as to the
Shares to be delivered at each Time of Delivery, shall be subject, in
their discretion, to the condition that all representations and
warranties of the Company and AMR herein are, at and as of such Time of
Delivery, true and correct, the condition that the Company and AMR each
shall have performed all of its obligations hereunder theretofore to be
performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the
Commission pursuant to Rule 424(b) within the applicable time
period prescribed for such filing by the rules and regulations
under the Act and in accordance with Section 5(a)(i) hereof; at
such Time of Delivery no stop order suspending the effectiveness
of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose shall have been
initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall
have been complied with to your reasonable satisfaction;
(b) Sullivan & Cromwell, counsel for the Underwriters,
shall have furnished to you such opinion or opinions (a draft of
each such opinion is attached as Annex II(a) hereto), dated such
Time of Delivery, with respect to the validity of the Shares
being delivered at such time of delivery, the Registration
Statement, the Prospectus and such other related matters as you
may reasonably request, and such counsel shall have received such
papers and information as they may reasonably request to enable
them to pass upon such matters;
(c) At such Time of Delivery, you shall have received:
(1) An opinion (a draft of each such opinion
is attached as Annex II(b) hereto), dated such Time
of Delivery, of Debevoise & Plimpton, as counsel for
the Company, in form satisfactory to you and your
counsel, to the effect that:
(i) The Company has been duly
incorporated and is validly existing as a corporation
in good standing under the laws of the State of
Delaware and has full corporate power and authority
under such laws to own its properties and to conduct
its business as described in the Prospectus;
(ii) The Shares have been duly
authorized by the Company and, when issued as
contemplated by this Agreement and the International
Underwriting Agreement, will be validly issued, fully
paid and non-assessable; and all corporate
action
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<PAGE> 15
required to be taken for authorization, issue and
delivery of the Shares has been validly taken;
(iii) The Stock conforms in all material
respects to the descriptions thereof contained in the
Prospectus;
(iv) No authorization, approval,
consent order, registration, qualification or license
of or with any United States federal, Delaware or New
York regulatory body or authority is required for the
valid authorization, issuance, sale and delivery of
the Shares as contemplated by this Agreement and the
International Underwriting Agreement, except such as
have been obtained under the Act and such as may be
required under the securities or Blue Sky laws of the
various states of the United States or the securities
or similar laws of any foreign jurisdiction;
(v) The Registration Statement, the
Prospectus and each amendment thereof or supplement
thereto (except for the financial statements and other
financial data included therein, as to which such
counsel need express no opinion) comply as to form in
all material respects with the requirements of the Act
and the rules and regulations thereunder;
(vi) This Agreement and the International
Underwriting Agreement have been duly authorized,
executed and delivered by each of the Company and AMR;
(vii) The issuance and delivery by the
Company of the Shares, the execution and delivery of
this Agreement and the International Underwriting
Agreement by the Company, the consummation by the
Company of the transactions herein and therein
contemplated and in the manner herein and therein
contemplated, and compliance by the Company with the
terms of this Agreement and the International
Underwriting Agreement, do not and will not violate,
conflict with, or result in a breach of, any of the
terms or provisions of, or constitute a default under,
the Certificate of Incorporation or By-Laws of the
Company or any indenture or other agreement or
instrument known to such counsel to which the Company
is a party or by which the Company is bound or any
law, rule, regulation, judgment or order known to such
counsel to be applicable to the Company of any court,
regulatory body, administrative agency, government or
governmental body having jurisdiction over the
Company, except that such counsel need express no
opinion or belief as to the
15
<PAGE> 16
accuracy or completeness of the Registration Statement
or the Prospectus except for the opinion expressed in
paragraph (iii) above and, to the extent stated
therein, the disclosure matters referred to in the two
immediately following sentences;
(viii) The Shares are duly authorized for
listing, subject to official notice of issuance, on
the New York Stock Exchange;
and to such further effect with respect to other legal
matters relating to this Agreement and the International
Underwriting Agreement, and the sale of the Shares
hereunder and thereunder as your counsel may reasonably
request. Debevoise & Plimpton shall also state that (i)
such counsel have not independently checked the accuracy
or completeness, or otherwise verified, and are not
passing upon, and assume no responsibility for, the
accuracy or completeness of the information contained in
the Registration Statement or the Prospectus, except
with respect to the matters set forth in paragraph (iii)
above and the tax matters referred to below, but have
generally reviewed and discussed such information with
certain officers and employees of the Company and AMR
and the auditors for the Company, and (ii) in the course
of such review and discussion, but without independent
check or verification, no facts have come to the
attention of such counsel which have caused them to
believe (A) that the Registration Statement or any
amendment thereto at their respective effective dates
(except for the financial statements and other financial
data included therein, as to which such counsel need
express no belief), contained an untrue statement of a
material fact or omitted to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading, or (B) that the
Prospectus, together with any amendment or supplement
thereto, at their respective issue dates and such Time
of Delivery (except, in each case, for the financial
statements and other financial data included therein, as
to which such counsel need express no belief) contained
or contains an untrue statement of a material fact or
omitted or omits to state a material fact necessary in
order to make the statements therein, in the light of
the circumstances under which they were made, not
misleading. The opinion of Debevoise & Plimpton shall
also confirm the accuracy in all material respects of
the statements relating to the Federal income tax laws
and regulations, to the extent they constitute matters
of law or legal conclusions with respect thereto, made
in the Prospectus under the heading "Certain United
States Tax Considerations for Non-United States
Holders". In giving the opinions required by this
Section 6(c)(1), Debevoise & Plimpton may rely as to all
matters of state law other than the law of
16
<PAGE> 17
the State of New York and the corporate law of the State
of Delaware upon opinions of counsel satisfactory to
them, in which case the opinion shall state that they
believe that they and you are entitled so to rely. In
rendering the opinions set forth above, such counsel may
rely upon certificates of officers of the Company and
AMR and of pubic officials as to matters of
fact;
(2) An opinion, dated such Time of Delivery,
from Anne H. McNamara, Senior Vice President and
General Counsel of AMR, in form satisfactory to you and
your counsel, to the effect that:
(i) Such counsel has no reason to
believe the statements in the Registration
Statement and the Prospectus with respect to
statutes, administrative orders and regulations and
legal and governmental proceedings do not fairly
and accurately present the information required to
be set forth therein; and there are, to the best of
such counsel's knowledge, no statutes,
administrative orders or regulations or legal or
governmental proceedings required to be described
in the Registration Statement or the Prospectus
which are not described as required, nor any
contracts or documents of a character required to
be described in the Registration Statement or the
Prospectus, or to be filed as exhibits to the
Registration Statement, that are not so described
or filed as required;
(ii) The Company has an authorized
capitalization as set forth in the Prospectus, and
all of the shares of issued and outstanding Stock
have been duly authorized and validly issued and
are fully paid and non-assessable;
(iii) the Company is duly qualified to
do business as a foreign corporation and is in good
standing under the laws of each other jurisdiction
in which it owns or leases properties or conducts
any business so as to require such qualification,
or is subject to no material liability or
disability by reason of failure to be so qualified
in any such jurisdictions (such counsel being
entitled to rely in respect of the opinion in this
clause upon opinions of local counsel and in
respect of matters of fact upon certificates of
officers of the Company, provided that such counsel
shall state that she believes that both she is and
you are justified in relying upon such opinions
and certificates)
(iv) No authorization, approval,
consent, order, registration, qualification or
license of any United States federal or
17
<PAGE> 18
Texas regulatory body or authority is required for
the valid authorization, issuance and delivery of
the Shares, except such as have been obtained under
the Act and such as may be required under the
securities or Blue Sky laws of the various states
of the United States or the securities or similar
laws of any foreign jurisdiction;
(v) The issuance, sale and delivery
of the Shares being delivered at such time of
delivery by the Company, the execution and delivery
of this Agreement and the International
Underwriting Agreement by the Company, the
consummation by the Company of the transactions
herein and therein contemplated and in the manner
herein and therein contemplated and compliance by
the Company with the terms of this Agreement and
the International Underwriting Agreement do not and
will not violate, conflict with, or result in a
breach of, any of the terms or provisions of, or
constitute a default under, the Certificate of
Incorporation or By-Laws of the Company or any of
its subsidiaries or any indenture or other
agreement or instrument known to such counsel to
which the Company or any of its subsidiaries is a
party or by which the Company or any of its
subsidiaries is bound or any law, rule, regulation,
judgment or order known to such counsel to be
applicable to the Company or any of its
subsidiaries of any court, regulatory body,
administrative agency, government or governmental
body having jurisdiction over the Company or any of
its subsidiaries, except that such counsel need
express no opinion or belief as to the accuracy or
completeness of the Registration Statement or the
Prospectus except for the opinions
expressed in paragraph (i) above;
(vi) To the best of such counsel's
knowledge and other than as set forth in the
Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of
its subsidiaries is a party or of which any
property of the Company or any of its subsidiaries
is the subject which could reasonably be expected
to individually or in the aggregate have a material
adverse effect on the current or future
consolidated financial position, stockholders'
equity or results of operations of the Company and
its subsidiaries taken as a whole; and, to the best
of such counsel's knowledge, no such proceedings
are threatened or contemplated by governmental
authorities or threatened by others; and
18
<PAGE> 19
(vii) Neither the Company nor any of
its subsidiaries is in violation of its
Certificate of Incorporation or By-laws or in
default in the performance or observance of any
obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or
instrument to which it is a party or by which it or
any of its properties may be bound, except for such
violations and defaults as would not individually
or in the aggregate have a material adverse effect
on the Company and its subsidiaries taken as a
whole.
In giving such opinion, Anne H. McNamara may state
that such opinion is limited to the laws of the State
of Texas, the corporate laws of the State of Delaware
and the Federal laws of the United States, except that
such counsel expresses no opinion as to the securities
or Blue Sky laws of any state of the United States or
the securities laws of any foreign jurisdiction.
(d) On the date of the Prospectus at a time prior to the
execution of this Agreement, at 9:30 a.m., New York City time, on
the effective date of any Rule 462(b) Registration Statement or
of any post-effective amendment to the Registration Statement
filed subsequent to the date of this Agreement and also at each
Time of Delivery, Ernst & Young LLP shall have furnished to you a
letter or letters, dated the respective dates of delivery
thereof, in form and substance satisfactory to you, to the effect
set forth in Annex I hereto (the executed copy of the letter
delivered prior to the execution of this Agreement is attached as
Annex I(a) hereto and a draft of the form of letter to be
delivered on the effective date of any Rule 462(b) Registration
Statement or of any post-effective amendment to the Registration
Statement and as of each Time of Delivery is attached as Annex
I(b) hereto);
(e)(i) Neither the Company nor any of its subsidiaries shall
have sustained since the date of the latest audited financial
statements included in the Prospectus any loss or interference
with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as
set forth or contemplated in the Prospectus, and (ii) since the
respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital
stock or long-term debt of the Company or any of its subsidiaries
or any change, or any development involving a prospective change,
in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the
Company and its subsidiaries, otherwise than as set forth or
contemplated in the Prospectus, the effect of which, in any such
case described in Clause (i) or (ii), is in the judgment of the
Representatives so material and adverse as to make it
impracticable or inadvisable to proceed with the public
19
<PAGE> 20
offering or the delivery of the Shares being delivered at such
Time of Delivery on the terms and in the manner contemplated in
the Prospectus;
(f) On or after the date hereof there shall not have
occurred any of the following: (i) a suspension or material
limitation in trading in securities generally on the New York
Stock Exchange; (ii) a general moratorium on commercial banking
activities declared by either Federal or New York State
authorities; or (iii) the outbreak or escalation of hostilities
involving the United States or the declaration by the United
States of a national emergency or war, if the effect of any such
event specified in this Clause (iii) in the judgment of the
Representatives makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Shares being
delivered at such Time of Delivery on the terms and in the manner
contemplated in the Prospectus;
(g) The Company shall have complied with the provisions of
Section 5(a)(ii) hereof with respect to the furnishing of
prospectuses on the New York Business Day next succeeding the
date of this Agreement;
(h) The Company shall have furnished or caused to be
furnished to you at such Time of Delivery certificates of
officers of the Company reasonably satisfactory to you as to the
accuracy of the representations and warranties of the Company
herein at and as of such Time of Delivery, as to the performance
by the Company of all of its obligations hereunder to be
performed at or prior to such Time of Delivery, as to the matters
set forth in subsections (a) and (e) of this Section and as to
such other matters as you may reasonably request; and
(i) The Shares to be sold at such Time of Delivery shall
have been duly authorized for listing by the New York Stock
Exchange, subject only to official notice of issuance.
All such opinions, certificates, letters and documents shall be
deemed to be in compliance with provisions hereof only if they are in all
respects reasonably satisfactory to you and your counsel.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, other than by reason of any
default by the Underwriters, such failure to fulfill a condition may be
waived by you, or this Agreement may be terminated by you by notice to the
Company at any time at or prior to a Time of Delivery, and such termination
shall be without liability of any party to any other party, except as
provided in Sections 8, 10 and 11 hereof, which provisions shall remain
in effect notwithstanding such termination.
7. The Company will pay or cause to be paid all expenses
incident to the performance of its obligations under this Agreement and the
International Underwriting Agreement, including (i) the preparation,
printing, filing and distribution of any preliminary prospectuses, the
Prospectus, the Registration Statement and any amendments thereof
20
<PAGE> 21
or supplements thereto, (ii) the preparation, printing and distribution of
any Agreement among Underwriters, this Agreement, the International
Underwriting Agreement, the Agreement between Syndicates, the Selling
Agreement, the Blue Sky Survey, any Legal Investment Survey, any
Underwriters' Questionnaire, closing documents (including compilations
thereof) and any other documents in connection with offering, purchase,
sale and delivery of the Shares, (iii) the issuance and delivery of the
Shares to the Underwriters, (iv) the fees and disbursements of the
Company's counsel and accountants, (v) the expenses of qualifying the
Shares under state securities laws in accordance with Section 5(a)(iii),
including filing fees and reasonable fees (not in excess of $25,000) and
disbursements of counsel for the Underwriters in connection therewith and
in connection with the Blue Sky Survey and any Legal Investment Survey,
(vi) the fees and expenses, if any, incurred in connection with the listing
of the Shares on the New York Stock Exchange, (vii) the filing fees
incident to securing any required review by the National Association of
Securities Dealers, Inc. of the terms of the sale of the Shares and (viii)
the cost and charges of any transfer agent or registrar. It is understood,
however, that, except as provided in this Section, and Sections 8 and 11
hereof, the Underwriters will pay all of their own costs and expenses,
including the fees of their counsel, stock transfer taxes on resale of any
of the Shares by them, and any advertising expenses connected with any
offers they may make.
8. (a) The Company and AMR, jointly and severally, will indemnify
and hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become
subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal
or other expenses reasonably incurred by such Underwriter in connection
with investigating or defending any such action or claim as such expenses
are incurred; provided, however, that neither the Company nor AMR shall be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company or AMR by any Underwriter through
Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company and
AMR against any losses, claims, damages or liabilities to which the Company
may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or
21
<PAGE> 22
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any such amendment or
supplement in reliance upon and in conformity with written information
furnished to the Company or AMR by such Underwriter through Goldman, Sachs
& Co. expressly for use therein; and will reimburse the Company or AMR for
any legal or other expenses reasonably incurred by the Company or AMR in
connection with investigating or defending any such action or claim as such
expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; but the omission
so to notify the indemnifying party shall not relieve it from any liability
which it may have to any indemnified party otherwise than under such
subsection. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party (who shall
not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice in writing from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified
party under such subsection for any legal expenses of other counsel or any
other expenses, in each case subsequently incurred by such indemnified
party, in connection with the defense thereof other than reasonable
out-of-pocket costs and expenses of investigation. In no case shall the
indemnifying party be liable for the costs and expenses of more than one
separate counsel representing the indemnified parties under subsection (a)
above. No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action
or claim by any person in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual
or potential party to such action or claim) unless such settlement,
compromise or judgment (i) includes an unconditional release of the
indemnified party from all liability arising out of such action or claim by
such person that is subject to indemnity under this Section 8 and (ii) does
not include a statement as to or an admission of fault, culpability or a
failure to act, by or on behalf of any indemnified party. An indemnified
party shall not, without the written consent of the indemnifying party,
which consent shall not be unreasonably withheld, effect the settlement or
compromise of, or consent to the entry of any judgment with respect to, any
action or claim in respect of which indemnification or contribution may be
sought hereunder, unless the indemnified party has given the indemnifying
party notice of the commencement of such action or claim pursuant to the
22
<PAGE> 23
provisions of this subsection (c) and the indemnifying party has not
elected pursuant to the provisions of this subsection (c) to assume the
defense of such action or claim within 40 days of its receipt of such
notice.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company and
AMR on the one hand and the Underwriters on the other from the offering of
the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law or if the indemnified
party failed to give the notice required under subsection (c) above, then
each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company and
AMR on the one hand and the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the
Company and AMR on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the
offering of the Shares purchased under this Agreement (before deducting
expenses) received by the Company bear to the total underwriting discounts
and commissions received by the Underwriters with respect to the Shares
purchased under this Agreement, in each case as set forth in the table on
the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company and AMR on the
one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, AMR and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this
subsection (d) were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations referred to above in this subsection (d). The amount paid
or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in
this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty
of
23
<PAGE> 24
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their
respective underwriting obligations and not joint.
(e) The obligations of the Company and AMR under this Section 8 shall
be in addition to any liability which the Company or AMR may otherwise have
and shall extend, upon the same terms and conditions, to each person, if
any, who controls any Underwriter within the meaning of the Act; and the
obligations of the Underwriters under this Section 8 shall be in addition
to any liability which the respective Underwriters may otherwise have and
shall extend, upon the same terms and conditions, to each officer and
director of the Company and AMR and to each person, if any, who controls
the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation
to purchase the Shares which it has agreed to purchase hereunder at a Time
of Delivery, you may in your discretion arrange for you or another party or
other parties to purchase such Shares on the terms contained herein. If
within thirty-six hours after such default by any Underwriter you do not
arrange for the purchase of such Shares, then the Company shall be entitled
to a further period of thirty-six hours within which to procure another
party or other parties satisfactory to you to purchase such Shares on such
terms. In the event that, within the respective prescribed periods, you
notify the Company that you have so arranged for the purchase of such
Shares, or the Company notifies you that it has so arranged for the
purchase of such Shares, you or the Company shall have the right to
postpone such Time of Delivery for a period of not more than seven days, in
order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your reasonable opinion
may thereby be made necessary. The term "Underwriter" as used in this
Agreement shall include any person substituted under this Section with like
effect as if such person had originally been a party to this Agreement with
respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the
Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased does not exceed one-tenth of the aggregate
number of all the Shares to be purchased at such Time of Delivery, then the
Company shall have the right to require each non-defaulting Underwriter to
purchase the number of Shares which such Underwriter agreed to purchase
hereunder at such Time of Delivery and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the
number of Shares which such Underwriter agreed to purchase hereunder) of
the Shares of such defaulting Underwriter or Underwriters for which such
arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
24
<PAGE> 25
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the
Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased exceeds one-tenth of the aggregate number
of all the Shares to be purchased at such Time of Delivery, or if the
Company shall not exercise the right described in subsection (b) above to
require non-defaulting Underwriters to purchase Shares of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to the
Second Time of Delivery, the obligations of the Underwriters to purchase
and of the Company to sell the Optional Shares) shall thereupon terminate,
without liability on the part of any non-defaulting Underwriter or the
Company, except for the expenses to be borne by the Company and the
Underwriters as provided in Section 7 hereof and the indemnity and
contribution agreements in Section 8 hereof; but nothing herein shall
relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations,
warranties and other statements of the Company and the several
Underwriters, as set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement, shall remain in full force
and effect, regardless of any investigation (or any statement as to the
results thereof) made by or on behalf of any Underwriter or any controlling
person of any Underwriter, or the Company, or any officer or director or
controlling person of the Company, and shall survive delivery of and
payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9
hereof, the Company shall not then be under any liability to any
Underwriter except as provided in Sections 7 and 8 hereof; but, if for any
other reason, any Shares are not delivered by or on behalf of the Company
as provided herein, the Company will reimburse the Underwriters through you
for all out-of-pocket expenses approved in writing by you, including fees
and disbursements of counsel, reasonably incurred by the Underwriters in
making preparations for the purchase, sale and delivery of the Shares not
so delivered, provided, however, that in the event of termination by you
for failure of the condition specified in Section 6(f) of this Agreement,
the Company's obligation to reimburse pursuant to the foregoing shall not
include any legal fees of counsel to the Underwriters; and after performing
its reimbursement obligations pursuant to the foregoing, the Company shall
then be under no further liability to any Underwriter in respect of the
Shares not so delivered except as provided in Sections 7 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each
of the Underwriters, and the parties hereto shall be entitled to act and
rely upon any statement, request, notice or agreement on behalf of any
Underwriter made or given by you jointly or by Goldman, Sachs & Co. on
behalf of you as the representatives.
All statements, requests, notices and agreements hereunder shall be
in writing, and if to the Underwriters shall be delivered or sent by mail,
telex or facsimile transmission to you as the representatives in care of
Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004,
Attention: Registration Department; if to the Company shall be delivered or
sent by mail, telex or facsimile transmission to the address of the Company
25
<PAGE> 26
set forth in the Registration Statement, Attention: Secretary; and if to
AMR shall be delivered or sent by mail, telex or facsimile transmission to
AMR Corporation, 4333 Amon Center Boulevard, Forth Worth, Texas 76155,
Attention: Treasurer; provided, however, that any notice to an Underwriter
pursuant to Section 8(c) hereof shall be delivered or sent by mail, telex
or facsimile transmission to such Underwriter at its address set forth in
its Underwriters' Questionnaire, or telex constituting such Questionnaire,
which address will be supplied to the Company by you upon request. Any
such statements, requests, notices or agreements shall take effect at the
time of receipt thereof.
13. This Agreement shall be binding upon, and inure solely to
the benefit of, the Underwriters, the Company, AMR and, to the extent
provided in Sections 8 and 10 hereof, the officers and directors of the
Company and AMR and each person who controls the Company, AMR or any
Underwriter, and their respective heirs, executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. No purchaser of any of the Shares
from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement. As used
herein, the term "business day" shall mean any day when the Commission's
office in Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the
parties hereto in any number of counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute one
and the same instrument.
26
<PAGE> 27
If the foregoing is in accordance with your understanding, please
sign and return to us six counterparts hereof, and upon the acceptance
hereof by you, on behalf of each of the Underwriters, this letter and such
acceptance hereof shall constitute a binding agreement among each of the
Underwriters and the Company. It is understood that your acceptance of this
letter on behalf of each of the Underwriters is pursuant to the authority
set forth in a form of Agreement among Underwriters (U.S. Version), the
form of which shall be submitted to the Company for examination upon
request, but without warranty on your part as to the authority of the
signers thereof.
Very truly yours,
The SABRE Group Holdings, Inc.
By:
------------------------------------
Name:
Title:
AMR Corporation
By:
------------------------------------
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
J.P. Morgan Securities, Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Salomon Brothers Inc
By:
-----------------------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
27
<PAGE> 28
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
----------- --------------- ------------------
<S> <C> <C>
Goldman, Sachs & Co. . . . . . . . . . . . . . . . . . . . . . .
J.P. Morgan Securities Inc. . . . . . . . . . . . . . . . . . . .
Merrill Lynch, Pierce, Fenner & Smith Incorporated . . . . . . .
Salomon Brothers Inc . . . . . . . . . . . . . . . . . . . . . .
[Names of other Underwriters] . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . 16,160,000 2,424,000
========== =========
</TABLE>
28
<PAGE> 29
ANNEX I
[Insert appropriate form of
non-shelf comfort letter]
29
<PAGE> 30
ANNEX I
[FORM OF ANNEX I DESCRIPTION OF COMFORT LETTER
FOR REGISTRATION STATEMENTS ON FORM S-1]
Pursuant to Section 6(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public
accountants with respect to the Company and its subsidiaries within
the meaning of the Act and the applicable published rules and
regulations thereunder;
(ii) In their opinion, the financial statements
and any supplementary financial information and schedules (and, if
applicable, financial forecasts and/or pro forma financial
information) examined by them and included in the Prospectus or the
Registration Statement comply as to form in all material respects with
the applicable accounting requirements of the Act and the related
published rules and regulations thereunder; and, if applicable, they
have made a review in accordance with standards established by the
American Institute of Certified Public Accountants of the unaudited
consolidated interim financial statements, selected financial data,
pro forma financial information, financial forecasts and/or condensed
financial statements derived from audited financial statements of the
Company for the periods specified in such letter, as indicated in
their reports thereon, copies of which have been furnished to the
representatives of the Underwriters (the "Representatives");
(iii) They have made a review in accordance with
standards established by the American Institute of Certified Public
Accountants of the unaudited condensed consolidated statements of
income, consolidated balance sheets and consolidated statements of
cash flows included in the Prospectus as indicated in their reports
thereon copies of which have been separately furnished to the
Representatives and on the basis of specified procedures including
inquiries of officials of the Company who have responsibility for
financial and accounting matters regarding whether the unaudited
condensed consolidated financial statements referred to in paragraph
(vi)(A)(i) below comply as to form in all material respects with the
applicable accounting requirements of the Act and the related
published rules and regulations, nothing came to their attention that
caused them to believe that the unaudited condensed consolidated
financial statements do not comply as to form in all material respects
with the applicable accounting requirements of the Act and the related
published rules and regulations;
(iv) The unaudited selected financial information
with respect to the consolidated results of operations and financial
position of the Company for the five most recent fiscal years included
in the Prospectus agrees with the corresponding amounts (after
restatements where applicable) in the audited consolidated financial
statements for such five fiscal years which were included
<PAGE> 31
or incorporated by reference in the Company's Annual Reports on Form
10-K for such fiscal years;
(v) They have compared the information in the
Prospectus under selected captions with the disclosure requirements of
Regulation S-K and on the basis of limited procedures specified in
such letter nothing came to their attention as a result of the
foregoing procedures that caused them to believe that this information
does not conform in all material respects with the disclosure
requirements of Items 301, 302, 402 and 503(d), respectively, of
Regulation S-K;
(vi) On the basis of limited procedures, not
constituting an examination in accordance with generally accepted
auditing standards, consisting of a reading of the unaudited financial
statements and other information referred to below, a reading of the
latest available interim financial statements of the Company and its
subsidiaries, inspection of the minute books of the Company and its
subsidiaries since the date of the latest audited financial statements
included in the Prospectus, inquiries of officials of the Company and
its subsidiaries responsible for financial and accounting matters and
such other inquiries and procedures as may be specified in such
letter, nothing came to their attention that caused them to believe
that:
(A) (i) the unaudited consolidated statements of
income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus do not
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published
rules and regulations, or (ii) any material modifications
should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the
Prospectus for them to be in conformity with generally
accepted accounting principles;
(B) any other unaudited income statement data and
balance sheet items included in the Prospectus do not agree
with the corresponding items in the unaudited consolidated
financial statements from which such data and items were
derived, and any such unaudited data and items were not
determined on a basis substantially consistent with the basis
for the corresponding amounts in the audited consolidated
financial statements included in the Prospectus;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived any
unaudited condensed financial statements referred to in Clause
(A) and any unaudited income statement data and balance sheet
items included in the Prospectus and referred to in Clause (B)
were not determined on a basis substantially
2
<PAGE> 32
consistent with the basis for the audited consolidated
financial statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed
financial statements included in the Prospectus do not comply
as to form in all material respects with the applicable
accounting requirements of the Act and the published rules and
regulations thereunder or the pro forma adjustments have not
been properly applied to the historical amounts in the
compilation of those statements;
(E) as of a specified date not more than five days
prior to the date of such letter, there have been any changes
in the consolidated capital stock (other than issuances of
capital stock upon exercise of options and stock appreciation
rights, upon earn-outs of performance shares and upon
conversions of convertible securities, in each case which were
outstanding on the date of the latest financial statements
included in the Prospectus) or any increase in the
consolidated long-term debt of the Company and its
subsidiaries, or any decreases in consolidated net current
assets or stockholders' equity or other items specified by the
Representatives, or any increases in any items specified by
the Representatives, in each case as compared with amounts
shown in the latest balance sheet included in the Prospectus,
except in each case for changes, increases or decreases which
the Prospectus discloses have occurred or may occur or which
are described in such letter; and
(F) for the period from the date of the latest
financial statements included in the Prospectus to the
specified date referred to in Clause (E) there were any
decreases in consolidated net revenues or operating profit or
the total or per share amounts of consolidated net income or
other items specified by the Representatives, or any increases
in any items specified by the Representatives, in each case as
compared with the comparable period of the preceding year and
with any other period of corresponding length specified by the
Representatives, except in each case for decreases or
increases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and
(vii) In addition to the examination referred to in their
report(s) included in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to
in paragraphs (iii) and (vi) above, they have carried out certain
specified procedures, not constituting an examination in accordance
with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the
Representatives, which are derived from the general accounting records
of the Company and its subsidiaries, which appear in the Prospectus, or
in Part II of, or in exhibits and
3
<PAGE> 33
schedules to, the Registration Statement specified by the
Representatives, and have compared certain of such amounts, percentages
and financial information with the accounting records of the Company
and its subsidiaries and have found them to be in agreement.
4
<PAGE> 1
EXHIBIT 1.2
S&C Draft of September 16, 1996
THE SABRE GROUP HOLDINGS, INC.
CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------
UNDERWRITING AGREEMENT
(INTERNATIONAL VERSION)
------------------------
, 1996
Goldman Sachs International,
J.P. Morgan Securities Ltd.,
Merrill Lynch International,
Salomon Brothers International Limited,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman Sachs International,
Peterborough Court,
133 Fleet Street,
London EC4A 2BB, England.
Ladies and Gentlemen:
The SABRE Group Holdings, Inc. (the "Company"), a Delaware corporation and
a wholly owned subsidiary of AMR Corporation, a Delaware corporation ("AMR"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an
aggregate of 4,040,000 shares (the "Firm Shares") and, at the election of the
Underwriters, up to 606,000 additional shares (the "Optional Shares") of Class
A Common Stock, par value $.01 per share ("Stock"), of the Company (the Firm
Shares and the Optional Shares that the Underwriters elect to purchase pursuant
to Section 2 hereof being collectively called the "Shares").
It is understood and agreed to by all parties that the Company is
concurrently entering into an agreement, a copy of which is attached hereto
(the "U.S. Underwriting Agreement"), providing for the offering by the Company
of up to a total of 18,584,000 shares of Stock (the "U.S. Shares"), including
the overallotment option thereunder, through arrangements with certain
underwriters in the United States named in Schedule I to the U.S. Underwriting
Agreement (the "U.S. Underwriters"), for whom Goldman, Sachs & Co., J.P. Morgan
Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon
Brothers Inc are acting as representatives. Anything herein or therein to the
contrary notwithstanding, the respective closings under this
<PAGE> 2
Agreement and the U.S. Underwriting Agreement are hereby expressly made
conditional on one another. The Underwriters hereunder and the U.S.
Underwriters are simultaneously entering into an Agreement between U.S. and
International Underwriting Syndicates (the "Agreement between Syndicates")
which provides, among other things, for the transfer of shares of Stock between
the two syndicates and for consultation by the Lead Managers hereunder with
Goldman, Sachs & Co. prior to exercising the rights of the Underwriters under
Section 7 hereof. Two forms of prospectus are to be used in connection with
the offering and sale of shares of Stock contemplated by the foregoing, one
relating to the Shares hereunder and the other relating to the U.S. Shares.
The latter form of prospectus will be identical to the former except for
certain substitute pages. Except as used in Sections 2, 3, 4, 9 and 11 herein,
and except as the context may otherwise require, references hereinafter to the
Shares shall include all the shares of Stock which may be sold pursuant to
either this Agreement or the U.S. Underwriting Agreement, and references herein
to any prospectus whether in preliminary or final form, and whether as amended
or supplemented, shall include both the U.S. and the international versions
thereof.
In addition, this Agreement incorporates by reference certain provisions
from the U.S. Underwriting Agreement (including the related definitions of
terms, which are also used elsewhere herein) and, for purposes of applying the
same, references (whether in these precise words or their equivalent) in the
incorporated provisions to the "Underwriters" shall be to the Underwriters
hereunder, to the "Shares" shall be to the Shares hereunder as just defined, to
"this Agreement" (meaning therein the U.S. Underwriting Agreement) shall be to
this Agreement (except where this Agreement is already referred to or as the
context may otherwise require) and to the representatives of the Underwriters
or to Goldman, Sachs & Co. shall be to the addressees of this Agreement and to
Goldman Sachs International ("GSI"), and, in general, all such provisions and
defined terms shall be applied mutatis mutandis as if the incorporated
provisions were set forth in full herein having regard to their context in this
Agreement as opposed to the U.S. Underwriting Agreement.
1. The Company and AMR hereby make with the Underwriters the same
representations, warranties and agreements as are set forth in Sections 1(a)
and 1(b), respectively, of the U.S. Underwriting Agreement, which Sections are
incorporated herein by this reference.
2. Subject to the terms and conditions herein set forth, (a) the
Company agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company,
at a purchase price of $........................ per share, the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto and
(b) in the event and to the extent that the Underwriters shall exercise the
election to purchase Optional Shares as provided below, the Company agrees to
issue and sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company, at the
purchase price per share set forth in clause (a) of this Section 2, that
portion of the number of Optional Shares as to which such election shall have
been exercised (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying such number of Optional Shares by a fraction, the
numerator of which is the maximum number of Optional Shares which such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of Optional Shares that all of the Underwriters are entitled to purchase
hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to
2
<PAGE> 3
606,000 Optional Shares, at the purchase price per share set forth in the
paragraph above, for the sole purpose of covering over-allotments in the sale
of the Firm Shares. Any such election to purchase Optional Shares may be
exercised only by written notice from you to the Company, given within a period
of 30 calendar days after the date of this Agreement, setting forth the
aggregate number of Optional Shares to be purchased and the date on which such
Optional Shares are to be delivered, as determined by you but in no event
earlier than the First Time of Delivery (as defined in Section 4 hereof) or,
unless you and the Company otherwise agree in writing, earlier than two or
later than ten business days after the date of such notice.
3. Upon the authorization by GSI of the release of the Firm Shares,
the several Underwriters propose to offer the Firm Shares for sale upon the
terms and conditions set forth in the Prospectus and in the forms of Agreement
among Underwriters (International Version) and Selling Agreements, which have
been previously submitted to the Company by you. Each Underwriter hereby makes
to and with the Company the representations and agreements of such Underwriter
as a member of the selling group contained in Sections 3(d) and 3(e) of the
form of Selling Agreements.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as GSI may request in writing upon at least two New York Business Days'
prior notice to the Company, shall be delivered by or on behalf of the Company
to GSI, for the account of such Underwriter, against payment by or on behalf of
such Underwriter of the purchase price therefor by wire transfer of same day
funds payable to the order of the Company. The Company will cause the
certificates representing the Shares to be made available for checking and
packaging at least one New York Business Day prior to the Time of Delivery (as
defined below) with respect thereto at the office of GSI, 85 Broad Street, New
York, New York 10004 (the "Designated Office"). The time and date of such
delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m., New
York City time, on ............., 1996 or such other time and date as GSI and
the Company may agree upon in writing, and, with respect to the Optional
Shares, 9:30 a.m., New York City time, on the date specified by GSI in the
written notice given by GSI of the Underwriters' election to purchase such
Optional Shares, or such other time and date as GSI and the Company may agree
upon in writing. Such time and date for delivery of the Firm Shares is herein
called the "First Time of Delivery", such time and date for delivery of the
Optional Shares, if not the First Time of Delivery, is herein called the
"Second Time of Delivery", and each such time and date for delivery is herein
called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 6 of the U.S. Underwriting
Agreement, including the cross receipt for the Shares and any additional
documents requested by the Underwriters pursuant to Section 6(h) of the U.S.
Underwriting Agreement, will be delivered at the offices of [Sullivan &
Cromwell, 125 Broad Street, New York, New York 10004] (the "Closing Location"),
and the Shares will be delivered at the Designated Office, all at such Time of
Delivery. A meeting will be held at the Closing Location at 2:00 p.m., New
York City time, on the New York Business Day next preceding such Time of
Delivery, at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the parties
hereto. For the purposes of this Section 4, "New York Business Day" shall mean
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on
which banking institutions in New York are generally authorized or obligated by
law or executive order to close.
3
<PAGE> 4
5. The Company and AMR hereby make to the Underwriters the same
agreements as are set forth in Sections 5(a) and 5(b), respectively, of the
U.S. Underwriting Agreement, which Sections are incorporated herein by this
reference.
6. Subject to the provisions of the Agreement between Syndicates,
the obligations of the Underwriters hereunder shall be subject, in their
discretion, at each Time of Delivery, to the condition that all representations
and warranties of the Company and AMR herein are, at and as of such Time of
Delivery, true and correct, the condition that the Company and AMR each shall
have performed all of its obligations hereunder theretofore to be performed,
and additional conditions identical to those set forth in Section 6 of the U.S.
Underwriting Agreement, which Section is incorporated herein by this reference.
7. The Company and the Underwriters hereby agree with respect to
certain expenses on the same terms as are set forth in Section 7 of the U.S.
Underwriting Agreement, which Section is incorporated herein by this reference.
8. (a) The Company and AMR, jointly and severally, will indemnify
and hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in
any Preliminary Prospectus, the Registration Statement or the Prospectus, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that
neither the Company nor AMR shall be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company or AMR by any
Underwriter through GSI expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
and AMR against any losses, claims, damages or liabilities to which the Company
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company or AMR by such
Underwriter through GSI expressly for use therein; and will reimburse the
Company or AMR for any legal or other expenses reasonably incurred by the
Company or AMR in connection with investigating or defending any such action or
claim as such expenses are incurred.
4
<PAGE> 5
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice in writing from the indemnifying party
to such indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable out-of-pocket costs and expenses of
investigation. In no case shall the indemnifying party be liable for the costs
and expenses of more than one separate counsel representing the indemnified
parties under subsection (a) above. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim by any person in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified party is
an actual or potential party to such action or claim) unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability arising out of such action or claim by such person
that is subject to indemnity under this Section 8 and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by
or on behalf of any indemnified party. An indemnified party shall not, without
the written consent of the indemnifying party, which consent shall not be
unreasonably withheld, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any action or claim in respect of
which indemnification or contribution may be sought hereunder, unless the
indemnified party has given the indemnifying party notice of the commencement
of such action or claim pursuant to the provisions of this subsection (c) and
the indemnifying party has not elected pursuant to the provisions of this
subsection (c) to assume the defense of such action or claim within 40 days of
its receipt of such notice.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company and AMR on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (c) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and AMR on the one hand and the Underwriters on the other
in connection with the statements or omissions which resulted in such losses,
claims, damages or
5
<PAGE> 6
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company and
AMR on the one hand and the Underwriters on the other shall be deemed to be in
the same proportion as the total net proceeds from the offering of the Shares
purchased under this Agreement (before deducting expenses) received by the
Company bear to the total underwriting discounts and commissions received by
the Underwriters with respect to the Shares purchased under this Agreement, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company and AMR on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company, AMR and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this subsection (d) were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations referred to above in this subsection (d). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this
subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages which such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this subsection (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(e) The obligations of the Company and AMR under this Section 8
shall be in addition to any liability which the Company or AMR may otherwise
have and shall extend, upon the same terms and conditions, to each person, if
any, who controls any Underwriter within the meaning of the Act; and the
obligations of the Underwriters under this Section 8 shall be in addition to
any liability which the respective Underwriters may otherwise have and shall
extend, upon the same terms and conditions, to each officer and director of the
Company and AMR and to each person, if any, who controls the Company within the
meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to
purchase the Shares which it has agreed to purchase hereunder at a Time of
Delivery, you may in your discretion arrange for you or another party or other
parties to purchase such Shares on the terms contained herein. If within
thirty-six hours after such default by any Underwriter you do not arrange for
the purchase of such Shares, then the Company shall be entitled to a further
period of thirty-six hours within which to procure another party or other
parties satisfactory to you to purchase such Shares on such terms. In the
event that, within the respective prescribed periods, you notify the Company
that you have so arranged for the purchase of such Shares, or the Company
notifies you that it has so arranged for the purchase of such Shares, you or
the Company shall have the right to postpone such Time of Delivery for a period
of not more than seven days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the
6
<PAGE> 7
Prospectus, or in any other documents or arrangements, and the Company agrees
to file promptly any amendments to the Registration Statement or the Prospectus
which in your reasonable opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
as provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-tenth of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall
have the right to require each non-defaulting Underwriter to purchase the
number of Shares which such Underwriter agreed to purchase hereunder at such
Time of Delivery and, in addition, to require each non-defaulting Underwriter
to purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
as provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-tenth of the aggregate number of all the Shares
to be purchased at such Time of Delivery, or if the Company shall not exercise
the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of
any non-defaulting Underwriter or the Company, except for the expenses to be
borne by the Company and the Underwriters as provided in Section 7 hereof and
the indemnity and contribution agreements in Section 8 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations,
warranties and other statements of the Company and the several Underwriters, as
set forth in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless
of any investigation (or any statement as to the results thereof) made by or on
behalf of any Underwriter or any controlling person of any Underwriter, or the
Company, or any officer or director or controlling person of the Company, and
shall survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9
hereof, the Company shall not then be under any liability to any Underwriter
except as provided in Sections 7 and 8 hereof; but, if for any other reason,
any Shares are not delivered by or on behalf of the Company as provided herein,
the Company will reimburse the Underwriters through GSI for all out-of-pocket
expenses approved in writing by GSI, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Shares not so delivered, provided, however,
that in the event of termination by you for failure of the condition specified
in Section 6(f) of the U.S. Underwriting Agreement, the Company's obligation to
reimburse pursuant to the foregoing shall not include any legal fees of counsel
to the Underwriters; and after performing its reimbursement obligations
pursuant to the
7
<PAGE> 8
foregoing, the Company shall then be under no further liability to any
Underwriter in respect of the Shares not so delivered except as provided in
Sections 7 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of
the Underwriters, and the parties hereto shall be entitled to act and rely upon
any statement, request, notice or agreement on behalf of any Underwriter made
or given by you jointly or by GSI on behalf of you as the representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex
or facsimile transmission to you as the representatives in care of GSI,
Peterborough Court, 133 Fleet Street, London EC4A 2BB, England, Attention:
Equity Capital Markets, Telex No. 94012165, facsimile transmission No. (071)
774-1550; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Secretary; and if to AMR shall be delivered
or sent by mail, telex or facsimile transmission to AMR Corporation, 4333 Amon
Center Boulevard, Forth Worth, Texas 76155, Attention: Treasurer; provided,
however, that any notice to an Underwriter pursuant to Section 8(c) hereof
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its Underwriters' Questionnaire, or
telex constituting such Questionnaire, which address will be supplied to the
Company by GSI upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company, AMR and, to the extent provided in
Sections 8 and 10 hereof, the officers and directors of the Company and AMR and
each person who controls the Company, AMR or any Underwriter, and their
respective heirs, executors, administrators, successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of any of the Shares from any Underwriter shall be
deemed a successor or assign by reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein,
the term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
8
<PAGE> 9
If the foregoing is in accordance with your understanding, please sign and
return to us six counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement among each of the Underwriters and the
Company. It is understood that your acceptance of this letter on behalf of
each of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters (International Version), the form of which shall
be submitted to the Company for examination upon request, but without warranty
on your part as to the authority of the signers thereof.
Very truly yours,
The SABRE Group Holdings, Inc.
By:
---------------------------------
Name:
Title:
AMR Corporation
By:
---------------------------------
Name:
Title:
Accepted as of the date hereof:
Goldman Sachs International
J.P. Morgan Securities Ltd.
Merrill Lynch International
Salomon Brothers International Limited
By: Goldman Sachs International
By:
--------------------------------------
(Attorney-in-fact)
On behalf of each of the Underwriters
9
<PAGE> 10
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
----------- --------------- ------------------
<S> <C> <C>
Goldman Sachs International. . . . . . . . . . . . . . . . .
J.P. Morgan Securities Ltd. . . . . . . . . . . . . . . . . .
Merrill Lynch International . . . . . . . . . . . . . . . . .
Salomon Brothers International Limited . . . . . . . . . . .
[Names of other Underwriters] . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . 4,040,000 606,000
========= =======
</TABLE>
10
<PAGE> 1
EXHIBIT 4.1
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of October
___, 1996, between AMR Corporation, a Delaware corporation ("AMR"), and The
SABRE Group Holdings, Inc., a Delaware corporation (the "Company"):
WHEREAS, AMR is the owner of all of the Company's issued and
outstanding Class B Common Stock ("Class B Common Stock") at the date hereof;
and
WHEREAS, the parties hereto desire to enter into this Agreement which
sets forth the terms of certain registration rights applicable to the
Registrable Securities (as defined below).
NOW, THEREFORE, upon the premises and the mutual promises herein
contained, and for good and valuable consideration, the receipt and adequacy of
which is acknowledged, the parties agree as follows:
1. Definitions. As used in this Agreement the following
initially capitalized terms shall have the following meanings:
(a) "After-Tax Basis" means, with respect to any payment
to be received or accrued by any Person, the amount of such payment
supplemented by a further payment or payments (which shall be payable either
simultaneously with the initial payment or, in the event that taxes resulting
from the receipt or accrual of such initial payment are not payable in the year
of receipt or accrual, at the time or times such taxes become payable) so that
the sum of all such initial and supplemental payments, after deduction of all
taxes imposed by any taxing authority (after taking into account any credits or
deductions or other tax benefits arising therefrom to the extent such are
currently utilized) resulting from the receipt or accrual of such payments
(whether or not such taxes are payable in the year of receipt or accrual) shall
be equal to the initial payment to be so received or accrued.
(b) "Holder" means AMR and any "transferee" (as such term
is defined in Section 10 hereof).
(c) "Primary AMR Ownership Reduction" means any decrease
at any time in the total voting power of all classes of stock of the Company
owned by AMR or any of its majority owned subsidiaries to less than fifty
percent (50%) of the total voting power of all classes of stock of the Company
then outstanding.
(d) "Registrable Securities" means the Class B Common
Stock (as presently constituted), any stock or other securities (including the
Class A Common Stock of the Company) into which or for which such Class B
Common Stock may hereafter be changed, converted or
<PAGE> 2
exchanged, and any other securities issued to holders of such Class B Common
Stock (or such shares into which or for which such shares are so changed,
converted or exchanged) upon any reclassification, share combination, share
subdivision, share dividend, merger, consolidation or similar transaction or
event; provided that any such securities shall not be Registrable Securities
with respect to a proposed offer or sale thereof if a registration statement
with respect to the sale of such securities shall have become effective under
the Securities Act and such securities shall have been disposed of in
accordance with the plan of distribution set forth in such registration
statement.
(e) "Registration Expenses" means all expenses in connection
with any registration of securities pursuant to this Agreement including,
without limitation, the following: (i) the fees, disbursements and expenses of
the Company's counsel(s) (United States and foreign) and accountants (United
States and foreign) in connection with the registration of the Registrable
Securities to be disposed of under the Securities Act; (ii) all expenses in
connection with the preparation, printing and filing of the registration
statement, any preliminary prospectus or final prospectus, any other offering
document and amendments and supplements thereto and the mailing and delivering
of copies thereof to any underwriters (United States and foreign) and dealers
(United States and foreign); (iii) the cost of printing or producing any
agreement(s), any blue sky or legal investment memoranda, any selling
agreements and any other documents (in each case, United States and foreign) in
connection with the offering, sale or delivery of the Registrable Securities to
be disposed of; (iv) all expenses in connection with the qualification of the
Registrable Securities to be disposed of for offering and sale under state
securities laws, including the fees and disbursements of counsel for the
underwriters or the Holders of Registrable Securities in connection with such
qualification and in connection with any blue sky and legal investments
surveys; (v) the filing fees incident to securing any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale of
the Registrable Securities to be disposed of; (vi) transfer agents',
depositaries' and registrars' fees and the fees of any other agent (in each
case, United States and foreign) appointed in connection with such offering;
(vii) all security engraving and security printing expenses; and (viii) all
fees and expenses payable in connection with the listing of the Registrable
Securities on each securities exchange or inter-dealer quotation system (in
each case, United States and foreign) on which a class of common equity
securities of the Company is then listed.
(f) "Rule 144" means Rule 144 promulgated under the
Securities Act, or any successor rule to similar effect.
(g) "SEC" means the United States Securities and Exchange
Commission.
(h) "Secondary AMR Ownership Reduction" means any decrease
at any time in the total voting power of all classes of stock of the Company
owned by AMR or any of its majority owned subsidiaries to less than twenty
percent (20%) of the total voting power of all classes of stock of the Company
then outstanding.
2
<PAGE> 3
(i) "Securities Act" means the Securities Act of 1933, as
amended, or any successor statute.
2. Demand Registration.
(a) Upon written notice from a Holder of Registrable
Securities in the manner set forth in Section 11(g) hereof requesting that the
Company effect the registration under the Securities Act of any or all of the
Registrable Securities held by such Holder, which notice shall specify the
intended method or methods of disposition of such Registrable Securities, the
Company will use its best efforts to effect (at the earliest possible date) the
registration under the Securities Act of such Registrable Securities for
disposition in accordance with the intended method or methods of disposition
stated in such request (including, but not limited to, an offering on a delayed
or continuous basis pursuant to Rule 415 (or any successor rule to similar
effect) promulgated under the Securities Act (a "Rule 415 Offering") if the
Company is then eligible to register such Registrable Securities on Form S-3
(or a successor form)), provided that:
(i) if, after the Primary AMR Ownership Reduction,
upon receipt of a registration request pursuant to this Section 2(a),
the Company is advised in writing setting forth specific reasons (with
a copy to the person requesting registration pursuant to this Section
2(a)), by a nationally recognized independent investment banking firm
selected by the Company that, in such firm's opinion, a registration at
the time and on the terms requested would materially and adversely
affect any immediately planned underwritten public equity financing by
the Company that had been contemplated by the Company prior to receipt
of notice requesting registration pursuant to this Section 2(a) (a
"Transaction Blackout"), the Company shall not be required to effect a
registration pursuant to this Section 2(a) until the earliest to occur
of (A) the abandonment of such financing, (B) 90 days after the
completion of such financing, (C) the termination of any "hold back" or
"lock up" period obtained by the underwriter(s) selected by the Company
from any person in connection with such financing or (D) 165 days after
receipt by the Holder requesting registration of written notice of such
Transaction Blackout (together with the copy of the investment banking
firm opinion referred to above in this subsection (i)) (the written
notice of such Transaction Blackout and a copy of the investment
banking firm opinion must be given to the Holder of Registrable
Securities requesting registration pursuant to this Section 2(a) within
15 days of receipt of such the registration request);
(ii) if, after the Primary AMR Ownership
Reduction, while a registration request is pending pursuant to this
Section 2(a), the general counsel of the Company has determined in good
faith that (A) the filing of a registration statement would require the
disclosure of material information that the Company has a bona fide
business purpose for preserving as confidential or (B) the Company then
is unable to comply with SEC requirements, the Company shall not be
3
<PAGE> 4
required to effect a registration pursuant to this Section 2(a) until
the earliest to occur of (1) the date upon which such material
information is disclosed to the public or ceases to be material or the
Company is able to so comply with SEC requirements, as the case may be,
or (2) 45 days after the general counsel of the Company makes such good
faith determination (the general counsel shall make such determination
promptly and shall give written notice of such determination to the
Holder of Registrable Securities requesting registration within 5 days
of making such determination);
(iii) AMR's transferees, shall have the right to
exercise registration rights pursuant to this Section 2 an aggregate of
three (3) times (it being acknowledged that AMR's registration rights
pursuant to this Section 2 are independent of any rights it transfers
to transferees); and
(iv) subsequent to the Secondary AMR Ownership
Reduction, AMR shall have the right to exercise its registration rights
pursuant to this Section 2 an aggregate of three (3) times (it being
acknowledged that prior to the Secondary AMR Ownership Reduction, there
shall be no limit to the number of occasions on which AMR or any of its
affiliates may exercise such rights).
(b) Notwithstanding any other provision of this Agreement
to the contrary, a registration requested by a Holder of Registrable Securities
pursuant to this Section 2 shall not be deemed to have been effected (and,
therefore, not requested for purposes of subsection 2(a)), (i) if it has not
become effective, (ii) if, after it has become effective, such registration is
interfered with by any stop order, injunction or other order or requirement of
the SEC or other governmental agency or court for any reason other than a
misrepresentation or an omission by such Holder and, as a result thereof, the
Registrable Securities requested to be registered cannot be completely
distributed in accordance with the plan of distribution set forth in the
related registration statement or (iii) if the conditions to closing specified
in the purchase agreement or underwriting agreement entered into in connection
with such registration are not satisfied or waived other than by reason of some
act or omission by such Holder of Registrable Securities.
(c) In the event that any registration pursuant to this
Section 2 shall involve, in whole or in part, an underwritten offering, AMR
shall have the right to designate an underwriter reasonably satisfactory to the
Company as the lead underwriter of such underwritten offering.
(d) The Company shall have the right to cause the
registration of additional securities for sale for the account of any person
(including the Company) in any registration of Registrable Securities requested
by AMR puRsuant to Section 2(a); provided, that the Company shall not have the
right to cause the registration of such additional securities if AMR is advised
in writing setting forth specific reasons (with a copy to the Company) by a
nationally recognized independent investment banking firm selected by AMR that,
in such firm's opinion, registration of such additional securities would
materially and adversely affect the offering and sale of the
4
<PAGE> 5
Registrable Securities then contemplated by AMR. AMR may require that any such
additional securities be included in the offering proposed by AMR on the same
terms and conditions as the Registrable Securities that are included therein.
(e) After the Primary AMR Ownership Reduction, in the
event that, at any time after any Rule 415 Offering is declared effective, the
general counsel of the Company determines in good faith that the sale of
Registrable Securities in such Rule 415 Offering would require disclosure of
material information that the Company has a bona fide business purpose for
preserving as confidential or that the Company is unable to comply with SEC
requirements, Holders selling Registrable Securities in such Rule 415 Offering
shall, upon written notice of such good faith determination, suspend sales of
such Registrable Securities for a period beginning on the date of receipt of
such notice and expiring on the earlier of (i) the date upon which such
material information is disclosed to the public or ceases to be material or the
Company is able to comply with SEC requirements, as the case may be, and (ii)
45 days after the general counsel of the Company initially makes such good
faith determination.
3. Piggyback Registration. If prior to the tenth anniversary of the
date of this Agreement, the Company at any time proposes to register any of its
Class B Common Stock or any other of its common equity securities, including
Class A Common Stock, (collectively, "Other Securities") under the Securities
Act (other than a registration on Form S-4 or S-8), whether or not for sale for
its own account, in a manner that would permit registration of Registrable
Securities for sale for cash to the public under the Securities Act, it will
each such time give prompt written notice to each Holder of Registrable
Securities of its intention to do so and of the rights of such Holder under
this Section 3 at least 30 days prior to the anticipated filing date of the
registration statement relating to such registration. Such notice shall offer
each such holder the opportunity to include in such registration statement such
number of Registrable Securities as such Holder may request. Upon the written
request of any such Holder made within 10 days after the receipt of the
Company's notice (which request shall specify the number of Registrable
Securities intended to be disposed of and the intended method of disposition
thereof), the Company will use its best efforts to effect, in connection with
the registration of the Other Securities, the registration under the Securities
Act of all Registrable Securities which the Company has been so requested to
register, to the extent required to permit the disposition (in accordance with
such intended methods thereof) of the Registrable Securities so requested to be
registered, provided that:
(a) if, after the Primary AMR Ownership Reduction, at any
time after giving such written notice of its intention to register any Other
Securities and prior to the effective date of the registration statement filed
in connection with such registration, the Company shall determine for any
reason not to register the Other Securities, the Company may, at its election,
give written notice of such determination to such Holders, and thereupon the
Company shall be relieved of its obligation to register such Registrable
Securities in connection with the registration of such Other Securities without
prejudice, however, to the rights of the Holders of Registrable Securities
immediately to request that such registration be effected as a registration
under Section 2 hereof (in the event that the Company shall so determine not to
so register the Other Securities,
5
<PAGE> 6
each of the Company and each Holder shall be responsible for the respective
Registration Expenses incurred by it in connection with such registration);
(b) (i) if, after the Primary AMR Ownership Reduction,
the registration of Other Securities referred to in the first sentence of this
Section 3 is to be an underwritten primary registration on behalf of the
Company, and a nationally recognized independent investment banking firm
selected by the Company advises the Company in writing setting forth specific
reasons that, in such firm's opinion, such offering would be materially and
adversely affected by the inclusion therein of the Registrable Securities
requested to be included therein, the Company shall include in such
registration: (1) first, all securities the Company proposes to sell for its
own account ("Company Securities"), (2) second, up to the full number of
Registrable Securities held by AMR and requested to be included in such
registration by AMR ("AMR Securities") in excess of the number or dollar amount
of securities the Company proposes to sell that, in the good faith opinion of
such underwriter(s), can be so sold without so materially and adversely
affecting such offering, (3) third, up to the full number of Registrable
Securities (other than AMR Securities) in excess of the number or dollar amount
of Company Securities and AMR Securities that, in the good faith opinion of
such underwriter(s) can be so sold without materially and adversely affecting
such offering (and, if less than the full number of such Registrable
Securities, allocated pro rata among the Holders of such Registrable Securities
(other than AMR Securities) on the basis of the number of securities requested
to be included therein by each such Holder and (4) fourth, an amount of other
securities, if any, requested to be included therein in excess of the number or
dollar amount of Company Securities, AMR Securities and other Registrable
Securities that, in the opinion of such underwriter(s), can be so sold without
materially and adversely affecting such offering (allocated among the holders
of such other securities in such proportions as such holders and the Company
may agree); and
(ii) if, after the Primary AMR Ownership Reduction,
the registration of Other Securities referred to in the first sentence of this
Section 3 is to be an underwritten secondary registration on behalf of holders
of the securities (other than Registrable Securities) of the Company (the
"Other Holders"), and the managing underwriter(s) advise the Company in writing
setting forth specific reasons that in their good faith opinion such offering
would be materially and adversely affected by the inclusion therein of the
Registrable Securities requested to be included therein, the Company shall
include in such registration the amount of securities (including Registrable
Securities) that such underwriter(s) advise allocated pro rata among the Other
Holders and the Holders of Registrable Securities on the basis of the number of
securities (including Registrable Securities) requested to be included therein
by each Other Holder and each Holder of the Registrable Securities;
(c) the Company shall not be required to effect any
registration of Registrable Securities under this Section 3 incidental to the
registration of any of its securities in connection with mergers, acquisitions,
exchange offers, subscription offers, dividend reinvestment plans or stock
option or other executive or employee benefit or compensation plans; and
6
<PAGE> 7
(d) no registration of Registrable Securities effected
under this Section 3 shall relieve the Company of its obligation to effect a
registration of Registrable Securities pursuant to Section 2 hereof.
(e) In the event that any registration pursuant to this
Section 3 shall involve, in whole or in part, an underwritten offering, the
Company may require the Registrable Securities requested to be registered
pursuant to this Section 3 to be included in such underwriting on the same
terms and conditions as shall be applicable to the other securities being sold
through underwriters under such registration.
4. Expenses. Except as provided in Section 3(a) hereof, each of
AMR and the Company agrees to pay its pro rata portion of Registration Expenses
with respect to a particular offering (or proposed offering); such pro rata
portion to be equal to the total amount of such Registration Expenses
multiplied by a fraction, the numerator of which is the number of shares sold
(or proposed to be sold) in such offering by such party and the denominator of
which is the total number of shares sold (or proposed to be sold) in such
offering. For purposes of determining which person is required to pay
Registration Expenses, shares sold (or proposed to be sold) by the Company, by
any Other Holder and on behalf of any person other than a Holder shall be
deemed to have been sold (or proposed to be sold) by the Company.
Notwithstanding the foregoing, each Holder and the Company shall be responsible
for its own internal administrative and similar costs, which shall not
constitute Registration Expenses. Underwriting discounts with respect to any
offering shall also be apportioned in the manner set forth above.
5. Registration and Qualification. If and whenever the Company is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Sections 2 or 3 hereof, the
Company will as promptly as is practicable:
(a) prepare, file and use its best efforts to cause to
become effective a registration statement under the Securities Act relating to
the Registrable Securities to be offered;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities until (i) in the case of a
Rule 415 Offering, the completion of such offering (subject to Section 2(e)) or
(ii) in the case of an offering other than a Rule 415 Offering, the earlier of
(A) such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition set forth in such
registration statement and (B) the expiration of nine months after such
registration statement becomes effective; provided, that such nine-month period
shall be extended for such number of days that equals the number of days
elapsing from (x) the date the written notice contemplated by Section 5(g)
hereof is given by the Company to (y) the date on which the Company delivers to
the Holders of Registrable Securities the supplement or amendment contemplated
by Section 5(g) hereof;
7
<PAGE> 8
(c) furnish to the Holders of Registrable Securities and
to any underwriter of such Registrable Securities such number of conformed
copies of such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of the
prospectus included in such registration statement (including each preliminary
prospectus and any summary prospectus) (in conformity with the requirements of
the Securities Act), such documents incorporated by reference in such
registration statement or prospectus and such other documents, as the Holders
of Registrable Securities or such underwriter may reasonably request, and a
copy of any and all transmittal letters or other correspondence to, or received
from, the SEC or any other governmental agency or self-regulatory body or other
body having jurisdiction (including any domestic or foreign securities
exchange) relating to such offering;
(d) use its best efforts to register or qualify all
Registrable Securities covered by such registration statement under the
securities or blue sky laws of such jurisdictions (domestic or foreign) as the
Holders of such Registrable Securities or any underwriter of such Registrable
Securities shall request, and use its best efforts to obtain all appropriate
registrations, permits and consents required in connection therewith, and do
any and all other acts and things that may be necessary or advisable to enable
the Holders of Registrable Securities or any such underwriters to consummate
the disposition in such jurisdictions of its Registrable Securities covered by
such registration statement; provided, that the Company shall not for any such
purpose be required to (i) qualify generally to do business as a foreign
corporation in any non-United States jurisdiction, wherein it is not so
qualified, (ii) subject itself to taxation in any such non-United States
jurisdiction or (iii) consent to general service of process in any such
non-United States jurisdiction; provided, further, that, in the case of any
such registration or qualification in any non-United States jurisdiction, (1)
notwithstanding Section 4, the Holder of the Registrable Securities to be so
registered or qualified shall pay all costs and expenses incurred by the
Company in connection with such registration or qualification in such
non-United States jurisdiction, (2) the Company shall have no obligation to use
its best efforts to so register or qualify Registrable Securities if in the
good faith opinion of counsel for the Company such registration or
qualification shall impose on the Company an on going material compliance
obligation and (3) the Company shall not be obligated to keep any such
registration or qualification in effect except for so long as is necessary or
appropriate in order to dispose of Registrable Securities in such jurisdiction;
(e) use its best efforts to list all Registrable
Securities covered by such registration statement on any securities exchange or
inter-dealer quotation system (in each case, domestic or foreign) as the
Holders of such Registrable Securities shall request, and use its best efforts
to obtain all appropriate registrations, permits and consents required in
connection therewith and do any and all other acts and things that may be
necessary or advisable to effect such listing; provided, that, except with
respect to any listing on any such securities exchange or inter-dealer
quotation system on which shares of the Company's Class A Common Stock are then
listed, (i) notwithstanding Section 4, the Holder of the Registrable Securities
to be so listed shall pay all costs and expenses incurred by the Company in
connection with such listing and (ii) the
8
<PAGE> 9
Company shall have no obligation to use its best efforts to so list Registrable
Securities if in the good faith opinion of the general counsel of the Company
such listing shall impose on the Company an ongoing material compliance
obligation;
(f) (i) furnish to each Holder of Registrable Securities
included in such registration (each, a "Selling Holder") and to any underwriter
of such Registrable Securities an opinion of counsel for the Company addressed
to each Selling Holder and dated the date of the closing under the underwriting
agreement (if any) (or if such offering is not underwritten, dated the
effective date of the registration statement) and (ii) use its best efforts to
furnish to each Selling Holder a "cold comfort" letter addressed to each
Selling Holder and signed by the independent public accountants who have
audited the Company's financial statements included in such registration
statement, in each such case covering substantially the same matters with
respect to such registration statement (and the prospectus included therein) as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities and such other matters as the Selling Holders may reasonably request
and, in the case of such accountants' letter, with respect to events subsequent
to the date of such financial statements;
(g) immediately notify the Selling Holders in writing (i)
at any time when a prospectus relating to a registration pursuant to Section 2
or 3 hereof is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, and (ii) of any request by the SEC
or any other regulatory body or other body having jurisdiction for any
amendment of or supplement to any registration statement or other document
relating to such offering, and, in either such case (i) or (ii), at the request
of the Selling Holders prepare and furnish to the Selling Holders a reasonable
number of copies of a supplement to or an amendment of such prospectus as may
be necessary so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading;
(h) furnish unlegended certificates representing ownership
of the Registrable Securities being sold in such denominations as shall be
requested by the Selling Holders or the underwriters.
6. Conversion of Other Securities, etc. If AMR offers any
options, rights, warrants or other securities issued by it or any other person
that are offered with, convertible into or exercisable or exchangeable for any
Registrable Securities, the Registrable Securities underlying such options,
rights, warrants or other securities shall continue to be eligible for
registration pursuant to Section 2 and Section 3 of this Agreement.
9
<PAGE> 10
7. Underwriting; Due Diligence.
(a) If requested by the underwriters for any underwritten
offering of Registrable Securities pursuant to a registration requested under
this Agreement (under either Section 2 or Section 3), the Company and any other
person or entity for whose account securities are being sold in such offering
will enter into an underwriting agreement with such underwriters for such
offering, such agreement to contain such representations and warranties by the
Company and such other person or entity for whose account securities are being
sold in such offering and such other terms and provisions as are customarily
contained in underwriting agreements with respect to secondary distributions,
including, without limitation, indemnities and contribution substantially to
the effect and to the extent provided in Section 8 hereof and the provision of
opinions of counsel and accountants letters to the effect and to the extent
provided in Section 5(f) hereof. The Selling Holders on whose behalf the
Registrable Securities are to be distributed by such underwriters shall be
parties to any such underwriting agreement, and the representations and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for the benefit of
such Selling Holders. Such underwriting agreement shall also contain such
representations and warranties by the Selling Holders on whose behalf the
Registrable Securities are to be distributed and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions, including without limitation, indemnification and
contribution provisions substantially similar to the extent provided in Section
8 hereof.
(b) In connection with the preparation and filing of each
registration statement registering Registrable Securities under the Securities
Act, the Company will give the Holders of such Registrable Securities and the
underwriters, if any, and their respective counsel and accountants, such
reasonable and customary access to its books and records and such opportunities
to discuss the business of the Company with its officers and the independent
public accountants who have certified the Company's financial statements as
shall be necessary, in the opinion of such Holders and such underwriters or
their respective counsel, to conduct a reasonable investigation within the
meaning of the Securities Act.
8. Indemnification and Contribution.
(a) In the case of each offering of Registrable Securities
made pursuant to this Agreement, the Company agrees to indemnify and hold
harmless, on an After-Tax Basis, each Holder of Registrable Securities, its
officers and directors, each underwriter of Registrable Securities so offered
and each person, if any, who controls any of the foregoing persons within the
meaning of the Securities Act and the officers and directors of each of the
foregoing, from and against any and all claims, liabilities, losses, damages,
expenses (including reasonable attorneys' fees and disbursements) and
judgements, joint or several, to which they or any of them may become subject,
under the Securities Act or otherwise, including any amount paid in settlement
of any litigation commenced or threatened, and shall promptly reimburse them,
as and when incurred, for any legal or other expenses reasonably incurred by
them in connection with
10
<PAGE> 11
investigating any claims and defending any actions, insofar as such losses,
claims, damages, liabilities, expenses or judgments shall arise out of, or
shall be based upon, any untrue statement or alleged untrue statement of a
material fact contained in the registration statement (or in any preliminary or
final prospectus included therein) or in any offering memorandum or other
offering document relating to the offering and sale of such Registrable
Securities, or any amendment thereof or supplement thereto, or in any document
incorporated by reference therein, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading or shall arise out of or be based upon any
violation or alleged violation by the Company of the Securities Act, any blue
sky laws, securities laws or other applicable laws of any state or country in
which the Registrable Securities are offered and relating to action or inaction
required of the Company in connection with such offering; provided, however,
that the Company shall not be liable to a particular Holder of Registrable
Securities in any such case to the extent that any such loss, claim, damage,
liability, expense or judgment arises out of, or is based upon, any untrue
statement or alleged untrue statement, or any omission, if such statement or
omission shall have been made in reliance upon and in conformity with
information relating to such Holder furnished to the Company in writing by or
on behalf of such Holder specifically for use in the preparation of the
registration statement (or in any preliminary or final prospectus included
therein,) offering memorandum or other offering document, or any amendment
thereof or supplement thereto. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of a Holder of
Registrable Securities and shall survive the transfer of such securities. The
foregoing indemnity agreement is in addition to any liability that the Company
may otherwise have to each Holder of Registrable Securities, its officers and
directors, underwriters of the Registrable Securities or any controlling person
of the foregoing; provided, further, that, in the case of an offering with
respect to which a Selling Holder has designated the lead underwriter, this
indemnity does not apply to any loss, liability, claim, damage, expense or
judgment arising out of or based upon any untrue statement or alleged untrue
statement or omission or alleged omission in any preliminary prospectus if a
copy of a prospectus was not sent or given by or on behalf of an underwriter to
such person asserting such loss, claim, damage, liability, expense or judgment
at or prior to the written confirmation of the sale of the Registrable
Securities as required by the Securities Act and such untrue statement or
omission had been corrected in such prospectus.
(b) In the case of each offering made pursuant to this
Agreement, each Holder of Registrable Securities included in such offering, by
exercising its registration rights hereunder, agrees to indemnify and hold
harmless, on an After-Tax Basis, the Company, its officers and directors and
each person, if any, who controls any of the foregoing within the meaning of
the Securities Act (and if requested by the underwriters, each underwriter who
participates in the offering and each person, if any, who controls any such
underwriter within the meaning of the Securities Act), from and against any and
all claims, liabilities, losses, damages, expenses (including reasonable
attorneys fees' and expenses) and judgements, joint or several, to which they
or any of them may become subject, under the Securities Act or otherwise,
including any amount paid in settlement of any litigation commenced or
threatened, and shall promptly reimburse them, as and when incurred, for any
legal or other expenses reasonably incurred by them in connection
11
<PAGE> 12
with investigating any claims and defending any actions, insofar as any such
losses, claims, damages, liabilities, expenses or judgments shall arise out of,
or shall be based upon, any untrue statement or alleged untrue statement of a
material fact contained in the registration statement (or in any preliminary
or final prospectus included therein) or in any offering memorandum or other
offering document relating to the offering and sale of such Registrable
Securities, or any amendment thereof or supplement thereto, or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but in each case only to the
extent that such untrue statement of a material fact is contained in, or such
material fact is omitted from, information relating to such Holder furnished in
writing to the Company by or on behalf of such Holder specifically for use in
the preparation of such registration statement (or in any preliminary or final
prospectus included therein), offering memorandum or other offering document.
The foregoing indemnity is in addition to any liability which such Holder may
otherwise have to the Company, or any of its directors, officers or controlling
persons; provided, however, that, in the case of an offering with respect to
which the Company has designated the lead underwriter, this indemnity does not
apply to any loss, liability, claim, damage, expense or judgment arising out of
or based upon any untrue statement or alleged untrue statement or omission or
alleged omission in any preliminary prospectus if a copy of a prospectus was
not sent or given by or on behalf of an underwriter to such person asserting
such loss, claim, damage, liability, expense or judgment at or prior to the
written confirmation of the sale of the Registrable Securities as required by
the Securities Act and such untrue statement or omission had been corrected in
such prospectus. In no event shall the liability of a Holder hereunder be
greater in amount than the dollar amount of the net proceeds received by it
upon the sale of the Registrable Securities pursuant to such offering.
(c) Procedure for Indemnification. Each party indemnified
under paragraph (a) or (b) of this Section 8 shall, promptly after receipt of
notice of any claim or the commencement of any action against such indemnified
party in respect of which indemnity may be sought, notify the indemnifying part
in writing of the claim or the commencement thereof; provided, that the failure
to notify the indemnifying party shall not relieve it from any liability that
it may have to an indemnified party on account of the indemnity agreement
contained in paragraph (a) or (b) of this Section 8, unless the indemnifying
party was prejudiced by such failure and, then, only to the extent of such
prejudice, and in no event shall such failure relieve the indemnifying party
from any other liability that it may have to such indemnified party. If any
such claim or action shall be brought against an indemnified party, and it
shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein, and, to the extent that it wishes, jointly
with any other similarly notified indemnifying party, to assume the defense
thereof with counsel reasonably satisfactory to the indemnified party. After
notice from the indemnifying party to the indemnified party of its election to
assume the defense of such claim or action, the indemnifying party shall not be
liable to the indemnified party under this Section 8 for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided, that
each Holder of Registrable Securities, its officers and directors, if any, and
each person, if any, who controls such Holder within the meaning of the
Securities Act, shall have the right to employ separate counsel to represent
them
12
<PAGE> 13
if, in the reasonable judgement of such Holder or such other person, it is
advisable for them to be represented by separate counsel, and in that event the
fees and expenses of one such separate counsel shall be paid by the Company.
Any indemnifying party against whom indemnity may be sought under this Section
8 shall not be liable to indemnify an indemnified party for any settlement if
such indemnified party enters into such settlement without the consent of the
indemnifying party (which consent will not be unreasonably withheld if
requested). The indemnifying party may not agree to any settlement of any such
claim or other action as the result of which any remedy or relief, other than
solely for monetary damages for which the indemnifying party shall be
responsible hereunder, shall be applied to or against the indemnified party,
without the prior written consent of the indemnified party. In any action
hereunder as to which the indemnifying party has assumed the defense thereof
with counsel reasonably satisfactory to the indemnified party, the indemnified
party shall continue to be entitled to participate in the defense thereof, with
counsel of its own choice, but, except as set forth above, the indemnifying
party shall not be obligated hereunder to reimburse the indemnified party for
the costs thereof.
If the indemnification provided for in this Section 8 shall for any
reason be unavailable to an indemnified party in respect of any loss, claim,
damage, liability, expense or judgment, or any action in respect thereof,
referred to therein, then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable
by such indemnified party as a result of such loss, claim, damage, liability,
expense or judgment, or action in respect thereof, in such proportion as shall
be appropriate to reflect the relative fault of the indemnifying party on the
one hand and the indemnified party on the other with respect to the statements
or omissions that resulted in such loss, claim, damage, liability, expense or
judgment, or action in respect thereof, as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to whether
the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
the indemnifying party on the one hand or the indemnified party on the other,
the intent of the parties and their relative knowledge, access to information
and opportunity to correct or prevent such statement or omission, but not by
reference to any indemnified party's stock ownership in the Company. In no
event, however, shall a Holder of Registrable Securities be required to
contribute in excess of the amount of the net proceeds received by such Holder
in connection with the sale of Registrable Securities in the offering that is
the subject of such loss, claim, damage, liability, expense or judgment. The
amount paid or payable by an indemnified party as a result of the loss, claim,
damage, liability, expense or judgment, or action in respect thereof, referred
to above in this paragraph shall be deemed to include, for purposes of this
paragraph, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
9. Rule 144. The Company shall take such measures and file such
information, documents and reports as shall be required by the SEC as a
condition to the availability of Rule 144 (or any successor provision). The
Company further agrees to use its reasonable efforts to
13
<PAGE> 14
cause all conditions to the availability of Form S-3 (or any successor form)
under the Securities Act for the filing of registration statements under this
Agreement to be met as soon as practicable after the date hereof.
10. Transfer of Registration Rights.
(a) AMR may transfer all or any portion of its rights
under this Agreement to any transferee (each, a "transferee") of an amount of
Registrable Securities owned by AMR exceeding one (1) percent of the
outstanding class of such Securities at the time of transfer. Any transfer of
registration rights pursuant to this Section shall be effective upon receipt by
the Company of written notice from AMR stating the name and address of any
transferee and identifying the amount of Registrable Securities with respect to
which the rights under this Agreement are being transferred and the nature of
the rights so transferred. In connection with any such transfer, the term
"AMR" as used in this Agreement (other than in this Section 10 and Section
3(b)(i)(2)) shall, where appropriate to assign the rights and obligations of
AMR hereunder to such direct transferee, be deemed to refer to the transferee
holder of such Registrable Securities. In no event shall the Company be
required to effect more than a total of three (3) registrations for all
transferees taken as a whole pursuant to Section 2 of this Agreement and each
such registration shall be at the request of not more than one Holder.
(b) After any such transfer, AMR shall retain its rights
under this Agreement with respect to all other Registrable Securities owned by
AMR.
(c) Upon the request of AMR, the Company shall execute a
Registration Rights Agreement with such transferee or a proposed transferee
substantially similar to this Agreement, and any demand registrations granted
to such transferee shall reduce the then remaining number of demand
registrations to which transferees of AMR are entitled under Section 2(a)
hereof.
11. Miscellaneous.
(a) Injunctions. Irreparable damage would occur in the
event that any of the provisions of this Agreement was not performed in
accordance with its specific terms or was otherwise breached. Therefore, the
parties hereto shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof in any court having jurisdiction, such remedy being
in addition to any other remedy to which they may be entitled at law or in
equity.
(b) Severability. If any term or provision of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms and provisions set forth herein shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated, and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve the same or substantially the same
result as that contemplated by
14
<PAGE> 15
such term or provision.
(c) Further Assurances. Subject to the specific terms of
this Agreement, each of the parties hereto shall make, execute, acknowledge and
deliver such other instruments and documents and take all such other actions as
may be reasonably required in order to effectuate the purposes of this
Agreement and to consummate the transactions contemplated hereby.
(d) Waivers, Etc. No failure or delay on the part of
either party hereto (or the intended third party beneficiaries referred to
herein) in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power,
or any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No modification or waiver of any provision of this Agreement
nor consent to any departure therefrom shall in any event be effective unless
the same shall be in writing, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
(e) Entire Agreement. This Agreement contains the entire
understanding of the parties with respect to the subject matter hereof. The
section headings contained in this Agreement are solely for the purpose of
reference and shall not in any way affect the meaning or interpretation of this
Agreement.
(f) Counterparts. For the convenience of the parties,
this Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original but all of which together shall be one and
the same instrument.
(g) Notices. All notices, consents, requests,
instructions, approvals and other communications provided for herein shall be
validly given, made or served, if in writing and delivered personally, by
facsimile or sent by registered mail, postage prepared as follows:
(i) if to AMR, to
AMR Corporation
4333 Amon Carter Boulevard
MD 5662
Fort Worth, Texas 76155
Attention: Treasurer
(ii) if to the Company, to
The SABRE Group Holdings, Inc.
4255 Amon Carter Boulevard
Fort Worth, Texas 76155
Attention: Treasurer
15
<PAGE> 16
(iii) if to a Holder of Registrable Securities, to the name and
address as the same appear in the security transfer books of
the Company
or such other address as any party (or other Holders of Registrable
Securities) may, from time to time, designate in a written notice in a like
manner. Notice given by facsimile shall be deemed delivered on the business
day after it is received by the recipient. Notice given by mail as set out
above shall be deemed delivered five calendar days after the date the same is
mailed.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICT OF LAWS OF SUCH STATE.
(i) Assignment. Except as provided herein, the parties
may not assign their rights under this Agreement. The Company may not delegate
its obligations under this Agreement.
16
<PAGE> 17
IN WITNESS WHEREOF, AMR and the Company have caused this
Agreement to be duly executed as of the date first above written.
AMR CORPORATION
By:
-------------------------------------
Name:
Title:
THE SABRE GROUP HOLDINGS, INC.
By:
-------------------------------------
Name:
Title:
17
<PAGE> 1
EXHIBIT 10.3
MANAGEMENT SERVICES AGREEMENT
BETWEEN
AMERICAN AIRLINES, INC.
AND
THE SABRE GROUP, INC.
<PAGE> 2
MANAGEMENT SERVICES AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 -- DEFINITIONS AND INTERPRETATION . . . . . . . . . . . . . . . 1
ARTICLE 2 -- TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Stated Term . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Renewal . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3 Transition Assistance . . . . . . . . . . . . . . . . . 2
ARTICLE 3 -- SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.1 Schedules . . . . . . . . . . . . . . . . . . . . . . . 2
3.2 Standard of Care . . . . . . . . . . . . . . . . . . . . 2
3.3 Manner and Place of Performance . . . . . . . . . . . . 2
3.4 Recipients of Services . . . . . . . . . . . . . . . . . 3
3.5 Subcontracting Services . . . . . . . . . . . . . . . . 3
3.6 Information Regarding Services . . . . . . . . . . . . . 4
3.7 Legal Services . . . . . . . . . . . . . . . . . . . . . 4
3.8 Warranty Disclaimer . . . . . . . . . . . . . . . . . . 4
ARTICLE 4 -- SERVICE LEVEL . . . . . . . . . . . . . . . . . . . . . . . 4
4.1 Continuation of Level . . . . . . . . . . . . . . . . . 4
4.2 Semiannual Changes in Level . . . . . . . . . . . . . . 4
4.3 Procedure for March 1 Level Change . . . . . . . . . . . 5
4.4 Procedure for September 1 Level Change . . . . . . . . . 5
ARTICLE 5 -- DISCONTINUANCE OF OPTIONAL SERVICES . . . . . . . . . . . . 6
5.1 Procedure . . . . . . . . . . . . . . . . . . . . . . . 6
5.2 Service Level and Price of Discontinued Services . . . . 6
5.3 Impossible Optional Services . . . . . . . . . . . . . . 6
5.4 Transition Assistance . . . . . . . . . . . . . . . . . 6
5.5 Reinstatement of Discontinued Service . . . . . . . . . 7
ARTICLE 6 -- SERVICES OBTAINED FROM OTHERS . . . . . . . . . . . . . . . 7
6.1 Mandatory Services . . . . . . . . . . . . . . . . . . . 7
6.2 Upon Discontinuance . . . . . . . . . . . . . . . . . . 8
6.3 Before Discontinuance . . . . . . . . . . . . . . . . . 8
ARTICLE 7 -- PRICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
7.1 Cost Allocation . . . . . . . . . . . . . . . . . . . . . 8
7.2 Annual Pricing . . . . . . . . . . . . . . . . . . . . . . 9
7.3 Disagreement on Mandatory Service Pricing . . . . . . . . 9
7.4 Annual Price Effectiveness . . . . . . . . . . . . . . . . 9
ARTICLE 8 -- PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.1 Invoices . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.2 Payment . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.3 Method of Payment . . . . . . . . . . . . . . . . . . . . 10
8.4 Interest . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.5 Nonpayment Notice . . . . . . . . . . . . . . . . . . . . 10
8.6 Dispute of Invoice . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 9 -- RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.1 Record Keeping . . . . . . . . . . . . . . . . . . . . . . 11
9.2 Examination . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE 10 -- CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . 12
10.1 Confidential Information . . . . . . . . . . . . . . . . . 12
10.2 Excluded Information . . . . . . . . . . . . . . . . . . . 13
10.3 Standard of Care . . . . . . . . . . . . . . . . . . . . . 13
10.4 Permitted Disclosures . . . . . . . . . . . . . . . . . . 13
10.5 Required Disclosures . . . . . . . . . . . . . . . . . . . 13
10.6 Title to Information . . . . . . . . . . . . . . . . . . . 14
10.7 Survival; Return . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 11 -- PARTIES' RELATIONSHIP . . . . . . . . . . . . . . . . . . . . 14
11.1 Independent . . . . . . . . . . . . . . . . . . . . . . . 14
11.2 Employees . . . . . . . . . . . . . . . . . . . . . . . . 14
11.3 Authority and Enforceability . . . . . . . . . . . . . . . 15
11.4 Third-Party Consents . . . . . . . . . . . . . . . . . . . 15
11.5 Third-Party-Related Arrangements . . . . . . . . . . . . . 15
11.6 Further Assurances . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 12 -- PARTIES' REPRESENTATIVES . . . . . . . . . . . . . . . . . . 16
12.1 Representatives' Authority . . . . . . . . . . . . . . . . 16
12.2 Designation . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 13 -- TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . 16
13.1 Termination Events . . . . . . . . . . . . . . . . . . . . 16
13.2 Nonexclusive . . . . . . . . . . . . . . . . . . . . . . . 17
13.3 Consequences of Termination . . . . . . . . . . . . . . . 17
13.4 Survival of Rights and Obligations . . . . . . . . . . . . 19
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 14 -- LIABILITY AND REMEDIES . . . . . . . . . . . . . . . . . . . 19
14.1 Warranties . . . . . . . . . . . . . . . . . . . . . . . . 19
14.2 Nonconforming Services . . . . . . . . . . . . . . . . . . 19
14.3 Actual Damages . . . . . . . . . . . . . . . . . . . . . . 20
14.4 Indemnities for Certain Breaches and Other Matters . . . . 20
14.5 Time for Claims . . . . . . . . . . . . . . . . . . . . . 23
14.6 Offset . . . . . . . . . . . . . . . . . . . . . . . . . . 23
14.7 Equitable Relief . . . . . . . . . . . . . . . . . . . . . 23
14.8 Exclusive Remedies . . . . . . . . . . . . . . . . . . . . 23
14.9 Waiver of Remedies . . . . . . . . . . . . . . . . . . . . 23
14.10 Cumulative Remedies . . . . . . . . . . . . . . . . . . . 23
14.11 Survival . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 15 -- FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . 24
15.1 No Breach or Liability . . . . . . . . . . . . . . . . . . 24
15.2 Notice of Excusable Delay or Failure . . . . . . . . . . . 24
15.3 Efforts to Overcome . . . . . . . . . . . . . . . . . . . 24
15.4 Extended Delay or Failure . . . . . . . . . . . . . . . . 24
ARTICLE 16 -- DISPUTE RESOLUTION MATTERS . . . . . . . . . . . . . . . . . 24
16.1 General Procedure . . . . . . . . . . . . . . . . . . . . 25
16.2 Continued Performance . . . . . . . . . . . . . . . . . . 25
16.3 Parties' Agreement . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 17 -- EXPENSES AND TAXES . . . . . . . . . . . . . . . . . . . . . 25
17.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 25
17.2 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 18 -- COMMUNICATIONS . . . . . . . . . . . . . . . . . . . . . . . 27
18.1 Form . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
18.2 Addresses . . . . . . . . . . . . . . . . . . . . . . . . 27
18.3 Effectiveness . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 19 -- ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 20 -- AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 21 -- INTEGRATION . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 22 -- SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE 23 -- SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 24 -- GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 25 -- COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . 30
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
ATTACHMENTS:
DEFINITIONAL APPENDIX
DISPUTE RESOLUTION APPENDIX
SCHEDULES OF SERVICES
iv
<PAGE> 6
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement is between American Airlines, Inc., a
Delaware corporation, and The SABRE Group, Inc., a Delaware corporation,
effective on July 1, 1996.
BACKGROUND
The Parties are wholly owned subsidiaries of AMR, and AA has provided
management services to SG or its subsidiaries or predecessors. Because AMR's
ownership of SG may be reduced, the Parties wish to state formally the terms
on which certain management services will continue to be rendered by AA to SG
and its subsidiaries.
AGREEMENT
The Parties agree as follows:
ARTICLE 1 -- DEFINITIONS AND INTERPRETATION
Various terms used in this Agreement are defined in the Definitional Appendix;
the defined terms used in this Agreement begin with a capital letter. Various
interpretative matters for this Agreement are also set forth in the
Definitional Appendix. The Definitional Appendix is an integral part of this
Agreement.
- --------------------------------------------------------------------------------
ARTICLE 2 -- TERM
2.1 Stated Term. This Agreement commences on the Effective Date and
will continue in effect until 11:59 p.m. on June 30, 1999, unless
terminated earlier by one or both of the Parties in accordance with
Article 13.
2.2 Renewal. The Parties may consent to successive one-year renewal terms
by following this procedure: If SG wishes to renew the term of this
Agreement, it shall Notify AA of that intention by March 31, 1999 and
the same date of each subsequent year. If AA wishes to concur with
that renewal, it shall Notify SG of that concurrence by April 30 of
that year. If no Notice of intent to renew or no concurrence is
given, this Agreement will Expire when the then current term expires.
2.3 Transition Assistance. For up to 180 days after Expiration, AA shall
comply with SG's reasonable requests for assistance in engaging or
training another Person or Persons to
Management Services Agreement
<PAGE> 7
provide, and for records and other information relating to, the
Services rendered by AA immediately preceding that Expiration. SG
shall reimburse and pay AA's Transition Expenses in accordance with
invoices submitted to SG by AA. Articles 8 and 18 shall apply in this
situation as though this Agreement had not Expired. AA may cease
providing transition assistance, immediately upon Notice to SG, if SG
has not paid the amount described in a Nonpayment Notice by the tenth
Business Day after the Nonpayment Notice was given. If the records or
other information provided by AA are Confidential Information, Article
10 shall also apply as though this Agreement had not Expired.
- --------------------------------------------------------------------------------
ARTICLE 3 -- SERVICES
3.1 Schedules. AA shall render, and SG shall pay for, the Mandatory
Services and, to the extent not discontinued in accordance with this
Agreement, the Optional Services during the effectiveness of this
Agreement. The Services are described on the Schedules, which are an
integral part of this Agreement. The Services described on Schedules
I through IV are Mandatory Services; the Services described on the
other Schedules are Optional Services. Neither Party may unilaterally
change any Service or separate any one or more of the Tasks that
constitute a Service.
3.2 Standard of Care. AA shall use the same care in rendering the
Services as it uses in rendering services to AMR itself and the
other subsidiaries of AMR. Further, AA's care in rendering the
Services shall be at least equal to the care that it has used in
providing each Service to SG or any of its subsidiaries or
predecessors before the Effective Date.
3.3 Manner and Place of Performance. AA shall render each Service in
accordance with any terms (including any time period) described on the
corresponding Schedule or any applicable SLA, though AA has full
discretion about how to render each Service as that Service is so
described. AA is not obligated to render any Service or Task in the
same manner (such as using the same personnel or other assets of AA)
as it previously rendered that Service or Task, whether before or
after the Effective Date. Each Service will be performed at AA's
offices or the other place or places it was rendered most recently
before the Effective Date, except as described in the corresponding
Schedule or Subcontracted in accordance with this Agreement. SG and
the SG Companies shall afford access to their respective premises as
necessary or reasonably appropriate to permit a Service or Task to be
rendered.
3.4 Recipients of Services. The Services shall be rendered solely to, or
for the direct benefit of, SG and the SG Companies. Neither SG nor
any SG Company may assign, license, or otherwise transfer or provide,
whether for or without consideration, any right to any Service, in
whole or in part, to any Person other than SG or any SG Company. SG
or any SG Company may, however, provide any other Person (whether for
or without consideration) any product or information of SG or any SG
Company resulting or derived from any Service or Task, to the extent
not prohibited by Article 10.
Management Services Agreement
2
<PAGE> 8
3.5 Subcontracting Services. AA has Subcontracted certain of the
Services, in whole or in part, before the Effective Date; the
Schedules indicate those Services that are Subcontracted and
the corresponding Subcontractors as of the Effective Date. SG
consents to that Subcontracting and those Effective Date
Service Subcontracts and Subcontractors. AA's Subcontracting
after the Effective Date, however, is subject to these terms:
(a) AA may, without any consent or approval of SG,
(i) Subcontract any Service, in whole or in part, to any
Person, including any Affiliate of AA,
(ii) amend any Service Subcontract, or
(iii) cease to Subcontract any Service, in whole or in part.
(b) SG shall have no indemnification obligation under Section
14.4(b) regarding any Service Subcontract, other than an
Effective Date Service Subcontract, entered into by AA without
SG's Reasonable Consent. Also, if AA, without SG's Reasonable
Consent, enters into any amendment to
(i) an Effective Date Service Subcontract, or
(ii) any other Service Subcontract to which SG had given
its Reasonable Consent,
SG shall be liable under Section 14.4(b) only for any Damages
of AA or any of its Indemnified Agents that would have
resulted without that amendment; that is, SG shall not be
liable under Section 14.4(b) for any increase in Damages that
results from an amendment of that kind.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
AA shall remain responsible for the rendering to SG of any Service
that is Subcontracted, in whole or in part. Also, except as described
in Section 14.4(b), AA shall be solely responsible for its obligations
to the Subcontractor (including any applicable Subcontract Termination
Penalty) under each Service Subcontract.
3.6 Information Regarding Services. Each Party shall make available to
the other Party any information required or reasonably requested by
that other Party regarding the performance of any Service and shall be
responsible for timely providing that information and for the accuracy
and completeness of that information. But a Party shall not be liable
for not providing any information that is subject to a confidentiality
obligation owed by it to a Person other than an Affiliate of it or the
other Party. A Party shall not be liable for any impairment of any
Service caused by its not receiving information, either timely or at
all, or by its receiving inaccurate or incomplete information from the
other Party that is required or reasonably requested regarding that
Service.
3.7 Legal Services. The Service described in one of the Schedules as
"legal services" consists of AA's making the Legal Staff available for
engagement by SG and the SG Companies for their legal matters. The
engagement, services, or withdrawal of any of the Legal Staff
Management Services Agreement
3
<PAGE> 9
regarding a particular legal matter for SG or any of the SG Companies,
as well as certain of the Prices for those legal services, are
governed by and subject to the Legal Staff's professional or ethical
obligations and the Legal Rights Agreement.
3.8 Warranty Disclaimer. AA MAKES NO REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, REGARDING ANY SERVICE OR TASK OTHER THAN AS STATED
IN THIS AGREEMENT. AA SPECIFICALLY DISCLAIMS ALL IMPLIED WARRANTIES,
INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE, REGARDING THE SERVICES.
- --------------------------------------------------------------------------------
ARTICLE 4 -- SERVICE LEVEL
4.1 Continuation of Level. AA shall provide substantially the same Level
of each Service, and each Task, as it provided to SG or its
subsidiaries before the Effective Date, except as otherwise agreed in
accordance with this Agreement. The Parties' entering into this
Agreement does not negate or modify any SLA in effect on the Effective
Date.
4.2 Semiannual Changes in Level. The Level of any Service may be changed
semiannually by the Parties' agreement, so long as that agreement
includes a mutually acceptable corresponding Price for the changed
Level of Service. A change in the Level of a Service shall be
effective only on and after
(a) March 1 if the Parties agree, and enter into an SLA for that
Service, by the preceding December 1 in accordance with
Section 4.3, or
(b) September 1 if the Parties agree, and enter into an SLA for
that Service, by the preceding June 1 in accordance with
Section 4.4.
A change in the Level of any one or more Tasks that constitute a
Service shall be deemed a change in the Level of that Service.
Seasonal or other normal fluctuations in a Service or Task shall not
be deemed a change in the Level of that Service.
4.3 Procedure for March 1 Level Change. If the Parties agree by September
1 that there should be a March 1 Level Change, AA shall reflect that
proposed change in its Price Proposal due as of October 1 for that
Service; accordingly, if the Price will differ because of the proposed
March 1 Level Change, that Price Proposal shall include both the Price
for the following January and February and the Price for the following
March through December. Otherwise:
(a) If AA proposes, by Notice to SG by October 1, a March 1 Level
Change, AA shall reflect that proposed change in its
corresponding Price Proposal due as of October 1 for that
Service. Upon SG's request, AA shall also submit to SG by
November 1 a Price Proposal for an unchanged Level of that
Service or for any other March 1 Level Change that has
otherwise been agreed upon by the Parties.
Management Services Agreement
4
<PAGE> 10
(b) If SG proposes, by Notice to AA by October 1, a March 1 Level
Change, AA shall respond in writing by the following November
1. To the extent that AA agrees with the proposed change, its
response shall include a revised Price Proposal for that
Service reflecting a March 1 Level Change to which AA would
agree.
Neither Party is precluded from proposing, and the Parties are not
precluded from discussing and agreeing to, between October 1 and the
following December 1, any change in the Level of any Service and the
corresponding Price. If the Parties do not agree upon a change in
Level and the corresponding Price of a Service by December 1, the
Level of that Service shall continue unchanged at least through the
following August.
4.4 Procedure for September 1 Level Change. If the Parties agree by April
15 that there should be a September 1 Level Change, AA shall submit
to SG a corresponding Price Proposal for that Service by the following
May 7. Otherwise:
(a) If AA proposes, by Notice to SG by April 15, a September 1
Level Change, AA shall concurrently submit to SG a
corresponding Price Proposal for that Service for the
following September through December; SG shall then respond in
writing by the May 7 following the submission of that
proposal.
(b) If SG proposes, by Notice to AA by April 15, a September 1
Level Change, AA shall respond in writing by the following May
7. To the extent that AA agrees with the proposed change, its
response shall include a revised Price Proposal for that
Service, for the following September through December,
reflecting a September 1 Level Change to which AA would agree.
Neither Party is precluded from proposing, and the Parties are not
precluded from discussing and agreeing to, between April 15 and June
1, any change in the Level of any Service and the corresponding Price.
If the Parties do not agree upon a change in Level and the
corresponding Price of a Service by June 1, the Level of that Service
shall continue unchanged at least through the following February.
- --------------------------------------------------------------------------------
ARTICLE 5 -- DISCONTINUANCE OF OPTIONAL SERVICES
5.1 Procedure. Either Party may discontinue or terminate semiannually any
Optional Service by Notice -- three months' Notice if other than a
Significant Optional Service and six months' Notice if a Significant
Optional Service -- to the other Party. A Notice of discontinuance
shall be given by
(a) December 1 to discontinue an Optional Service effective at
midnight on the following March 1 or, if a Significant
Optional Service, effective at midnight on the following June
1, or
Management Services Agreement
5
<PAGE> 11
(b) June 1 to discontinue an Optional Service effective at
midnight on the following September 1 or, if a Significant
Optional Service, effective at midnight on the following
December 1.
A Notice of discontinuance may refer to more than one Optional
Service. Only an entire Optional Service may be discontinued; none of
the Tasks that constitute an Optional Service may be separately
discontinued without the Parties' agreement (which may be stated in
the corresponding Schedule). Any Optional Service that is the subject
of a Notice of discontinuance shall continue to be rendered by AA
until the effective date of the discontinuance (i.e., June 1 or
December 1), and SG shall pay for that Optional Service rendered until
that date. A Party may not unilaterally rescind its Notice of
discontinuance.
5.2 Service Level and Price of Discontinued Services. Until the date of
its discontinuance, an Optional Service that is the subject of a
Notice of discontinuance shall be rendered at the same Level and for
the same Price as in effect immediately preceding the Notice of
discontinuance.
5.3 Impossible Optional Services. If either Party reasonably determines
that the discontinuance of any Optional Service would make it
functionally impossible to continue any other Optional Service, in
whole or in part, that Party shall promptly Notify the other of that
determination. Any Optional Service that so becomes functionally
impossible to render shall be deemed discontinued effective upon the
date of discontinuance of the Optional Service or Optional Services
that caused that impossibility.
5.4 Transition Assistance. For up to 180 days after the effective date of
discontinuance of an Optional Service, AA shall comply with SG's
reasonable requests for assistance in SG's engaging or training
another Person or Persons to provide, and for records and other
information relating to, that discontinued Optional Service. If AA
discontinues that Optional Service, it shall comply with those
requests at its own expense. If SG discontinues that Optional
Service, it shall pay for AA's compliance with those requests by
(a) reimbursing AA all of its resulting reasonable out-of-pocket
expenses, and
(b) paying AA for the resulting time or activities of AA's
personnel as follows:
(i) if the activities of those personnel are or were part
of a Use-based Service, then at the Price then in
effect, or most recently paid (if that Optional
Service has been discontinued), for that Use-based
Service, or
(ii) if the activities of those personnel are or were part
of a Fixed-price Service, then that portion of the
Price then in effect, or most recently paid (if that
Optional Service was discontinued), for that
Fixed-price Service corresponding to the transition
activities' portion of all activities that
constituted that Fixed-price Service for the time
covered by that Price.
Invoicing and payment for transition assistance shall be in accordance
with Article 8. AA may cease providing transition assistance,
immediately upon Notice to SG, if SG has not paid the amount described
in a Nonpayment Notice by the tenth Business Day after the Nonpayment
Notice was given.
Management Services Agreement
6
<PAGE> 12
5.5 Reinstatement of Discontinued Service. Neither Party may unilaterally
reinstate any Optional Service that has been discontinued under this
Agreement.
- --------------------------------------------------------------------------------
ARTICLE 6 -- SERVICES OBTAINED FROM OTHERS
6.1 Mandatory Services. SG may not perform itself or obtain from any
Person other than AA or any Subcontractor any service or services to
supplement or substitute for all or any portion of a Mandatory
Service, except as permitted by the corresponding Schedule. This does
not prohibit SG (or AA), however, from
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
(c) performing for itself or obtaining from any other Person all
or any portion of a Mandatory Service to the extent permitted
by Section 15.4.
6.2 Upon Discontinuance. SG need not obtain AA's consent to or approval
of SG's performing itself or obtaining from any other Person, upon and
after the discontinuance of any Optional Service, any service or
services that substitute for the Optional Service that has been
discontinued.
6.3 Before Discontinuance. Before the discontinuance of any Optional
Service:
(a) SG need not obtain AA's consent to or approval of SG's
performing itself or obtaining from any other Person any
service or services to supplement or substitute for all or any
portion of
(i) a Fixed-price Service, so long as SG continues to pay
for the Fixed-price Service in accordance with this
Agreement, including the corresponding Schedule,
(ii) a Use-based Service to the extent that the decrease
in that Service obtained from AA in each month does
not exceed 25% of the average monthly invoiced amount
for that Service for the preceding three months for
which AA has submitted an invoice for that Service
(with the calculation of that average to exclude any
credit given to SG related to any other Service in
any monthly invoice), or
(iii) any Optional Service to the extent permitted by
Section 15.4.
(b) AA's Reasonable Consent shall be required for SG's performing
itself or obtaining from any other Person any service or
services to supplement all or any portion of any
Management Services Agreement
7
<PAGE> 13
Use-based Service in any circumstance other than as described
in Section 6.3(a)(ii).
ARTICLE 7 -- PRICES
7.1 Cost Allocation. In determining Prices, AA's cost allocations to SG
shall be determined on a consistent basis with AA's cost allocations
to AMR's other subsidiaries.
7.2 Annual Pricing. The Price payable by SG for each Service shall be
established annually by this procedure:
(a) AA shall submit to SG by October 1 a Price Proposal for each
Service then in effect, except for any Significant Optional
Service that will be discontinued effective December 1 in
accordance with a Notice of discontinuance given by the
preceding June 1. AA shall propose the Price for each Service
assuming a continuation of the Level of that Service since the
preceding September 1, unless the Parties have agreed to, or
AA is proposing, a March 1 Level Change for that Service in
accordance with Section 4.3.
(b) SG shall respond in writing to the Price Proposal for each
Service by November 1.
(c) To the extent that SG does not accept or agree with a Price
Proposal, the Parties shall negotiate in good faith to reach
agreement on the Price for that Service by December 1. The
Parties' agreement by December 1 on the Price of any Use-based
Service shall also include an estimated annual amount for that
Service.
(d) If by December 1 the Parties do not agree on the Price at
which any Optional Service shall continue to be rendered
(without any change in Level) and neither Party gives a Notice
of discontinuance of that Optional Service, the Price for that
Optional Service shall continue to be the Price then in
effect.
7.3 Disagreement on Mandatory Service Pricing. If the Parties do not
agree by December 1 on the Price at which any Mandatory Service shall
be rendered, the Dispute shall be resolved by the Dispute Resolution
Procedure. Pending resolution of that Dispute, the Price for that
Mandatory Service shall continue to be the Price in effect on November
30. The Price determined by resolution of that Dispute shall be
deemed effective January 1 as though the Parties had agreed to it as
of the preceding December 1. Accordingly:
(a) Any excess amount paid by SG shall be credited (without
interest) to the next invoice or invoices for any Service or
Services payable by SG after the date of resolution, or to the
extent full credit cannot be given to invoiced amounts payable
within 30 days after the date of resolution, paid (without
interest) by AA by wire transfer of immediately available
funds to an account or accounts designated by SG; or
Management Services Agreement
8
<PAGE> 14
(b) any amount due to AA shall be paid (without interest) within
30 days after the date of resolution by wire transfer of
immediately available funds to an account or accounts
designated by AA.
7.4 Annual Price Effectiveness. The Price for each Service agreed or
determined as of December 1 of each year will be effective for that
Service for the succeeding calendar year, unless changed to correspond
to a change in the Level of that Service in accordance with Article 4.
- --------------------------------------------------------------------------------
ARTICLE 8 -- PAYMENT
8.1 Invoices. AA shall submit to SG monthly one or more invoices for the
Services. Each invoice shall indicate for each SG Business Unit:
(a) The amount charged for each Service covered by that invoice;
(b) if the Service is a Use-based Service, the calculation of the
invoiced amount or the basis on which that amount was
determined; and
(c) if that invoice includes any credit or offset for SG, the
amount and purpose of that credit or offset.
Each invoice should also indicate the sales, use, or similar taxes
being collected on each Service, or part of a Service, that AA
believes to be so taxable. An invoice may cover more than one
Service.
8.2 Payment. SG shall pay the amount of each invoice within 30 days after
the date of that invoice. SG shall pay the invoiced amount even if SG
disputes all or a portion of that amount, unless AA has agreed on or
before the due date to accept a different amount.
8.3 Method of Payment. SG shall pay AA by wire transfer of immediately
available funds to an account or accounts designated by AA. All
payments shall be made in United States currency.
8.4 Interest. AA may charge interest on any past due invoiced amount at
the annual rate of 18% (or, if lower, the highest lawful rate) from
the due date until paid in full with accrued interest. Any payment of
interest only is not a cure or AA's sole remedy for nonpayment of any
invoiced amount that is due.
8.5 Nonpayment Notice. If AA does not receive the full payment of any
invoice (and has not agreed to accept a different amount), it may give
SG a Nonpayment Notice. SG shall pay the amount described in the
Nonpayment Notice by the tenth Business Day after that Nonpayment
Notice is given.
Management Services Agreement
9
<PAGE> 15
8.6 Dispute of Invoice. Except as described in the last sentence of this
Section 8.6, SG may dispute the amount of any invoice for up to 90
days after the date of that invoice; if no Notice of that Dispute is
given within those 90 days, the invoiced amount shall be deemed agreed
to by SG. The Notice of a Dispute of any invoice shall describe the
basis for that Dispute and specify the Service and the SG Business
Unit to which that Dispute relates. A Dispute of any invoice (except
as described in the last sentence of this Section 8.6) shall be
resolved by the Dispute Resolution Procedure. If it is determined by
resolution of that Dispute that SG has paid any excess amount in
response to the invoice, that amount shall be credited (without
interest) to the next invoice or invoices payable by SG after the date
of resolution, or to the extent full credit cannot be given to
invoiced amounts payable within 30 days after the date of resolution,
paid (without interest) by AA by wire transfer of immediately
available funds to an account or accounts designated by SG. Under
this Section 8.6, SG may dispute only the invoiced amount and the
particular calculation thereof, and not the previously established
basis for the established Price for any invoiced Service. Any Dispute
regarding the application to any Service (in whole or in part) of any
invoiced sales, use, or similar taxes is subject to Section 17.2(b)
instead of this Section 8.6.
- --------------------------------------------------------------------------------
ARTICLE 9 -- RECORDS
9.1 Record Keeping. Each Party shall create and maintain accurate records
regarding the Services rendered and the amounts charged and paid or
received under this Agreement. AA's records shall include information
regarding the determination of amounts charged or invoiced to SG for
Use-based Services and information regarding the determination of the
cost or the cost allocation for each Service rendered. Each Party's
records regarding
(a) the Services rendered, and at the Level rendered, as of the
Effective Date shall be of substantially the same kinds as
that Party has created and maintained regarding those Services
before the Effective Date, and
(b) the Services, or the Level of Services, as changed after the
Effective Date in accordance with this Agreement shall be of
the kinds that are reasonable, and consistent with the other
business records created and maintained by that Party,
regarding services like those Services at those Levels.
Each Party shall create and maintain those records with the same
degree of completeness and care as it maintains its other similar
business records. Each Party shall maintain those records for the
time or times required by applicable law or regulation, except that a
Party shall, upon request of the other Party, maintain any of those
records for a longer time if the requesting Party pays the additional
expenses incurred in complying with that request.
9.2 Examination. Each Party shall be entitled to examine, through its
authorized representatives or agents and at its own expense, the
records that the other Party is required to maintain under this
Agreement. This examination right may be exercised only by three
Business Days' prior Notice to the other Party, and the examination
may be made only during the other
Management Services Agreement
10
<PAGE> 16
Party's normal business hours or at any other reasonable time or times
to which the other Party may consent. An examination shall be
performed in a manner that does not unreasonably disrupt the other
Party's normal business operations. This examination right will
continue:
(a) for two years after Expiration or the termination of this
Agreement; and
(b) thereafter, as long as necessary to enable a Party to respond
to any Third-Party Claim or to a request or order issued by a
court or another Governmental Authority.
The Party conducting an examination may make and take away copies of
any or all of the other Party's records being examined.
- --------------------------------------------------------------------------------
ARTICLE 10 -- CONFIDENTIAL INFORMATION
10.1 Confidential Information. Each Party shall keep confidential the
following information -- which is "Confidential Information" --
whether acquired by it under or in connection with this Agreement or
obtained in connection with the relationship of AA and SG or its
subsidiaries or predecessors regarding management services rendered
before the Effective Date:
(a) Information relating to the other Party's business, financial
condition or performance, or operations that the other Party
treats as confidential or proprietary.
(b) Copies of records and other information obtained from a
Party's examination of the other Party's records under Section
9.2.
(c) The terms and performance of, any breach under, or any Dispute
regarding this Agreement.
(d) The Parties' conduct, decisions, documents, and negotiations
as part of, and the status of, any Dispute resolution
proceedings under the Dispute Resolution Procedure.
(e) Any other information, whether in a tangible medium or oral
and whether proprietary to the other Party or not, that is
marked or clearly identified by the other Party as
confidential or proprietary.
Neither Party may use any of the other Party's Confidential
Information other than as required to perform its obligations or
exercise its rights and remedies, including as part of the resolution
of any Dispute, under this Agreement. Each SG Company has the same
rights and benefits, and the same duties and obligations, as SG has
(as a "Party") in this Article 10.
Management Services Agreement
11
<PAGE> 17
10.2 Excluded Information. A Party has no obligation under this Article 10
regarding any information, including information that would otherwise
be Confidential Information, to the extent that the information:
(a) is or becomes publicly available or available in the industry
other than as a result of any breach of this Agreement or any
other duty of that Party; or
(b) is or becomes available to that Party from a source that, to
that Party's knowledge, is lawfully in possession of that
information and is not subject to a duty of confidentiality,
whether to the other Party or another Person, violated by that
disclosure.
10.3 Standard of Care. Each Party shall use the same degree of care in
maintaining the confidentiality and restricting the use of the other
Party's Confidential Information as that Party uses with respect to
its own proprietary or confidential information, and in no event less
than reasonable care.
10.4 Permitted Disclosures. A Party may disclose Confidential Information
to its officers, directors, agents, or employees as necessary to give
effect to this Agreement. Each Party shall inform each of those
Persons to whom any Confidential Information is communicated of the
obligations regarding that information under this Article 10 and
impose on that Person the obligation to comply with this Article 10
regarding the Confidential Information. Each Party shall be
responsible for any breach of that Party's obligations under this
Article 10 by its officers, directors, agents, or employees.
10.5 Required Disclosures. Each Party may disclose Confidential
Information in response to a request for disclosure by a court or
another Governmental Authority, including a subpoena, court order, or
audit-related request by a taxing authority, if that Party:
(a) promptly notifies the other Party of the terms and the
circumstances of that request;
(b) consults with the other Party, and cooperates with the other
Party's reasonable requests, to resist or narrow that request;
(c) furnishes only information that, according to written advice
(which need not be a legal opinion) of its legal counsel, that
Party is legally compelled to disclose; and
(d) uses its Reasonable Efforts to obtain an order or other
reliable assurance that confidential treatment will be
accorded the information disclosed.
A Party need not comply with these conditions to disclosure, however,
to the extent that the request or order of the Governmental Authority
in effect prohibits that compliance. A Party may also disclose
Confidential Information without complying with these conditions to
the extent that the Party is otherwise legally obligated to do so (for
example, to comply with applicable securities laws), as confirmed by
advice of competent and knowledgeable counsel. Further, a Party may
also disclose Confidential Information, without complying with these
conditions, in connection with a tax audit if the disclosure is to
representatives of a taxing authority, or in connection with a tax
contest if that Party uses its Reasonable Efforts to assure that
confidential treatment will be accorded the information disclosed.
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10.6 Title to Information. The Confidential Information of a Party
disclosed by it to the other Party under this Agreement shall remain
the property of the disclosing Party; nothing in this Agreement
grants or conveys to the other Party any ownership or other
proprietary rights in any of that Confidential Information.
10.7 Survival; Return. The obligations under this Article 10 shall
continue on and after Expiration or the termination of this Agreement.
Upon request of the disclosing Party upon or after Expiration or the
termination of this Agreement, the other Party shall return or, if
requested by the disclosing Party, destroy the Confidential
Information of the disclosing Party that it holds. The requested
return or destruction
(a) shall include removal or deletion of Confidential Information
from all data bases and magnetic media of the other Party, and
(b) need not be effected to the extent that it would be
impractical or unduly burdensome to effect.
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ARTICLE 11 -- PARTIES' RELATIONSHIP
11.1 Independent. The Parties are independent; each has sole authority and
control of the manner of, and is responsible for, its performance of
this Agreement. This Agreement does not create or evidence a
partnership or joint venture between the Parties. Neither Party may
create or incur any liability or obligation for or on behalf of the
other Party, except as described in this Agreement. This Agreement
does not restrict AA from providing or rendering any services,
including services like the Services, to any other Person; nothing in
this Agreement, however, gives AA the right to provide or render any
services in violation of any other agreement entered into by the
Parties.
11.2 Employees. Except as described in Section 14.4(b) or Section 14.4(c)
or in the Legal Rights Agreement, for the purposes of this Agreement:
(a) each Party is solely responsible for its own employees or
agents, including the actions or omissions and the
compensation of those employees and agents, and
(b) neither Party has any authority with respect to any of the
other Party's employees or agents.
11.3 Authority and Enforceability. Each Party warrants to the other Party
that:
(a) it has the requisite corporate authority to enter into and
perform this Agreement;
(b) its execution, delivery, and performance of this Agreement
have been duly authorized by all requisite corporate action on
its behalf;
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(c) this Agreement is enforceable against it; and
(d) it has obtained all consents or approvals of Governmental
Authorities and other Persons that are conditions to its
entering into this Agreement.
11.4 Third-Party Consents. Each Party shall be responsible for obtaining
and maintaining any licenses, permits, consents, or approvals of
Governmental Authorities and other Persons necessary or appropriate
for it to perform its obligations under this Agreement.
11.5 Third-Party-Related Arrangements. The Parties also have certain
arrangements and agreements relating to certain of the Services
provided by an Effective Date Service Subcontract or provided directly
by AA but involving an agreement with a third party. The Parties
currently expect that the matters or issues addressed by those
arrangements or agreements will need to continue to be addressed --
whether in the same or in a different manner -- upon Expiration or the
termination of this Agreement or the discontinuance of certain
Optional Services. Hence, before and upon any of those events, each
Party shall use its Reasonable Efforts to change, renegotiate,
replace, sever, or assign, as the Parties mutually agree, those
arrangements or agreements as necessary to so address those matters or
issues and to equitably allocate to the respective Parties -- in
accordance with their respective assets and businesses -- the benefits
and the obligations of those arrangements or agreements upon and after
the occurrence of any of those events.
11.6 Further Assurances. Each Party shall take such actions, upon request
of the other Party and in addition to the actions specified in this
Agreement, as may be necessary or reasonably appropriate to implement
or give effect to this Agreement.
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ARTICLE 12 -- PARTIES' REPRESENTATIVES
12.1 Representatives' Authority. Each Party has authorized its
Representative to conduct discussions and negotiations, make and
communicate decisions, frame and pose questions or issues, and resolve
Disputes on behalf of that Party relating to this Agreement. Though
one Party's employees or agents other than its Representative may also
take actions of the kinds described in the preceding sentence with the
other Party's employees or agents other than its Representative,
matters that require more formal discussions or negotiations between
Parties shall be addressed through and by the Representatives. Each
Party and its Representative are entitled to rely on the actions and
decisions of the other Party's Representative relating to this
Agreement.
12.2 Designation. AA designates its Managing Director of Financial
Planning as AA's Representative, and SG designates its Managing
Director of SABRE Group Financial Planning as SG's Representative,
upon and after the Effective Date until changed by the designating
Party. A Party may change its Representative by Notice to the other
Party. A
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Party may rely on and deal with the Person who is designated as the
other Party's Representative until any Notice of change is given by
the other Party.
- --------------------------------------------------------------------------------
ARTICLE 13 -- TERMINATION
13.1 Termination Events. This Agreement may be terminated, without
liability to the Party terminating:
(a) By either Party, upon 30 days' Notice to the other, at any
time upon or after the Parties cease to be Affiliates.
(b) By a Party, immediately upon Notice to the other Party, if:
(i) that other Party makes a general assignment of all or
substantially all of its assets for the benefit of
its creditors;
(ii) that other Party applies for, consents to, or
acquiesces in the appointment of a receiver, trustee,
custodian, or liquidator for its business or all or
substantially all of its assets;
(iii) that other Party files, or consents to or acquiesces
in, a petition seeking relief or reorganization under
any bankruptcy or insolvency laws; or
(iv) a petition seeking relief or reorganization under any
bankruptcy or insolvency laws is filed against that
other Party and is not dismissed within 90 days after
it was filed.
(c) By a Party, immediately upon Notice to the other Party, if
that other Party's material breach of this Agreement continues
uncured or uncorrected for 30 days after both the nature of
that breach and the necessary cure or correction has been
agreed upon by the Parties or otherwise determined by the
Dispute Resolution Procedure. But if:
(i) the Parties agree or it is determined by the Dispute
Resolution Procedure that the material breach is not
capable of being cured or corrected, the termination
shall be effective immediately upon Notice, without
any cure period; or
(ii) the breaching Party (A) reasonably requires longer
than 30 days to cure or correct -- such as when the
applicable Service Subcontract permits the
Subcontractor longer than 30 days to cure or correct
-- and (B) Notifies the non-breaching Party of the
circumstances, then the cure period shall be extended
for the reasonable time so required, so long as
during that time the breaching Party diligently acts
to effect that cure or correction.
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A non-breaching Party's exercise of the remedy described in
this Section 13.1(c) shall be conditioned upon its giving a
Breach Notice to the other Party.
(d) By AA, immediately upon Notice to SG, if SG has not paid the
amount described in a Nonpayment Notice by the tenth Business
Day after that Nonpayment Notice was given.
(e) By AA, upon 30 days' Notice to SG, at any time upon or after
termination of the Information Technology Services Agreement
before its expiration date.
A Party may not terminate this Agreement if the event or circumstance
described above in this Section 13.1, upon which that Party would rely
in so terminating, was caused by that Party's breach of this
Agreement.
13.2 Nonexclusive. The termination rights under Sections 13.1(c) and
13.1(d) are not exclusive of any other right or remedy of a
non-breaching Party granted in this Agreement.
13.3 Consequences of Termination. Upon termination of this Agreement:
(a) Under Section 13.1(a) or Section 13.1(e) or by SG under Section
13.1(c):
(i) During the Transition Period AA shall continue to
render, and SG shall pay for, each Service reasonably
requested by SG until terminated by either Party in
accordance with Sections 13.3(a)(ii) and
13.3(a)(iii). Except as stated in Section
13.3(a)(ii), the terms of this Agreement shall
continue to apply during the Transition Period as
though no termination of this Agreement had occurred.
(ii) The Level of each Service rendered, and the Price for
each Service, during the Transition Period shall be
the same as in effect immediately preceding the
Termination Date. Article 5 shall not apply during
the Transition Period. During the Transition Period,
any Service (including a Mandatory Service), but not
any one or more of the Tasks separately, may be
terminated by (A) SG, for any reason, by 60 days'
Notice to AA, or (B) AA, if SG has not paid the
amount described in a Nonpayment Notice by the tenth
Business Day after the Nonpayment Notice was given.
Any Service that is the subject of a Notice of
termination shall continue to be rendered by AA until
the effective date of that termination, and SG shall
pay for that Service rendered through that date.
Neither Party may unilaterally rescind a Notice of
termination.
(iii) If either Party reasonably determines that the
termination of any Service during the Transition
Period would make it functionally impossible to
continue any other Service during the Transition
Period, that Party shall promptly Notify the other
Party of that determination; any Service that so
becomes functionally impossible to render shall be
deemed terminated effective upon the date of
termination of the Service that caused that
impossibility. Neither Party may unilaterally
reinstate any Service that has been terminated as of
the Termination Date or during the Transition Period.
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<PAGE> 22
(b) Under Section 13.1(b), then during the Transition Period, AA
shall comply with SG's reasonable requests for assistance in
SG's engaging or training another Person or Persons to
provide, and for records and other information relating to,
each Service in effect immediately preceding the Termination
Date. If SG terminates this Agreement, AA shall comply with
those requests at its own expense. If AA terminates this
Agreement, SG shall reimburse and pay AA's Transition Expenses
in accordance with invoices submitted to SG by AA. Articles 8
and 18 shall apply in this situation as though this Agreement
had not been terminated. When SG is obligated to reimburse
and pay AA's Transition Expenses, AA may cease providing
transition assistance, immediately upon Notice to SG, if SG
has not paid the amount described in a Nonpayment Notice by
the tenth Business Day after the Nonpayment Notice was given.
If the records or other information provided by AA are
Confidential Information, Article 10 shall also apply as
though this Agreement had not been terminated.
(c) Under Section 13.1(d) or by AA under Section 13.1(c), then AA
shall have no obligation to provide any continued Services or
transition assistance as described above in this Section 13.3.
13.4 Survival of Rights and Obligations. No rights or obligations of
either Party that expressly or impliedly are to remain in effect in
order to give effect to this Agreement shall be impaired by Expiration
or the termination of this Agreement, and those rights and obligations
shall remain in effect.
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ARTICLE 14 -- LIABILITY AND REMEDIES
14.1 Warranties. Each Party's warranties in this Agreement are made solely
to and for the benefit of the other Party and, to the extent described
in this Agreement, the SG Companies. No Person other than a Party may
make a claim based on the other Party's warranties under this
Agreement; any claim by an SG Company shall be made by SG.
14.2 Nonconforming Services. SG shall promptly Notify AA of any Deficiency
in any Service or Task, whether rendered by AA or a Subcontractor. To
the extent AA agrees, or it is otherwise determined by the Dispute
Resolution Procedure, that a Service or Task was or is a Nonconforming
Service, AA shall use its Reasonable Efforts promptly to cure or
correct, or cause its Subcontractor to cure or correct, the Deficiency
to the extent it may then be cured or corrected.
(a) If the Deficiency was, or was the result of, AA's or a
Subcontractor's negligence, AA shall not be responsible or
liable for any resulting Damages of SG.
(b) If the Deficiency was, or was the result of, AA's or a
Subcontractor's gross negligence (including recklessness) or
willful misconduct, AA shall be responsible or liable for SG's
resulting Damages in an amount up to:
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<PAGE> 23
(i) if AA's liability is determined (by the Parties'
agreement or the Dispute Resolution Procedure) after
the calendar year in which the Deficiency occurred,
the aggregate amount received by AA for the
Nonconforming Service for the calendar year in which
the Deficiency occurred;
(ii) if AA's liability is determined during the calendar
year in which the Deficiency occurred and the
Nonconforming Service is a Fixed-price Service, the
annual Price for the Nonconforming Service for that
calendar year; or
(iii) if AA's liability is determined during the calendar
year in which the Deficiency occurred and the
Nonconforming Service is a Use-based Service, the
greater of (A) the estimated annual amount for that
Service for that calendar year and (B) the aggregate
amount received by AA to the date the liability is
determined, annualized for that calendar year.
The annual limit on AA's liability described above in this
Section 14.2(b) is not cumulative from year to year. If there
is more than one Deficiency in a single Service for which AA
is responsible or liable for Damages and AA's liability for
those Deficiencies is determined in the same calendar year,
AA's responsibility or liability for Damages resulting from
all of those Deficiencies shall be subject to the applicable
annual limit on liability described above in this Section
14.2(b).
14.3 Actual Damages. Neither Party shall be liable under or relating in
any manner to this Agreement for any losses or damages other than
Damages, even if a Party has been advised of the possibility of losses
or damages of that kind and regardless of the form of the Proceedings
or the theory of liability, whether based on contract, warranty, tort
(including negligence and strict liability), infringement, or
misappropriation.
14.4 Indemnities for Certain Breaches and Other Matters. The following
shall apply to any breach of, and certain other Damages relating to,
this Agreement, other than a Deficiency for which AA has no liability
for Damages under Section 14.2(a) or a nonpayment by SG of any amount
relating to an invoice:
(a) Subject to the limits on liability described in Section
14.2(b), if that Section is applicable, each Party shall
indemnify the other Party against all Damages of the
Indemnified Party, or any of its Indemnified Agents, resulting
from or relating to:
(i) any breach of this Agreement, including a breach of
any warranty in this Agreement, by the Indemnifying
Party;
(ii) any Proceedings relating to a breach of this
Agreement by the Indemnifying Party; and
(iii) the actions or omissions of the Indemnifying Party's
employees or agents under or in connection with this
Agreement, except as described in Sections 14.4(b)
and 14.4(c).
(b) SG shall also indemnify AA against all Damages of AA or any of
its Indemnified Agents, including any Subcontract Termination
Penalty, under or relating to any Service Subcontract -- other
than as described in Section 3.5(b) -- resulting from:
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<PAGE> 24
(i) any violation by SG of any obligation imposed on it
under that Service Subcontract;
(ii) the actions or omissions of SG's employees or agents
under or in connection with that Service Subcontract;
(iii) SG's discontinuance of any Optional Service that AA
renders, in whole or in part, by that Service
Subcontract, even if permitted by Article 5;
(iv) SG's performing itself or obtaining from any Person
other than AA or its Subcontractor any service or
services to supplement or substitute for any Optional
Service that AA renders, in whole or in part, by that
Service Subcontract, even if permitted by Section
6.3;
(v) Expiration; or
(vi) the termination of this Agreement other than a
termination by SG under Section 13.1(b) or Section
13.1(c).
(c) SG shall also indemnify AA against all Damages of AA or any of
its Indemnified Agents resulting from or relating to:
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
(iii) the actions or omissions of any of the Legal Staff
that are directed by SG or any SG Company within the
scope of that lawyer's or paralegal's engagement for
any legal matter of SG or any SG Company; or
(iv) any sales, use, or similar taxes (however described)
applicable to any of the Services, in whole or in
part, that are assessed or levied against or paid by
AA.
(d) The indemnification obligations in Sections 14.4(a), 14.4(b),
and 14.4(c) shall be extinguished to the extent that the
Damages of the other Party, or any of its Indemnified Agents
for whom or which the other Party is seeking indemnification,
were caused by the gross negligence (including recklessness)
or willful misconduct of the Person for whom or which
indemnification is sought. THE ORDINARY NEGLIGENCE OF A PERSON
OR THE JOINT OR CONCURRENT ORDINARY NEGLIGENCE OF PERSONS
SHALL NOT PRECLUDE THAT PERSON OR ANY OF THOSE PERSONS FROM
RECEIVING THE BENEFITS OF INDEMNIFICATION UNDER THIS AGREEMENT.
(e) If an Indemnification Claim is not based on a Third-Party
Claim, the Indemnified Party shall give an Indemnification
Claim Notice promptly after the event constituting the basis
for the Indemnification Claim; its failure to do so, however,
shall relieve the Indemnifying Party of its indemnification
obligations only to the extent the Indemnifying Party is
actually prejudiced by that failure. If the Indemnified Party
gives an Indemnification Claim Notice regarding an
Indemnification Claim not based on a Third-Party Claim, the
Indemnifying Party shall Notify the Indemnified Party within
the Indemnification Response Period whether the Indemnifying
Party disputes all or any
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<PAGE> 25
portion of the Indemnification Claim. If the Indemnifying
Party does not give that dispute Notice or agrees to accept
liability for all or a portion of the Indemnification Claim,
the Indemnification Claim, or the agreed portion of that
Indemnification Claim, shall be the Indemnifying Party's
liability. Otherwise, the Indemnification Claim shall be
deemed a Dispute to be resolved by the Dispute Resolution
Procedure.
(f) If an Indemnification Claim is based on a Third-Party Claim:
(i) The Indemnified Party shall give an Indemnification
Claim Notice promptly after it receives the
Third-Party Claim. The failure of an Indemnified
Party to timely give an Indemnification Claim Notice
shall relieve the Indemnifying Party of its
indemnification obligations only to the extent the
Indemnifying Party is actually prejudiced by that
failure.
(ii) The Indemnifying Party shall be entitled to defend
the Third-Party Claim, with its chosen counsel and at
its own expense, if (A) the Third-Party Claim seeks
only monetary relief, and not an injunction or other
equitable relief, against the Indemnified Party, and
(B) the Indemnifying Party elects to assume, and
diligently conducts, that defense. The Indemnifying
Party's election to defend shall be given by Notice
to the Indemnified Party within the Indemnification
Response Period. If the Indemnifying Party conducts
the defense, the Indemnified Party may participate in
that defense with its own counsel and at its own
expense.
(iii) If the Indemnifying Party does not elect to defend
the Third-Party Claim by Notice within the
Indemnification Response Period, or if the
Indemnifying Party does not diligently conduct the
defense, the Indemnified Party shall be entitled,
upon further Notice to the Indemnifying Party, to
defend the Third-Party Claim on behalf of, and for
the account and risk of, the Indemnifying Party (if
it is determined that the Indemnifying Party has an
indemnification obligation regarding that
Indemnification Claim). In this circumstance, the
Indemnifying Party may participate in the defense
with its own counsel and at its own expense.
(iv) If there is a conflict of interest that makes it
inappropriate for the same counsel to represent the
Indemnifying Party and the Indemnified Party in
defending the Third-Party Claim, the Indemnifying
Party shall pay for separate counsel for the
Indemnified Party.
(v) The Indemnifying Party defending a Third-Party Claim
may compromise, settle, or resolve that Third-Party
Claim without the Indemnified Party's consent if the
compromise, settlement, or resolution involves only
the payment of money by the Indemnifying Party
(whether on its own behalf or behalf of the
Indemnified Party) and the third-party claimant
provides the Indemnified Party a release from all
liability regarding the Third-Party Claim.
Otherwise, the Indemnifying Party may not compromise,
settle, or resolve the Third-Party Claim without the
Indemnified Party's Reasonable Consent.
(vi) The Indemnifying Party and the Indemnified Party
shall cooperate with all reasonable requests of the
other in defending any Third-Party Claim.
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<PAGE> 26
14.5 Time for Claims. SG may make a claim against AA for the cure or
correction of any Deficiency only within two years after the
Deficiency occurred; any Deficiency shall be deemed to have occurred
when the particular Nonconforming Service was rendered. A Party may
make an Indemnification Claim
(a) not based on a Third-Party Claim, only within two years after
the breach or other event constituting the basis for that
Indemnification Claim occurred, even if not discovered until
after that second anniversary, or
(b) based on a Third-Party Claim, at any time.
14.6 Offset. A Party entitled to any payment due from the other Party
under this Agreement may offset all or any portion of the amount of
that payment against any payment that is due from it to the other
Party under this Agreement.
14.7 Equitable Relief. To the extent that monetary relief is not a
sufficient remedy for any breach of this Agreement, or upon any breach
or impending breach of Article 10, the non-breaching Party shall be
entitled to injunctive relief as a remedy for that breach or impending
breach by the other Party, in addition to any other remedies granted
to the non-breaching Party in this Agreement. That injunctive relief
shall be sought through arbitration in accordance with the Dispute
Resolution Procedure, except as permitted by Section B.4(b) of the
Dispute Resolution Appendix.
14.8 Exclusive Remedies. Except for the termination right stated in
Article 13 and the relief described in Sections 15.4 and 17.2(b) and
in the Dispute Resolution Procedure, the remedies described in this
Article 14 are the exclusive rights and remedies of a Party regarding
any breach of this Agreement or any other matter that may be the
subject of an Indemnification Claim.
14.9 Waiver of Remedies. No forbearance, delay, or indulgence by either
Party in enforcing this Agreement -- within the applicable time limits
stated in this Agreement -- shall prejudice the rights or remedies of
that Party. No waiver of a Party's rights or remedies regarding a
particular breach of this Agreement constitutes a waiver of those
rights or remedies, or any other rights or remedies, regarding any
other or any subsequent breach of this Agreement.
14.10 Cumulative Remedies. A Party's election to pursue a right or remedy
granted in this Agreement upon the other Party's breach of this
Agreement shall not preclude the non-breaching Party from pursuing
other rights or remedies granted to that Party in this Agreement that
are applicable to that breach under this Agreement.
14.11 Survival. The rights, remedies, and obligations under this Article 14
shall continue on and after Expiration or the termination of this
Agreement.
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<PAGE> 27
ARTICLE 15 -- FORCE MAJEURE
15.1 No Breach or Liability. No delay or failure of a Party to perform any
of its obligations, other than payment obligations, under this
Agreement due to causes beyond its reasonable control shall constitute
a breach of this Agreement or render that Party liable for that delay
or failure. Causes beyond a Party's reasonable control include:
(a) events or circumstances that the Party, using its Reasonable
Efforts, is unable to prevent or overcome;
(b) as to AA, causes also beyond the reasonable control of the
Person to whom or which AA has Subcontracted the affected
Service or Task in accordance with this Agreement; and
(c) labor disputes, strikes, or other similar disturbances; acts
of God; utilities or communications failures; acts of the
public enemy; and riots, insurrections, sabotage, or
vandalism.
15.2 Notice of Excusable Delay or Failure. If a Party anticipates any
excusable delay or failure under Section 15.1, it shall promptly
Notify the other Party of the anticipated delay or failure, the
anticipated effect of that delay or failure, and any actions that are
being or are to be taken to alleviate or overcome the cause of the
delay or failure.
15.3 Efforts to Overcome. If a Party is claiming an excusable delay or
failure under Section 15.1, it shall use its Reasonable Efforts to
alleviate or overcome the cause of the delay or failure as soon as
practicable.
15.4 Extended Delay or Failure. If an excusable delay or failure continues
for more than 30 consecutive days, the Party entitled to the benefit
of the affected obligation may perform itself or obtain from any other
Person the obligation to which that Party is entitled (and that Party
shall Notify the other Party of this election).
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ARTICLE 16 -- DISPUTE RESOLUTION MATTERS
16.1 General Procedure. Except as otherwise stated in this Agreement, the
Parties shall resolve all Disputes in accordance with the Dispute
Resolution Procedure. Nevertheless, if any Person other than the
Parties, the SG Companies, and their Affiliates
(a) has initiated a lawsuit or other Proceedings against or
involving either or both of the Parties in which a Dispute
will be resolved, or
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<PAGE> 28
(b) is a necessary participant in any Proceedings to resolve a
Dispute and cannot be joined by either or both of the Parties
in an arbitration of that Dispute under Section B.3 of the
Dispute Resolution Appendix,
so that (in either case) the Dispute Resolution Procedure is or will
be ineffective, then the Parties need not use or follow the Dispute
Resolution Procedure to resolve that Dispute -- though the submission
to jurisdiction in Section B.5 of the Dispute Resolution Appendix
shall apply if necessary.
16.2 Continued Performance. The Parties shall continue performing their
respective obligations under this Agreement while a Dispute is being
resolved.
16.3 Parties' Agreement. Nothing in this Article 16 or the Dispute
Resolution Procedure prevents the Parties from resolving any Dispute
by mutual agreement at any time.
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ARTICLE 17 -- EXPENSES AND TAXES
17.1 Expenses. Each Party shall be solely responsible for its costs and
expenses incurred in performing its obligations and exercising its
rights and remedies under this Agreement, except as otherwise provided
in this Agreement.
17.2 Taxes. The Parties shall be responsible for tax payments or
liabilities relating to this Agreement as follows:
(a) Each Party shall be responsible for its income and franchise
taxes and for all other taxes (however described) based on its
own income or earnings.
(b) SG shall be responsible for all sales, use, and similar taxes
(however described) applicable to the Services, in whole or in
part. This obligation includes SG's paying the sales taxes
identified in AA's invoices submitted to SG for the Services.
(i) If SG claims an exemption or exclusion from taxes of
this kind, it shall deliver to AA a certificate or
letter stating SG's good-faith belief that a Service
is not, in whole or in part, subject to those taxes.
Whether or not SG delivers that certificate or
letter, however, it shall indemnify AA, in accordance
with Section 14.4(c)(iv), against any taxes of this
kind assessed or levied against, or paid by, AA and
any other related Damages of AA.
(ii) If AA receives an assessment from a taxing authority
covering taxes for which SG is responsible under this
Section 17.2(b), AA shall Notify SG of the assessment
and, at SG's request, timely contest the assessment.
If payment to the taxing authority is required by law
as a condition to protest, SG shall timely furnish AA
the required amount for that payment.
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<PAGE> 29
(iii) If SG believes it has overpaid taxes to AA for any of
the Services (in whole or in part), SG may require AA
to file a claim for a refund at SG's expense. If
permitted by law, AA may assign any right to a refund
directly to SG instead of filing a refund claim. Any
refund of taxes (including any interest) received by
AA under this Section 17.2(b)(iii) shall be promptly
forwarded to SG.
(iv) Before AA is required to pursue any action requested
by SG under this Section 17.2(b), AA may at any time
require SG to deliver a letter of advice from outside
counsel (selected by SG) stating that SG's tax
position is reasonable.
(v) Except as stated in the next sentence, any Dispute
between the Parties regarding the application of any
taxes of this kind to any Service (in whole or in
part) shall be resolved by the Dispute Resolution
Procedure. Any Dispute as to the amount of tax (if
any) owed to a taxing authority, including a Dispute
between a Party and the taxing authority, need not be
resolved by the Dispute Resolution Procedure, but may
be resolved by any appropriate administrative or
legal procedure available to a Party or the Parties
under this Agreement apart from the Dispute
Resolution Procedure.
(c) Each Party shall be responsible for all real property,
personal property, and other taxes (however described) based
on its owned or leased property, whether real or personal.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
(d) Each Party shall be responsible for all employment-related
taxes (however described) regarding its own employees,
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
Each Party shall cooperate with any reasonable request of the other
Party to restructure any Service, in whole or in part, or to take any
other reasonable action to avoid or minimize any duplicate taxes that
might be imposed; the requesting Party shall bear the expenses of the
other Party's compliance.
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ARTICLE 18 -- COMMUNICATIONS
18.1 Form. Each notice (including a Nonpayment Notice, an Indemnification
Claim Notice, and a Breach Notice), request, response, demand, claim,
and other communication required or permitted under this Agreement
shall be in writing and shall be transmitted, delivered, or sent by:
(a) personal delivery,
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<PAGE> 30
(b) courier or messenger service, whether overnight or same-day,
(c) prepaid telecopy or facsimile, or
(d) certified United States mail, with postage prepaid and return
receipt requested,
in any case addressed to the other Party at the address or number for
that Party set forth in Section 18.2, or at such other address or
number as the recipient has designated by Notice to the other Party in
accordance with this Article 18.
18.2 Addresses. The Parties shall transmit, deliver, or send
communications as follows:
(a) If to AA: American Airlines, Inc.
4333 Amon Carter Boulevard
Mail Drop 5501
Fort Worth, Texas 76155
Telecopier: (817) 967-1184
Attention: Managing Director of Financial
Planning
With a copy to: American Airlines, Inc.
4333 Amon Carter Boulevard
Mail Drop 5675
Fort Worth, Texas 76155
Telecopier: (817) 967-2937
Attention: Corporate Secretary
(b) If to SG: The SABRE Group, Inc.
4200 American Way Boulevard
Mail Drop 3534
Fort Worth, Texas 76155
Telecopier: (817) 931-0514
Attention: Managing Director of SABRE
Group Financial Planning
With a copy to: The SABRE Group, Inc.
4255 Amon Carter Boulevard
Mail Drop ________
Fort Worth, Texas 76155
Telecopier: (817) _____-_______
Attention: Corporate Secretary
18.3 Effectiveness. Each communication transmitted, delivered, or sent:
(a) in person, by courier or messenger service, or by certified
United States mail, postage prepaid and return receipt
requested, shall be deemed given, received, and effective on
the date delivered to or refused by the intended recipient
(with the return receipt or the equivalent record of the
courier or messenger being deemed conclusive evidence of
delivery or refusal); or
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25
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(b) by telecopy or facsimile transmission shall be deemed given,
received, and effective on the date of actual receipt (with
the confirmation of transmission being deemed conclusive
evidence of such receipt, except where the intended recipient
has promptly notified the other Party that the transmission is
illegible).
Nevertheless, if the date of delivery or transmission is not a
Business Day, or if the delivery or transmission is after 5:00 p.m. on
a Business Day, the communication shall be deemed given, received, and
effective on the next Business Day.
- --------------------------------------------------------------------------------
ARTICLE 19 -- ASSIGNMENT
Neither Party may assign any of its rights or delegate any of its duties or
obligations under this Agreement without the other Party's Consent; this
prohibition of assignment and delegation shall include any assignment and
delegation by operation of law (such as merger or consolidation). Any
attempted assignment or delegation without the other Party's Consent shall be
void and without effect. The two preceding sentences do not, however, preclude
AA from Subcontracting or SG from extending the benefits of the Services to the
SG Companies as permitted by Article 3.
- --------------------------------------------------------------------------------
ARTICLE 20 -- AMENDMENT AND WAIVER
This Agreement may be amended or modified, and any provision of this Agreement
may be discharged or waived, only by a document signed by the Party against
which the amendment, modification, discharge, or waiver is sought to be
enforced.
- --------------------------------------------------------------------------------
ARTICLE 21 -- INTEGRATION
This Agreement constitutes the Parties' entire agreement on this subject; it
replaces and supersedes any prior agreement or understanding of the Parties,
whether written or oral, on this subject not expressed or referred to in this
Agreement.
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- --------------------------------------------------------------------------------
ARTICLE 22 -- SEVERABILITY
If any part of this Agreement is for any reason found to be unenforceable, all
other parts of this Agreement nevertheless remain enforceable.
- --------------------------------------------------------------------------------
ARTICLE 23 -- SUCCESSORS
This Agreement binds and inures to the benefit of the Parties and their
respective legal representatives, permitted successors, and permitted assigns.
- --------------------------------------------------------------------------------
ARTICLE 24 -- GOVERNING LAW
This Agreement shall be interpreted or construed under Texas law. Likewise,
the validity and performance of this Agreement shall be enforced, and all
issues relating to this Agreement shall be resolved, under Texas law.
- --------------------------------------------------------------------------------
ARTICLE 25 -- COUNTERPARTS
This Agreement may be signed in any number of counterparts, with the same
effect as if all signatories had signed the same document. All counterparts
shall be construed together to constitute one, and the same, document.
- --------------------------------------------------------------------------------
Management Services Agreement
27
<PAGE> 33
SIGNATURES AMERICAN AIRLINES, INC.
By: /s/ Donald J. Carty
------------------------------------
Donald J. Carty, President
THE SABRE GROUP, INC.
By: /s/ Michael J. Durham
------------------------------------
Michael J. Durham, President
Management Services Agreement
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<PAGE> 34
DEFINITIONAL APPENDIX
TO MANAGEMENT SERVICES AGREEMENT
A. Defined Terms. In the Agreement, the following terms have the
corresponding meanings:
"AA": American Airlines, Inc., a Delaware corporation.
"AA'S REPRESENTATIVE": The individual agent or representative
designated by AA to be AA's formal liaison with or representative to
SG for matters relating to the Agreement, having the (non-exclusive)
authority and responsibility described in the Agreement.
"AA'S TRANSITION EXPENSES": The sum of the following, incurred in or
resulting from AA's compliance with requests for transition assistance
for up to 180 days after Expiration or during the Transition Period
(as the case may be):
1. All of AA's reasonable out-of-pocket expenses, and
2. the time or activities of AA's personnel as follows: (a) if the
activities of those personnel were part of a Use-based Service
before Expiration or the termination of the Agreement, at the Price
most recently paid for that Use-based Service before Expiration or
termination, or (b) if the activities of those personnel were part
of a Fixed-price Service before Expiration or the termination of
the Agreement, an amount equal to that portion of the Price most
recently paid for that Fixed-price Service before Expiration or
termination corresponding to the transition activities' portion of
all activities that constituted that Fixed-price Service, for the
time covered by that Price, before Expiration or termination.
"AMR": AMR Corporation, a Delaware corporation and the corporate
parent of both Parties on the Effective Date.
"AFFILIATE": A Person that directly or indirectly through one or more
intermediaries Controls, is Controlled by, or is under common Control
with another Person.
"AGREEMENT": The Management Services Agreement between AA and SG
(including the Definitional Appendix, the Dispute Resolution Appendix,
and the Schedules), as may be amended or supplemented from time to
time in accordance with its terms.
"ARBITRATION RULES": The Rules for Commercial Arbitration of the
American Arbitration Association in effect at the time of an
arbitration in accordance with the Dispute Resolution Procedure.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
"BREACH NOTICE": A Party's Notice to the other Party alleging a
breach of the Agreement (other than SG's nonpayment of any amount
related to an invoice) by the other Party, which describes the alleged
breach, to the extent known by the notifying Party, and any particular
cure or correction requested by the notifying Party.
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<PAGE> 35
"BUSINESS DAY": Any Monday through Friday, excluding any such day on
which banks are authorized to be closed in Texas.
"CONFIDENTIAL INFORMATION": Information subject to a duty of
confidence and a restriction on use imposed on one or both Parties
under Article 10.
"CONTROL": The right to exercise, directly or indirectly, more than
50% of the voting power attributable to the equity interests in an
entity. ("Controlling" and "Controlled" have correlative meanings.)
"CONSENT": The prior written consent of a Party (in any capacity) in
its sole discretion.
"DAMAGES": Losses, claims, obligations, demands, assessments, fines
and penalties (whether civil or criminal), liabilities, expenses and
costs (including reasonable fees and disbursements of legal counsel
and accountants), bodily and other personal injuries, damage to
tangible property, and other damages, of any kind or nature, actually
suffered or incurred by a Person. "Damages":
1. consists only of actual damages;
2. excludes any lost profits, lost income, or lost savings and any
punitive, exemplary, consequential, indirect, special, or
incidental damages (however described), even if the possibility of
those losses or damages was known; and
3. includes (except as may be reduced in accordance with the next
sentence) all fines, penalties, and interest paid or payable to any
Governmental Authority.
If SG has Damages, for which AA is liable, consisting of fines,
penalties, and interest paid or payable to a Governmental Authority
corresponding to any tax not timely paid, then those "Damages" shall
be reduced by an amount equal to interest, at the annual rate of 5%,
accrued on that tax from the due date until that tax is paid; for the
avoidance of doubt, in this situation "Damages" shall not include any
tax for which SG would otherwise be liable to the Governmental
Authority. Also for the avoidance of doubt, the "Damages" of a Person
shall include any lost profits, lost income, or lost savings and any
punitive, exemplary, consequential, indirect, special, or incidental
damages (however described) awarded against that Person in favor of
another Person asserting a Third-Party Claim against that Person.
"DEFICIENCY": AA's failure in rendering a Service or Task to satisfy
the applicable standard of care stated in the Agreement or to render
it at the applicable Level established under the Agreement.
("Deficient" has the correlative meaning.)
"DEFINITIONAL APPENDIX": This Definitional Appendix to Management
Services Agreement, containing definitions and interpretive matters
for, as an integral part of, the Agreement.
"DISPUTE": Any dispute, disagreement, claim, or controversy arising
in connection with or relating to the Agreement, or the validity,
interpretation, performance, breach, or termination of the Agreement,
including any claim of breach of representation or warranty or of
nonperformance and any claim regarding bodily or other personal injury
or damage to tangible property.
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<PAGE> 36
"DISPUTE RESOLUTION APPENDIX": The Dispute Resolution Appendix to
Management Services Agreement, containing the Dispute Resolution
Procedure for, as an integral part of, the Agreement.
"DISPUTE RESOLUTION PROCEDURE": The procedure or process by which a
Dispute shall be resolved (except as otherwise stated in the
Agreement) as described in the Dispute Resolution Appendix.
"EFFECTIVE DATE": July 1, 1996, the date on which the Agreement
becomes effective.
"EFFECTIVE DATE SERVICE SUBCONTRACT": A Service Subcontract in effect
on the Effective Date.
"EXPIRATION": The expiration of the term of the Agreement as stated
in, and as may be renewed under, Article 2, without regard to any
period of transition assistance. For the avoidance of doubt,
"Expiration" does not include a termination of the Agreement under
Section 13.1. ("Expire" and "Expired" have correlative meanings.)
"FIXED-PRICE SERVICE": A Service the Price for which is a fixed or
nonvariable amount, other than a fixed rate.
"GOVERNMENTAL AUTHORITY": Any federal, state, local, or foreign
government or governmental, quasi- governmental, administrative, or
regulatory authority, agency, body, or entity, including any court or
other tribunal.
"INDEMNIFICATION CLAIM": A claim or demand of a Party, on its behalf
or on behalf of one or more of its Indemnified Agents, for
indemnification under Section 14.4.
"INDEMNIFICATION CLAIM NOTICE": A Notice from the Indemnified Party
describing an Indemnification Claim and the amount or the estimated
amount of that Indemnification Claim to the extent then feasible
(though that estimate shall not be determinative of the final amount
of that Indemnification Claim).
"INDEMNIFICATION RESPONSE PERIOD": The 30 days after an
Indemnification Claim Notice is given during which the Indemnifying
Party may investigate and determine its responsibility or liability
for an Indemnification Claim and, if relating to a Third-Party Claim,
Notify the Indemnified Party of the Indemnifying Party's election to
defend that Third-Party Claim.
"INDEMNIFIED AGENTS": Collectively, the officers, directors,
employees, and agents of a Party and, as to SG, the SG Companies and
their respective officers, directors, employees, and agents.
"INDEMNIFIED PARTY": A Party entitled to or seeking indemnification,
on its own behalf or on behalf of one or more of its Indemnified
Agents, under Section 14.4.
"INDEMNIFYING PARTY": A Party that has or is alleged to have an
obligation to indemnify the other Party in response to an
Indemnification Claim.
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"INFORMATION TECHNOLOGY SERVICES AGREEMENT": The Information
Technology Services Agreement between AA and SG dated July 1, 1996, as
may be amended or supplemented from time to time in accordance with
its terms.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
"LEGAL RIGHTS AGREEMENT": The Legal Rights and Services Agreement
among AMR, AA, and SG dated July 1, 1996, as may be amended or
supplemented from time to time in accordance with its terms.
"LEGAL STAFF": Legal personnel that AA employs or otherwise engages.
"LEVEL": The scope, timeliness, or quantity of a Service or Task or
the location, intensity, or frequency at or with which a Service or
Task is or is to be rendered.
"MANDATORY SERVICE": A Service that shall be rendered and paid for,
and may not be unilaterally discontinued under Article 5 by either
Party, during the effectiveness of the Agreement.
"MARCH 1 LEVEL CHANGE": A change in the Level of a Service to be
effective at midnight on March 1.
"NONCONFORMING SERVICE": A Service or Task that, as agreed by the
Parties or otherwise determined by the Dispute Resolution Procedure,
was or is Deficient.
"NONPAYMENT NOTICE": A Notice from AA to SG that describes an amount
related to an invoice to SG that AA has not received when due, which
shall:
1. constitute a demand for payment of the described amount; and
2. state that either termination of the Agreement or cessation of
transition assistance, whichever is applicable, by AA may result if
the described amount is not paid by the tenth Business Day after
that Notice is given.
"NOTICE": A written communication complying with Article 18.
("Notify" has the correlative meaning.)
"OPTIONAL SERVICE": A Service that may be unilaterally discontinued
by either Party in accordance with the Agreement.
"PARTIES": Collectively, AA and SG. ("Party" means either AA or SG.)
"PERSON": An individual; a corporation, partnership, trust,
association, or entity of any kind or nature; or a Governmental
Authority.
"PRICE": The amount or rate, in either case whether fixed or variable
and however measured, charged to SG for a Service, as agreed by the
Parties.
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<PAGE> 38
"PRICE PROPOSAL": A written proposal or estimate of the Price for a
Service at a particular Level (or, if applicable, at each Level),
together with a description of the basis on which the proposed or
estimated Price was determined or calculated by AA (including, to the
extent applicable, the allocation methodology, allocation drivers, and
margin).
"PROCEEDINGS": Any action, suit, claim, investigation, demand, audit,
or other proceedings by or before any Governmental Authority or any
arbitration proceedings.
"REASONABLE CONSENT": The prior written consent of a Party (in any
capacity), which may not be unreasonably withheld or delayed.
"REASONABLE EFFORTS": The efforts of a Party that are commercially
reasonable under the circumstances, which do not require a Party to
institute or prosecute any Proceedings or to pay any Person other than
that Party's representatives or agents, including (only as to AA)
Subcontractors.
"REPRESENTATIVES": Collectively, AA's Representative and SG's
Representative.
"SG": The SABRE Group, Inc., a Delaware corporation.
"SG BUSINESS UNIT": A segment or part of SG's business that SG
treats, for purposes of its business and not solely for the Agreement,
as a separate unit. On the Effective Date, the SG Business Units are
SABRE Technology Information Network, SABRE Decision Technologies,
SABRE Computer Services, SABRE Interactive, and SABRE Group Staff.
"SG COMPANY": Any entity over which SG has Control.
"SG'S REPRESENTATIVE": The individual agent or representative
designated by SG to be SG's formal liaison with or representative to
AA for matters relating to the Agreement, having the (non-exclusive)
authority and responsibility described in the Agreement.
"SLA": A written agreement or understanding between AA and SG or any
SG Company describing, or otherwise stating terms regarding, the Level
at which a Service, in whole or in part, will be rendered. An SLA
regarding a Service, in whole or in part, may be entered into by or
directly with one or more of AA's departments rendering that Service
or that part of the Service. An SLA entered into on or after
Effective Date
1. may be a separate document or part of another document, such as a
Price Proposal that is accepted by SG,
2. may be a Schedule or part of a Schedule, and
3. shall be signed by AA and SG.
"SABRE SYSTEM": The SABRE Computer Reservations System to which
access is provided, and the related software and hardware licensed or
leased, under the Japanese Subscriber Agreements.
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"SCHEDULE": A Schedule to the Agreement that describes a Service, the
basis of the Price for that Service, the annual Price for that Service
for all of 1996, any Subcontractor preforming all or a portion of that
Service, and the location or locations at which that Service is to be
rendered if not at AA's offices or Subcontracted.
"SEPTEMBER 1 LEVEL CHANGE": A change in the Level of a Service to be
effective at midnight on September 1.
"SERVICE": An individual management service, to be rendered by AA
under the Agreement, that is described as a "Service" in a Schedule.
A Service may also be described in a Schedule by all or a portion of
its constituent Tasks.
"SERVICE SUBCONTRACT": An agreement or arrangement, oral or written,
under which a Subcontractor is to render or perform any Service or
Task on AA's behalf or in AA's stead.
"SIGNIFICANT OPTIONAL SERVICE": An Optional Service the Price for
which exceeds, or the Parties agree will exceed, $1 million in any
calendar year (assuming no discontinuance of that Service).
"SUBCONTRACT": AA's entering into a Service Subcontract.
("Subcontracted" and "Subcontracting" have correlative meanings.)
"SUBCONTRACT TERMINATION PENALTY": An obligation described in, as
part of the terms of, a Service Subcontract to pay the Subcontractor a
charge, fine, penalty, or other amount upon the termination or partial
termination of that Service Subcontract, including any return to the
Subcontractor of any equipment or goods held under that Service
Subcontract.
"SUBCONTRACTOR": A Person, other than an employee of AA, who or which
enters into a Service Subcontract with AA.
"TASK": Any one of the group of processes, procedures, or services
that is described in a Schedule as constituting, or included in, a
Service.
"TERMINATION DATE": The date on which the Agreement is terminated in
accordance with Section 13.1, without regard to any Transition Period.
"THIRD-PARTY CLAIM": A claim of liability asserted against either
Party by a Person other than the other Party or either Party's
Indemnified Agents.
"TRANSITION PERIOD": The maximum 180-day period after the Termination
Date during which AA shall, as SG reasonably requests, render one or
more Services in accordance with Section 13.3(a) or provide transition
assistance in accordance with Section 13.3(b).
"USE-BASED SERVICE": A Service the Price for which is variable; or a
Service the Price for which is a fixed rate, but the amount due for
that Service is determined by or based upon, at least in part, the
extent of the actual use of AA's personnel or other assets.
B. Interpretative Matters. The Agreement is the result of the Parties'
negotiations, and no provision of the Agreement shall be construed for
or against either Party because of the authorship of that provision.
In the interpretation of the Agreement, except where the context
otherwise requires:
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1. "including" or "include" does not denote or apply any limitation;
2. "or" has the inclusive meaning "and/or";
3. "$" refers to United States dollars;
4. the singular includes the plural, and vice versa, and each gender
includes each of the others;
5. captions or headings are only for reference and are not to be
considered in interpreting the Agreement;
6. "Article" and "Section" refer to an Article and Section,
respectively, of the Agreement, unless otherwise stated in the
Agreement;
7. an event to occur, an action to be performed, or a condition to be
satisfied "by" or "as of" a stated date in the Agreement shall
occur or be effective or satisfied no later than 5:00 p.m. on that
date; and
8. each reference to a time of day in the Agreement is to local time
in Fort Worth, Texas, and "midnight" begins a day.
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DISPUTE RESOLUTION APPENDIX
TO MANAGEMENT SERVICES AGREEMENT
A. Defined Terms. Various terms used in this Dispute Resolution
Appendix, which begin with a capital letter, are defined in the
Definitional Appendix to Management Services Agreement. In addition,
the following terms used only in this Dispute Resolution Appendix have
the corresponding meanings:
"COMPLEX DISPUTE LIST": The "Complex Dispute List," or if that
list is not then maintained by the American Arbitration
Association, another list of individuals having similar
qualifications maintained by the American Arbitration Association.
"INITIAL EXECUTIVE REVIEW COMMITTEE": A committee consisting of
the Managing Director of Financial Planning of AA, the Vice
President and Controller of SG, and the Managing Director of
Corporate Development of AMR.
"SECOND EXECUTIVE REVIEW COMMITTEE": A committee consisting of the
Vice President and Controller of AA and the Senior Vice President
and Chief Financial Officer of SG.
"QUALIFICATIONS": Inclusion in the Complex Dispute List or having
extensive knowledge or experience, or both, regarding management
services similar to the Service or Services that are the subject of
the Dispute.
The interpretative matters set forth in the Definitional Appendix also
apply to this Dispute Resolution Appendix.
B. Dispute Resolution Procedure.
1. General Procedure. Except as otherwise stated in the Agreement,
the Parties shall resolve all Disputes in accordance with this
procedure:
(a) Each Party shall instruct its Representative to promptly
negotiate in good faith with the other Party's Representative
to resolve the Dispute.
(b) If the Representatives do not resolve the Dispute within ten
Business Days (or such longer period as the Representatives
may agree) after the date of referral of the Dispute to them,
the Dispute shall be referred (by either or both of the
Representatives) to the Initial Executive Review Committee for
resolution.
(c) If the Initial Executive Review Committee does not resolve the
Dispute within ten Business Days (or such longer period as
that Committee may agree) from the date of referral to it, the
Dispute shall be referred (by that Committee or any of its
members) to the Second Executive Review Committee for
resolution.
(d) If the Second Executive Review Committee does not resolve the
Dispute within ten Business Days (or such longer period as
that Committee may agree) after the date of referral to it,
either Party may submit the Dispute for resolution by the
Parties'
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Presidents, who may submit the Dispute to non-binding
mediation in accordance with Section B.2 of this Dispute
Resolution Appendix.
(e) If the Dispute is not resolved by the Parties' Presidents (if
submitted to them) and is not submitted to or resolved by
mediation, then either Party may submit the Dispute to binding
arbitration in accordance with Section B.3 of this Dispute
Resolution Appendix.
A referral under any of Sections B.1(a), B.1(b), and B.1(c) of this
Dispute Resolution Appendix shall be made by written notice to the
Persons designated in the applicable Section or Sections. That notice
shall be in a form described in the Agreement or an electronic mail
message and addressed to each Person at his office address or
electronic mail address; each notice shall be given and effective as
described in the Agreement or, in the case of electronic mail, upon
actual receipt. The date of referral is the last date that notice is
given to all of the Persons to whom the Dispute must have been
referred.
2. Mediation. The mediation of an unresolved Dispute shall be
conducted in this manner:
(a) Either Party may submit the Dispute to mediation by giving
notice of mediation to the other Party. The Parties shall
attempt to agree upon and appoint a sole mediator who has the
Qualifications promptly after that notice is given.
(b) If the Parties are unable to agree upon a mediator within ten
days after the date the Dispute is submitted to mediation,
either Party may request the Dallas office of the American
Arbitration Association to appoint a mediator who has the
Qualifications. The mediator so appointed shall be deemed to
have the Qualifications and to be accepted by the Parties.
(c) The mediation shall be conducted in the Dallas-Fort Worth
metropolitan area at a place and a time agreed by the Parties
with the mediator, or if the Parties cannot agree, as
designated by the mediator. The mediation shall be held
within 20 days after the mediator is appointed.
(d) If either Party has substantial need for information from the
other Party in order to prepare for the mediation, the Parties
shall attempt to agree on procedures for the formal exchange
of information; if the Parties cannot agree, the mediator's
determination shall be effective.
(e) Each Party shall be represented in the mediation by at least
its Representative or another natural Person with authority to
settle the Dispute on behalf of that Party and, if desired by
that Party, by counsel for that Party. The Parties'
representatives in the mediation shall continue with the
mediation as long as the mediator requests.
(f) The mediation shall be subject to Chapter 154 of Title 7 of
the Texas Civil Practice and Remedies Code.
(g) Unless otherwise agreed by the Parties, each Party shall pay
one-half of the mediator's fees and expenses and shall bear
all of its own expenses in connection with the mediation.
Neither Party may employ or use the mediator as a witness,
consultant, expert, or counsel regarding the Dispute or any
related matters.
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<PAGE> 43
3. Arbitration. The arbitration of an unresolved Dispute shall be
conducted in this manner:
(a) Either Party may begin arbitration by filing a demand for
arbitration in accordance with the Arbitration Rules. The
Parties shall attempt to agree upon and appoint a panel of
three arbitrators promptly after that demand is filed. Each
of those arbitrators must have the Qualifications, and at
least one of those arbitrators must be included in the Complex
Dispute List (unless no list of that kind is then maintained).
(b) If the Parties are unable to agree upon any or all of the
arbitrators within ten days after the demand for arbitration
was filed (and do not agree to an extension of that ten-day
period), either Party may request the Dallas office of the
American Arbitration Association to appoint the arbitrator or
arbitrators, who have the Qualifications (and at least one of
whom must be included in the Complex Dispute List, unless no
list of that kind is then maintained), necessary to complete
the panel in accordance with the Arbitration Rules. Each
arbitrator so appointed shall be deemed to have the
Qualifications and to be accepted by the Parties as part of
the panel.
(c) The arbitration shall be conducted in the Dallas-Fort Worth
metropolitan area at a place and a time agreed by the Parties
with the panel, or if the Parties cannot agree, as designated
by the panel. The panel may, however, call and conduct
hearings and meetings at such other places as the Parties may
agree or as the panel may, on the motion of one Party,
determine to be necessary to obtain significant testimony or
evidence.
(d) The Parties shall attempt to agree upon the scope and nature
of any discovery for the arbitration. If the Parties do not
agree, the panel may authorize any and all forms of discovery,
including depositions, interrogatories, and document
production, upon a showing of particularized need that the
requested discovery is likely to lead to material evidence
needed to resolve the Dispute and is not excessive in scope,
timing, or cost.
(e) The arbitration shall be subject to the Federal Arbitration
Act and conducted in accordance with the Arbitration Rules to
the extent they do not conflict with this Section B.3 of this
Dispute Resolution Appendix. The Parties and the panel may,
however, agree to vary the provisions of this Section B.3 of
this Dispute Resolution Appendix or the matters otherwise
governed by the Arbitration Rules.
(f) The panel has no power to:
(i) rule upon or grant any extension, renewal, or
continuance of the Agreement;
(ii) award remedies or relief either expressly prohibited
by the Agreement or under circumstances not permitted
by the Agreement; or
(iii) grant provisional or temporary injunctive relief
before rendering the final decision or award.
(g) Unless the Parties otherwise agree, all Disputes regarding or
related to the same topic or event that are subject to
arbitration at one time shall be consolidated in a single
arbitration proceeding.
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(h) A Party or other Person involved in an arbitration under this
Section B.3 may join in that arbitration any Person other than
a Party if
(i) the Person to be joined agrees to resolve the
particular dispute or controversy in accordance with
this Section B.3 and the other provisions of this
Dispute Resolution Appendix applicable to
arbitration; and
(ii) the panel determines, upon application of the Person
seeking joinder, that the joinder of that other
Person will promote the efficiency, expedition, and
consistency of the result of the arbitration and will
not unfairly prejudice any other party to the
arbitration.
(i) The arbitration hearing shall be held within 30 days after the
appointment of the panel. Upon request of either Party, the
panel shall arrange for a transcribed record of the
arbitration hearing, to be made available to both Parties.
(j) The panel's final decision or award shall be made within 30
days after the hearing. That final decision or award shall be
made by unanimous or majority vote or consent of the
arbitrators constituting the panel, and shall be deemed issued
at the place of arbitration. The panel shall issue a reasoned
written final decision or award based on the Agreement and
Texas law; the panel may not act according to equity and
conscience or as an amicable compounder or apply the law
merchant.
(k) The panel's final decision or award may include:
(i) recovery of Damages to the extent permitted by the
Agreement; or
(ii) injunctive relief in response to any actual or
threatened breach of the Agreement or any other
actual or threatened action or omission of a Party
under or in connection with the Agreement.
(l) The panel's final decision or award shall be final and binding
upon the Parties, and judgment upon that decision or award may
be entered in any court having jurisdiction over either or
both of the Parties or their respective assets. The Parties
specifically waive any right they may have to apply or appeal
to any court for relief from the preceding sentence or from
any decision of the panel made, or any question of law
arising, before the final decision or award. If any decision
by the panel is vacated for any reason, the Parties shall
submit that Dispute to a new arbitration in accordance with
this Section B.3.
(m) Each Party shall pay one-half of the arbitrators' fees and
expenses, and shall bear all of its own expenses in connection
with the arbitration. The panel has the authority, however,
to award recovery of all costs and fees (including attorneys'
fees, administrative fees and the panel's fees and expenses)
to the prevailing Party in the arbitration.
4. Recourse to Courts. Nothing in the Dispute Resolution Procedure
limits the right of either Party to apply to a court or other
tribunal having jurisdiction to:
(a) enforce the Dispute Resolution Procedure, including the
agreement to arbitrate in this Dispute Resolution Appendix;
Management Services Agreement
39
<PAGE> 45
(b) seek provisional or temporary injunctive relief, in response
to an actual or impending breach of Article 10 of the
Agreement or otherwise so as to avoid irreparable damage or
maintain the status quo, until a final arbitration decision or
award is rendered or the Dispute is otherwise resolved; or
(c) challenge or vacate any final arbitration decision or award
that does not comport with Section B.3 of this Dispute
Resolution Appendix.
5. Submission to Jurisdiction. Each Party irrevocably submits to the
jurisdiction of the federal courts of the United States and the
state courts of Texas located in Tarrant County, Texas. Each Party
waives any defense or challenge to that jurisdiction based on lack
of personal jurisdiction, improper venue, or inconvenience of
forum.
6. Confidentiality. The proceedings of all negotiations, mediations,
and arbitrations as part of the Dispute Resolution Procedure shall
be privately conducted. The Parties shall keep confidential all
conduct, negotiations, documents, decisions, and awards in
connection with those proceedings under the Dispute Resolution
Procedure.
Management Services Agreement
40
<PAGE> 46
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
APPENDIX TO
THE MANAGEMENT SERVICES AGREEMENT
- --------------------------------------------------------------------------------
1
<PAGE> 47
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
TABLE OF CONTENTS:
Tax Administration Service (Mandatory) . . . . . . . . . . . . . . . . . 5
Human Resources Government Reporting Service (Mandatory) . . . . . . . . 7
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
Tulsa Facilities Maintenance Service (Mandatory) . . . . . . . . . . . . 9
Cash Accounting Service. . . . . . . . . . . . . . . . . . . . . . . . . 11
Receivables Service. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Payroll Production Service . . . . . . . . . . . . . . . . . . . . . . . 13
Payroll Tax Accounting Service . . . . . . . . . . . . . . . . . . . . . 15
Payroll Customer Service . . . . . . . . . . . . . . . . . . . . . . . . 16
Disbursements Production Service . . . . . . . . . . . . . . . . . . . . 17
Human Resources Administration . . . . . . . . . . . . . . . . . . . . . 18
Employee Relations Service . . . . . . . . . . . . . . . . . . . . . . . 19
DOT Drug Testing Service . . . . . . . . . . . . . . . . . . . . . . . . 20
Medical Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Banking Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Corporate Finance Service. . . . . . . . . . . . . . . . . . . . . . . . 24
Tax Administration Services (Optional) . . . . . . . . . . . . . . . . . 25
Government Affairs Service . . . . . . . . . . . . . . . . . . . . . . . 27
SABRE Supply Management Service. . . . . . . . . . . . . . . . . . . . . 28
Corporate Security Service . . . . . . . . . . . . . . . . . . . . . . . 29
Safety Administration Service. . . . . . . . . . . . . . . . . . . . . . 30
Business Insurance Administration Service. . . . . . . . . . . . . . . . 31
- --------------------------------------------------------------------------------
2
<PAGE> 48
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
TABLE OF CONTENTS CONTINUED:
Pension Fund & 401K Administration Service . . . . . . . . . . . . . . . 32
Corporate Affairs Service. . . . . . . . . . . . . . . . . . . . . . . . 33
MCLA Division Service. . . . . . . . . . . . . . . . . . . . . . . . . . 34
Financial Systems Service. . . . . . . . . . . . . . . . . . . . . . . . 35
AMR China Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Legal Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Audit Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Corporate Real Estate Service. . . . . . . . . . . . . . . . . . . . . . 42
Corporate Communications Service . . . . . . . . . . . . . . . . . . . . 44
Other Airline (OA) Personal Travel Administration Service. . . . . . . . 45
Other Airline (OA) Business Travel Administration Service. . . . . . . . 46
International Division Services. . . . . . . . . . . . . . . . . . . . . 48
General Services Department. . . . . . . . . . . . . . . . . . . . . . . 49
General Services' Pass-Through Expenses Service. . . . . . . . . . . . . 50
Corporate Travel Desk Service. . . . . . . . . . . . . . . . . . . . . . 51
Printing Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
- --------------------------------------------------------------------------------
3
<PAGE> 49
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
TABLE OF CONTENTS CONTINUED:
Facilities Maintenance - CPIV. . . . . . . . . . . . . . . . . . . . . . 53
Facilities Maintenance - STIN. . . . . . . . . . . . . . . . . . . . . . 54
Facilities Maintenance Pass-Through Expense Service. . . . . . . . . . . 55
Utilities Management Service . . . . . . . . . . . . . . . . . . . . . . 56
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
AA Corporate Apartment Service . . . . . . . . . . . . . . . . . . . . . 58
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- --------------------------------------------------------------------------------
4
<PAGE> 50
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE I
TAX ADMINISTRATION SERVICE (MANDATORY)
DESCRIPTION OF SERVICE: Tax Administration is defined as tax research and
planning and tax return preparation in compliance with tax statutes and
regulations. Tax Administration related to US federal and state income tax
planning and compliance will be a Mandatory Service. All other Tax
Administration Services will be Optional Services and are described on Schedule
XVI. The Tasks to be performed under Tax Administration Service (Mandatory)
include, without limitation:
A) U.S. federal and state income tax compliance
i. tax return preparation and tax payment processing
ii. representation on audits and contests
iii. management of development of tax and accounting systems to
minimize compliance costs
B) U.S. federal and state income tax accounting and reporting
i. income tax account analysis
ii. tax provision accounting
C) U.S. federal and state income tax planning and projects
i. research and planning to assess impact of taxes on operations
and on proposed transactions
ii. legislative and regulatory monitoring
HOURLY RATE DURING 1996: $ See note A
FIXED AMOUNT FOR 1996: $ 16,296
TOTAL ESTIMATED COST FOR 1996: $ 220,716
- --------------------------------------------------------------------------------
5
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AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
TAX ADMINISTRATION SERVICE (MANDATORY)
BASIS FOR PRICE: The Tasks to be performed are use-based. The monthly
invoiced amount will be the product of the AA Tax department's hourly rate and
the billable hours required to perform the Tasks described above. The Tax
Department may Subcontract when necessary. All costs of Subcontracting will be
"passed-through" at AA cost to the SABRE Group. The Fixed Amount of the Tax
Administration Service is the allocation of unmargined Private Payroll
representing the oversight responsibility of the VP Corporate Development &
Treasury. The Fixed Amount of the Tax Administration Service will be invoiced
in 12 equal installments, and the Fixed Amount will not vary if any one or more
of the use-based Tasks are dropped. The annual cost to provide the service is
the sum of the Fixed Amount and the usage at the hourly rate.
NOTE A: Schedule of Hourly Rates
Level 8 $130 hr
7 $102 hr
6 $ 88 hr
5 $ 77 hr
4 $ 65 hr
3 $ 59 hr
---------------
- --------------------------------------------------------------------------------
6
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AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE II
HUMAN RESOURCES GOVERNMENT REPORTING SERVICE (MANDATORY)
DESCRIPTION OF SERVICE: Tasks performed to ensure that the SABRE Group is in
compliance with U.S. Federal human-resources-related reporting statutes. The
Tasks to be performed will consist of:
A) Summary Plan Descriptions
S) Pension Annual Reporting and Disclosure, maintaining ERISA
administration requirements, plan documentation, research and
analysis, ADA accommodations, and Affirmative Action / Department of
Labor / EEO administration
FIXED PRICE FOR 1996: $92,849
MONTHLY INVOICED AMOUNT DURING 1996: $ 7,737
BASIS FOR PRICE: The Tasks described above will be performed on a fixed-price
basis. The price is based on AA Human Resources' fully-allocated costs. The
fixed price will be invoiced in 12 equal installments during the calendar year.
The annual Price of the Human Resources Service will include an allocation of
unmargined Private Payroll representing the oversight responsibility of the
V.P. Human Resources (equaling $2,143 for 1996), and will not vary with changes
in the Service Level of this Service.
---------------
- --------------------------------------------------------------------------------
7
<PAGE> 53
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
2 PAGES REDACTED
- --------------------------------------------------------------------------------
8
<PAGE> 54
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE IV.
TULSA FACILITIES MAINTENANCE SERVICE (MANDATORY)
DESCRIPTION OF SERVICE: This Service must be rendered or provided at the
Tulsa Office Center and Tulsa Computer Center (the "Tulsa Campus") as it
involves AA's use of its employees who are members of the Transport Workers
Union ("TWU") working at the Tulsa Campus in accordance with these terms:
1.) The SABRE Group may obtain the Service or any of the Tasks from a
Person other than AA, so long as the SABRE Group continues to pay for the TWU
Employees, to the extent that
a) the Service or Task are beyond the scope of normal operations
for the TWU Employees, or
b) the TWU Employees are too few, or do not have the sufficient
equipment or facilities, to perform the Service or Task.
2.) AA's Director of Facilities Maintenance of the TWU Employees shall
a) ensure that adequate qualified manpower is available at the
Tulsa Campus to perform the Tasks as described in this
Schedule;
b) administer appropriate discipline to any TWU Employees who has
violated applicable AA rules and regulations or AA/TWU
contractual requirements;
c) relocate from the Tulsa Campus, as soon as reasonably
practicable (in light of AA's legal obligations) after the
reasonable request of the SG Director (as defined below), any
TWU Employee who has violated any other AA's applicable
employment or workplace regulation, or has been deemed to be
a threat, or to jeopardize, the operational integrity of the
Tulsa Campus or its systems; and
d) delegate to the SABRE Group's Director of Technical Support
("SG Director") the authority to coordinate the daily work
activities performed by the TWU Employees.
3.) [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
- --------------------------------------------------------------------------------
9
<PAGE> 55
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
TULSA FACILITIES MAINTENANCE SERVICE (MANDATORY) -CONTINUED:
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
The Tasks to be performed by the TWU Employees will consist of:
A) Operate all Heating, Ventilation and Air Conditioning (HVAC) equipment
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
B) Operate all Uninterruptible Power Supply (UPS) System
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
C) Install power to mainframe computers and peripheral equipment
D) Accomplish all electrical maintenance and repairs
E) Install chilled water piping to mainframe computer
F) Janitorial Services [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
G) Shipping and Receiving [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
BASIS FOR PRICE: The Tasks to be performed are use-based. The monthly
invoiced amount will be based on the volume of the Tasks performed. The price
is based on the fully-allocated costs of providing the service, including:
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
- --------------------------------------------------------------------------------
10
<PAGE> 56
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE V.
CASH ACCOUNTING SERVICE
DESCRIPTION OF SERVICE: The Tasks to be performed by the AA Corporate
Accounting Department will consist of:
A) Reconciliation of domestic bank accounts
B) Identification and resolution of cash irregularities and cash
reporting issues
C) Primary internal control relative to cash
D) Recognition of foreign currency adjustments
E) Investigation, resolution and subsequent clearing of reconciling items
FIXED PRICE FOR 1996: $143,956
MONTHLY INVOICED AMOUNT DURING 1996: $ 11,996
BASIS FOR PRICE: The Tasks described above will be performed on a fixed-price
basis. The price is based on AA Corporate Accounting's fully-allocated costs
plus a margin. The fixed price will be invoiced in 12 equal installments
during the calendar year. The annual Price of the Cash Accounting Service will
include an allocation of unmargined Private Payroll representing the oversight
responsibility of the V.P. & Controller (equaling $9,115 for 1996), and will
not vary with changes in the Service Level of this Service.
---------------
- --------------------------------------------------------------------------------
11
<PAGE> 57
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE VI.
RECEIVABLES SERVICE
DESCRIPTION OF SERVICE: The Tasks to be performed by the AA Corporate
Receivables Department will consist of:
A) Receivable Billing/Accounting -
i. Bill posting to the receivable sub-ledger system
ii. Cash applications
iii. Coordination of settlement with Airlines Clearing House, or
IATA Clearing House
iv. Account reconciliation, and receivable servicing.
FIXED PRICE FOR 1996: $57,688
MONTHLY INVOICED AMOUNT DURING 1996: $ 4,807
BASIS FOR PRICE: The Tasks described above will be performed on a fixed-price
basis. The price is based on AA Corporate Receivables Department's
fully-allocated costs plus a margin. The fixed price will be invoiced in 12
equal installments during the calendar year. The annual Price of the
Receivables and Credit Analysis Service will include an allocation of
unmargined Private Payroll representing the oversight responsibility of the
V.P. & Controller (equaling $3,653 for 1996), and will not vary with changes in
the Service Level of this Service.
---------------
- --------------------------------------------------------------------------------
12
<PAGE> 58
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE VII.
PAYROLL PRODUCTION SERVICE
DESCRIPTION OF SERVICE: Responsible for the calculation and distribution of
payroll checks and incentive compensation checks. The Tasks to be performed
consist of:
A) Regular Checks - Processing of regular paychecks on a weekly,
bi-weekly, and semi-monthly basis
B) Remote Checks - Processing of remote or supplemental paychecks for
adjustments
C) Gross Pay Adjustments to be completed during the next regular pay
period
D) Garnishments
E) Stop Payments for lost or stolen paychecks
F) Bonuses and Special Payments - Processing of special payments that
require development changes
ESTIMATED COST FOR 1996: [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION]
FIXED AMOUNT FOR 1996: [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION]
RATE DURING 1996:
Garnishments [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
Regular Checks [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
Remote Checks [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
Stop Payment [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
BASIS FOR PRICE: The Tasks to be performed are use-based. The monthly
invoiced amount will be the product of the AA Payroll Production's rates and
the volume of products used. The Fixed Amount of the Payroll Production
Service is the allocation of unmargined Private Payroll representing the
oversight responsibility of the V.P. & Controller. The Fixed Amount of the
Payroll
- --------------------------------------------------------------------------------
13
<PAGE> 59
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
Production Service will be invoiced in 12 equal installments, and the Fixed
Amount will not vary if any one or more of the use-based Tasks are dropped.
The annual cost to provide the service is the sum of the Fixed Amount and the
usage at the rates specified above.
---------------
- --------------------------------------------------------------------------------
14
<PAGE> 60
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE VIII.
PAYROLL TAX ACCOUNTING SERVICE
DESCRIPTION OF SERVICE: The Tasks to be performed by the AA Payroll Tax
Accounting Department will consist of:
A) Payroll Taxes - Charges for the collection, remittance and accounting
for payroll taxes and other moneys collected from employee paychecks.
The cost is driven by the number of payroll checks that are processed
in one calendar year.
B) Payroll Tax Reporting - Charges for reporting for Federal and State
withholding and unemployment taxes. The costs are driven by the
number of states worked.
C) Unemployment taxes - Services are currently SUBCONTRACTED TO FRICK,
INC. Frick, Inc. is responsible for processing all claims for
unemployment compensation claims, the monitoring the charges to SABRE
GROUP unemployment accounts in each state, and the rates assigned by
the States.
D) Payroll Tax Year End - Charges for the year end production of annual
wage and tax statements. The cost is driven by the number of W-2s
issued in one calendar year, and the number of states worked.
ESTIMATED COST FOR 1996:[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION]
FIXED AMOUNT FOR 1996:[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH
THE COMMISSION]
RATES DURING 1996:
A) Payroll Tax [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH
THE COMMISSION]
B) Payroll Tax Reporting [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
C) Unemployment Tax [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION]
D) Payroll Tax Year End [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
BASIS FOR PRICE: The Tasks to be performed are use-based. The price is based
on AA Payroll Tax Accounting's fully-allocated costs plus a margin. The Fixed
Amount portion of the Payroll Tax Accounting Service is the allocation of
unmargined Private Payroll representing the oversight responsibility of the
V.P. & Controller. The Fixed Amount of the Payroll Tax Accounting Service will
be invoiced in 12 equal installments, and the Fixed Amount will not vary if any
one or more of the use-based Tasks are dropped. The annual cost to provide the
service is the sum of the Fixed Amount and the usage at the rates specified
above.
----------------
- --------------------------------------------------------------------------------
15
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AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE IX.
PAYROLL CUSTOMER SERVICE
DESCRIPTION OF SERVICE: The Tasks to be performed by the AA Payroll Customer
Service Department will consist of:
A) Employment Verification - Completion of the wage and employment
information requested by lending institutions. THE $10 FEE
IS PAID BY LENDING INSTITUTIONS.
B) W-2 Reissues - $10 Fee for current year W-2 copy issued 4/15 to 12/31.
$20 fee for past year W-2. Additional $5.00 expedite fee for fax of
Fed Ex delivery. ALL FEES ARE PAID BY SABRE GROUP EMPLOYEES.
C) Employment Receivables - The administration and collection of
balances from employees for advances, uniforms, and salary
overpayments, check distribution special handling.
ESTIMATED COST FOR 1996: $2,534
RATE DURING 1996: $18.84 hour for Task C
FIXED AMOUNT FOR 1996: $ 171
BASIS FOR PRICE: The Tasks to be performed are use-based. The monthly
invoiced amount will be the product of the AA Payroll Customer Service's hourly
rate and the number of hours to perform the Tasks. The Fixed Amount of the
Payroll Customer Service is the allocation of unmargined Private Payroll
representing the oversight responsibility of the V.P. & Controller. The Fixed
Amount of the Payroll Customer Service will be invoiced in 12 equal
installments, and the Fixed Amount will not vary if any one or more of the
use-based Tasks are dropped. The annual cost to provide the Service is the sum
of the Fixed Amount and the usage at the hourly rate.
----------------
- --------------------------------------------------------------------------------
16
<PAGE> 62
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE X.
DISBURSEMENTS PRODUCTION SERVICE
DESCRIPTION OF SERVICE: The Tasks to be performed by the AA Corporate
Disbursements will consist of:
A) Usage of EDI Mailbox and translator,(1)
B) Other EDI
C) Audit and Processing of contract based payments
ESTIMATED COST FOR 1996:(1)
RATES DURING 1996:
A) EDI Mailbox usage1
B) Other EDI 1
C) Audit and Processing Relocation requests1
FIXED AMOUNT FOR 1996:(1)
BASIS FOR PRICE: The Tasks to be performed are use-based. The monthly
invoiced amount will be the product of the AA Corporate Disbursement's rates
and the volume of Tasks performed. The Fixed Amount of the Disbursements
Production Service is the allocation of unmargined Private Payroll representing
the oversight responsibility of the V.P. & Controller. The Fixed Amount of
the Disbursement Production Service will be invoiced in 12 equal installments,
and the Fixed Amount will not vary if any one or more of the use-based Tasks
are dropped. The annual cost to provide the Service is the sum of the Fixed
Amount and the usage at the rates specified above.
----------------
- ---------------------------------
(1) [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
- --------------------------------------------------------------------------------
17
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AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XI.
HUMAN RESOURCES ADMINISTRATION
DESCRIPTION OF SERVICES: AA Human Resources Department is responsible for
performing the following Services (and not merely Tasks) for the SABRE Group.
<TABLE>
<CAPTION>
FIXED
SERVICE DESCRIPTION PRICE
- --------- ----------- -----
<S> <C> <C>
A) Providing and Managing Health and Welfare Benefits $ 452,526
C) Management and Professional Recruitment $ 49,269
D) College Recruitment $ 85,499
E) Support Staff Recruitment 56,617
G) Managing Employee Information and Documentation $ 29,630
H) Managing Employee Performance and Terminations $ 163,539
I) Compensating Employees and Job Leveling $ 3,776
J) Bonus Commission Programs $ 9,901
O) Providing Retirement Benefits $ 110,980
Q) Training Management $ 107,667
S) CEIS $ 45,365
T) Providing and Managing Workers Compensation $ 64,471
U) Supporting International Locations $ 190,318
W) Facilitating Management Career Moves $ 220,236
X) Developing Admin / Interpreting Corporate Policy $ 178,401
Y) Assisting AMR Executives - Executive administration $ 65,426
AA) Admin Travel Policy (Listed for Admin billing purposes only. $ 28,909
No additional charge for this service is imposed in the
Travel Privileges Agreement)
BB) Evaluating Employees and their Performance/Progress $ 65,799
DD) Providing Service Pins $ 13,837
EE) Relocating Employees $ 30,484
FF) Admin and Cost Control $ 103,356
</TABLE>
TOTAL FIXED PRICE FOR 1996: $2,125,052
MONTHLY INVOICED AMOUNT DURING 1996: $ 177,088
BASIS FOR PRICES: Each of the Services described above will be performed on a
fixed-price basis. The price is based on AA Human Resources' fully-allocated
costs plus a margin. The fixed price will be invoiced in 12 equal installments
during the calendar year. The annual price of the Human Resources Service will
include an allocation of unmargined Private Payroll representing the oversight
responsibility of the V.P. Human Resources (equaling $49,046 for 1996), and
will not vary with the discontinuance of any one or more of the Services
(unless all of the Services in this Schedule are discontinued).
----------------
- --------------------------------------------------------------------------------
18
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AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XII.
EMPLOYEE RELATIONS SERVICE
DESCRIPTION OF SERVICE: The Tasks to be performed by the AA Employee
Relations Department will consist of:
A) Negotiation of TWU Contracts
B) Labor Contract Administration
C) Formulate and Implement Labor Policy
D) Administration of Grievance Process
E) Representation of AMR Interests in Arbitration Proceedings
F) Coordination of AMR Policy toward Labor Law Legislation
G) Strategic Communication of Labor Initiatives
FIXED PRICE FOR 1996: $12,487
MONTHLY INVOICED AMOUNT DURING 1996: $ 1,041
BASIS FOR PRICE: The Task described above will be performed on a fixed-price
basis. The price is based on AA Employee Relations' fully-allocated costs plus
a margin. The fixed price will be invoiced in 12 equal installments during the
calendar year.
----------------
- --------------------------------------------------------------------------------
19
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AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XIII.
DOT DRUG TESTING SERVICE
DESCRIPTION OF SERVICE: The Tasks to be performed by the AA Medical
Department will consist of:
A) Random Drug and Alcohol Testing - includes Testing administered for
reasonable cause
B) Pre-employment Drug Screen
FIXED PRICE FOR 1996: $374
MONTHLY INVOICED AMOUNT DURING 1996: $ 32
BASIS FOR PRICE: The Tasks described above will be performed on a fixed-price
basis. The price is based on AA Medical Department's fully-allocated costs
plus a margin. The fixed price will be invoiced in 12 equal installments
during the calendar year.
----------------
- --------------------------------------------------------------------------------
20
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AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XIV.
MEDICAL SERVICES
DESCRIPTION OF SERVICE: AA Medical Department is responsible for performing
the following Tasks for the SABRE Group.
<TABLE>
<CAPTION>
1996
TASKS DESCRIPTION RATES
- ----- ----------- -----
<S> <C> <C>
A) Breast Cancer Education $211.50 per class
B) Babies and You Education $211.50 per class
C) Blood Borne Pathogen Avoidance Education $44.81 per hour
D) Ergonomics Awareness
i. Back Injury Prevention Training $125.45 per class
ii. Worksite Assessments $47.45 per hour
iii. Cumulative Trauma (Carpal Tunnel Prevention) $84.11 per class
E) Alcoholism Awareness and Training Treatment $72.25 per hour
F) Critical Incident Stress debriefings $86.71 per hour
G) Workers Comp Visits to the Clinic $49.66 per exam
H) Blood Borne Pathogen Follow-up Care $505.46 per case
I) EAP Follow-up and Monitoring $77.29 per hour
J) Top Officer Examinations $688.25 per exam
K) OSHA Required Safety and Respiratory Physicals $38.34 per exam
L) Medical Litigation Research and Testimony $142.63 per hour
M) Regulatory Date Maintenance $154.32 per hour
N) Immunization Alert $167.41 per hour
O) International Health Database $167.41 per hour
P) ADA Accommodation Committee Work $140.10 per hour
Q) Employee Assistance Program New Case Assessment and Referral $93.64 per case
R) Smoking Cessation $95.67 per hour
S) Maintain Mental Health Care PPN Network $86.94 per hour
T) Pre-Employment Medical Histories and Drug Screens $37.80 each
U) Occupational Visits to the Clinic $37.38 per visit
V) Reasonable cause Drug and Alcohol Screens $32.52 per test
</TABLE>
ESTIMATED COST FOR 1996: $265,280
FIXED AMOUNT FOR 1996: $ 21,277
BASIS FOR PRICE: The Tasks to be performed are use-based. The monthly
invoiced amount will be the product of the rates and the volume of the Tasks
performed. The Fixed Amount of the Medical Service is the allocation of
unmargined Private Payroll representing the oversight responsibility of the Sr.
V.P. Corporate Services. The Fixed Amount of the Medical Service will be
invoiced in 12 equal installments, and the Fixed Amount will not vary if any
one or more of the use-based Tasks are dropped. The annual cost to provide the
Service is the sum of the Fixed Amount and the usage at the rates specified
above.
----------------
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AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
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SCHEDULE XV.
BANKING SERVICE
DESCRIPTION OF SERVICE: The AA Treasury Department shall provide the SABRE
Group and its subsidiaries, and the SABRE Group shall use and shall cause it
subsidiaries to use, centralized cash management services provided by the AA
Treasury Department which are substantially the same as the cash management
services provided by AA to the SABRE Group and its subsidiaries immediately
prior to the Effective Date. The Tasks to be performed by the AA Treasury
Department will consist of:
A) Cash Management Strategies
i. optimize the utilization of the daily cash activity
ii. maintain separate bank accounts for the SABRE Group and, in
connection therewith, open and close bank accounts, as
required.
iii. design, develop and implement enhanced, practical,
cost-efficient cash management processes.
iv. negotiate for new improved bank services
v. review bank services and fees
B) Cash Mobilization (Process Detailed on following page)
i. initiate properly approved wire transfers
ii. collect all available bank account balances
iii. fund all disbursements accounts
iv. coordinate daily with AMR Investment Services for all cash
excess/shortfalls
v. generate, as needed, advance to and/or from AA
C) Coordination of Letters of Credit
D) Pass -Through expense of banking service charges
E) Cash Investment - transfer excess cash to AMR Investment Services,
which will invest such cash in a manner consistent with the investment
objectives utilized by AMR Investment Services for AMR Corporation and
its subsidiaries as of the date of this Agreement.
FIXED PRICE FOR 1996: $ 414,677
MONTHLY INVOICED AMOUNT DURING 1996: $ 34,556
BASIS FOR PRICE: The Tasks described above will be performed on a fixed-price
basis. The price is based on AA Treasury Department's fully-allocated costs
plus a margin. The fixed price will be invoiced in 12 equal installments
during the calendar year. The annual Price of the Banking Service will include
an allocation of unmargined Private Payroll representing the oversight
responsibility of the V.P. Corporate Development & Treasury (equaling $15,055
for 1996) and will not vary with changes in the Service Level of this Service.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
---------------
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AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
BANKING SERVICE DAILY CASH MOBILIZATION PROCESS (TASK B PREVIOUS PAGE)
8:00 - 8:30A - Retrieve Chase Manhattan's prior day's Balance and
Transaction Report (Infocash) for TSG's main account.
8:30 - 9:00A - Reconcile each cash receipt / disbursement on
Infocash to daily cash worksheet.
9:00 - 10:00A - Retrieve prior day's account balances from depository
banks.
- Access current day's presentments for controlled
disbursement accounts.
- View Chase's Intra-day Infocash report for main account.
10:00 - 10:30A - Prepare the cash worksheet for the day's activity.
- Compute the preliminary net cash position.
- Determine if any advances from / to AA are required.
- Notify AMR Investment Services of the cash status.
10:30 - 11:30A - Input electronic transfers.
- To concentrate receipts from depository banks into Chase
main account.
- To fund corporate payables and other bank accounts from
Chase main account.
- To remit 3rd party disbursements from main account.
11:30A - 12:00P - Review, approve, and release actual transfers (performed
by someone other than the cash mobilizer).
- Access Intra-day Infocash Report for any incremental
activity.
- Update daily cash worksheet.
- Notify AMR Investments of any significant changes.
12:00 - 2:00P - Access Intra-day Infocash Report for any further updates.
- Finalize your cash position with AMR Investment Services.
2:00 - 3:00P - Input electronic transfers for investment activity.
- Review, approve & release investment transfers.
- Close-out daily cash worksheet.
- Inform TSG of the day's net cash flow and ending
portfolio balance.
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AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
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SCHEDULE XVI.
CORPORATE FINANCE SERVICE
DESCRIPTION OF SERVICE: The Tasks to be performed by the AA Treasury
Department will consist of:
A) Coordination of Financing Decisions
B) Risk Assessment and Management
C) Financing Administration
FIXED PRICE FOR 1996: $31,399
MONTHLY INVOICED AMOUNT DURING 1996: $ 2,617
BASIS FOR PRICE: The Tasks described above will be performed on a fixed-price
basis. The price is based on the AA Treasury Department's fully-allocated
costs plus a margin. The fixed price will be invoiced in 12 equal installments
during the calendar year. The annual price of the Corporate Finance Service
will include an allocation of unmargined Private Payroll representing the
oversight responsibility of the V.P. Corporate Development & Treasury (equaling
$2,318 in 1996), and will not vary with changes in the Service Level of this
Service.
----------------
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24
<PAGE> 70
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XVII.
TAX ADMINISTRATION SERVICES (OPTIONAL)
DESCRIPTION OF SERVICE: Tax Administration other than Tax Administration
(Mandatory) as described on Schedule I. Tax Administration Services (Optional)
includes the following tax Services:
<TABLE>
<CAPTION>
SERVICES 1996 ESTIMATE
- -------- -------------
<S> <C>
A) Sales /use, excise, property and other transaction taxes $ 90,741
i. Tax return preparation and property tax rendition filing
ii Tax payment processing
iii. Audits and contests
iv. Research and planning
v. Monitor legislation and regulations effecting the business
vi. Tax accounting
B) International $ 71,073
i. Manage tax return preparation and VAT collection
calculations
ii. Foreign audits and contests
iii. Research and planning
iv. Monitor legislation and regulations effecting the business
v. Tax accounting
C) Systems Development $ 5,000
i. Develop design specifications for the new financial and
logistics systems to automate the tax functions
ii. Assisting in the developments of semi-automated accounting
systems
iii. Maintenance and modifications of tax systems
</TABLE>
HOURLY RATE DURING 1996: $ See Note A
ESTIMATED TIPS ALLOCATION FOR 1996: $ 30,000
FIXED AMOUNT FOR 1996: $ 15,184
TOTAL ESTIMATED COST FOR 1996: $ 205,660
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25
<PAGE> 71
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
TAX ADMINISTRATION SERVICE (OPTIONAL)
BASIS FOR PRICE: The Services to be performed are use-based. The monthly
invoiced amount will be the product of the AA Tax Department's hourly rate and
the billable hours required to perform the Tasks described above. In addition,
there will be an allocation of TIPS processing costs. TIPS development costs
related to SG Tax Administration will be charged directly to, or "passed
through" to The SABRE Group. The Tax Department may Subcontract when
necessary. All costs of Subcontracting will be "passed-through" at AA cost to
the SABRE Group. The Fixed Amount of the Tax Administration Service is the
allocation of unmargined Private Payroll representing the oversight
responsibility of the V.P. Corporate Development & Treasury. The Fixed Amount
of the Tax Administration Service will be invoiced in 12 equal installments,
and the Fixed Amount will not vary if any one or more of the use-based Services
are dropped. The annual cost to provide each of the services is the sum of the
Fixed Amount, the usage at the hourly rate and the allocable TIPS costs.
NOTE A: Schedule of Hourly Rates
Level 8 $130 hr
7 $102 hr
6 $ 88 hr
5 $ 77 hr
4 $ 65 hr
3 $ 59 hr
----------------
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26
<PAGE> 72
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XVIII.
GOVERNMENT AFFAIRS SERVICE
DESCRIPTION OF SERVICE: The Tasks to be performed by AA Government Affairs
will consist of:
A) U. S. Federal Government Relations
B) State and Local Government Relations
C) Coordination of AMR Lobbying Efforts at all levels of Government
FIXED PRICE FOR 1996: $268,808
MONTHLY INVOICED AMOUNT DURING 1996: $ 22,401
BASIS FOR PRICE: The Tasks described above will be performed on a fixed-price
basis. The price is based on AA Government Affairs' fully-allocated costs plus
a margin. The fixed price will be invoiced in 12 equal installments during the
calendar year. The annual Price of the Government Affairs Service will include
an allocation of unmargined Private Payroll representing the oversight
responsibility of the V.P. Government Affairs (equaling $51,189 for 1996), and
will not vary with changes in the Service Level of this Service.
----------------
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27
<PAGE> 73
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XIX.
SABRE SUPPLY MANAGEMENT SERVICE
DESCRIPTION OF SERVICE: The SABRE Supply Management Service will be performed
in accordance with a corresponding power of attorney granted to AA Purchasing.
The Tasks to be performed are needs identification, bid proposals, awarding
process, ordering process, delivery process, payment and maintenance process
for:
A) Hardware Purchases including Personal Computers, Telecommunications
Equipment, and Printers
B) Software Purchases and Licensing Agreements
C) Telecom Services and Maintenance Contracts
FIXED PRICE FOR 1996: $2,652,249
MONTHLY INVOICED AMOUNT DURING 1996: $ 221,021
BASIS FOR PRICE: The Tasks described above will be performed on a fixed-price
basis. The price is based on Purchasing SABRE Supply Management's
fully-allocated costs plus a margin. The fixed price will be invoiced in 12
equal installments during the calendar year. The annual Price of the SABRE
Supply Management Service will include an allocation of unmargined Private
Payroll representing the oversight responsibility of the V.P. Purchasing
(equaling $51,189 for 1996), and will not vary with changes in the Service
Level of this Service.
----------------
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28
<PAGE> 74
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XX.
CORPORATE SECURITY SERVICE
DESCRIPTION OF SERVICE: The Tasks to be performed by AA Corporate Security
will consist of:
A) Investigations
B) Consultation & Representation
C) Ticket Loss Prevention
D) Audits & Tests
E) Instruction
F) Administration
FIXED PRICE FOR 1996: $244,456
MONTHLY INVOICED AMOUNT DURING 1996: $ 20,371
BASIS FOR PRICE: The Tasks described above will be performed on a fixed-price
basis. The price is based on AA Corporate Security's fully-allocated costs
plus a margin. The fixed price will be invoiced in 12 equal installments
during the calendar year. The annual Price of the Corporate Security Service
will include an allocation of unmargined Private Payroll representing the
oversight responsibility of the Sr. V.P. Corporate Services (equaling $18,151
for 1996), and will not vary with changes in the Service Level of this Service.
----------------
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29
<PAGE> 75
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XXI.
SAFETY ADMINISTRATION SERVICE
DESCRIPTION OF SERVICE: The Tasks to be performed by AA Safety will consist
of:
A) Ground Safety
i. Employee Injury and Illness
ii. Ergonomic Program
iii. Safety Audits
iv. OSHA Administration
v. Industrial Hygiene Program
vi. Safety Training
B) Environmental Safety
i. Environmental Assessments
ii. Environmental Training
iii. Legal & Lobbying
iv. Environmental Regulations
v. Technical Assistance and Support
vi. Program and Professional Development Services
vii. Waste Minimization Programs
viii. Recycling Programs
FIXED PRICE FOR 1996: $16,290
MONTHLY INVOICED AMOUNT DURING 1996: $ 1,358
BASIS FOR PRICE: The Tasks described above will be performed on a fixed-price
basis. The price is based on AA Safety's fully-allocated costs plus a margin.
The fixed price will be invoiced in 12 equal installments during the calendar
year.
----------------
- --------------------------------------------------------------------------------
30
<PAGE> 76
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XXII.
BUSINESS INSURANCE ADMINISTRATION SERVICE
DESCRIPTION OF SERVICE: The Tasks to be performed by the AA Treasury
Department will consist of:
A) Negotiation of Insurance Policy Terms and Premiums
B) Contract Review and Revisions
C) Claims Handling
D) Calculation for the allocation of insurance premiums to the SABRE Group
SABRE Group may determine, in its discretion, whether to obtain its own
business insurance policies or to participate in one or more business insurance
policies obtained or arranged by AA or AMR. To the extent that SABRE Group
elects (by agreement with AA or AMR) to so participate, SABRE Group shall pay a
portion of the premiums for the insurance policies in which it participates
based on an allocation methodology agree upon by the Parties for those
policies.
FIXED PRICE FOR 1996: $133,336
MONTHLY INVOICED AMOUNT DURING 1996: $ 11,112
BASIS FOR PRICE: The Tasks described above will be performed on a fixed-price
basis. The price is based on the AA Treasury Department's fully-allocated
costs plus a margin. The fixed price will be invoiced in 12 equal installments
during the calendar year. The annual Price of the Business Insurance
Administration Service will include an allocation of unmargined Private Payroll
representing the oversight responsibility of the V.P. Corporate Development &
Treasury (equaling $2,336 for 1996), and will not vary with changes in the
Service Level of this Service.
----------------
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31
<PAGE> 77
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XXIII.
PENSION FUND & 401K ADMINISTRATION SERVICE
DESCRIPTION OF SERVICE: AMR Investments manages the Pension and 401K plans
for SABRE Group Employees. The fixed price represents the SABRE GROUP portion
of the pension fund Management Fee charged to AA by AMR Investments.
FIXED PRICE FOR 1996: [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH
THE COMMISSION]
MONTHLY INVOICED AMOUNT DURING 1996: [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
BASIS FOR PRICE: The Management Fee is on a fixed-price basis from AMR
Investments. The fixed price will be invoiced in 12 equal installments during
the calendar year.
-----------------
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32
<PAGE> 78
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XXIV.
CORPORATE AFFAIRS SERVICE
DESCRIPTION OF SERVICE: The Tasks to be performed by AA Corporate Affairs
will consist of the coordination of:
A) Community Relations
B) Federal and State Affairs
C) Airport Affairs
D) Administration
E) Coordination with Government Affairs
FIXED PRICE FOR 1996: $54,654
MONTHLY INVOICED AMOUNT DURING 1996: $ 4,555
BASIS FOR PRICE: The Tasks described above will be performed on a fixed-price
basis. The price is based on AA Corporate Affairs' fully-allocated costs plus
a margin. The fixed price will be invoiced in 12 equal installments during the
calendar year. The annual Price of the Corporate Affairs Service will include
an allocation of unmargined Private Payroll representing the oversight
responsibility of the V.P. Corporate Affairs (equaling $51,189 for 1996), and
will not vary with changes in the Service Level of this Service.
-----------------
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33
<PAGE> 79
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XXV.
MCLA DIVISION SERVICES
DESCRIPTION OF SERVICE: The Services (and not merely Tasks) to be performed
by AA MCLA Division from its Miami, Florida office will consist of the
following:
<TABLE>
<CAPTION>
SERVICE 1996 PRICE
- ------- ----------
<S> <C> <C>
A) Charge to the SABRE Group all expenses related to Pass-through Expense
SG employees remaining on the AA payroll in Latin
America and the Caribbean, including transferred
employees in Mexico and Peru
B) Accounting Functions performed for The SABRE Group, $206,888
Inc. including its direct and indirect
subsidiaries, SABRE International, in the Caribbean
and Latin America served as of the Effective Date
of this contract which consists of:
i. Invoice distribution
ii. Processing of payments collected
iii. Tax forms prepared by local AMR Accounting
Offices
iv. Statutory Invoicing procedures
C) Serve as Resident Agent for Service of Process and Pass-Through Expense
Attorney-in-Fact on Powers of Attorney in the
following countries:
i. Costa Rica, Jamaica, Panama, Trinidad &
Tobago, Barbados, Grenada, Belize and Bermuda
</TABLE>
FIXED PRICE FOR SERVICE B DURING 1996: $206,888
MONTHLY INVOICED AMOUNT FOR SERVICE B DURING 1996: $ 17,241
BASIS FOR PRICE: The Fixed Price is based on AA MCLA Division's
fully-allocated costs plus a margin. Pass-through expenses, for Services A
and C, represent costs incurred by AA to perform those Services to the SABRE
Group (margin not applied). Pass-through expenses will be invoiced each month
as incurred. The Fixed Price will be invoiced in 12 equal installments during
the calendar year.
----------------
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34
<PAGE> 80
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XXVI.
FINANCIAL SYSTEMS SERVICE
DESCRIPTION OF SERVICE: Tasks consist of providing usage of AA's FINPACS and
CLAS systems applications for the following functionality:
A) CLAS: to store salaries, benefits and equivalent headcount at SABR
Group cost center level before transferring data to SABRE Group
SAP. Salary calculations are performed outside CLAS by AA Payroll
Accounting. Benefits and equivalent calculations are performed by
FINPACS.
B) FINPACS: to generate equivalent headcount and Employee benefits at
SABRE Group cost center level before passing that information to
CLAS. The following methodology is used for monthly allocations.
i. Pensions - The actuarial firm of Alexander & Alexander
annually calculates the total external pension expense for
the SABRE Group. The estimated 1996 rates per employee's
salary charged to each cost
center are:
SABRE Group Management (Labor Groups 2,3,4,5) [CONFIDENTIAL
PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
SABRE Group Non-Management(Labor Groups 1XX, 710, 999)
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
True-ups to the SABRE Group external expense will
occur each month
ii. SABRE Group companies will have [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
withheld from total salaries as mandated by the Federal
Government. The rate is charged to each cost center based on
actual salaries with true-ups occurring monthly.
iii. Group Insurance - costs that AA incurs on behalf of each SABRE
Group Company employee. The 1996 per employee estimated rates
charged using actual physical headcount are:
SABRE Group Management (Labor Groups 2,3,4,5)
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
SABRE Group Non-Management(Labor Groups 1XX, 710, 999)
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
True-ups to the SABRE Group external expense will
occur semi-annually
iv. FAS 106 Retirement Benefits - The actuarial firm of Alexander
& Alexander annually calculates the total FAS 106 for SABRE
Group employees. The estimated 1996 rates charged using
actual physical headcount are:
SABRE Group Management (Labor Groups 2,3,4,5) [CONFIDENTIAL
PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
SABRE Group Non-Management(Labor Groups 1XX, 710, 999)
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
True-ups to the SABRE Group external expense will
occur each month
- --------------------------------------------------------------------------------
35
<PAGE> 81
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
v. Federal and State Unemployment Taxes - The SABRE Group will be
charged an annual [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION] per employee for federal
unemployment tax, and [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION] per employee for state
unemployment tax using actual physical headcount
True-ups to the SABRE Group external expense will
occur each month
- --------------------------------------------------------------------------------
36
<PAGE> 82
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
FINANCIAL SYSTEMS SERVICE CONTINUED
FIXED PRICE FOR 1996 [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH
THE COMMISSION]
MONTHLY INVOICED AMOUNT DURING 1996: [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
BASIS FOR PRICE: The Tasks described above will be performed on a fixed-price
basis. The price is based on AA Financial System's fully-allocated costs plus
a margin. The fixed price will be invoiced in 12 equal installments during the
calendar year. The annual Price of the Financial Systems Service will include
an allocation of unmargined Private Payroll representing the oversight
responsibility of the V.P. & Controller [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION], and will not vary with changes in the Service
Level of this Service.
-----------------
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37
<PAGE> 83
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XXVII.
AMR CHINA SERVICE
DESCRIPTION OF SERVICE: Tasks consist of supporting the SABRE GROUP
companies' business development in the Peoples Republic of China from both the
AA HDQ office and the Beijing office.
ESTIMATED COST FOR 1996: $564,900
Estimate of Monthly Cost for 1996: $ 47,075
BASIS FOR PRICE: The Tasks to be performed are use-based. The monthly
invoiced price will be 50% of the accumulated expenses authorized by the
President of AMR China and booked by AA Corporate Accounting during the
accounting month to perform the Service described above.
----------------
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38
<PAGE> 84
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XXVIII.
LEGAL SERVICES
DESCRIPTION OF SERVICE: Tasks will consist of the rendering professional
legal services for matters in the following areas:
A) Labor and Employment Law
i. Labor Litigation
ii. Equal Employment Opportunity Commission Claims (EEOC)
iii. Department of Human Rights Claims (DHR)
iv. Railway Labor Act Issues and Claims
v. OSHA Issues and Claims
vi. Environmental Issues and Claims
vii. Immigration Filings
viii. Garnishments
ix. ERISA Issues
B) Litigation
i. Commercial Litigation
ii. Antitrust Litigation
iii. EC Regulation
iv. CRS Issues
v. Federal Aviation Administration Issues and Claims (FAA)
vi. Subpoenas
C) Corporate Law
i. Contract Review and Preparation
ii. Mergers and Acquisitions
iii. Corporate Registrations
iv. Corporate and Securities law compliance
v. Real Estate
vi. Bankruptcy
vii. Intellectual Properties
viii. Customs
D) Corporate Finance
i. Public Financing
ii. Private Financing
iii. SEC Regulations
E) Regulatory Matters
i. General Governmental Matters
ii. DOT Route Proceedings
iii. DOT Regulatory Matters
- --------------------------------------------------------------------------------
39
<PAGE> 85
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
LEGAL SERVICES CONTINUED
ESTIMATED COST FOR 1996: $2,100,000
HOURLY RATES DURING 1996:
Associate General Counsel $ 123
Sr. Attorney $ 92
Attorney $ 80
Paralegal $ 35
FIXED AMOUNT FOR 1996: $ 51,189
BASIS FOR PRICE: The Tasks to be performed are use-based. The monthly
invoiced amount will be the product of the AA Legal Department's hourly rate
and the billable hours required to perform the Tasks described above. The AA
Legal Department may Subcontract when necessary. All costs of Subcontracting
will be "passed-through" at AA cost to the SABRE Group. The Fixed Amount of
the Legal Service is the allocation of unmargined Private Payroll representing
the oversight responsibility of the V.P. Corporate Secretary. The Fixed Amount
of the Legal Service will be invoiced in 12 equal installments, and the Fixed
Amount will not vary if any one or more of the use-based Services are dropped.
The annual applicable cost to provide the Service is the sum of the Fixed
Amount and the usage at the hourly rates.
----------------
- --------------------------------------------------------------------------------
40
<PAGE> 86
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XXIX.
AUDIT SERVICE
DESCRIPTION OF SERVICE: Conducting internal audits and coordinating external
audit functions.
ESTIMATED COST FOR 1996: $ 605,221
ESTIMATED MONTHLY COST FOR 1996: $ 50,435
HOURLY RATES DURING 1996:
IT Audits $ 84
Corporate Audits $ 64
FIXED AMOUNT FOR 1996: $ 51,189
BASIS FOR PRICE: The Tasks to be performed are use-based. The monthly
invoiced amount will be the product of the AA Audit's hourly rates and the
billable hours required to perform the Tasks described above. The AA Audit
Department may Subcontract when necessary. All costs of Subcontracting will be
"passed-through" at AA cost to the SABRE Group. The Fixed Amount of the Audit
Service is the allocation of unmargined Private Payroll representing the
oversight responsibility of the Sr. V.P. and General Counsel. The Fixed Amount
of the Audit Service will be invoiced in 12 equal installments, and the Fixed
Amount will not vary if any one or more of the use-based Services are dropped.
The annual cost to provide the Service is the sum of the Fixed Amount and the
usage at the hourly rates.
----------------
- --------------------------------------------------------------------------------
41
<PAGE> 87
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XXX.
CORPORATE REAL ESTATE SERVICE
DESCRIPTION OF SERVICE: The Tasks to be performed by AA Corporate Real Estate
will consist of:
A) Facilities Support
i. Space Programming Studies
ii. Manage Design Professionals
iii. Cost Estimations/Refinement for new Projects
iv. Evaluate Requests for Proposals (RFPs)
v. Value Engineering
vi. Project Feasibility Studies
vii. Bidding and Contract Negotiations
viii. Project Management
ix. Contract Audit Control
x. Project Close Out
xi. HDQ Space Planning
B) Properties Support
i. Rate and Change Evaluation
ii. Tenant and Landlord Liaison
iii. Negotiation of New Leases
iv. Negotiation of Additional Services under Leases
v. Property Management
vi. Real Estate Market Analysis
C) Planning and Technical Support
i. Environmental Engineering
ii. Energy Audits
iii. Automation Environment
iv. Pre-Conditioned Air / Ground Power
v. Material Handling Systems
- --------------------------------------------------------------------------------
42
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AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
CORPORATE REAL ESTATE SERVICE CONTINUED
ESTIMATED COST FOR 1996: $146,631
HOURLY RATE DURING 1996: $ 78
ESTIMATE OF MONTHLY COST FOR 1996: $ 12,219
FIXED AMOUNT FOR 1996: $ 11,761
BASIS FOR PRICE: The Tasks to be performed are use-based. The monthly
invoiced amount will be the product of the AA Corporate Real Estate's hourly
rate plus a margin and the billable hours required to perform the Tasks
described above. The Fixed Amount of the Corporate Real Estate Service is the
allocation of unmargined Private Payroll representing the oversight
responsibility of the Sr. V.P. Corporate Services. The Fixed Amount of the
Corporate Real Estate Service will be invoiced in 12 equal installments, and
the Fixed Amount will not vary if any one or more of the use-based Services are
dropped. The annual cost to provide the Service is the sum of the Fixed Amount
and the usage at the hourly rate.
----------------
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43
<PAGE> 89
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XXXI.
CORPORATE COMMUNICATIONS SERVICE
DESCRIPTION OF SERVICE: The Tasks to be performed by AA Corporate
Communications will consist of:
A) Strategic Planning & Counseling
B) Media Relations
C) Marketing Communications
D) Issues Management
E) Project Management
F) Executive Support
G) Internal Communications
H) On-Line Communications
I) Financial Reporting Communications
J) Administration and Clerical Duties
K) Community Relations
ESTIMATED COST FOR 1996: $277,463
ESTIMATE OF MONTHLY COST FOR 1996: $ 23,122
HOURLY RATES DURING 1996:
Management Level 6 and above $ 85
Account Executive $ 53
Jr. Account Executive $ 32
Support Staff $ 27
BASIS FOR PRICE: The Tasks to be performed are use-based. The monthly
invoiced price will be the product of the AA Corporate Communication's
applicable hourly rates plus a margin and the billable hours required to
perform the Tasks described above.
----------------
- --------------------------------------------------------------------------------
44
<PAGE> 90
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XXXII.
OTHER AIRLINE (OA) PERSONAL TRAVEL ADMINISTRATION SERVICE
DESCRIPTION OF SERVICE: AA International Affairs will provide Administrative
support for the SABRE Group's personal travel on Other Airlines (OA). Tasks
include the following:
A) Secure of agreement with Other Airlines
i. Draft cover letters
ii. Revise AA ID agreement to include the SABRE Group
iii. Negotiate new arrangements with each airline
iv. Conclude and execute revised agreements
B) Contract Maintenance
i. Ongoing negotiations
ii. Secure additional carriers
iii. Conflict resolution with OAs
iv. Contract preparation and filing
C) Administrative Support
i. Provide updates to SABRE reference material
ii. Respond to employee inquiries
iii. Prepare PNRs for ticketing
iv. Provide OA with pay-back passes on AA
FIXED PRICE FOR 1996: [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH
THE COMMISSION]
MONTHLY INVOICED AMOUNT DURING 1996: [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
BASIS FOR PRICE: The Tasks described above will be performed on a fixed-price
basis. The price is based on AA International Affairs' fully-allocated costs
plus a margin. The fixed price will be invoiced in 12 equal installments
during the calendar year. The annual price of the OA Personal Travel
Administration Service will include an allocation of unmargined Private Payroll
representing the oversight responsibility of the V.P. International Affairs
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION] and
will not vary with changes in the Service Level of this Service.
----------------
- --------------------------------------------------------------------------------
45
<PAGE> 91
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XXXIII.
OTHER AIRLINE (OA) BUSINESS TRAVEL ADMINISTRATION SERVICE
DESCRIPTION OF SERVICE: AA International Affairs will provide Administrative
support for the SABRE Group's business travel on Other Airlines (OA). Tasks
include the following:
A) Secure Business Travel on Other Airlines
i. Negotiate arrangements with other airlines
ii. Provide other airlines travel on AA
B) Pass Bureau
i. Process SABRE Group pass requests
ii. Process OA business travel requests
C) Administrative Support
i. Provides updates to the SABRE Group reference material
ii. Respond to employee inquires
iii. Prepare PNRs for ticketing
FIXED PRICE FOR JAN. 1 TO SEPT. 30, 1996: [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION]
FIXED PRICE FOR OCT. TO DEC. 31, 1996: [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
INTERLINE TRAVEL EXPENSE FOR 1996: [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
MONTHLY INVOICED AMOUNT JAN. 1 TO SEPT. 30, 1996: [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
BASIS FOR PRICE: The OA Business Travel Administration price is based on AA
International Department's fully-allocated costs plus a margin. The fixed
price will be invoiced in 12 equal installments during the calendar year. The
annual price of the OA Business Travel Administration Service will include an
allocation of unmargined Private Payroll representing the oversight
responsibility of the V.P. International Affairs [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION], and will not vary with
changes in the Service Level
- --------------------------------------------------------------------------------
46
<PAGE> 92
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
of this Service. [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
----------------
- --------------------------------------------------------------------------------
47
<PAGE> 93
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XXXIV.
INTERNATIONAL DIVISION SERVICES
DESCRIPTION OF SERVICE: The Services to be performed by AA International
Division from the London U.K. office will consist of the following for the
existing geographical areas served as of the Effective Date of the Management
Services Agreement:
A) Accounting Functions
i. Disbursements and Refunds
ii. Payroll Tax
iii. C-Tax Claims and VAT
iv. Expat Management Accounting
v. Bank Reconciliations
vi. Credit Cards
vii. SABRE Leasing
B) Personnel
i. Employee Relations
ii. Recruitment
iii. Career Development
iv. Compensation Standards
v. Benefits Administration
vi. Health and Safety Issues
D) EC Affairs
E) Purchasing
F) Pacific Sales
i. Interline Requests
ii. STIN Marketing
iii. STIN Related Issues with OALS
FIXED PRICE FOR 1996: $ 775,764
MONTHLY INVOICED AMOUNT DURING 1996: $ 64,647
BASIS FOR PRICE: The Services described above will be performed on a
fixed-price basis. The price is based on AA International Division's
fully-allocated costs plus a margin. The fixed price will be invoiced in 12
equal installments during the calendar year.
-------------------
- --------------------------------------------------------------------------------
48
<PAGE> 94
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XXXV.
GENERAL SERVICES DEPARTMENT
DESCRIPTION OF SERVICE: The Services and not merely Tasks to be performed by
AA General Services will consist of:
SERVICES
- --------
A) Archives
B) Library Services
C) Reserved Parking Permits Administration
D) Mail Services Includes mailings by USPS below 1,000 pieces.
E) USPS Postage for orders exceeding 1,000 pieces not covered by Mail
Services
F) HDQ Telephone Directory
i. Maintain AMR Roster
ii. Maintain Corporate Mailing Lists
iii. Maintain Company Regulations
G) Administration of contracts executed between AA and subcontractors
for Services not performed by AA employees
BUILDINGS SERVED: American Airlines is offering General Services to SABRE
GROUP at the following locations.
CPI CPII CPIV CPV Learning Center
STIN SRO Flight Academy / SOC
TOTAL FIXED PRICE FOR 1996: $ 525,214
MONTHLY INVOICED AMOUNT DURING 1996: $ 43,767
BASIS FOR PRICE: The Services described above will be performed on a
fixed-price basis. The price is based on AA General Services' fully-allocated
costs plus a margin. The fixed price will be invoiced in 12 equal installments
during the calendar year. The prices for the Services have been totaled,
instead of separately stated, per agreement by the Parties.
-----------------
- --------------------------------------------------------------------------------
49
<PAGE> 95
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XXXVI.
GENERAL SERVICES' PASS-THROUGH EXPENSES SERVICE
DESCRIPTION: AA General Services pays AA's Subcontractors for the following
Services (which are not merely Tasks). The list below represents a
pass-through of expenses belonging to the SABRE Group.
<TABLE>
<CAPTION>
SERVICES CURRENTLY SUBCONTRACTED TO:
-------- ---------------------------
<S> <C> <C>
A) Employee Shuttle Service DFW/HDQ/DFW Renzenberger, Inc.
B) Paper Supplier Tri-Plex Industries, Inc.
C) Installation and management of Copiers Xerox Business Services Division
D) Printing and Mailing Services Pitney Bowes Management Services, Inc.
E) Cafeteria and Vending Services ARAMARK
CPIV and STIN
</TABLE>
Price for each Service is a pass-through of expenses of the SABRE Group for
that Service.
BUILDINGS SERVED: American Airlines is offering General Services to SABRE
GROUP at the following locations.
CPI CPII CPIV CPV Learning Center
STIN SRO Flight Academy / SOC
TOTAL PASS-THROUGH EXPENSES FOR 1996: [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION]
MONTHLY INVOICED AMOUNT DURING 1996: [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
BASIS FOR PRICE: The SABRE Group portion of expenses incurred by AA for
General Services-related Subcontracted Services. Each Service is a Fixed Price
Service for the purposes of the Agreement. The prices for the Services have
been totaled, instead of stated separately, per agreement by the Parties. The
total Pass-Through Expense will be invoiced in 12 equal installments.
- --------------------------------------------------------------------------------
50
<PAGE> 96
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XXXVII.
CORPORATE TRAVEL DESK SERVICE
DESCRIPTION OF SERVICE: The Tasks to be performed by the AA Flight Department
will consist of:
A) Booking of Hotels for Business Travel at Interline Rates
B) Booking of Rental Vehicles for Business Travel at Interline Rates
FIXED PRICE FOR 1996: [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH
THE COMMISSION]
MONTHLY INVOICED AMOUNT DURING 1996: [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
BASIS FOR PRICE: The Tasks described above will be performed on a fixed-price
basis. The price is based on AA Flight Department's fully-allocated costs plus
a margin. The fixed price will be invoiced in 12 equal installments during the
calendar year. The Fixed Amount of the Corporate Travel Desk Service will
include an allocation of unmargined Private Payroll representing the oversight
responsibility of the V.P. International Affairs [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION], and will not vary with
changes in the Service Level of this Service.
------------------
- --------------------------------------------------------------------------------
51
<PAGE> 97
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XXXVIII.
PRINTING SERVICES
DESCRIPTION OF SERVICE: Printing Services consists of photocopying. The
Service is currently Subcontracted to Pitney Bowes and is performed from the
basement of the STIN Building
RATE FOR 1996: [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
ESTIMATED COST FOR 1996: [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION]
BASIS FOR PRICE: The Tasks to be performed are use-based. The monthly
invoiced price will be the product of the rate per impression applied to actual
consumption of impressions.
----------------
- --------------------------------------------------------------------------------
52
<PAGE> 98
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XXXIX.
FACILITIES MAINTENANCE - CPIV
DESCRIPTION OF SERVICE: Responsible for the following Tasks to be performed
at CentrePort IV in Fort Worth, Texas:
A) Facilities Maintenance
i. Operation of CPIV Power Plant (Listed for billing purposes
only. This Task is covered by the Central Plant Easement
Agreement)
ii. Shipping and Receiving in CPIV
iii. TWU Maintenance of CPIV Facilities
iv. Facilities Maintenance and Repairs Material in CPIV
1. Supplies
2. Workwear
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
BASIS FOR PRICE: The Tasks described above will be performed on a fixed-price
basis [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION].
The price is based on AA Facilities Maintenance Department's fully-allocated
costs. The fixed price will be invoiced in 12 equal installments during the
calendar year.
----------------
- --------------------------------------------------------------------------------
53
<PAGE> 99
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XL.
FACILITIES MAINTENANCE - STIN
DESCRIPTION OF SERVICE: Responsible for the following Tasks to be performed
at the STIN building in Fort Worth, Texas:
A) Facilities Maintenance
i. Operation of STIN Power Plant
ii. Shipping and Receiving in STIN
iii. TWU Maintenance of STIN Facilities
iv. Facilities Maintenance and Repairs Material in STIN
1. Supplies
2. Workwear
FIXED PRICE FOR 1996: $ 2.233 sq. ft, or $ 1,180,463
MARKET RATE ADJUSTMENT $
BASIS FOR PRICE: The Tasks described above will be performed on a fixed-price
basis. The price is based on AA Facilities Maintenance Department's
fully-allocated costs. The fixed price will be invoiced in 12 equal
installments during the calendar year. [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
----------------
- --------------------------------------------------------------------------------
54
<PAGE> 100
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XLI.
FACILITIES MAINTENANCE PASS-THROUGH EXPENSE SERVICE
DESCRIPTION: AA General Services pays AA's Subcontractors regarding the
Services (and not merely Tasks) described below, for Prices consisting only of
a pass-through of expenses (under the Service Subcontracts) belonging to the
SABRE Group.
<TABLE>
<CAPTION>
Service Currently Subcontracted to:
------- ---------------------------
<S> <C> <C>
A) Janitorial Services Pedus Building Services, Inc.
B) Janitorial Services Member's Building Maintenance Corp.
C) Elevator Maintenance and Repairs Montgomery Elevator
D) Annual Inspections and Certification Fees Honeywell, Inc.
E) Card Keys and CC Television Security Johnson Controls, Inc.
F) Parking Lot Cleaning Pedus Building Services, Inc.
G) Pest Control Various Contractors (to be verified)
H) Fire System Certification and Testing Honeywell, Inc.
I) UPS - Factory Preventative Maintenance Teledyne
J) HVAC Controls Johnson Controls, Inc.
K) Landscape Maintenance Minor's Lawn Care, Inc.
L) Landscape Maintenance Peterman & Associates, Inc.
M) Trash Disposal and Recycling Waste Management, Inc.
N) Interior Plant Care Follage Design Systems
O) Security Services ABM Security Services
P) Electronic Security maintenance Johnson Controls, Inc.
Q) Hazardous Waste Removal Various Contractors
</TABLE>
TOTAL PASS-THROUGH EXPENSES FOR 1996:
CPIV $ 1.855 sq. ft, or $ 1,056,702
STIN $ 1.855 sq. ft, or $ 980,592
BASIS FOR PRICE: The SABRE Group portion of expenses incurred by AA for
General Services-related Subcontracted Services. Each Service is a Fixed Price
Service for the purposes of the Agreement. The pass-through expenses will be
billed in 12 equal monthly installments. The Prices for the Services have been
totaled, instead of separately stated, by agreement of the Parties. The total
Pass-Through Expense will be invoiced in 12 equal installments.
----------------
- --------------------------------------------------------------------------------
55
<PAGE> 101
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XLII.
UTILITIES MANAGEMENT SERVICE
DESCRIPTION: AA General Services will perform the following Tasks:
A) Utilities Management Fee
$0.016 sq. ft STIN
$0.016 sq. ft CPIV
FIXED PRICE FOR 1996: STIN $ 0.016 sq. ft, or $8,633
CPIV $ 0.016 sq. ft, or $9,303
BASIS FOR PRICE: The Utilities Management Fee is a fixed-priced Service. The
Tasks described above will be performed on a fixed-price basis. The price is
based on AA General Services fully-allocated costs. The fixed price will be
invoiced in 12 equal installments during the calendar year.
----------------
- --------------------------------------------------------------------------------
56
<PAGE> 102
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XLIV.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
----------------
1 PAGE REDACTED
- --------------------------------------------------------------------------------
57
<PAGE> 103
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
SCHEDULE XLV.
AA CORPORATE APARTMENT SERVICE
DESCRIPTION OF SERVICE: Lodging provided at the AA Corporate Apartment in New
York City. The service is not covered by the General Services Schedule in the
Management Services Agreement and will consist of:
A) Administration of the Corporate Apartment in New York City
i. Rent
ii. Utilities
iii. Communications
iv. Janitorial
v. Maintenance
FIXED PRICE FOR 1996: $ 32,016
MONTHLY INVOICED AMOUNT DURING 1996: $ 2,668
BASIS FOR PRICE: The price is based on an AA's fully allocated cost of
maintaining the Apartment. Scheduling for use of the Corporate Apartment is
conducted by AA General Services. The SABRE Group's occupancy is historically
32% of the annual use of the Apartment. The fixed price will be invoiced in 12
equal installments during the calendar year.
---------------
- --------------------------------------------------------------------------------
58
<PAGE> 1
EXHIBIT 10.6
INFORMATION TECHNOLOGY SERVICES AGREEMENT
This Agreement is between AMERICAN AIRLINES, INC., a Delaware
corporation, acting for itself and the American Related Entities, and THE SABRE
GROUP, INC., a Delaware corporation.
BACKGROUND
AMERICAN intends to engage TSG to perform for the Airline Group, and
TSG intends to perform for the Airline Group, the TSG Services pursuant to this
Agreement at market-based rates which take into account on an aggregate basis,
among other things, the rights and obligations under this Agreement, the
amounts charged by other providers of similar services, the Airline Group's
size as a recipient of similar services, the SLA Standards required of TSG, the
geographic factors involved in providing the TSG Services to the Airline Group,
the exclusivity commitments made by the Airline Group, and the Retained Rights.
AGREEMENT
IN CONSIDERATION OF the terms and conditions of this Agreement,
the receipt and sufficiency of which are hereby acknowledged, AMERICAN and TSG,
intending to be legally bound, hereby agree as follows:
Article I -- Definitions and Interpretation
1.1. DEFINITIONS. All terms beginning with a capital letter in this
Agreement are defined in Exhibit A: Definitions and Interpretations. Exhibit A
also sets forth various interpretive matters for this Agreement.
1.2. EXHIBITS. When this Agreement refers to an Exhibit described in this
Section, such Exhibit is deemed incorporated herein by reference for all
purposes. All Exhibits, as are agreed to after the Effective Date, shall be
deemed incorporated herein upon the Parties Consent.
<TABLE>
<CAPTION>
Exhibit Title
------- -----
<S> <C>
A Definitions and Interpretation
B TSG Services Description
C Rate and Reset Schedule
D Services Subject to SLA
E Agreed SLAs
F New/Out-of-scope Services Procedures
</TABLE>
Information Technology Services Agreement
page 1
<PAGE> 2
<TABLE>
<S> <C>
G Response/Resolution Procedures for SLA Problems
H SITA Relationship
I Key Employees
J Non-disclosure/Confidentiality Agreement
K Termination Liquidated Damages Calculation
L Transition Assistance Service Descriptions
M Dispute Resolution Appendix
N Non-disclosure/Non-competition Agreement
O AG Self-performed Services
P Electronic Travel Distribution System
</TABLE>
Article II -- Term
2.1. TERM OF AGREEMENT. Unless earlier terminated pursuant to Article
XXIV -- Termination or unless extended in accordance with Section "2.3.
EXTENSIONS OF THE TERM," this Agreement shall be effective on the Effective
Date and continue in effect until 11:59 p.m. June 30, 2006, except that this
Agreement shall cease to be effective for:
A. The Three-year Services at 11:59 p.m. June 30, 1999; and
B. The Five-year Services at 11:59 p.m. June 30, 2001.
2.2. TERM FOR AN UNIDENTIFIED SERVICE. If a TSG Service is not identified
as a Three-year Service, Five-year Service, or Ten-year Service, AMERICAN and
TSG shall agree in writing the period of time such service is subject to this
Agreement.
2.3. EXTENSIONS OF THE TERM. The term of this Agreement as applicable to
the Three-year Services, Five-year Services, and Ten-year Services may be
extended in accordance with this Section 2.3.
A. For Three-year Services:
(1) AMERICAN may extend the applicability of this Agreement
to the Three-year Services until September 30, 1999; provided,
AMERICAN gives TSG Notice prior to June 30, 1998.
(2) If AMERICAN fails to give TSG Notice, at least six months
prior to the end of the term then applicable to the Three-year
Services, that AMERICAN will not renew this Agreement for the
Three-year Services, then the Three-year Services shall be
subject to this Agreement for an additional six months beyond
the end of the then current term applicable to the Three-year
Services.
Information Technology Services Agreement
page 2
<PAGE> 3
(3) If AMERICAN fails to give TSG Notice, at least six months
prior to the end of the term then applicable to the Three-year
Services, that AMERICAN will not renew this Agreement for the
Three-year Services, and this Agreement has already been
extended pursuant to Subsection A(2) of this Section 2.3, then
the Three-year Services shall be subject to this Agreement for
an additional three years beyond the end of the then current
term applicable to the Three-year Services.
B. For Five-year Services:
(1) If AMERICAN fails to give TSG Notice, on or before
January 1, 2001, that AMERICAN will not renew this Agreement
for the Five-year Services, then the Five-year Services shall
be subject to this Agreement until 11:59 p.m. June 30, 2002.
(2) If the applicability of this Agreement to the Five-year
Services is extended to June 30, 2002 and AMERICAN fails to
give TSG Notice, on or before January 1, 2002, that AMERICAN
will not renew this Agreement for the Five-year Services, then
the Five-year Services shall be subject to this Agreement
until 11:59 p.m. June 30, 2005.
C. For Ten-year Services:
(1) If AMERICAN fails to give TSG Notice, on or before
January 1, 2006, that AMERICAN will not renew this Agreement
for the Ten-year Services, then this Agreement shall remain in
effect and the Ten-year Services shall be subject to this
Agreement until 11:59 p.m. June 30, 2007.
(2) If the term of this Agreement is extended to June 30,
2007 and AMERICAN fails to give TSG Notice, on or before
January 1, 2007, that AMERICAN will not renew this Agreement
for the Ten-year Services, then this Agreement shall remain in
effect and the Ten-year Services shall be subject to this
Agreement until 11:59 p.m. June 30, 2012.
Article III -- Services and Exclusivity
3.1. SERVICES IN GENERAL. Pursuant to this Agreement, TSG shall perform
the TSG Services for the Airline Group.
Information Technology Services Agreement
page 3
<PAGE> 4
3.2. ACCESS TO AND USE OF FACILITIES. The Airline Group shall provide
such access to the Airline Group's facilities as is necessary to enable TSG to
perform its obligations under this Agreement and to the extent that the Airline
Group may grant TSG such access rights as an agent; provided that all rights of
access granted to TSG at any airport locations are subject to Airport
Regulations and at any Airline Group leased facilities are subject to any
applicable lease restrictions.
A. If a TSG employee is occupying space in an Airline Group facility
at the Airline Group's request and primarily for the Airline Group's
convenience, then the Airline Group will not charge TSG for any
facility rent expense related to such TSG employee, but TSG shall be
responsible for all significant out-of-pocket expenses of the Airline
Group incurred because of the presence of such TSG employee,
including Device Support and Voice Network Services.
(1) Provided, however, if a TSG employee is occupying space
at the System Operations Control Center or at AMERICAN's
Capacity Planning Department, then the Airline Group will
charge TSG the same amount for rent that a TSG employee would
incur if occupying space at the Solana facility and TSG shall
be responsible for all significant out-of-pocket expenses of
the Airline Group incurred because of the presence of such TSG
employee, including Device Support and Voice Network Services.
For as long as the Solana facility is not essentially full,
the Parties consider the cost of occupying space at the Solana
facility to be zero. The cost of occupying space at the
Solana facility in 1996 is zero.
B. If a TSG employee is occupying space in an Airline Group facility
not at the Airline Group's request, the Airline Group will charge TSG
for a pro rata share of facility rent expense related to such TSG
employee, and TSG shall be responsible for all significant
out-of-pocket expenses of the Airline Group incurred because of the
presence of such TSG employee, including Device Support and Voice
Network Services.
C. If an Airline Group employee is occupying space in an TSG
facility at TSG's request and primarily for TSG's convenience, then
TSG will not charge the Airline Group for any facility rent expense
related to such employee of the Airline Group, but the Airline Group
shall be responsible for all significant out-of-pocket expenses of
TSG incurred because of the presence of such Airline Group employee,
including Device Support and Voice Network Services.
D. If an Airline Group employee is occupying space in a TSG facility
not at TSG's request, then TSG will charge the Airline Group for a
pro rata share of facility rent
Information Technology Services Agreement
page 4
<PAGE> 5
expense related to such employee of the Airline Group at the same
rate that the Airline Group charges its departments occupying similar
space, if any. Additionally, the Airline Group shall be responsible
for all significant out-of-pocket expenses of TSG incurred because of
the presence of such Airline Group employee at a TSG facility,
including Device Support and Voice Network Services.
E. Where one Party's employees are occupying space at the other
Party's facilities, both Parties intend that their employees' usage
of the other Party's LAN will be approximately equal. If the Airline
Group's usage of TSG's LAN significantly exceeds TSG's usage of the
Airline Group's LAN or TSG's usage of the Airline Group's LAN
significantly exceeds the Airline Group's usage of TSG's LAN, the
Account Managers shall meet to negotiate what, if any, compensation
or remedial action is appropriate.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
3.3. NEW/OUT-OF-SCOPE SERVICES. When TSG and AMERICAN expressly agree in
writing in accordance with Exhibit F: New/Out-of-scope Services Procedures, TSG
shall perform a New/Out-of-scope Service.
3.4. TSG'S RIGHTS TO MANAGE ITS RESOURCES. Subject to the other
provisions of this Agreement, including Article XVI -- Key Employees and
Related Provisions and Section "4.1. TSG'S CHANGES TO LOCATIONS," TSG shall
have the right, at TSG's cost and expense, so long as there is no Material
Adverse Impact, to manage all resources used in providing the TSG Services as
TSG deems appropriate, including relocating data centers, TSG equipment, TSG
personnel, and other TSG resources. Nevertheless, if any such relocation
effected with the reasonable belief that it would not have any Material Adverse
Impact actually has a Material Adverse Impact, TSG shall reimburse the Airline
Group for any increase in the Fees, any more than a de minimis increase in an
expense incurred by the Airline Group, and any increase in the Taxes payable by
the Airline Group.
3.5. KEEPING TECHNOLOGY CURRENT. TSG agrees to use reasonable efforts,
without an increase in charges to the Airline Group or the costs the Airline
Group would have to bear, to keep the technology used in providing the TSG
Services to the Airline Group current, and at a level at least as high as the
level that TSG uses for its internal operations and at least comparable to the
level of technology generally used in the air transportation industry. Except
as provided in Section "3.8. REFRESH FOR DEVICE SUPPORT," in the event that
technology improvements would cause TSG to incur costs in addition to the costs
TSG would otherwise have incurred in providing the TSG Services or would cause
the Airline Group to incur costs it would not otherwise incur, the Airline
Group and TSG shall meet to discuss whether to implement such improvements. At
the Airline Group's sole option, TSG will (i) implement such improvements and
charge the Airline Group for TSG's increased costs or (ii) not implement such
improvements and continue to use TSG's then- existing technology. For the
avoidance of doubt, nothing in this Section 3.5 shall be construed as relieving
TSG of its
Information Technology Services Agreement
page 5
<PAGE> 6
obligation to provide, at no additional charge to the Airline Group,
installation, support, and upgrades to the software identified in the "SG
Commercial Software Product List" in Exhibit B: TSG Services Description.
3.6. ADDITIONAL TSG COSTS IN A SHARED ENVIRONMENT. Except as otherwise
expressly provided in this Agreement, the Current Rates will not increase if
TSG upgrades the hardware or software it uses to provide the TSG Services. If
such an upgrade causes an increase in the Airline Group's Fees and if the
increase in Fees is not commensurate with the benefits of such upgrade
attainable in the reasonably foreseeable future, the Airline Group shall have
no obligation to pay such increase in Fees.
3.7. EFFICIENCY AND COST EFFECTIVENESS. TSG shall use commercially
reasonable efforts to use efficiently those resources chargeable to the Airline
Group, and in so doing will (i) consider the Airline Group's needs, (ii) make
schedule adjustments consistent with the Airline Group's priorities, (iii)
delay the performance of non-critical functions within established limits, and
(iv) consider the needs of TSG's other contractual commitments.
3.8. REFRESH FOR DEVICE SUPPORT. The Airline Group shall receive, at
TSG's expense (except for the expense of upgrading desktop hardware which is at
the Airline Group's expense), the benefits of upgrades to Off-the-shelf
Software included within Device Support as soon as reasonably practicable, but
in any event within twelve months of such upgrades' becoming commercially
available or when TSG implements such upgrades in production (which does not
include any beta testing) for its own employees, whichever is sooner. The cost
of such upgrades, including installation and license fees, shall be borne
solely by TSG through the software charge included in the monthly Device
Support charge.
A. AMERICAN agrees to provide TSG with at least six months Notice of
non-renewal of Device Support in accordance with Section "2.3.
EXTENSIONS OF THE TERM."
B. AMERICAN's Notice of non-renewal shall not affect the rights of
the Airline Group under this Section 3.8 for the remainder of the
term of the Three-year Services, including Device Support.
C. If the Airline Group declines to permit TSG to install an upgrade
to software necessary to provide Device Support and the Airline Group
is the only Device Support customer of TSG to decline, and such
declining causes TSG increased costs, the Airline Group shall
reimburse TSG for such costs.
3.9. TSG SUPPORT FOR THIRD PARTY PRODUCTS. TSG shall arrange for and
manage Third Party Standard Support for Third Party Supported Products. TSG
and AMERICAN acknowledge that such products require TSG to obtain support
services from
Information Technology Services Agreement
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<PAGE> 7
certain third-party vendors, and that TSG's ability to provide any support to
the Airline Group for such products may be impaired if TSG is unable to obtain
the required support from such third-party vendors.
A. When TSG learns that any Third Party Supported Product is an
Unsupported Product, TSG shall, at TSG's expense:
(1) Immediately give AMERICAN Notice;
(2) Discuss with AMERICAN the options available; and
(3) At AMERICAN's sole option:
a. Use reasonable efforts to obtain a replacement
product for such Unsupported Product within twelve
(12) months of notification to AMERICAN pursuant to
Subsection A(1) of this Section 3.9;
b. Use reasonable efforts to obtain services to
substitute for Third Party Standard Support for such
Unsupported Product, provided that TSG and AMERICAN
negotiate new SLA Standards for such Unsupported
Product, if necessary; or
c. Discontinue attempting to obtain services to
substitute for Third Party Standard Support of such
Unsupported Product after the first anniversary of
the notification to AMERICAN.
B. TSG and the Airline Group shall use reasonable efforts to
minimize any costs required to transfer the Airline Group to a
replacement product.
3.10. EXCLUSIVITY. Subject to Section "2.1. TERM OF AGREEMENT," TSG is
the exclusive provider to the Airline Group of certain services as described in
this Section 3.10.
A. TSG is the exclusive provider of the following services:
(1) Data Center Services, except for the operation of
External Client Server Development;
(2) Data Network Services;
(3) Voice Network Services;
(4) Distributed Systems Services;
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(5) Providing Development, Maintenance, and Enhancement
services for Real Time Applications; and
(6) Providing Maintenance and Enhancement services for
Existing Applications.
B. For any New/Out-of-scope Service or Significant Services that TSG
performs that create software and for any TSG Development, TSG is the
exclusive provider of Maintenance and Enhancement services for such
TSG- created or TSG-developed software until the Expiration Date.
C. Although Client Server Development is not an Exclusive Service,
if the Airline Group selects TSG to perform Client Server
Development, TSG has the exclusive right:
(1) To operate the client server application created by such
Client Server Development until June 30, 2001 or until such
later date as the Five-year Services are subject to this
Agreement pursuant to Section "2.3. EXTENSIONS OF THE TERM,"
if such client server application requires an operator other
than the end user; and
(2) To perform the Maintenance and Enhancement services for
such client server application until the Expiration Date.
D. Although acquiring Off-the-shelf Software to replace existing
client server applications or to provide new client server
applications is not an Exclusive Service, if the Airline Group
acquires Off-the Shelf Software to replace existing client server
applications or to provide new client server applications and such
software requires Significant Services performed by TSG, and if such
client server application requires an operator in addition to the end
user, TSG has the exclusive right to operate such Off-the-shelf
Software until June 30, 2001 or until such later date as the
Five-year Services are subject to this Agreement pursuant to Section
"2.3. EXTENSIONS OF THE TERM."
E. AMERICAN's exercise of the Retained Rights are subject to the
restrictions and limitations under this Agreement during the term of
this Agreement.
3.11. NON-EXCLUSIVE SERVICES. Services that are not Exclusive Services
include the following:
A. Development other than Development of Real Time Applications.
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B. Client Server Development services.
C. New/Out-of-scope Services.
D. AG Self-performed Services.
E. Acquiring and using Off-the-shelf Software other than as
described in Subsection F of this Section 3.11.
F. Acquiring and using Off-the-shelf Software for incorporation into
or integration with TSG Operated Software, if both of the following
conditions are met:
(1) TSG does not offer services with comparable functionality
for fees less than or equal to such Off- the-shelf Software's
license fee; and
(2) TSG performs or approves related incorporation or
integration of the Off-the-shelf Software with the TSG
Operated Software.
G. Acquiring and using Enhancements for Existing Applications
requiring specific intellectual property or specific functions that
TSG does not then possess; provided TSG performs or approves the
related integration of such Enhancements with the Existing
Applications.
H. The Airline Group is not prohibited or restricted from entering
into any agreement to receive, or from receiving, any royalty from
the marketing by a third-party developer of software developed by
that Person for any member of the Airline Group as permitted by this
Section 3.11.
3.12. ENGAGING THIRD PARTIES FOR NON-EXCLUSIVE SERVICES. If the Airline
Group solicits offers from third parties to perform Non-exclusive Services, the
Airline Group shall also solicit an offer from TSG; provided, however, that if
the Airline Group solicits an offer for maintenance or enhancement services
from a third party for Development that such third party performed, the Airline
Group shall have no obligation to solicit an offer from TSG. In such instances
where required to solicit an offer from TSG, if the Airline Group makes such a
solicitation in writing, including by issuing an RFP or an RFQ, the Airline
Group shall promptly provide TSG with a copy.
A. TSG shall have the opportunity to compete with third parties in
any bidding for Non-exclusive Services; provided, however, the
Airline Group is not obligated to accept TSG's offer or grant TSG any
preferential treatment.
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B. The Airline Group may use third parties pursuant to Section
"5.11. AUDITING CODE EFFICIENCY," subject to compliance with Section
"14.8. CONFIDENTIALITY AND THIRD PARTIES."
3.13. EFFECT OF DIVESTITURES, MERGERS, AND ACQUISITIONS. If a member of
the Airline Group creates a Spin-off Company and the Spin-off Company's
declining to use the TSG Services would be likely to result in a decrease of
more than ten percent of the Fees that were payable to TSG for the twelve
months preceding the month in which the Spin-off Company became a Spin-off
Company, then either the Airline Group shall cause such Spin-off Company to be
obligated to use the TSG Services in accordance with this Agreement or the
Airline Group shall pay Termination Liquidated Damages in accordance with
Exhibit K: Termination Liquidated Damages Calculation.
A. If the Airline Group acquires another carrier in the airline
business and merges its airline operations with such other carrier,
then such carrier's information technology operations shall possess
all the rights and benefits and be subject to all of the obligations
of the Airline Group under this Agreement on a date agreed to in
writing by AMERICAN and TSG, and in any event as soon as reasonably
practicable in light of the commercial circumstances, including the
duration of such carrier's existing commitments and the extent of any
termination penalties. If causing such carrier's information
technology operations to be subject to this Agreement is not
reasonably practicable within twelve months after the Airline Group
begins to merge airline operations, then the Airline Group and TSG
shall mutually determine appropriate compensation for TSG.
B. If the Airline Group acquires another carrier in the airline
business and does not merge its airline operations with such other
carrier, then such carrier's information technology operations and
services shall become subject to this Agreement at AMERICAN's sole
discretion.
C. If the Airline Group acquires any entity (including another
carrier), AMERICAN may cause the information technology services of
such entity to become subject to this Agreement upon Notice to TSG;
provided TSG is given a reasonable period of time in which to
transfer such entity's information technology operations and services
to TSG. In such event, TSG shall provide TSG Services to the entity
at the Current Rates; provided that if TSG incurs reasonable,
necessary, and Extraordinary Costs for establishing TSG's ability to
provide TSG Services to such entity and such costs will result in a
lower profit margin to TSG than would have occurred if the additional
volume or services were provided for the Airline Group's own use with
the then current TSG facilities, AMERICAN shall reimburse TSG for
such costs; provided further, however, that TSG has given AMERICAN
Notice in advance of incurring such costs.
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D. If the Airline Group creates an Affiliated Spin-off Entity, such
Affiliated Spin-off Entity shall possess all the rights and benefits
and be subject to all of the obligations of the Airline Group under
this Agreement, including the right to use the Existing Applications
in accordance with this Agreement without payment of any license
fees.
3.14. CHANGES IN DEMAND FOR TSG SERVICES. The Airline Group shall inform
TSG within a reasonable time of material changes in the Airline Group's
requirements for TSG Services to enable TSG to adjust its resources. The
Parties acknowledge that changes in the Airline Group's requirements because of
unforeseen circumstances, such as a labor strike against AMERICAN, may not be
communicated in advance; but AMERICAN or the affected member of the Airline
Group shall inform TSG of such material changes as soon as possible and shall
periodically provide TSG updated information as to such material changes.
3.15. PREFERRED CUSTOMER FOR DEPLOYMENT OF SKILLED PERSONNEL. TSG shall
provide necessary, skilled personnel to staff any and all Airline Group
projects; provided AMERICAN gives TSG Notice of material changes in the Airline
Group's requirements for TSG's personnel.
3.16. SPECIAL PROVISIONS FOR RESERVATIONS 800 SERVICES. TSG shall manage
Reservations 800 Services in accordance with this Section 3.16.
A. TSG shall promptly provide AMERICAN with a copy of all
information from prospective vendors of the Reservations 800
Services, including vendor-related performance and proposal
information.
B. AMERICAN may participate with TSG in all negotiations with such
prospective vendors.
C. AMERICAN, in its sole discretion, shall make all final decisions
concerning the selection of vendors for providing Reservations 800
Services; provided, however, if AMERICAN does not follow TSG's
recommendations concerning Reservations 800 Services, AMERICAN and
TSG agree to amend the SLA Standards applicable to the Reservations
800 Services, if necessary.
D. If AMERICAN, after consultation with TSG, decides that the
Airline Group can perform 800 Decision Tree Support more efficiently
than TSG, such services shall cease to be TSG Services, and the
Airline Group shall perform 800 Decision Tree Support for itself.
AMERICAN's election to perform 800 Decision Tree Support shall not
change the Parties' other rights or obligations under this Section
3.16.
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3.17. SPECIAL PROVISIONS CONCERNING SITA AND SITA SERVICES. The Parties'
arrangement regarding SITA Services and the SITA Agreements is set forth in
this Section 3.17.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
B. Although AMERICAN shall remain the contracting party under the
SITA Agreements until they are assigned to TSG, TSG shall have all of
the rights and benefits and all of the obligations and burdens under
the SITA Agreements as if AMERICAN had assigned to TSG, and TSG had
assumed, the SITA Agreements as of July 1, 1996.
(1) Those rights and benefits shall include the right of
TSG to cause AMERICAN to purchase for TSG's own use and for
the use of TSG's customers all services provided by the SITA
Group pursuant to the SITA Agreements. Accordingly, AMERICAN
hereby authorizes TSG to purchase as AMERICAN's agent, on the
Airline Group's behalf and on behalf of TSG and its other
customers, the SITA Services. TSG and AMERICAN agree that
charges for the SITA Services shall be invoiced to AMERICAN
and paid by TSG to AMERICAN and that, with respect to the SITA
SABREnet Services, the special payment and other terms
provided in Exhibit H: SITA Relationship shall apply.
(2) Those obligations and burdens, which TSG hereby
accepts and agrees to perform, shall include the obligation to
meet all of the commitments and obligations, financial and
otherwise, that AMERICAN may incur under the SITA Agreements
(other than obligations related to the SITA Services consumed
by AMERICAN and its Affiliates other than TSG and its
subsidiaries, except for any amount paid by AMERICAN and its
Affiliates to TSG for SITA Services consumed by AMERICAN and
its Affiliates other than TSG and its subsidiaries), including
the obligations of payment (including any fees, penalties, or
interest for late payment or nonpayment), indemnification
obligations, and commitments to meet the financial minimums
under the SITA Agreements.
Information Technology Services Agreement
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<PAGE> 13
(3) As long as AMERICAN remains responsible to SITA as
the contracting party under the SITA Agreements, TSG shall
purchase through AMERICAN at least the minimum volume of
telecommunications services offered by the SITA Group that
AMERICAN is obligated to purchase from the SITA Group pursuant
to the SITA Agreements. The Parties' rights and obligations
stated above in this Section 3.17 shall terminate upon
AMERICAN's assignment to TSG, and TSG's assumption, of the
SITA Agreements.
C. Because AMERICAN will remain, on or after the Effective Date,
the contracting party under the SITA Agreements, and therefore
responsible to the SITA Group thereunder, AMERICAN shall have the
benefit of the indemnification set forth in Section "20.8. SITA
INDEMNIFICATION."
3.18. SPECIAL PROVISIONS CONCERNING CUSTOM SOFTWARE. TSG and the Airline
Group acknowledge that software used and developed under this Agreement is
custom software for specific uses.
3.19. ELECTRONIC TRAVEL DISTRIBUTION SYSTEM. The Parties' agreements
regarding the use of PSS/FPC in connection with any Electronic Travel
Distribution System for the benefit of the Airline Group are set forth in
Exhibit P; Electronic Travel Distribution System.
Article IV -- Locations of Services
4.1. TSG'S CHANGES TO LOCATIONS. Nothing in this Agreement shall prevent
TSG from changing, consolidating, eliminating or adding, after the Effective
Date, its locations at which it provides the TSG Services so long as such
changes, consolidations, eliminations or additions cause no Material Adverse
Impact on the Airline Group and provided that if any TSG Services are performed
on-site at the Airline Group's locations on the Effective Date, TSG may not
change the location of such service without AMERICAN's Consent.
A. TSG shall consult with AMERICAN concerning such changes,
consolidations, eliminations or additions.
B. TSG's application developers are not considered "on-site" unless
expressly assigned as of the Effective Date to share an office area
with the user department.
C. TSG shall not move the TSG Operated Software or hardware for the
Real Time Applications known as Passenger Services Systems (PSS) and
Flight Operating Systems (FOS) located at the Secure Computer Center,
located at 4000 N. Mingo Road, Tulsa, Oklahoma 74116-5020 as of the
Effective Date, without the Airline Group's Consent.
4.2. AIRLINE GROUP'S REQUESTED CHANGES AT ITS LOCATIONS. If the Airline
Group wishes TSG to change, consolidate, eliminate or add any functions that
must be performed at the Airline Group's locations, it shall so notify TSG.
TSG shall promptly
Information Technology Services Agreement
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<PAGE> 14
provide AMERICAN with a good faith estimate of the cost, if any, of making such
change, consolidation, elimination or addition. TSG will make such change,
consolidation, elimination or addition upon AMERICAN's approval of such cost
estimate, which approval will be given at AMERICAN's sole discretion.
Article V -- Service Levels
5.1. SERVICE LEVELS IN GENERAL. For each of the TSG Services or systems
specified in Exhibit D: Services Subject to SLA, AMERICAN and TSG shall
establish an SLA. It is the intention of TSG to provide good service to the
Airline Group, to correct problems with any TSG Services, and to cooperate with
the Airline Group to resolve any reasonable, remediable dissatisfaction with a
TSG Service.
A. The SLAs agreed to by the parties as of the Effective Date are
specified in Exhibit E: Agreed SLAs.
B. For SLAs not agreed to by the parties as of the Effective Date,
TSG and AMERICAN shall use their reasonable best efforts to establish
such SLAs before December 31, 1996 or as soon thereafter as
practicable. Upon the Parties' Consent, an SLA established after the
Effective Date shall be deemed incorporated into Exhibit E: Agreed
SLAs for all purposes.
C. TSG and AMERICAN intend that TSG perform the TSG Services at
levels above the SLA Standards. Both Parties acknowledge that the
actual levels of performance are likely to fluctuate.
D. In general TSG shall strive to improve continually its actual
performance and, subject to Subsections D(1) and D(2), shall not
knowingly act in a manner that will reduce its level of performance.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
(2) If TSG identifies cost-saving opportunities for itself
that will reduce its levels of performance, but such reduction
will be de minimis, AMERICAN and
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<PAGE> 15
TSG shall cooperate to enable TSG to take advantage of such
cost-saving opportunities.
E. Prior to engaging a subcontractor in accordance with Article VI
-- Subcontracting, TSG and AMERICAN shall establish an SLA Standard
for the service(s) to be subcontracted.
5.2. SLA REQUIREMENTS. All SLAs shall conform in substance to the
requirements specified in this Section.
A. Each SLA shall specify the SLA Standard for the services subject
to such SLA.
B. Each SLA shall specify one of the following categories in which
the service is designated: "Critical TSG Service," "High Risk TSG
Service," "Medium Risk TSG Service," or "Low Risk TSG Service." If
no such category is specified, such service shall be deemed as
designated "Low Risk TSG Service."
C. Each SLA shall establish its Performance Increases and
Performance Decreases, if any, with the intention that over the
course of a calendar year the Performance Increases and Performance
Decreases shall be equal. Further, in rare circumstances, the
Parties may balance one SLA established to yield Performance
Increases more than Performance Decreases with another SLA
established to yield corresponding Performance Decreases more than
Performance Increases, so that over the course of a calendar year the
intended Performance Increases and Performance Decreases from the two
SLAs shall be equal. Nevertheless, nothing in this Section 5.2 shall
be construed as requiring the actual Performance Increases to equal
the Performance Decreases while this Agreement is in effect.
D. For services designated as Critical TSG Service or High Risk TSG
Service, each SLA may specify Performance Increases for Exceptional
Performance and Performance Decreases for Inadequate Performance;
provided, however, that nothing in this Section 5.2 shall be
construed as requiring both a Performance Increase and a Performance
Decrease be applicable to the same measure of performance.
E. Each SLA may specify one or more SLA Service Termination Events.
5.3. HISTORICAL SLA STANDARDS. For each TSG Service, the SLA Standard
shall be established at the Historical SLA Standard or the New Historical SLA
Standard. If performance level information is unavailable for 1994 and 1995,
the SLA Standard shall be established at the performance levels measured in
1996, excluding data points where performance levels are clearly unacceptable,
and consequently, the 1996 performance levels are the Historical SLA Standard
for such service.
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A. Nothing in this Section 5.3 shall be construed as preventing TSG
and AMERICAN from agreeing to an SLA Standard that differs from the
Historical SLA Standard or the New Historical SLA Standard.
B. While this Agreement is in effect, TSG shall establish and
maintain the SLA Database.
C. TSG shall provide a query and report capability to the SLA
Database as part of the TSG Services.
5.4. MONITORING. TSG shall capture and retain information, for storage in
the SLA Database, and monitor its performance of the TSG Services in accordance
with the SLAs. TSG's adherence to the SLA Standards shall be evaluated every
month.
5.5. [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
5.6. COSTS BORNE EXCLUSIVELY BY TSG. TSG shall bear all expenses and
investments required to achieve performance to meet the Historical SLA
Standards and New Historical SLA Standards. TSG shall bear all its own
expenses of investigating and correcting Inadequate Performance.
5.7. [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
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5.8. PERFORMANCE REVIEWS. The Airline Group's Account Manager and TSG's
Account Manager shall meet at least monthly to review TSG's adherence to the
SLA Standards. TSG shall provide AMERICAN, at least ten days in advance of
such meeting, with such performance reports as have been reasonably requested
by AMERICAN.
5.9. CORRECTION OF PERFORMANCE. TSG is obligated to cure or correct its
errors, mistakes, and deficiencies in service; and credit or repay the Airline
Group for any excess Fees resulting from such errors, mistakes, or deficiencies
as follows:
A. TSG shall perform Re-runs subject to Section "7.10. PAYMENT FOR
RE-RUNS."
B. TSG shall cure all instances of Inadequate Performance. To
effectuate such cure, AMERICAN and TSG shall proceed in accordance
with Exhibit G: Response/Resolution Procedures for SLA Problems.
C. For TSG Services for which there is no SLA Standard:
(1) TSG shall cure or correct its errors, mistakes, and
deficiencies in service and, [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION]
(2) If in AMERICAN's sole discretion, TSG's performance of a
service for which there is no SLA Standard becomes
unacceptable, AMERICAN and TSG shall negotiate an SLA Standard
within 30 days after AMERICAN requests such negotiation.
5.10. SLA STANDARDS, FORCE MAJEURE EVENT, AND TRANSITION ASSISTANCE.
When TSG cannot meet an SLA Standard due to a cause reasonably under the
Airline Group's control or due to a Force Majeure Event:
A. The Airline Group waives any associated Performance Decreases;
and
B. The Airline Group may not terminate this Agreement pursuant to
Section "24.2. TERMINATION FOR INADEQUATE PERFORMANCE."
TSG shall continue to have the obligation to meet the SLA Standards during
Transition Assistance (subject to the preceding provisions of this Section
5.10).
5.11. AUDITING CODE EFFICIENCY. Subject to Section "14.8. CONFIDENTIALITY
AND THIRD PARTIES," AMERICAN may evaluate, or engage a third party to evaluate,
the efficiency of software used by TSG to provide the TSG Services or software
developed by TSG and funded by or licensed to the Airline Group. AMERICAN may
require that TSG
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<PAGE> 18
make reasonable changes to such software to improve its efficiency and charge
AMERICAN at Current Rates for making such changes. If TSG fails to make such
changes, the Airline Group may engage a third party to make such changes
subject to Section "14.8. CONFIDENTIALITY AND THIRD PARTIES."
5.12. ANNUAL SURVEY. TSG will annually survey a representative sample of
the Airline Group's personnel who use the TSG Services to evaluate their
satisfaction relating to the TSG Services. TSG and AMERICAN will agree in
writing to the survey's sample group, format, objectives, measures of
satisfaction, and desired levels of satisfaction. If such survey reveals that
satisfaction has fallen significantly below desired levels, TSG shall develop a
plan to improve satisfaction in those areas where satisfaction has fallen below
such levels. TSG shall present the plan to AMERICAN within six weeks following
compilation of the survey results.
Article VI -- Subcontracting
6.1. NO SUBCONTRACTING PRIMARY RESPONSIBILITIES. TSG may not subcontract
any of TSG's Primary Responsibilities without AMERICAN's Consent. Such Consent
is at AMERICAN's sole discretion.
6.2. PERMITTED SUBCONTRACTING. The Airline Group hereby consents to all
subcontracting of the TSG Services by TSG in effect on the Effective Date. TSG
may subcontract TSG Services other than TSG's Primary Responsibilities, except
that to subcontract any service which TSG then currently performs for the
Airline Group and for which the total Fees typically charged to the Airline
Group are in excess of $10,000,000 (ten million dollars) per year, TSG must
obtain AMERICAN's Consent.
A. TSG shall promptly Notify AMERICAN of its intent to enter into
any subcontract. Prior to the time of subcontracting, AMERICAN and
TSG shall document historical service levels in order to establish an
SLA Standard if one does not already exist pursuant to Subsection E
of Section "5.1. SERVICE LEVELS IN GENERAL."
B. TSG is responsible for monitoring and managing the performance of
all subcontractors.
C. TSG shall remain responsible in accordance with this Agreement
for the TSG Services subcontracted. If, as the result of TSG's
subcontracting any TSG Service, the performance of that TSG Service
falls below the level of TSG's previous actual, typical performance,
then TSG shall work with the subcontractor to restore the performance
of that TSG Service to such previous actual, typical performance
level.
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D. Even if an inadequacy in a subcontractor's performance does not
amount to a breach of this Agreement or Inadequate Performance, if
AMERICAN is dissatisfied with the performance of any subcontractor,
AMERICAN shall promptly notify TSG and TSG and AMERICAN shall discuss
means to resolve AMERICAN's dissatisfaction.
E. TSG shall provide in its agreements with subcontractors such
written provisions as are sufficient to enable TSG to comply with the
provisions of this Agreement.
F. TSG shall reimburse the Airline Group for any increase in the
Fees, any more than a de minimis increase in an expense incurred by
the Airline Group, and any increase in the Taxes payable by the
Airline Group due to TSG's subcontracting one or more TSG Services.
Article VII - Fees
7.1. RATE AND RESET SCHEDULE. The Fees charged by TSG to the Airline
Group, and payable by the Airline Group to TSG, for the TSG Services shall be
in accordance with the Rates set forth in the Rate and Reset Schedule
applicable for each calendar year.
A. The Rate and Reset Schedule for each calendar year states the
Current Rates, which are applicable to the TSG Services rendered
during that year, and the Reset Formulas according to which the
Current Rates can be reset for the next year.
B. If the Rate and Reset Schedule does not include a Current Rate
corresponding to any TSG Service, then, unless the next sentence
applies, the charge for that TSG Service shall be deemed included in
other Current Rates. If TSG rendered a service substantially the
same as any TSG Service without charge before the Effective Date,
then it will continue to render that TSG Service without charge after
the Effective Date, unless a Rate for that TSG Service is included in
the Rate and Reset Schedule; provided, however, that this does not
apply to prototypes which TSG provided without charge for the Airline
Group's use before the Effective Date.
C. The Rate and Reset Schedule in effect on the Effective Date
states the Rates applicable during 1996 and the Reset Formulas to set
Rates for 1997.
D. The Rates included in the Rate and Reset Schedule will be
recalculated or re-established by the Parties each calendar year, as
described in Sections "7.2. ESTABLISHING RATES FOR EVEN-NUMBERED
YEARS" and "7.3. ESTABLISHING RATES FOR ODD-NUMBERED YEARS." The
Reset Formulas for the TSG Services Benchmarked in an Odd- numbered
Year will be renegotiated
Information Technology Services Agreement
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<PAGE> 20
and established as described in Subsection A of Section "7.3.
ESTABLISHING RATES FOR ODD-NUMBERED YEARS." The Rate and Reset
Schedule shall be deemed amended in each event described above in
this Subsection D. The Reset Formulas for the TSG Services that are
not Benchmarked will continue without adjustment as stated in the
Rate and Reset Schedule.
7.2. ESTABLISHING RATES FOR EVEN-NUMBERED YEARS. For each Even-numbered
Year, the Rates shall be calculated and established as follows:
A. In the preceding Odd-numbered Year, the Parties shall:
(1) Determine, by May 1 of that Odd-numbered Year, the
Projected Annual Volume for the next Even- numbered Year;
(2) Determine the Projected Annual Reset Fees, in
accordance with Section "7.4. PROJECTED ANNUAL RESET FEES,"
for the next Even-numbered Year;
(3) Conduct the Benchmarking Process in accordance with
Section "7.5. BENCHMARKING" to obtain the Benchmark Results
for the next Even-numbered Year; and
(4) Determine the Projected Negotiated Rates and the
Projected Annual Negotiated Fees, in accordance with Section
"7.6. PROJECTED ANNUAL NEGOTIATED FEES," for the next
Even-numbered Year.
B. The Projected Negotiated Rates corresponding to the Projected
Annual Negotiated Fees shall be the applicable Rates for the TSG
Services rendered during the next Even-numbered Year, unless the
difference (expressed as an absolute value) between the Projected
Annual Negotiated Fees and the Projected Annual Reset Fees is greater
than the Adjustment Amount.
C. If the Projected Annual Reset Fees exceed the Projected Annual
Negotiated Fees by an amount greater than the Adjustment Amount, the
annual Fees projected for the next Even-numbered Year shall be the
result of subtracting the Adjustment Amount from the Projected Annual
Reset Fees.
D. If the Projected Annual Negotiated Fees exceed the Projected
Annual Reset Fees by an amount greater than the Adjustment Amount,
the annual Fees projected for the next Even-numbered Year shall be
the result of adding the Adjustment Amount to the Projected Annual
Reset Fees.
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<PAGE> 21
E. If either Subsection C or Subsection D of this Section 7.2
applies, the Parties shall then negotiate the Rates applicable to the
TSG Services that were Benchmarked so that all of the Rates
(including those for TSG Services not Benchmarked) result, when
applied to the Projected Annual Volume for the next Even-numbered
Year, in the aggregate amount of the projected annual Fees, and those
Rates shall apply to the TSG Services rendered during the next
Even-numbered Year.
7.3. ESTABLISHING RATES FOR ODD-NUMBERED YEARS. The Rates applicable to
the TSG Services rendered during 1997 shall be calculated and established by
applying the Reset Formulas set forth in the Rate and Reset Schedule in effect
on the Effective Date to the Current Rates (in effect during 1996). The Rates
for each subsequent Odd-numbered Year shall be calculated and established as
follows:
A. In each Odd-numbered Year, for the TSG Services Benchmarked in
that year, the Parties shall negotiate and establish, and set forth
in the Rate and Reset Schedule, Reset Formulas for the next
Odd-numbered Year.
B. The Rates calculated and established by applying those new Reset
Formulas, and by applying the continuing Reset Formulas for the TSG
Services not so Benchmarked, to the Current Rates shall be the
applicable Rates for the TSG Services rendered during the next
Odd-numbered Year, unless Subsection C or Subsection D of Section
"7.2. ESTABLISHING RATES FOR EVEN-NUMBERED YEARS" applied to the
preceding Even-numbered Year.
C. If Subsection C or Subsection D of Section "7.2. ESTABLISHING
RATES FOR EVEN-NUMBERED YEARS" applied to the preceding Even-numbered
Year, then the Parties shall determine the Projected Annual Reset
Fees, in accordance with Section "7.4. PROJECTED ANNUAL RESET FEES,"
for the next Odd-numbered Year and adjust the Projected Annual Reset
Fees by:
(1) If Subsection C of Section "7.2. ESTABLISHING RATES FOR
EVEN-NUMBERED YEARS" applied, subtracting the Capped
Adjustment, or
(2) If Subsection D of Section "7.2. ESTABLISHING RATES FOR
EVEN-NUMBERED YEARS" applied, adding the Capped Adjustment.
D. If Subsection C of this Section 7.3 applies, the Parties shall
then negotiate the Rates applicable to the TSG Services that were
most recently Benchmarked so that all of the Rates (including those
for TSG Services not so Benchmarked) result, when applied to the
Projected Annual Volume for the next Odd-numbered Year, in the
aggregate amount of the Projected Annual Reset Fees as adjusted in
accordance with
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<PAGE> 22
Subsection C of this Section 7.3, and those Rates shall apply to the
TSG Services rendered during the next Odd-numbered Year.
7.4. PROJECTED ANNUAL RESET FEES. The Parties shall determine the
Projected Annual Reset Fees for the next calendar year by:
A. Establishing Rates by applying the Reset Formulas to the Current
Rates;
B. Multiplying those reset Rates by the Projected Annual Volume for
the next calendar year; and
C. If the Projected Annual Reset Fees are being determined for an
Even-numbered Year and Subsection C of Section "7.3. ESTABLISHING
RATES FOR ODD-NUMBERED YEARS" applied to the preceding Odd-numbered
Year, then:
(1) If Subsection C(1) of Section "7.3. ESTABLISHING RATES
FOR ODD-NUMBERED YEARS" applied, subtracting any Unapplied
Capped Adjustment from the product described in Subsection B
of this Section 7.4, or
(2) If Subsection C(2) of Section "7.3. ESTABLISHING RATES
FOR ODD-NUMBERED YEARS" applied, adding any Unapplied Capped
Adjustment to the product described in Subsection B of this
Section 7.4.
The Projected Annual Reset Fees for the next calendar year must be determined
by October 1 of the year in which the determination is being made.
7.5. BENCHMARKING. In each Odd-numbered Year, the Parties shall conduct
the Benchmarking Process, with appropriate consideration to, among other
things, the rights and obligations under this Agreement, the Airline Group's
size as a recipient of data processing services, the SLA Standards required of
TSG, the geographic factors involved in providing the TSG Services to the
Airline Group, the exclusivity commitments made by the Airline Group for
services, and the Retained Rights.
A. On or before May 1 of each Odd-numbered Year, the Parties shall
jointly select and engage one or more Benchmark Providers. The
Parties agree that they are to mutually solicit and evaluate the
qualifications and methodologies of prospective Benchmark Providers.
B. The agreement with the Benchmark Provider or Benchmark Providers
shall contain, at a minimum, provisions substantially similar to the
following provisions:
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<PAGE> 23
(1) The Benchmark Provider or Benchmark Providers shall
complete the Benchmarking Process and submit the Benchmark
Report on or before September 1 of the Odd-numbered Year.
(2) The Benchmark Report shall contain sufficient information
to demonstrate that the Benchmark Provider or Benchmark
Providers have compared the TSG Services to those services
offered by a representative group of providers of data
processing services with reasonable consideration of, among
other things, the various factors described in the first
sentence of this Section 7.5.
(3) The Benchmark Report shall state the Benchmark Results
and shall be delivered to both Parties.
(4) Each of the Parties shall pay one-half of the fees and
reimbursable expenses (if any) of each Benchmark Provider.
C. The Benchmark Provider shall evaluate all Current Rates, except
Third-Party Pass-Through Charges, Hourly Labor Rates, and any Rates
for which there is not a market that can serve as a reasonable
comparison.
D. The Parties may, but shall not be obligated to, accept all or any
portion of the Benchmark Report or use in any manner any of the
Benchmark Results. Nevertheless, the Parties intend that the
Benchmark Results be available in each Odd-numbered Year as a
guideline for their negotiations of Rates and Reset Formulas.
7.6. PROJECTED ANNUAL NEGOTIATED FEES. By October 1 of each Odd-numbered
year, the Parties shall determine the Projected Annual Negotiated Fees for the
next Even-numbered Year by multiplying the corresponding Projected Negotiated
Rates by the corresponding Projected Annual Volume (though, if the Parties
agree, this Projected Annual Volume need not be the same as the one submitted
to the Benchmark Provider or Benchmark Providers for the Benchmarking Process).
7.7. LIMITED USE OF PROJECTED FEES. The determination of projected annual
Fees of any kind in accordance with any preceding Section of this Article VII
is solely for the purpose of establishing Rates. None of those projections of
annual Fees is a target for or a limit on any actual annual Fees, and neither
Party shall have any right or remedy because any actual annual Fees do not
conform to or correspond with projected annual Fees.
7.8. RECOURSE TO DISPUTE RESOLUTION. If, because of any Dispute, the
Parties fail to determine any essential component of the establishment of any
Rate by the applicable date specified in a preceding Section of this Article
VII, the Parties shall promptly resolve that
Information Technology Services Agreement
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<PAGE> 24
Dispute, as soon as practicable after the specified date, in accordance with
Article XXIII -- Dispute Resolution.
A. If that Dispute is not resolved by January 1 of the year for
which any Rate is to be effective, the preceding year's Rate for the
corresponding TSG Service shall continue in effect pending
resolution.
B. The Rate determined by resolution of that Dispute shall be deemed
effective January 1 as though the Parties had timely agreed.
Accordingly, either on the due date of the first invoice due after
that Dispute is resolved or the due date of the first invoice
covering any period on or after January 1, whichever is later, either
TSG shall credit the Airline Group any excess Fees received since
January 1 or the Airline Group shall pay TSG any additional Fees due
to TSG since January 1.
7.9. PERFORMANCE ADJUSTMENT OF FEES. The Fees shall increase in the event
of Exceptional Performance and decrease in the event of Inadequate Performance.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
B. No later than December 20 of each year at a meeting of the
Airline Group's CIO and the applicable TSG division president,
AMERICAN and TSG shall agree to the net increase or decrease in Fees
resulting from the Performance Increases and Performance Decreases
for the prior twelve-month period ended November 30. The December
invoice submitted to AMERICAN in the succeeding January shall reflect
such agreed net increase or decrease.
C. The final invoice after termination or Expiration of this
Agreement shall reflect the net increase or decrease in Fees
resulting from the Performance Increases and Performance Decreases
for the period commencing on December 1 of the previous year to the
date of termination or Expiration.
7.10. PAYMENT FOR RE-RUNS. [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
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<PAGE> 25
7.11. FEE REDUCTIONS FOR DROPPING CERTAIN MAINTENANCE. Upon Notice to TSG,
for certain specified devices, AMERICAN may elect to terminate the TSG Services
that provide maintenance as part of Device Support, subject to Section "3.10.
EXCLUSIVITY." If AMERICAN so elects, TSG shall reduce Fees by an amount equal
to the maintenance savings and AMERICAN and TSG shall mutually determine what,
if any, modification there will be to the applicable SLA Standard.
7.12. MOST FAVORED CUSTOMER. [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION.]
7.13. PAYMENTS FOR THIRD PARTY SOFTWARE UPON DISAFFILIATION. If AMERICAN
and TSG cease to be Affiliates, TSG shall pay such license fees, and any
applicable or related Taxes, for the Transferred Third Party Software and the
Other Third
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<PAGE> 26
Party Software as are required to enable the Airline Group to continue to
receive the TSG Services.
Article VIII -- Invoices and Payment
8.1. INVOICES. The Airline Group is only required to pay for services
provided by TSG pursuant to the prices and other terms and conditions of this
Agreement or as otherwise expressly agreed in writing by the Parties. TSG
shall use reasonable efforts to submit an invoice to the Airline Group for the
prior month's Fees on or before the eighth Business Day of every month. Such
invoice is due and payable and the Airline Group shall pay such invoice within
thirty days after the Airline Group's receipt of such invoice, except as
otherwise provided in Section "8.2. DISPUTED INVOICES."
8.2. DISPUTED INVOICES. If there is a Disputed Invoice, the Airline Group
may withhold a portion of the amount stated in the Disputed Invoice in
accordance with this Section 8.2.
A. If the Disputed Invoice is greater than or equal to the prior
month's invoice, the Airline Group shall pay TSG all undisputed
amounts, [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] provided that the Airline Group may withhold the
payment of taxes on disputed amounts without regard to the
limitations specified in this Subsection and amounts calculated
herein shall be net tax calculations.
B. If the Disputed Invoice is less than the prior month's payment,
the Airline Group shall pay TSG all undisputed amounts, [CONFIDENTIAL
PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION] therefore,
in such event and irrespective of the amount in dispute, the Airline
Group may not, in respect to the Disputed Invoice, withhold
payment of any amount in excess of [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION] of the Disputed Invoice;
provided, however, that the Airline Group may withhold payment of
taxes on disputed amounts without regard to the limitations
specified in this Subsection and amounts calculated herein shall be
net tax calculations.
C. In no event shall a Party's adherence to the provisions of this
Section 8.2 be construed as constituting a waiver by either Party of
any claims against the other Party.
8.3. BILLING PROCEDURES. Each invoice submitted to the Airline Group
shall be in accord with this Section 8.3.
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<PAGE> 27
A. Each invoice shall indicate the Fees and, subject to changes made
pursuant to Section "8.4. NEW BILLING SYSTEM" and Section "9.6.
COOPERATION," will include separate sub-totals for taxable and
nontaxable services and property.
B. Along with every invoice TSG shall provide relevant written
information to substantiate the Fees, including supporting
documentation of resource usage, information concerning TSG Software
Income, and information concerning any offset in Fees pursuant to
Section "11.4. OFFSET OF FEES." TSG shall also concurrently provide
information concerning the prospective annual increase or reduction
in Fees pursuant to Section "7.9. PERFORMANCE ADJUSTMENT OF FEES."
C. TSG shall promptly provide the Airline Group with such
information as AMERICAN reasonably requests to understand or verify
the contents of the invoice. TSG shall bear the cost of any TSG
Services required to fulfill such requests.
D. Without AMERICAN's Consent, TSG shall not make any changes to the
procedures for producing invoices, the billing allocation methodology
for any TSG Service, or to the form or format of invoices or
substantiating information that is routinely provided to the Airline
Group.
8.4. NEW BILLING SYSTEM. At its own expense, TSG shall design, develop,
and implement the New Billing System. TSG and AMERICAN shall mutually develop
specifications for the New Billing System, and upon written acceptance of such
specifications by both AMERICAN and TSG, TSG shall proceed with the development
of the New Billing System.
A. After written acceptance by both Parties, the specifications of
the New Billing System may not change without both Parties' Consent.
B. At a minimum the New Billing System shall possess the capability
to account for and bill such Taxes as are applicable.
C. If AMERICAN requests and agrees to pay for it, TSG shall provide
additional capability to permit AMERICAN to accommodate additional
functionality (e.g., to report the Airline Group's non-TSG
information technology expenditures).
8.5. INTEREST ON OVERDUE AMOUNTS. [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
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<PAGE> 28
Article IX -- Transfer and Property Taxes
9.1. ALLOCATION OF RESPONSIBILITY FOR CERTAIN TAXES. AMERICAN shall be
responsible for (and shall indemnify TSG for) Taxes imposed on, based on, or
measured by any consideration for, any transfer of services or property by TSG
to the Airline Group pursuant to this Agreement; provided, however, that TSG
shall be responsible for (and shall indemnify Airline Group for) all Taxes that
are imposed on, based on or measured by TSG's acquisition, ownership, or use of
property or services, or the provision of property or services to TSG. Neither
Party shall be liable to the other Party for interest included in Taxes in
excess of interest at the rate set forth in Section "8.5. INTEREST ON OVERDUE
AMOUNTS" or penalties and additions to taxes to the extent such interest,
penalties, and additions to taxes result from tax return positions taken by the
other Party that are unrelated to this Agreement or from the willful misconduct
or gross negligence of the other Party.
9.2. CLAIM OF EXEMPTION. The Airline Group shall pay any Taxes for which it
is responsible which are invoiced by TSG to the Airline Group under Article
VIII -- Invoices and Payment unless the Airline Group promptly provides TSG
with an exemption certificate, resale certificate or letter explaining why the
Airline Group believes the Tax is not applicable. Such certificate or letter
does not relieve AMERICAN of ultimate liability under this Article IX to the
extent the taxing authority disagrees with the Airline Group's position that no
such Tax is due; provided, that AMERICAN shall have no liability for Taxes
either not yet due and payable or Taxes being contested (unless payment is a
condition to contest) in accordance with Section "9.4. CONTESTS OF TAX
ASSESSMENTS." TSG may at any time require AMERICAN to deliver a letter of
advice from outside counsel, selected by AMERICAN and reasonably acceptable to
TSG, that AMERICAN's position is reasonable under the tax law. The cost of
such a letter shall be split equally between the Parties. If such a letter is
not delivered within 30 days of the request, AMERICAN must pay the Taxes
invoiced.
9.3. PROPERTY TAXES. Subject to the terms of other leases or agreements,
each of TSG and each member of the Airline Group is responsible for the
reporting and payment of any ad valorem taxes due on property owned by it or
leased by it from a third party.
9.4. CONTESTS OF TAX ASSESSMENTS. If TSG receives notice from any taxing
authority with respect to an assessment or potential assessment or imposition
of any Tax that AMERICAN would be responsible for paying pursuant to Section
"9.1. ALLOCATION OF RESPONSIBILITY FOR CERTAIN TAXES," TSG shall promptly
send Notice to AMERICAN of such notice, and shall, if AMERICAN requests, timely
contest, or if AMERICAN so elects permit AMERICAN to contest, such proposed
Tax, at AMERICAN's expense and in a forum and with counsel selected by AMERICAN
and reasonably acceptable to TSG, until such assessment has been upheld by the
decision of an appellate court; provided,
Information Technology Services Agreement
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<PAGE> 29
however, that prior to any judicial contest TSG may require (as a condition to
such judicial contest) a letter from counsel selected by AMERICAN and
reasonably acceptable to TSG that there is a reasonable tax basis for such
contest. Any Notice given to a Party under this Section 9.4 shall also be
copied directly to the tax department of that Party, in care of the Director of
Taxes, at the address indicated in Section "28.2. ADDRESSES," and such Notice
must be given no fewer than five Business Days before any statutory deadline
for filing the timely protest of the assessment identified in such Notice. TSG
may compromise, settle, or resolve a Tax contest under this Section 9.4 without
AMERICAN's consent (provided such compromise, settlement, or resolution is
limited only to the Taxes for the tax period involved) if TSG waives its
indemnity rights under this Article IX -- Transfer and Property Taxes with
respect to the Taxes being contested. Otherwise, TSG may not compromise,
settle, or resolve the Tax contest without AMERICAN's Consent.
9.5. REFUNDS. Either Party may, at its expense, require the other to
choose and do one of the following:
A. Apply for and diligently pursue a refund of Taxes otherwise
payable by or subject to indemnification by the requiring Party under
this Article IX,
B. If permitted by law, assign its rights to a refund claim for such
Taxes to the requiring Party,
C. Pay to the requiring Party the amount of Taxes claimed by the
refund claim with interest at the statutory refund rate, or
D. Follow the Dispute Resolution Procedure and pay to the requiring
Party the amount the arbitrator determines is reflective of the
weighted probability of success of recovery of Taxes (with no
reduction for attorneys' fees) had the claim been pursued at the
judicial level until the result had been determined by the decision
of an appellate court; provided, however, that before recourse to the
Dispute Resolution Procedure, such other Party shall produce, if
requested by the requiring Party, a letter of advice from outside
counsel selected by such other Party and reasonably acceptable to the
requiring Party (the cost of which letter is to be split equally
between the Parties) that such other Party's refusal to pursue a
refund claim is based on a reasonable tax position that the amounts
are not refundable.
9.6. COOPERATION. Each Party shall provide the other with such
cooperation as is reasonable, at the request of the other Party, to minimize
Taxes incurred in connection with this Agreement. In the case of AMERICAN,
such cooperation shall include providing TSG any applicable resale
certificates; information regarding use of materials, services, or sales; or
other exemption certificates. In the case of TSG, such cooperation shall
include providing AMERICAN applicable information regarding delivery or use of
materials, services, or sales;
Information Technology Services Agreement
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<PAGE> 30
and at the request of AMERICAN, taking additional steps to minimize Taxes.
Such steps shall also include:
A. Providing itemized (or non-itemized) invoices or billing;
B. Separating (or combining) any of the TSG Services;
C. Changing the location at which services or property are
delivered, provided, or used pursuant to this Agreement;
D. Permitting any member or members of the Airline Group to
assign to one of its or their Affiliates all or part of its or
their rights under this Agreement, including the right to take
delivery of services or property;
E. Using reasonable efforts to require any third party to take
steps reasonably available to such third party to minimize
Taxes;
F. Permitting TSG to assign to one of its Affiliates all or part
of TSG's obligations under this Agreement; and
G. Amending this Agreement;
provided, however, that neither Party shall be required to take any step that
would be materially disadvantageous to its business or operations or would
require it to incur material additional costs unless the other Party agrees to
reimburse it for that material disadvantages or those additional costs. In the
case of either Party, such cooperation shall include maintaining records, as
reasonably necessary for tax purposes (and in any event for at least six years
from date of the transactions to which such records relate); making such
records available to the other Party (or permitting the other Party to copy, at
its expense, such records); and making information in its possession and
employees with technical expertise available (at the providing Party's cost) as
reasonably necessary in connection with the preparation of any tax returns or
any audit or tax contest or refund claim. It is not intended that one Party is
necessarily to share in any tax savings realized by the other Party through the
actions or cooperation taken under this Section 9.6.
9.7. TAXES ON THIRD-PARTY PASS-THROUGH CHARGES. Notwithstanding anything
to the contrary in this Agreement, to the extent any Taxes are imposed on or
with respect to any Third-Party Pass-Through Charges, or on any mark-ups or
fees related to the Third-Party Pass-Through Charges, which Taxes exceed the
Taxes that would have applied to a transfer of services or property directly to
any member of the Airline Group from the third-party vendor from which TSG
acquires services or property, TSG shall be responsible for (and shall
indemnify the Airline Group for) such additional Taxes, it being the intent of
the Parties
Information Technology Services Agreement
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<PAGE> 31
that the Airline Group's liability for Taxes imposed on or measured by any
Third-Party Pass-Through Charges, or any mark-ups or fees related to the
Third-Party Pass-Through Charges, shall be no greater than if the Airline Group
had purchased directly from the third-party vendor, instead of through TSG, the
services and/or property to which such Third-Party Pass-Through Charges relate.
TSG may (with any necessary consent of the third-party vendor and with
AMERICAN's Consent) assign to AMERICAN (or, as AMERICAN may direct, one or more
of the American Related Entities) the rights of TSG under that agreement or
those agreements necessary for the Airline Group to obtain such services or
property directly from the third-party vendor or permit AMERICAN to otherwise
obtain such services or property directly from the third-party vendor to
minimize such additional Taxes.
9.8. ADDITIONAL TAX CONTESTS. If AMERICAN receives notice from any taxing
authority with respect to an assessment or potential assessment or imposition
of any Tax that TSG would be responsible for paying pursuant to Section "9.1.
ALLOCATION OF RESPONSIBILITY FOR CERTAIN TAXES," AMERICAN shall promptly send
Notice to TSG of such notice, and shall, if TSG requests, timely contest, or if
TSG so elects permit TSG to contest, such proposed Tax, at TSG's expense and in
a forum and with counsel selected by TSG and reasonably acceptable to AMERICAN,
until such assessment has been upheld by the decision of an appellate court;
provided, however, that prior to any judicial contest AMERICAN may require (as
a condition to such judicial contest) a letter from counsel selected by TSG and
reasonably acceptable to AMERICAN that there is a reasonable tax basis for such
contest. Any Notice given to a Party under this Section 9.8 shall also be
copied directly to the tax department of that Party, in care of the Director of
Taxes, at the address indicated in Section "28.2. ADDRESSES," and such Notice
must be given no fewer than five Business Days before any statutory deadline
for filing the timely protest of the assessment identified in such Notice.
AMERICAN may compromise, settle, or resolve a Tax contest under this Section
9.8 without TSG's consent (provided such compromise, settlement, or resolution
is limited only to the Taxes for the tax period involved) if AMERICAN waives
its indemnity rights under this Article IX -- Transfer and Property Taxes with
respect to the Taxes being contested. Otherwise, AMERICAN may not compromise,
settle, or resolve the Tax contest without TSG's Consent.
9.9. NO OTHER TAX INDEMNITY. This Article IX contains the exclusive
allocations pursuant to this Agreement of responsibilities between, and
indemnification obligations of, the Parties regarding Taxes. For the avoidance
of doubt, the Parties intend that Article XX -- Indemnification does not apply
to Taxes.
9.10. TAXES AND DISPUTE RESOLUTION. Except as specified in Subsection D of
Section "9.5. REFUNDS," Disputes between the Parties concerning this Article IX
are subject to the Dispute Resolution Procedure, except that Disputes as to the
amount of Tax, if any, owed to a taxing authority (including Disputes between a
Party and a taxing authority) may be
Information Technology Services Agreement
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<PAGE> 32
resolved by any appropriate administrative or legal procedure available to a
Party or the Parties under this Agreement apart from the Dispute Resolution
Procedure.
9.11. AMERICAN'S PARTICIPATION IN THE OKLAHOMA QUALITY JOBS PROGRAM. TSG
acknowledges that AMERICAN may receive significant incentive payments over the
next ten years from the State of Oklahoma in return for participation in the
State's Quality Jobs Program. Under AMERICAN's agreement with the State
(accepted October 26, 1995), AMERICAN must maintain a certain number of
full-time positions in Oklahoma, which number may include any jobs transferred
by AMERICAN to another company (such as TSG). TSG agrees it will cooperate
with requests by AMERICAN to track all positions transferred to it by AMERICAN
and will supply any information requested by AMERICAN for AMERICAN's compliance
obligations under the Quality Jobs Program. TSG will also permit the Oklahoma
Tax Commission and Oklahoma Employment Security Commission to audit TSG records
for purposes of checking compliance under the Program. To the extent not
otherwise covered under this Agreement, TSG assumes no obligation for reduced
or eliminated benefits under the Quality Jobs Program suffered by AMERICAN in
the event TSG's full time positions in Oklahoma are reduced; however, TSG
agrees it will provide AMERICAN Notice of a reduction in TSG's employment in
Oklahoma to a level below 1,500 full-time positions, and TSG will cooperate
with AMERICAN in an effort to avoid any loss in AMERICAN's entitlement to
benefits under the Quality Jobs Program as the result of any such reduction.
If, while AMERICAN is participating in the Quality Jobs Program, a governmental
incentive program is introduced in Oklahoma for which TSG could claim benefits,
but AMERICAN's counting TSG positions to claim benefits under the Quality Jobs
Program prevents TSG from counting those same TSG positions in order to claim
benefits under such new incentive program, then the Parties shall proceed as
follows:
A. The Parties shall determine whether the greatest aggregate
estimated benefits would result from:
(1) The separate participation of both Parties in the new
incentive program (without AMERICAN's counting any TSG
positions),
(2) AMERICAN's continued participation in the Quality
Jobs Program (with AMERICAN's continuing to count the TSG
positions),
(3) Only AMERICAN's participation in the new incentive
program (without its counting any TSG positions), or
(4) Only TSG's participation in the new incentive
program.
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<PAGE> 33
The Parties agree that one or both of them shall pursue the
participation in the program or programs that would result in the
greatest aggregate estimated benefits (without regard to the
allocation of those benefits between the Parties).
B. If the Parties determine that only one of them should
participate, as described in one of Subsections A(2) through A(4) of
this Section 9.11, then the Parties shall share in the benefits of
that participation in the Quality Jobs Program or the new incentive
program as follows:
(1) AMERICAN's share of the benefits shall be in the
ratio of (a) the estimated benefit to AMERICAN of either its
participation in the Quality Jobs Program or its participation
in the new incentive program, whichever is greater, over (b)
the aggregate estimated benefits would result from the sum of
(i) AMERICAN's participation in the Quality Jobs Program or
its participation in the new incentive program, whichever is
greater, and (ii) TSG's participation in the new incentive
program.
(2) TSG's share of the benefits shall be in the ratio of
(a) the estimated benefit to TSG of its participation in the
new incentive program, over (b) the aggregate estimated
benefits would result from the sum of (i) AMERICAN's
participation in the Quality Jobs Program or its participation
in the new incentive program, whichever is greater, and (ii)
TSG's participation in the new incentive program.
The estimated benefit to AMERICAN of its continued participation in
the Quality Jobs Program shall be calculated assuming AMERICAN
continues to count the TSG positions.
Article X - Ownership of Data
10.1. OWNERSHIP OF DATA. The AG Data is the exclusive property of the
Airline Group. AG Customer Data is the exclusive property of an AG Customer
and/or the Airline Group, as determined by such agreements as the Airline Group
may have with such AG Customer and is deemed proprietary. Data about which
there is an ambiguity as to ownership shall be treated as AG Data and subject
to the provisions of this Agreement until its ownership is resolved in
accordance with Article XXIII -- Dispute Resolution. This Agreement does not
purport to address the ownership of any data other than AG Data or AG Customer
Data.
10.2. USE OF DATA. TSG shall use the AG Data and the AG Customer Data only
in providing services pursuant to this Agreement. Except as otherwise
expressly agreed in writing, TSG shall not and shall not attempt to sell,
license, provide, disclose, use, pledge,
Information Technology Services Agreement
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<PAGE> 34
hypothecate, and/or in any other way transfer the AG Data or the AG Customer
Data. All such attempts shall be void and without legal effect. With
AMERICAN's Consent, TSG may use the AG Data or AG Customer Data for such other
purposes and for such compensation as AMERICAN and TSG may agree in writing.
10.3. RISK OF DATA LOSS. When AG Data or AG Customer Data is in TSG's
possession or under TSG's control and an event occurs that prevents or hinders
the access to or reliable use of such data, TSG shall cure and re-create or
restore such data as quickly as the Airline Group needs such data in its
operations.
A. Such re-creation or restoration shall be at [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
B. Where re-creation or restoration of such data is at the Airline
Group's expense, TSG shall obtain the Airline Group's Consent before
performing such re-creation or restoration that will incur Fees
greater than $5,000 (five thousand dollars).
10.4. DATA SECURITY. TSG shall maintain safeguards for protecting against
the loss and disclosure of the AG Data and AG Customer Data no less rigorous
than such safeguards as are in effect on the Effective Date. Such safeguards
include, the safeguards described in TSG's existing reference materials. The
Airline Group shall safeguard all data owned by TSG in the Airline Group's
possession.
10.5. COPIES OF DATA FOR THE AIRLINE GROUP. Upon written request to TSG,
TSG shall provide a copy of all or a portion of AG Data and AG Customer Data,
as requested by AMERICAN, on such media as requested by AMERICAN. TSG's
providing such data is a service within the scope of the TSG Services and is at
the Airline Group's expense. TSG shall never refuse for any reason, including
the Airline Group's material breach of this Agreement, to provide the Airline
Group with copies of the AG Data and AG Customer Data in accordance with this
Section 10.5. TSG hereby expressly agrees that the Airline Group may obtain
injunctive relief (in accordance with the Dispute Resolution Procedure) to
enforce the provisions of this Section 10.5.
10.6. MEDIA CONTAINING DATA. As between the Airline Group and TSG, the
Airline Group is the exclusive owner of all AG Data and all AG Customer Data
recorded on any media irrespective of which party owns the media.
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Article XI -- Software Ownership
11.1. OWNERSHIP OF NEW SOFTWARE. TSG and the Airline Group intend that
their respective contributions to all software developed by means of the TSG
Services or the New/Out-of-scope Services performed by TSG after the Effective
Date be merged into inseparable or interdependent parts of a unitary whole as a
joint work; and consequently, that all such software is Jointly Owned Software.
11.2. RIGHTS IN JOINTLY OWNED SOFTWARE. TSG and the Airline Group agree
that their respective rights in and to the Jointly Owned Software are subject
to the limitations of this Section 11.2. For the avoidance of doubt, unless
otherwise expressly provided in this Agreement, neither Party shall have any
obligation to pay the other Party any royalty, fee, or other compensation for
exercising rights with respect to the Jointly Owned Software.
A. The Airline Group may not license, sublicense, market, disclose,
modify, prepare Derivative Works, transfer, or otherwise commercially
exploit the Jointly Owned Software without TSG's Consent, except as
expressly provided in the following:
(1) While this Agreement is in effect, the Airline Group and
its Affiliates may use and possess the Jointly Owned Software
as follows:
a. Subject to Section "3.10. EXCLUSIVITY," the
Airline Group and its Affiliates may use and possess
the Jointly Owned Software for their own internal
use, including use in their air transportation
business.
b. The Airline Group may use the Jointly Owned
Software in accordance with Article XII -- Marketing
and Related Rights.
c. The Airline Group may disclose, display,
distribute, or license the executable code of Jointly
Owned Software at no charge (other than for shipping,
handling, or investment cost recovery) to customers
and prospective customers of its air transportation
business for the purposes of increasing the Airline
Group's air transportation revenue.
d. The Airline Group may disclose the Jointly Owned
Software to software developers that the Airline
Group is permitted under this Agreement to engage,
subject to Section "14.8. CONFIDENTIALITY AND THIRD
PARTIES."
e. The Airline Group shall obtain TSG's Consent
prior to displaying Jointly Owned Software to a
potential TSG Customer of such software who or which
has expressed an interest in licensing such software.
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<PAGE> 36
(2) Upon the Expiration or termination of this Agreement, the
Airline Group and its Affiliates may use and possess the
Jointly Owned Software as follows:
a. The Airline Group and its Affiliates may use and
possess the Jointly Owned Software for their own
internal use, including use in their air
transportation business.
b. The Airline Group may use and possess the Jointly
Owned Software in accordance with the Section "12.5.
MARKETING RIGHTS AFTER EXPIRATION OR TERMINATION."
c. The Airline Group may disclose, display,
distribute, or license the executable code of Jointly
Owned Software at no charge (other than for shipping,
handling, or investment cost recovery) to customers
and prospective customers of its air transportation
business for the purposes of increasing the Airline
Group's air transportation revenue.
d. The Airline Group and its Affiliates may modify
the Jointly Owned Software and prepare Derivative
Works of Jointly Owned Software for their internal
use, including use in their air transportation
business, and may engage another entity to modify or
prepare Derivative Works on behalf of the Airline
Group and its Affiliates solely for such internal
use.
e. The Airline Group and its Affiliates may engage
another entity to operate the Jointly Owned Software
for the Airline Group's and its Affiliates' internal
use, including use in their air transportation
business.
f. The Airline Group shall obtain TSG's Consent
prior to displaying Jointly Owned Software to a
potential TSG Customer of such software who or which
has expressed an interest in licensing such software.
(3) The Airline Group and its Affiliates possess the same
rights in Derivative Works of Jointly Owned Software, prepared
by the Airline Group or its Affiliates, or on their behalf, as
the Airline Group possesses in the Jointly Owned Software on
which the Derivative Work is based.
B. The rights of TSG in and to the Jointly Owned Software are limited
only as follows:
(1) The Airline Group and its Affiliates may use and possess
the Jointly Owned Software in accordance with Subsection A of
this Section 11.2.
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(2) In accordance with Section "11.4. OFFSET OF FEES," TSG
shall reduce the Fees payable by AMERICAN.
(3) In accordance with Section "11.5. ROYALTY AFTER
EXPIRATION OR TERMINATION," TSG shall pay AMERICAN a royalty.
(4) For such entities that AMERICAN identifies in writing to
TSG, TSG shall license the Jointly Owned Software on terms and
conditions that are substantially similar to such terms and
conditions as TSG licenses other comparable software and for a
commercially reasonable fee.
11.3. PROTECTION OF SOFTWARE RIGHTS AGAINST THIRD PARTIES. If any Party
shall become aware of any infringement or misappropriation by any third party
of the Transferred Software, the Jointly Owned Software, or the TSG Owned
Software, it shall promptly give Notice to the other Party of such infringement
or misappropriation.
A. TSG, may, at its own expense, institute suit against such third
party and the Airline Group shall fully cooperate with TSG to enjoin
such infringement or misappropriation and shall, if requested by TSG,
join with TSG as a party to any action brought by TSG for such purpose.
The Parties intend that TSG bear [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION] all expenses connected with such
suit and that the Airline Group bear [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION] such expenses; provided,
however, that if the Airline Group desires to retain its own counsel,
it shall do so at its own cost and expense; and provided, further,
that either Party may, in its sole discretion, upon Notice to the
other Party, choose not to bear any further expense of such suit.
B. If TSG, does not institute suit against such third party before
the earlier of 120 days after receiving Notice of such infringement or
misappropriation or 30 days prior to the expiration of the statute of
limitations, then AMERICAN may, at its expense, institute suit against
such third party, and TSG shall fully cooperate with AMERICAN to
enjoin such infringement or misappropriation and if reasonably
necessary, shall, if requested, join with AMERICAN as a party to any
action brought by AMERICAN for such purpose. AMERICAN shall bear all
expenses connected with such suit, provided, however, that if TSG
desires to retain its own counsel, it shall do so at its own cost and
expense.
C. Any recovery as a result of any suit pursuant to this Section 11.3
shall belong to a Party in the same percentage as such Party bore the
expense of such suit; excluding, however, a Party's cost and expense
in retaining its own counsel when such Party did not institute such
suit.
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11.4. OFFSET OF FEES. So long as this Agreement is in effect, TSG shall
retain all license fees and other compensation that TSG receives arising out of
the Jointly Owned Software; provided, however, that in accordance with this
Section 11.4, TSG shall offset the Fees otherwise payable to TSG by AMERICAN
until, for a specific application that is a Derivative Work of Jointly Owned
Software, more than [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] of its program instructions are original materials funded by one
or more entities other than the Airline Group.
A. TSG shall use reasonable efforts to establish and obtain license
fees from third parties for the Jointly Owned Software that are
commensurate with the license fees charged by third parties for
comparable software.
B. For all Jointly Owned Software, solely funded by the Airline
Group, and other than Enhancements, TSG shall offset the Fees
otherwise payable by AMERICAN to TSG by an amount equal to twenty
percent of the TSG Software Income; provided, [CONFIDENTIAL
PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
C. In the case of all Enhancements other than Shared Host
Enhancements, TSG shall offset the Fees otherwise payable by AMERICAN
to TSG by an amount equal to twenty percent of the TSG Software
Income; provided, [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION]
D. Except for Airport Check-in System, if a TSG multi-host customer
(other than the Airline Group) will receive use of a Shared Host
Enhancement/Development, TSG shall offset the Fees by an amount equal
to [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
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<PAGE> 39
E. If TSG does not offset the Fees charged to AMERICAN by the
amount of [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] described Subsection D of this Section 11.4, then AMERICAN
may pay TSG to Code Out such other TSG multi-host customer and such
customer may not use such Shared Host Enhancement/Development. If the
Airline Group chooses not to Code Out a TSG customer and if TSG has
received incremental revenue for such customer's use of a Shared Host
Enhancement/Development, then TSG shall offset the Fees otherwise
payable by AMERICAN to TSG by an amount equal to such incremental
revenue up to [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH
THE COMMISSION] that would have been due under Subsection D of this
Section 11.4.
F. The Fees for TSG's Code Out are within the scope of TSG Services
and AMERICAN shall pay the Fees incurred for such services; provided,
however, if TSG later distributes or uses such Shared Host
Enhancement/Development for TSG Customers for which TSG has not offset
the Fees charged to AMERICAN by the amount of such customer's pro rata
share described in Subsection D above, TSG shall refund the Fees
incurred by AMERICAN to Code Out and TSG shall offset the Fees in
accordance with Subsection D of this Section 11.4.
11.5. ROYALTY AFTER EXPIRATION OR TERMINATION. After the Expiration or
termination of this Agreement, for all Jointly Owned Software that was, at the
time of its writing, funded solely by the Airline Group, and until, for a
specific application that is a Derivative Work of Jointly Owned Software, more
than [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION] of
its program instructions are original materials funded by one or more entities
other than the Airline Group, TSG shall pay AMERICAN a royalty equal to [] of
the TSG Software Income; provided, [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
11.6. COPIES OF SOFTWARE FOR AMERICAN. Upon written request to TSG, TSG
shall provide a copy of all or a portion of Jointly Owned Software and
Documentation as requested by AMERICAN, on such media as requested by AMERICAN.
TSG's providing such software is a service within the scope of the TSG Services
and is at AMERICAN's expense. TSG shall never refuse for any reason, including
AMERICAN's material breach of this Agreement, to provide AMERICAN with copies
of such software in accordance with this Section 11.6. TSG hereby expressly
agrees that AMERICAN may obtain injunctive relief (in accordance with the
Dispute Resolution Procedure) to enforce the provisions of this Section 11.6.
11.7. JOINTLY USED AND FUNDED SOFTWARE. For certain software that TSG uses
to provide services to TSG and/or TSG Customers and to AMERICAN, AMERICAN and
TSG shall continue to jointly fund Development and Enhancements as TSG's
predecessor and
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<PAGE> 40
AMERICAN did prior to the Effective Date. The process of allocating AMERICAN's
and TSG's relative share of the cost shall remain as such process existed on
the Effective Date with the intent of reflecting the relative value to each
Party. TSG and AMERICAN shall, prior to the commencement of development,
negotiate an offset to the Fees, if any, for TSG's distribution or use of such
software and a royalty percentage, if any, for such distribution or use of such
software to be payable upon and after the Expiration Date or the Termination
Date provided; however, no such offset or royalty shall be due to the Airline
Group for any application that is a Derivative Work of such software once more
than [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION] of
its program instructions are original materials funded by one or more entities
other than the Airline Group.
Article XII -- Marketing and Related Rights
12.1. SERVICES PROVIDED BY THE AIRLINE GROUP TO ITS CUSTOMERS. In
accordance with this Article, the Airline Group may require TSG to perform TSG
Services for the Airline Group to enable the Airline Group to provide services
to AG Customers.
12.2. THE AIRLINE GROUP'S PROVISION OF SERVICES TO AG CUSTOMERS. Unless
otherwise expressly specified in this Section 12.2, the Airline Group may
provide the AG Mixed Services without TSG's consent, and such incremental use
of TSG Services as may be used by the Airline Group and/or AG Customers shall
be charged to the Airline Group at the Current Rates in accordance with the
Rate and Reset Schedule, except as expressly described in this Section 12.2.
A. The Airline Group may provide Operations Mixed Services to AG
Customers.
B. Subject to Section "12.3. FORMER TSG PROSPECTS," the Airline
Group may provide Alliance Mixed Services to AG Customers.
C. If TSG incurs reasonable, necessary, and Extraordinary Costs for
establishing the Airline Group's ability to provide Alliance Mixed
Services to a specific AG Customer and such costs will result in a
lower profit margin to TSG than would have occurred if the additional
volume or services were provided for the Airline Group's own use with
the then current TSG facilities, the Airline Group shall reimburse TSG
for such costs; provided, however, that TSG has given the Airline
Group Notice in advance of incurring such costs.
D. The Airline Group may provide Other Mixed Services to AG Customers
in accordance with the following:
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<PAGE> 41
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
a. If TSG and the Airline Group do not agree within
ten Business Days of commencing such negotiations,
TSG and the Airline Group shall each state in writing
its position concerning the AG Other Mixed Services
Costs and proceed in accordance with Article
XXIII--Dispute Resolution; provided, however, that
the sole question for the arbitrator(s) to determine
is which Party's position concerning the AG Other
Mixed Services Costs to accept.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION]
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION]
E. Provided, however, the Airline Group may provide Other Mixed
Services without TSG's consent, as follows:
(1) If the AG Other Mixed Services Costs for such services do
not exceed [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION] of the AG Other Mixed Services Fees for
such services; and
(2) The AG Other Mixed Services Fees are reasonably
anticipated as not exceeding [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION] per year per AG Customer.
12.3. FORMER TSG PROSPECTS. If at any time any member of the Airline Group
agrees in writing to provide Alliance Mixed Services to an entity that has
expressed serious interest in acquiring a software license or services from TSG
and TSG has provided to such entity a written proposal to provide similar
software or services and such entity continues to be a
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<PAGE> 42
realistic opportunity for TSG, as demonstrated by TSG's active marketing
efforts, except that such entity's agreement with AMERICAN obviates its need to
acquire software or services from TSG, AMERICAN and TSG shall negotiate
appropriate compensation, considering the circumstances, that AMERICAN shall
pay to TSG.
12.4. EXISTING ALLIANCES. Nothing in this Agreement is intended to modify
the Parties' pre-existing rights or obligations in existing agreements
concerning services substantially similar to AG Mixed Services, as the Airline
Group may have in effect on the Effective Date.
12.5. MARKETING RIGHTS AFTER EXPIRATION OR TERMINATION. After the
Termination Date or the Expiration Date, subject to Section "11.2. RIGHTS IN
JOINTLY OWNED SOFTWARE," the Airline Group may use TSG Operated Software to
provide services to AG Customers in accordance with this Section 12.5. Except
as expressly provided otherwise in this Section 12.5, the Airline Group may use
the TSG Operated Software to provide AG Mixed Services without payment to TSG
of any compensation, including license fees and royalties.
A. The Airline Group may use the TSG Operated Software, subject to
receiving any necessary consents from the licensors of the Transferred
Third Party Software and the Other Third Party Software.
B. For four years after the Termination Date or Expiration Date, the
provisions of Section "12.3. FORMER TSG PROSPECTS" shall remain in
effect, except if there is Termination For Cause by AMERICAN, in which
event TSG shall be due no compensation pursuant to Section "12.3.
FORMER TSG PROSPECTS."
C. In circumstances where the Airline Group would not have been
permitted to provide AG Mixed Services under Subsection D(2) of
Section "12.2. THE AIRLINE GROUP'S PROVISION OF SERVICES TO AG
CUSTOMERS" before the Termination Date or the Expiration Date, the
Airline Group may use the TSG Operated Software to provide services to
AG Customers and shall pay TSG a license fee for the use of such
software until, for a specific application that is a Derivative Work
of such software, more than [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION] of its program instructions are
original materials written by one or more entities other than TSG,
as follows:
(1) If this Agreement expired in accordance with its term or
terminated pursuant to Sections "24.3. TERMINATION FOR A
FORCE MAJEURE EVENT," or "24.5. TERMINATION BECAUSE OF
ACQUISITION OF TSG," the Airline Group shall pay TSG
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
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<PAGE> 43
(2) In the event of Termination For Cause by AMERICAN, and if
a Fair License Fee is [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION] Airline Group shall pay TSG
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
(3) Until June 30, 2006, if this Agreement was terminated
pursuant to Section "24.4. TERMINATION FOR CONVENIENCE," the
Airline Group and TSG shall mutually agree to [CONFIDENTIAL
PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
(4) After June 30, 2006, if this Agreement was terminated
pursuant to Section "24.4. TERMINATION FOR CONVENIENCE," the
Airline Group shall pay TSG [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION]
D. To the extent that AMERICAN's use of any of the Transferred
Software or the Transferred Third-Party Software to provide AG Mixed
Services under this Section 12.5 would constitute the exercise of
rights in excess of the Retained Rights, TSG and AMERICAN shall
mutually agree to a [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION] incremental use in excess of the Retained Rights
for providing such services to AG Customers.
E. The Airline Group may enter into an agreement with an AG Customer
pursuant to this Section 12.5 prior to the determination of
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
Article XIII -- Non-competition
13.1. SEPARATE NON-COMPETITION AGREEMENT. Commencing on the Effective Date
and continuing for specified periods as set forth therein, the members of the
Airline Group must comply with the terms of the Non-competition Agreement among
AMERICAN, AMR, TSG Corporation, and TSG dated as of the Effective Date, which
restricts such members of the Airline Group from providing certain described
services to other Persons. Such restrictions do not, however, prohibit the
Airline Group's exercise of rights under Article XII -- Marketing and Related
Rights.
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<PAGE> 44
Article XIV -- Confidential Information
14.1. CONFIDENTIAL INFORMATION. Except as otherwise provided in this
Agreement, information gathered or compiled by TSG for AMERICAN is proprietary
to AMERICAN and TSG may not sell such information to other Persons. In
addition, the following information is Confidential Information, whether
acquired under or in connection with this Agreement or obtained in connection
with the relationship of the Airline Group and TSG or its subsidiaries or
predecessors before the Effective Date:
A. Information relating to the other Party's business, customers,
financial condition, performance, or operations that the other Party
treats as confidential or proprietary.
B. The terms and conditions of this Agreement and all pricing,
charges, fees, credits, and invoices connected with this Agreement.
C. Information concerning any breach under, or any Dispute regarding,
this Agreement.
D. Information that is the confidential information of a third party
and disclosed to a Party subject to an obligation of confidentiality.
E. Any other information, whether in a tangible medium or oral and
whether proprietary to the other Party or not, that is marked or
clearly identified by the other Party as confidential or proprietary.
F. The other Party's trade secrets.
G. TSG Highly Confidential Information.
H. The Parties' conduct, decisions, documents, and negotiations as
part of, and the status of, any Dispute resolution proceedings under
the Dispute Resolution Procedure.
Though the Airline Group's Confidential Information includes the Jointly Owned
Software and the Transferred Software, the Airline Group consents to TSG's
disclosure and use of such Jointly Owned Software and Transferred Software,
subject to any such protections or assurances against disclosure for the
benefit of TSG as TSG may use or effect for its own Confidential Information.
Each of the American Related Entities shall have the same rights and benefits,
and the same duties and obligations, as AMERICAN (as a "Party") has in this
Article XIV.
14.2. EXCLUDED INFORMATION. The following information is not considered
Confidential Information to the extent that the information:
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A. Is or becomes publicly available or available in the industry
other than as a result of any breach of this Agreement or of any other
duty of that Party;
B. Is or becomes available to that Party from a source that, to that
Party's knowledge, is lawfully in possession of that information and
is not subject to a duty of confidentiality, whether to the other
Party or another Person, violated by that disclosure; or
C. Is independently developed without reference to the Confidential
Information.
14.3. USE OF CONFIDENTIAL INFORMATION. Except as expressly permitted by
this Agreement, all Confidential Information shall be held and protected by the
recipient in strict confidence, shall be used by the recipient only as required
to render performance or to exercise rights and remedies under this Agreement,
and shall not be disclosed to any other Person.
14.4. STANDARD OF CARE. Each Party shall use at least the same degree of
care in maintaining the confidentiality of the Confidential Information as that
Party uses with respect to its own proprietary or confidential information, and
in no event less than reasonable care.
14.5. PERMITTED DISCLOSURES. A Party may disclose Confidential Information
to its officers, directors, employees, legal representatives, accountants, or
tax advisors, on a need-to-know basis, in order to give effect to this
Agreement. Each Party must inform each such Person to whom any Confidential
Information is so communicated of the duty of confidentiality regarding that
information under this Agreement and impose on that Person the obligation to
comply with this Article XIV regarding the Confidential Information.
14.6. REQUIRED DISCLOSURES. Each Party may disclose Confidential
Information in response to a request for disclosure by a court or another
Governmental Authority, including a subpoena, court order, or audit-related
request by a taxing authority, if that Party:
A. Promptly notifies the other Party of the terms and the
circumstances of that request;
B. Consults with the other Party, and cooperates with the other
Party's reasonable requests to resist or narrow that request;
C. Furnishes only information that, according to written advice
(which need not be a legal opinion) of its legal counsel, that Party
is legally compelled to disclose; and
D. Uses reasonable efforts to obtain an order or other reliable
assurance that confidential treatment will be accorded the information
disclosed.
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A Party need not comply with these conditions to disclosure, however, to the
extent that the request or order of the Governmental Authority in effect
prohibits that compliance. A Party may also disclose Confidential Information
without complying with these conditions to the extent that the Party is
otherwise legally obligated to do so (including for the purposes of complying
with applicable securities laws), as confirmed by advice of competent and
knowledgeable legal counsel. Further, a Party may disclose Confidential
Information, without complying with these conditions, (i) in connection with a
tax audit to representatives of a taxing authority or (ii) in connection with a
tax contest in which that Party uses reasonable efforts to assure that
confidential treatment will be accorded the information disclosed.
14.7. TITLE TO INFORMATION. The Confidential Information disclosed by one
Party to the other Party shall remain the property of the disclosing Party, and
nothing in this Article XIV grants or confers any ownership rights in any of
that information to the other Party.
14.8. CONFIDENTIALITY AND THIRD PARTIES. If AMERICAN selects a third party
to perform software audit services pursuant to Section "5.11. AUDITING CODE
EFFICIENCY," and/or other services, including maintenance services, enhancement
services, or development services, and such third party will obtain access to
TSG Highly Confidential Information, AMERICAN must obtain TSG's Consent.
A. Nevertheless, except as provided in Subsection B of this
Section 14.8, if TSG can demonstrate that such third party is then a
competitor of TSG in the development or marketing of any software
product having functionality substantially similar to the software to
which that third party will obtain access, or is likely to become such
a competitor within two years, then TSG's Consent shall be at its sole
discretion.
B. TSG may not unreasonably withhold its Consent, however:
(1) As to every third party that is capable or competent
to perform and that has bid, or expressed a willingness, to
perform at or near the same price as any third party to which
TSG has withheld its Consent in accordance with Subsection A
of this Section 14.8; or
(2) When such Consent is necessary to enable the Airline
Group to enter into an operating or marketing alliance or any
other marketing relationship that is intended to increase the
Airline Group's passenger or cargo revenue.
C. Third parties, including Successor Providers, to which TSG's
Confidential Information is to be disclosed or with access to TSG's
Confidential Information, other than TSG Highly Confidential
Information, shall first execute a non-disclosure/confidentiality
agreement substantially in the form of Exhibit J: Non-
disclosure/Confidentiality Agreement.
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D. Third parties, including Successor Providers, to which TSG Highly
Confidential Information is to be disclosed or with access to TSG
Highly Confidential Information shall first execute a
non-disclosure/non- competition agreement substantially in the form of
Exhibit N: Non-disclosure/Non-competition Agreement.
14.9. IRREPARABLE HARM. The Parties acknowledge that any disclosure or
misappropriation of Confidential Information in violation of this Agreement
could cause irreparable harm, the amount of which may be extremely difficult to
estimate, thus making any remedy at law or in damages inadequate. Each Party
therefore agrees that the other Party shall have the right, afforded in Section
B.4(b) of Exhibit M: Dispute Resolution Appendix, to apply to any court of
competent jurisdiction for a temporary or provisional order restraining any
breach or impending breach of this Article XIV. This right shall be in
addition to any other remedy available under this Agreement.
14.10. GENERAL KNOWLEDGE. Each Party understands that the other Party may
enhance its generalized knowledge and experience while this Agreement is in
effect and that the other Party may already possess or hereafter obtain
concepts, data, discoveries, ideas, information, inventions, know-how,
knowledge, methodologies, processes, products, skills, techniques or other work
product, whether or not patentable, that are generally similar to Confidential
Information it may receive under this Agreement. This Agreement shall not be
interpreted as limiting such other Party's rights to develop, disclose,
display, market, obtain, own, publish, provide, release, sell, transfer, or
use, in any manner whatsoever, any such generalized knowledge and experience or
any such concepts; provided, however, that such other Party shall in all events
comply with the preceding Sections of this Article XIV.
14.11. CONFIDENTIALITY AND BENCHMARKING. Nothing in this Article XIV
precludes the Airline Group from disclosing (subject to an appropriate
nondisclosure agreement) their business requirements, including services,
service level requirements, geographic location data, and resource consumption,
to the Benchmark Providers or prospective Benchmark Providers or to any other
Person in connection with an RFP or RFQ permitted by this Agreement. Such
disclosure may not include, however, any code or detailed descriptions of
functionality of any TSG Operated Software or descriptions of the service level
performance of TSG under this Agreement.
14.12. RESEARCH. If any TSG Service creates patentable subject matter other
than software, TSG, at its sole expense, may seek patent protection, and shall
own whatever patents may issue, for such patentable subject matter. Until
Expiration or termination of this Agreement, TSG shall offset the Fees
otherwise payable by AMERICAN to TSG by an amount equal to twenty percent of
revenue TSG receives for the licensing, sale, and third-party use of such
patents for the duration of such patents and any renewals. After Expiration or
termination of this Agreement, TSG shall pay AMERICAN a royalty of twenty
percent of revenue TSG receives for the licensing, sale, or third-party use of
such patents for the duration of such patents and any renewals.
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Article XV -- Security
15.1. SECURITY IN GENERAL. TSG shall provide security for the AG Data and
AG Customer Data in accordance with Section "10.4. DATA SECURITY." TSG shall
provide physical and electronic security for the TSG Services no less rigorous
than such physical and electronic security as are in effect on the Effective
Date.
Article XVI -- Key Employees and Related Provisions
16.1. DESIGNATION OF KEY EMPLOYEES. In accordance with this Section 16.1,
AMERICAN and TSG shall designate the Key Employees.
A. TSG and AMERICAN may designate as Key Employees up to twenty
percent of the total number of full-time TSG employees assigned to
provide services to AMERICAN. The parties anticipate that the maximum
number of Key Employees will be approximately [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION] upon the Effective
Date.
B. At the commencement of each New/Out-of-scope Services,
Development, and significant Enhancement project to be performed by
TSG, TSG and AMERICAN shall agree as to the personnel who are
designated as Key Employees for the duration of such projects or
phases of such projects.
C. A TSG employee performing Maintenance may be mutually designated
as a Key Employee for a period of twenty-four consecutive months.
Without AMERICAN's consent, TSG may remove a Key Employee who provides
Maintenance and who has been on the Key Employee List for more than
twenty-four consecutive months, but TSG must promptly provide a
replacement TSG employee who has suitable training and skills and who
is designated as a Key Employee.
D. Each year during the budgeting process for determining maintenance
fees, the parties determine the Key Employees for the maintenance of
each Application. No more than [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION] of the employees providing
maintenance for such Application may be designated as a Key
Employees, except when fewer than 10 employees are providing
maintenance for such Application; in which case there may be up to
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] employees designated as Key Employees.
E. AMERICAN and TSG shall meet quarterly to revise the Key Employee
List. TSG and AMERICAN must mutually agree in writing before a TSG
employee is designated a Key Employee.
F. TSG may request that an employee be removed from the Key Employee
List prior to the end of the twenty-four month period if:
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(1) The removal of the employee from the Key Employee List
would not materially adversely affect the services that the
Key Employee was providing to the Airline Group.
(2) TSG can promptly provide the Airline Group with a
replacement employee to be added to the Key Employee List who
has suitable training and skills.
(3) AMERICAN retains the right of final approval, which shall
not be unreasonably withheld, over all changes to the Key
Employee List pursuant to this Subsection F.
G. If TSG removes a Key Employee pursuant to Subsection F of this
Section 16.1 and such removal directly or indirectly causes any
significant service problems, including project delays, project
overruns, programming errors, or service performance degradation, TSG
shall promptly commence correcting such service problems, including,
if necessary, replacing the new Key Employee.
H. TSG shall use reasonable efforts to promptly replace a Key
Employee who ceases full-time employment at TSG for any reason,
including such employee's resignation, leave of absence, termination,
disability, or death, with another employee who possesses skills
adequate to perform the duties of such Key Employee. At the next
meeting between the Account Managers, the Parties shall mutually agree
whether anyone, and if so who, will be added to the Key Employee List.
16.2. RESTRICTIONS CONCERNING KEY EMPLOYEES. TSG hereby agrees to the
restrictions described in this Section 16.2 for Key Employees.
A. Key Employees must dedicate a minimum of 80% of their billable
time to providing services for AMERICAN's benefit.
B. TSG may not transfer a Key Employee from one project to another
project without AMERICAN's Consent.
C. TSG may not materially change the job description of a Key
Employee without AMERICAN's Consent.
16.3. REMOVAL OF PERSONNEL. In the event that AMERICAN reasonably and in
good faith determines that the continued assignment by TSG of any Account
Manager or any employee to the performance of TSG Services is adversely
affecting the interests of AMERICAN, then the Airline Group's CIO will send
TSG's President (in the case of the Account Manager's performance) or the
Account Manager (in the case of any other employee's performance) written
notice thereof, specifying the reasons therefor and requesting that the Account
Manager or employee be replaced. Promptly after its receipt of such a request
by AMERICAN, TSG shall investigate the matters stated in the request consistent
with TSG's human resources policies. The affected individual will be subject
to an evaluation
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period consistent with TSG's human resources policies for a period of four
months for the Account Manager and three months for other employees, during
which period the individual may correct such problems. During such period TSG
shall use efforts consistent with its personnel policies to improve such
individual's performance; if unsuccessful, TSG shall use reasonable efforts to
replace such employee with a person of suitable ability and qualifications if
such problems are not corrected within such period.
Article XVII -- Non-solicitation of Employees
17.1. NON-SOLICITATION OF EMPLOYEES. Except as stated in this Section 17.1,
while this Agreement is in effect and for a period of two years thereafter,
neither Party may recruit or hire the employees or Independent Contractors
engaged by the other Party, whether as employees or Independent Contractors,
without the Consent of the other Party.
A. AMERICAN may recruit and hire TSG's employees and TSG's Independent
Contractors who previously worked for AMERICAN in a capacity other
than providing services substantially similar to the TSG Services and
other than providing operations research services to AMERICAN;
provided, however, that AMERICAN first gives TSG two months' Notice
when AMERICAN intends to hire a TSG employee designated as a Level 5
employee or below and three months' Notice when AMERICAN intends to
hire a Level 6 employee or above.
B. TSG may recruit and hire AMERICAN's employees and AMERICAN's
Independent Contractors who previously worked for a division of
AMERICAN that became TSG or a predecessor of TSG; provided, however,
that TSG first gives AMERICAN two months' Notice when TSG intends to
hire an AMERICAN employee designated as a Level 5 employee or below
and three months' Notice when TSG intends to hire a Level 6 employee
or above.
C. In the event of Expiration or termination for any reason, except
for termination pursuant to Section "24.4. TERMINATION FOR
CONVENIENCE," AMERICAN may recruit and hire TSG employees and
Independent Contractors assigned by TSG primarily to perform work on
behalf of AMERICAN, and AMERICAN may facilitate and/or assist the
Successor Provider in identifying and hiring such individuals.
D. In the event of termination pursuant to Section "24.4. TERMINATION
FOR CONVENIENCE," and provided AMERICAN obtains TSG's Consent, which
may be withheld in TSG's sole discretion, AMERICAN may recruit and
hire TSG employees and Independent Contractors assigned by TSG
primarily to perform work on behalf of AMERICAN, and AMERICAN may
facilitate and/or assist the Successor Provider in identifying and
hiring such individuals; provided, however, that if TSG does not
consent to the hiring of such employee or Independent Contractor, the
cost for such person shall be excluded from the Wind-down Costs.
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E. If an employee's employment or an Independent Contractor's
engagement with a Party terminates, then without the Consent of such
Party, the other Party may not recruit, hire, or engage such former
employee or Independent Contractor, whether as an employee or
Independent Contractor, for a period of twelve months after the date
of termination of such employee's employment or such Independent
Contractor's engagement.
Article XVIII -- Parties' Relationship
18.1. INDEPENDENT PARTIES. The Parties are independent; each has sole
authority and control of the manner of, and is responsible for, its performance
of this Agreement. This Agreement does not create or evidence a partnership or
joint venture between the Parties. Neither Party may create or incur any
liability or obligation for or on behalf of the other Party, except as
described in this Agreement. This Agreement does not restrict TSG from
providing or rendering any services, including services like the TSG Services,
to any other Person; nothing in this Agreement, however, gives TSG the right to
provide or render any services in violation of any other agreement entered into
by the Parties.
18.2. ADVERTISING. While this Agreement is in effect, TSG has exclusive
right to advertise both as the "preferred provider" of information technology
services to AMERICAN and as possessing a "strategic relationship" with
AMERICAN; provided, that the TSG Services are more than 50% of all the services
AMERICAN receives that are similar to the TSG Services; and provided further,
that the Airline Group may endorse a third-party provider as the "preferred
provider" of a particular service that is not (and need not be) provided by
TSG. Nothing in this Section shall be construed as permitting TSG to use any
trademark or service mark of AMERICAN without AMERICAN's Consent, which
AMERICAN may give in its sole discretion.
18.3. AUTHORITY OF ACCOUNT MANAGERS AND OTHERS. Except as expressly
authorized in this Section 18.3, only an officer of a Party may bind that
Party.
A. TSG and AMERICAN may change Account Managers upon notice to the
other; provided, however, that TSG's appointment of an Account Manager
is subject to AMERICAN's Consent.
B. AMERICAN and TSG agree that the Account Managers shall serve as
the general points of contact between the parties.
C. The Airline Group's CIO has the following authority:
(1) The Airline Group's CIO may bind AMERICAN to an agreement
with TSG to perform any service for which there is a charge,
and such agreement must be in writing;
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(2) [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH
THE COMMISSION]
(3) The Airline Group's CIO shall submit a list of AMERICAN
employees that may bind AMERICAN to an agreement with TSG to
perform any TSG Services or New/Out-of-scope Services; and
until the Airline Group's CIO provides such list to TSG,
AMERICAN shall not claim that an AMERICAN employee lacked the
authority to authorize work.
Article XIX -- Warranties
19.1. MUTUAL WARRANTIES. Each Party warrants and represents to the other
Party as follows:
A. That it has the requisite corporate authority to enter into and
perform this Agreement;
B. That its execution, delivery, and performance of this Agreement
have been duly authorized by all requisite corporate action on its
behalf;
C. That this Agreement is enforceable against it; and
D. That it has obtained all consents or approvals of Governmental
Authorities and other Persons that are conditions to its entering into
this Agreement.
E. Provisions to the contrary notwithstanding, nothing in this
Agreement shall be construed as a warranty by either party concerning
the Transferred Software or the Transferred Third Party Software.
19.2. TSG'S WARRANTIES. TSG hereby warrants and represents as follows:
A. That it has all requisite authority to use any software that it
has obtained after the Effective Date to provide the TSG Services and
the New/Out-of-scope Services;
B. That none of the software that it develops to provide the TSG
Services will wilfully infringe the patent, infringe the copyright, or
misappropriate the trade secrets of another;
C. That a substantial part of the incentive compensation of TSG
employees for whom a significant portion of work consists of
performing TSG Services including, but not limited to, the Key
Employees, will depend upon AMERICAN's satisfaction as determined by
TSG in accordance with Section "5.12. ANNUAL SURVEY."
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19.3. AMERICAN'S WARRANTIES. AMERICAN hereby warrants and represents that
it possesses all requisite rights and authority to provide any software that it
provides to TSG after the Effective Date.
Article XX -- Indemnification
20.1. INJURY AND PROPERTY INDEMNIFICATION BY TSG. TSG shall indemnify,
defend, and hold harmless the Airline Group Indemnitees from and against Tort
Damages resulting from any action or omission of any employee or agent of TSG
(including any of TSG's subcontractors) in connection with this Agreement that
constitutes negligence, gross negligence, or willful misconduct of TSG or its
employees or agents.
20.2. CUSTOMER INDEMNIFICATION BY TSG. TSG shall indemnify, defend, and
hold harmless the Airline Group Indemnitees from and against Indemnifiable
Losses resulting from, arising out of, or relating to any claim by any customer
of TSG, other than any member of the Airline Group or any of its Affiliates,
arising out of TSG's rendering or providing any service similar to any of the
TSG Services to or for the benefit of that claimant.
20.3. INTELLECTUAL PROPERTY INDEMNIFICATION BY TSG. TSG shall indemnify,
defend, and hold harmless the Airline Group Indemnitees from and against
Indemnifiable Losses resulting from, arising out of, or relating to any
Third-Party Claim that any item of intellectual property, including software or
software specifications, provided under this Agreement by TSG infringes a
currently existing United States copyright, misappropriates a trade secret, or
willfully infringes a United States patent.
A. TSG shall not indemnify any of the Airline Group's
Indemnitees, however, if the claim of infringement or misappropriation
is caused by:
(1) Such Airline Group Indemnitee's misuse or
modification of such item,
(2) Such Airline Group Indemnitee's failure to use
corrections or enhancements made available by TSG,
(3) Such Airline Group Indemnitee's use of such item in
combination with any product or information not owned,
developed, or provided by TSG, except as authorized by TSG,
(4) Such Airline Group Indemnitee's distribution,
marketing, or use for the benefit of third parties of such
item, except as permitted by this Agreement or otherwise
authorized by TSG, or
(5) Any information, direction, specification, or
materials provided by such Airline Group Indemnitee or any
third party.
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B. If any such item is, or in TSG's opinion is likely to be, held
to constitute an infringing product, TSG shall, at its expense and
option, either:
(1) Procure the right for the Airline Group Indemnitee to
continue using such item,
(2) Replace such item with a non-infringing equivalent
item,
(3) Modify such item to make it non-infringing, or
(4) Accept return of such item and refund to the Airline
Group Indemnitee the Fees paid for such item, less a
reasonable amount for the Airline Group Indemnitee's use of
such item up to the time of return.
C. The rights and remedies stated in this Section 20.3 constitute
the sole and exclusive remedies of the Airline Group Indemnitees, and
TSG's entire liability, with respect to a Third-Party Claim of
infringement and misappropriation.
20.4. INJURY AND PROPERTY INDEMNIFICATION BY AMERICAN. AMERICAN shall
indemnify, defend, and hold harmless the TSG Indemnitees from and against Tort
Damages resulting from any action or omission of any employee or agent of the
Airline Group (other than TSG) in connection with this Agreement that
constitutes negligence, gross negligence, or willful misconduct of any member
of the Airline Group or its employees or agents (other than TSG).
20.5. CUSTOMER INDEMNIFICATION BY AMERICAN. AMERICAN shall indemnify,
defend, and hold harmless the TSG Indemnitees from and against Indemnifiable
Losses resulting from, arising out of, or relating to any claim by any AG
Customer or any of the customers of an AG Customer arising out of the Airline
Group's rendering or providing any AG Mixed Services to that AG Customer.
20.6. INTELLECTUAL PROPERTY INDEMNIFICATION BY AMERICAN. American shall
indemnify, defend, and hold harmless the TSG Indemnitees from and against
Indemnifiable Losses resulting from, arising out of, or relating to any Third-
Party Claim that any item of intellectual property, including software or
software specifications, provided under this Agreement by any member of the
Airline Group, infringes a currently existing United States copyright,
misappropriates a trade secret, or willfully infringes a United States patent.
A. American shall not indemnify any of the TSG Indemnitees,
however, if the claim of infringement or misappropriation is caused
by:
(1) Such TSG Indemnitee's misuse or modification of such
item,
(2) Such TSG Indemnitee's failure to use corrections or
enhancements made available by any member of the Airline
Group,
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(3) Such TSG Indemnitee's use of such item in combination
with any product or information not owned, developed, or
provided by any member of the Airline Group, except as
authorized by a member of the Airline Group,
(4) Such TSG Indemnitee's distribution, marketing, or use
for the benefit of third parties of such item, except as
permitted by this Agreement or otherwise authorized by any
member of the Airline Group, or
(5) Any information, direction, specification, or
materials provided by such TSG Indemnitee or any third party.
B. If any such item is, or in American's opinion is likely to be,
held to constitute an infringing product, American shall, at its
expense and option, either:
(1) Procure the right for the TSG Indemnitee to continue
using such item,
(2) Replace such item with a non-infringing equivalent
item,
(3) Modify such item to make it non-infringing, or
(4) Accept return of such item and refund to the TSG
Indemnitee any amount paid for such item, less a reasonable
amount for the TSG Indemnitee's use of such item up to the
time of return.
C. The rights and remedies stated in this Section 20.6 constitute
the sole and exclusive remedies of the TSG Indemnitees, and American's
entire liability, with respect to a Third-Party Claim of infringement
and misappropriation.
20.7. AIRLINE INCIDENT INDEMNIFICATION. American shall indemnify, defend,
and hold harmless the TSG Indemnitees from and against Indemnifiable Losses
resulting from, arising out of, or relating to any Airline Incident. The
Parties intend that the TSG Indemnitees be indemnified notwithstanding any
liability that TSG might otherwise have under Section "20.1. INJURY AND
PROPERTY INDEMNIFICATION BY TSG" or Section "20.2. CUSTOMER INDEMNIFICATION BY
TSG" relating to any Airline Incident.
20.8. SITA INDEMNIFICATION. TSG shall indemnify, defend, and hold harmless
the Airline Group Indemnitees from and against Indemnifiable Losses (except as
described below in this Section 20.8) that arise or accrue on or after the
Effective Date resulting from, arising out of, or relating to AMERICAN's
serving as the contracting party under the SITA Agreements. Those
Indemnifiable Losses shall:
A. Include any losses, costs, taxes, claims, liabilities,
damages, or causes of action arising from or related to the
obligations of payment (including any fees, penalties, or interest for
late payment or nonpayment), indemnification obligations, and
obligations resulting from the failure to meet the financial minimums
under the SITA Agreements.
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B. Exclude any losses or damages of the kind described in
Subsection A of this Section 20.8 related to the SITA Services
consumed by AMERICAN and its Affiliates other than TSG and its
subsidiaries (except for any amount paid by AMERICAN and its
Affiliates to TSG for SITA Services consumed by AMERICAN and its
Affiliates other than TSG and its subsidiaries).
20.9. EXPRESS NEGLIGENCE. THE ORDINARY NEGLIGENCE OF ANY INDEMNITEE OR THE
JOINT OR CONCURRENT ORDINARY NEGLIGENCE OF TWO OR MORE INDEMNITEES SHALL NOT
PRECLUDE SUCH INDEMNITEE OR SUCH INDEMNITIEES FROM RECEIVING THE BENEFITS OF
INDEMNIFICATION UNDER THIS ARTICLE XX.
20.10. THIRD-PARTY CLAIMS. If an Indemnification Claim is based on a
Third-Party Claim:
A. The Indemnified Party shall give an Indemnification Claim
Notice promptly after it receives the Third- Party Claim. The failure
of an Indemnified Party to give an Indemnification Claim Notice shall
relieve the Indemnifying Party of its indemnification obligations only
to the extent the Indemnifying Party is actually prejudiced by that
failure.
B. The Indemnifying Party shall be entitled to defend the
Third-Party Claim, with its chosen counsel and at its own expense, if
(1) the Third-Party Claim seeks only monetary relief, and not an
injunction or other equitable relief, against the Indemnified Party,
and (2) the Indemnifying Party elects to assume, and diligently
conducts, that defense. The Indemnifying Party's election to defend
must be given by Notice to the Indemnified Party within the
Indemnification Response Period. If the Indemnifying Party conducts
the defense, the Indemnified Party may participate in that defense
with its own counsel and at its own expense.
C. If the Indemnifying Party does not elect to defend the
Third-Party Claim by Notice within the Indemnification Response
Period, or if the Indemnifying Party does not diligently conduct the
defense, the Indemnified Party shall be entitled, upon further Notice
to the Indemnifying Party, to defend the Third-Party Claim on behalf
of, and for the account and risk of, the Indemnifying Party (if it is
determined that the Indemnifying Party has an indemnification
obligation regarding that Indemnification Claim). In this
circumstance, the Indemnifying Party may participate in the defense
with its own counsel and at its own expense.
D. If there is a conflict of interest that makes it inappropriate
for the same counsel to represent the Indemnifying Party and the
Indemnified Party in defending the Third-Party Claim, the Indemnifying
Party must pay for separate counsel for the Indemnified Party.
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E. The Indemnifying Party defending a Third-Party Claim may
compromise, settle, or resolve that Third-Party Claim without the
Indemnified Party's consent if the compromise, settlement, or
resolution involves only the payment of money by the Indemnifying
Party (whether on its own behalf or behalf of the Indemnified Party)
and the third-party claimant provides the Indemnified Party a release
from all liability regarding the Third-Party Claim. Otherwise, the
Indemnifying Party may not compromise, settle, or resolve the
Third-Party Claim without the Indemnified Party's Consent.
F. The Indemnifying Party and the Indemnified Party must
cooperate with all reasonable requests of the other in defending any
Third-Party Claim.
20.11. NON-THIRD-PARTY CLAIMS. A Party's claim, on its behalf or on behalf of
its other Indemnitees, that the other Party is liable for indemnification under
any of the preceding Sections of this Article XX -- Indemnification based on
any event or action other than a Third-Party Claim shall be made by Notice to
that other Party. Any Dispute about that claimed liability shall be resolved
by the Dispute Resolution Procedure.
Article XXI -- Limitations of Liability
21.1. INTENDED ALLOCATION OF RISKS. The allocation of risks between the
Parties, and the limitations on the Parties' liabilities and remedies, set
forth in this Article XXI and elsewhere in this Agreement are specifically
intended by the Parties, as part of their bargain (i.e., part of the
consideration for their other respective benefits and obligations) in this
Agreement. The Parties acknowledge that they have negotiated, with the advice
of legal counsel, such allocation and limitations.
21.2. NEGLIGENCE AND ORDINARY MISTAKES. Except as otherwise expressly
provided in this Agreement, [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION]. For the avoidance of doubt, nothing in this Section 21.2
affects any liability of a Party to indemnify the other Party's Indemnities
against Tort Damages or Indemnifiable Losses under Article XX --
Indemnification.
21.3. EXTRAORDINARY MISTAKES. TSG's liability for any Extraordinary Mistake
shall be limited to its obligations described in Sections "5.9. CORRECTION OF
PERFORMANCE," "7.9. PERFORMANCE ADJUSTMENT OF FEES" (if an SLA Standard is
applicable), and "10.3 RISK OF DATA LOSS." [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION]. Any act or omission of TSG that is
appropriately characterized equally (i) as negligent and as an Extraordinary
Mistake shall be deemed an Extraordinary Mistake under this Article XXI,
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and (ii) as grossly negligent and as an Extraordinary Mistake shall be deemed
grossly negligent under this Article XXI. For the avoidance of doubt, nothing
in this Section 21.3 affects any liability of TSG to indemnify the Arline Group
Indemnitees against Tort Damages or Indemnifiable Losses under Article
XX--Indemnification.
21.4. [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
21.5. GROSS NEGLIGENCE AND WILLFUL MISCONDUCT. A Party's liability under or
relating in any manner to this Agreement for General Damages resulting from
that Party's gross negligence or willful misconduct in the exercise of its
rights or the performance of its obligations under this Agreement, including
any breach of this Agreement by that Party constituting or caused by its gross
negligence or willful misconduct, shall be limited as follows:
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
For the avoidance of doubt, nothing in this Section 21.5 affects any liability
of a Party to indemnify the other Party's Indemnitees against Tort Damages or
Indemnifiable Losses under Article XX -- Indemnification.
21.6. LIMITATION ON AMOUNT OF ALL GENERAL DAMAGES. A Party's liability for
General Damages other than Consequential Damages and punitive or exemplary
damages -- i.e., for actual damages -- described above in this Article XXI is
not limited except to the extent provided in this Section 21.6. A Party shall
have no liability under or relating in any manner to this Agreement for any
General Damages (including Consequential Damages or any unpaid Fees) in excess
of [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION] per
calendar year. For the avoidance of doubt, nothing in this Section 21.6 affects
any liability of a Party to indemnify the other Party's Indemnitees against
Tort Damages or Indemnifiable Losses under Article XX--Indemnification.
21.7. TIME FOR CLAIMS. A Party may assert or make a claim against the other
Party for any breach of this Agreement, or for that other Party's liability
under this Agreement (including an Indemnification Claim), only within three
years after the breach or other event constituting the basis for that claim
occurred, even if not discovered until after that three-year
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period. Nevertheless, the three-year limit on the time for asserting or making
any claim shall not apply to a claim (including an Indemnification Claim) based
on a Third-Party Claim.
21.8. WARRANTIES. Each Party's warranties in this Agreement are made solely
to and for the benefit of the other Party and, to the extent described in this
Agreement, the American Related Entities. No Person other than a Party may
assert or make a claim based on the other Party's warranties under this
Agreement; any claim by any of the American Related Entities must be made by
AMERICAN.
21.9. OFFSET. A Party entitled to any payment due from the other Party
under this Agreement may offset all or any portion of the amount of that
payment against any payment that is due from it to the other Party under this
Agreement.
21.10. EQUITABLE RELIEF. To the extent that any monetary relief available
under this Agreement is not an adequate remedy for any breach of this
Agreement, or upon any breach or impending breach of Article XIV--Confidential
Information, the non-breaching Party shall be entitled to injunctive relief as
a remedy for that breach or impending breach by the other Party, in addition to
any other remedies granted to the non-breaching Party in this Agreement. That
injunctive relief must be sought through arbitration in accordance with the
Dispute Resolution Procedure, except as permitted by Section B.4(b) of the
Dispute Resolution Appendix.
21.11. EXCLUSIVE REMEDIES. The remedies described in this Agreement are the
exclusive rights and remedies of a Party regarding any breach of this Agreement
or any matter that may be the subject of a claim for liability under or
relating to this Agreement.
21.12. NONCUMULATIVE REMEDIES. If a particular remedy for a breach of, or the
occurrence of any other event described in, this Agreement is specified in this
Agreement, that remedy shall be the exclusive remedy upon such a breach or
event. Nevertheless, if more than one remedy for such a breach or event is
specified in this Agreement, the Party entitled to a remedy must elect or
choose between the available remedies, and may not cumulate or exercise
multiple remedies, upon such a breach or event. Nevertheless, when there is a
deficiency in a service
A. Not subject to an SLA Standard, the Airline Group is not
required to elect or choose between (1) TSG's correcting or curing the
deficiency, (2) requiring that an SLA Standard be established for that
service, and (3) if caused by an Extraordinary Mistake, obtaining a
credit or repayment of the excess Fees charged or collected by TSG; or
B. Subject to an SLA Standard, the Airline Group is not required
to elect or choose between (1) TSG's correcting or curing the
deficiency, (2) obtaining any applicable Performance Decrease, and (3)
if caused by an Extraordinary Mistake, obtaining a credit or repayment
of the excess Fees charged or collected by TSG.
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21.13. WAIVER OF REMEDIES. No forbearance, delay, or indulgence by a Party in
enforcing this Agreement, within the applicable time limits stated in this
Agreement, shall prejudice the rights or remedies of that Party. No waiver of
a Party's rights or remedies regarding a particular breach of, or occurrence of
any other event described in, this Agreement constitutes a waiver of those
rights or remedies, or any other rights or remedies, regarding any other or any
subsequent breach of, or occurrence of any other event described in, this
Agreement.
21.14. WARRANTY DISCLAIMER. EXCEPT FOR THE EXPRESS WARRANTIES STATED IN THIS
AGREEMENT, NEITHER TSG NOR AMERICAN MAKES ANY OTHER WARRANTIES, EXPRESS OR
IMPLIED; AND EACH OF TSG AND AMERICAN HEREBY EXPRESSLY DISCLAIMS ALL IMPLIED
WARRANTIES, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
21.15. CLAIMS FOR TAXES. Claims for Taxes are subject to Article IX --
Transfer and Property Taxes and not to this Article XXI, except that Sections
"21.1. INTENDED ALLOCATION OF RISKS," "21.8. WARRANTIES," "21.9 OFFSET,"
"21.10. EQUITABLE RELIEF," "21.11. EXCLUSIVE REMEDIES," and "21.13. WAIVER OF
REMEDIES" and this Section 21.15 shall apply to claims for Taxes.
Article XXII -- Force Majeure and Disaster Recovery
22.1. FORCE MAJEURE. If either Party to this Agreement shall be prevented,
hindered, or delayed in the performance or observance of any of its obligations
hereunder by reason of a Force Majeure Event, then such Party shall be excused
from any further performance or observance of the obligation(s) so affected for
as long as such circumstances prevail and such party continues to use its
reasonable efforts to recommence performance or observance whenever and to
whatever extent possible without delay; provided, however, that to the extent
that the Force Majeure Event impairs the Airline Group's operations, TSG shall
use Extraordinary Efforts. Any party so delayed in its performance shall
immediately notify the other by telephone (to be confirmed in writing within
five days of the inception of such delay) and shall describe at a reasonable
level of detail the circumstances causing such delay. If (i) any of the
above-described circumstances prevent, hinder, or delay performance of TSG's
operational obligations hereunder, and (ii) as a result thereof, AMERICAN is
prevented from conducting a significant portion of AMERICAN's normal business
operations, then TSG, with the cooperation and assistance of AMERICAN, shall
resume performance of such operational obligations or arrange for AMERICAN to
obtain alternative performance of such operational obligations. The cost to
AMERICAN of such alternative performance shall not exceed the amount that would
have been owed to TSG by AMERICAN under this Agreement as if the TSG were
providing the equivalent TSG Services without the prevention, hindrance or
delay of performance of TSG's operational obligations under this Agreement.
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A. Whenever a Force Majeure Event causes TSG to allocate limited
resources among TSG's customers at the affected service locations,
AMERICAN shall receive at least the same priority in respect of such
allocations as (a) the highest priority that AMERICAN or its
affiliates enjoyed prior to the Effective Date and (b) TSG's other
commercial customers. Unless otherwise agreed by the Airline Group's
CIO, in such events TSG shall restore the following systems in the
following order: (1) the Front End Systems, (2) the Flight Operations
Systems, (3) the Passenger Services Systems and Fare Pricing Complex
and (4) the Commercial Systems.
B. If a Force Majeure Event, other than one intentionally caused by
AMERICAN, causes one or more of the TSG Services designated as a
"Critical TSG Service" or "High Risk TSG Service" to be unavailable
for productive use, AMERICAN may terminate this Agreement pursuant to
Section "24.3 TERMINATION FOR A FORCE MAJEURE EVENT," in accordance
with the following:
(1) For each TSG Service designated as a "Critical TSG
Service" other than CargoSABRE, AMERICAN may terminate this
Agreement if TSG either fails to give AMERICAN a Force Majeure
Recovery Plan within [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION] after Force Majeure Event
Commencement or if the applicable TSG Service is not
restored, in accordance with its SLA Standard, within
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] after Force Majeure Event Commencement.
(2) For the TSG Service known as CargoSABRE, AMERICAN
may terminate this Agreement if TSG either fails to give
AMERICAN a Force Majeure Recovery Plan within [CONFIDENTIAL
PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
after Force Majeure Event Commencement or if Cargo SABRE is
not restored, in accordance with its SLA Standard, within
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] after Force Majeure Event Commencement.
(3) When a Force Majeure Event has caused more than
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] of the TSG Services designated as "High Risk TSG
Services" to be unavailable for the Airline Group's productive
use, AMERICAN may terminate this Agreement if TSG either fails
to give AMERICAN a Force Majeure Recovery Plan within
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] after Force Majeure Event Commencement or if
such TSG Service is not restored, in accordance with its SLA
Standard, within [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION] after Force Majeure Event
Commencement.
(4) When a Force Majeure Event has caused more than
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION], but fewer than or equal to [CONFIDENTIAL
PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION], of
the TSG Services designated as "High Risk TSG Services" to be
unavailable for the Airline Group's productive use, AMERICAN
may terminate this Agreement if TSG either fails to give
AMERICAN a Force Majeure Recovery Plan within [CONFIDENTIAL
PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
after Force Majeure Event Commencement or if such TSG Services
are not restored, in accordance with their SLA Standards,
within [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION] after Force Majeure Event Commencement.
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(5) When a Force Majeure Event has caused any, but fewer than
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION], of the TSG Services designated as "High Risk TSG
Services" to be unavailable for the Airline Group's productive
use, AMERICAN may terminate this Agreement if TSG either fails
to give AMERICAN a Force Majeure Recovery Plan within
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] after Force Majeure Event Commencement or if the
applicable TSG Services are not restored, in accordance with
their SLA Standards, within [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION] after Force Majeure
Event Commencement.
22.2. DISASTER RECOVERY. TSG Services shall include implementation of a
disaster recovery plan as specified in the document known as Manual No. 175
entitled "AMR Corporate Contingency Plan" with a date of December 31, 1991.
Such disaster recovery plan shall be no less rigorous than that in effect
immediately prior to the Effective Date at the facilities of TSG used to
provide the TSG Services as of the Effective Date. In the event that
additional disaster recovery procedures for the applicable facilities are
reasonably requested by AMERICAN, TSG shall perform such additional disaster
recovery procedures as New/Out-of-scope Services.
Article XXIII -- Dispute Resolution
23.1. DISPUTES IN GENERAL. Except as otherwise stated in this Agreement,
the Parties shall resolve any Dispute in accordance with the Dispute Resolution
Procedure. Nevertheless, if any Person other than the Parties and their
Affiliates
A. Has initiated a lawsuit or other judicial, administrative, or
arbitration proceedings against or involving either or both of the
Parties in which a Dispute will be resolved, or
B. Is a necessary participant in any judicial, administrative, or
arbitration proceedings to resolve a Dispute and cannot be joined by
either or both of the Parties in an arbitration of that Dispute under
Section B.3 of the Dispute Resolution Appendix,
so that (in either case) the Dispute Resolution Procedure is or will be
ineffective, then the Parties need not use or follow the Dispute Resolution
Procedure to resolve that Dispute -- though the submission to jurisdiction in
Section B.5 of the Dispute Resolution Appendix shall apply if necessary.
23.2. INFORMATION FOR RESOLUTION. The Parties shall freely share, and may
disclose to any mediator or arbitrator as part of any Dispute resolution
proceeding, any and all reasonably requested relevant information, including
Confidential Information, needed to facilitate the resolution of any Dispute
and any and all information likely to lead to such relevant information.
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23.3. PAYMENT DISPUTES. With regard to payment Disputes, the Parties will
work to expedite resolution of the Dispute, with the goal of having the Dispute
resolved by the next billing cycle. To such end, all references to ten
Business Days in Sections B.1(b), B.1(c), and B.1(d) of the Dispute Resolution
Appendix shall be deemed to be seven Business Days for a payment Dispute.
23.4. CONTINUITY DURING DISPUTE. In the event of a Dispute, the Parties
shall continue to perform their respective obligations pursuant to this
Agreement.
23.5. PARTIES' AGREEMENT. Nothing in this Article XXIII or the Dispute
Resolution Procedure prevents the Parties from resolving any Dispute by mutual
agreement at any time.
Article XXIV -- Termination
24.1. TERMINATION FOR BREACH. In the event of certain breaches of this
Agreement, TSG or AMERICAN may terminate this Agreement in accordance with this
Section; provided that AMERICAN gives TSG Notice of its intent to terminate
within 180 days after the date such breach occurred.
A. Upon TSG's Egregious Breach of this Agreement, AMERICAN may
terminate this Agreement, provided that AMERICAN gives TSG thirty
days' Notice of its intent to terminate and TSG fails to cure the
breach within such 30 days; and provided, further, that such cure
period will be extended an additional 30 days if TSG delivers to
AMERICAN a written plan to cure the breach. In both instances, unless
TSG cures the material breach, the termination shall be effective as
of the first day following the end of the cure period or extended cure
period as the case may be.
B. Upon AMERICAN's material breach of its obligation to pay TSG in
accordance with this Agreement, TSG may terminate this Agreement as
follows:
(1) If TSG has given Notice to AMERICAN describing the breach
in detail, the monetary amount due, and TSG's intention to
terminate pursuant to this Subsection; and if AMERICAN has not
paid such amount within [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION] after receipt of TSG's
Notice; provided, however, that the first time AMERICAN fails
to pay within such [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION] TSG shall give a second Notice
to AMERICAN, describing the breach in detail, the monetary
amount due, and TSG's intention to terminate pursuant to
this Subsection; and TSG may not terminate this Agreement
unless, AMERICAN has failed to pay within [CONFIDENTIAL
PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION] after
receipt of such second Notice.
(2) If TSG has given Notice to AMERICAN of AMERICAN's
material breach of its obligation to pay TSG in accordance
with this Agreement three times, and AMERICAN materially
breaches its obligation to pay TSG in accordance with
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this Agreement, TSG may terminate this Agreement upon Notice
to AMERICAN.
(3) For the avoidance of doubt, AMERICAN's withholding
amounts from Disputed Invoices in accordance with Section
"8.2. DISPUTED INVOICES," are not material breaches of
AMERICAN's obligation to pay.
24.2. TERMINATION FOR INADEQUATE PERFORMANCE. Upon the occurrence of an SLA
Termination Event, AMERICAN may terminate this Agreement upon Notice to TSG
given within 180 days after the date such SLA Termination Event occurred. Upon
the occurrence of an SLA Service Termination Event, AMERICAN may terminate this
Agreement as to such TSG Service upon Notice to TSG.
24.3. TERMINATION FOR A FORCE MAJEURE EVENT. If a Force Majeure Event
occurs and pursuant to Article XXII -- Force Majeure AMERICAN is entitled to
terminate this Agreement, then AMERICAN may terminate this Agreement upon
Notice to TSG.
24.4. TERMINATION FOR CONVENIENCE. At any time after July 1, 2000 and for
any reason whatsoever, AMERICAN may terminate this Agreement upon 180 days'
Notice to TSG and upon payment of all amounts due and the Termination
Liquidated Damages.
A. AMERICAN and TSG agree that if AMERICAN exercises its right to
terminate pursuant to this Section 24.4, the losses, expenses, and
measure of damages suffered by TSG would be uncertain and difficult to
calculate. Therefore, TSG and AMERICAN agree that the Termination
Liquidated Damages are their best estimate of such losses, expenses,
and damages and are not a penalty.
B. AMERICAN shall pay TSG the Termination Liquidated Damages in
accordance with Exhibit K: Termination Liquidated Damages
Calculation.
C. Upon Notice of termination pursuant to this Section 24.4, AMERICAN
may commence use of the Transition Assistance.
24.5. TERMINATION BECAUSE OF ACQUISITION OF TSG. If any entity with annual
airline transportation revenue of one billion dollars or more acquires control
(the power to direct the management or affairs) of TSG, then AMERICAN may, at
its sole option, terminate this Agreement upon 90 days Notice; provided
AMERICAN gives Notice within 180 days of the date on which such entity acquired
TSG.
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Article XXV -- Transition Assistance; Survival
25.1. TRANSITION ASSISTANCE BY TSG. Upon Expiration or termination of this
Agreement for any reason whatsoever, AMERICAN and TSG agree that TSG shall
provide assistance to AMERICAN to obtain services to replace the TSG Services
in accordance with this Section 25.1.
A. During the Transition Period, TSG shall provide to the Airline
Group or the Successor Provider any and all assistance reasonably
requested by AMERICAN to allow the TSG Services to continue without
interruption or adverse effect and to facilitate the orderly transfer
of responsibility for the TSG Services to AMERICAN or the Successor
Provider.
(1) The assistance to be provided to the Airline Group by TSG
shall include the services listed on Exhibit L: Transition
Assistance Service Descriptions.
(2) TSG Services provided during the Transition Period are
at Current Rates.
B. TSG shall provide to AMERICAN the foregoing assistance at no
additional charge other than the Current Rates prior to the Expiration
Date or the Termination Date and for ninety days thereafter, except in
the instance of termination pursuant to Subsection B of Section "24.1.
TERMINATION FOR BREACH" or pursuant to Section "24.4. TERMINATION FOR
CONVENIENCE," TSG may provide the Transition Assistance after the
Expiration Date or the Termination Date, as the case may be, at market
rates. TSG shall use any budgeted personnel time to provide
assistance and the services in Subsection C below, to the extent
reasonably possible. If the assistance requires resources, in
addition to those regularly utilized in the daily performance of TSG
Services, AMERICAN will pay TSG for such assistance on a time and
materials basis at the Current Rates.
C. Upon Expiration of this Agreement or with respect to any
particular AG Data or AG Customer Data, on such earlier date that the
same shall be no longer required by TSG in order to render services
hereunder, such AG Data or AG Customer Data shall be, at AMERICAN's
election and expense, (i) erased from the data files maintained by
TSG, (ii) returned to AMERICAN by TSG in a form reasonably requested
by AMERICAN, or (iii) stored by TSG for such period during the term of
this Agreement as AMERICAN may request and then either returned to
AMERICAN or erased.
D. Prior to providing any of the foregoing assistance to a Successor
Provider, TSG shall be entitled to receive from such Successor
Provider, in form and substance reasonably acceptable to TSG, written
assurances that (i) such Successor Provider will maintain at all times
the confidentiality of any TSG proprietary information, software or
materials disclosed or provided to, or learned by, such Successor
Provider in connection therewith, and (ii) such Successor Provider
will use such information, software or materials exclusively for the
benefit of the Airline Group. If such
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Successor Provider executes an agreement substantially in the form of
Exhibit N: Non-disclosure/Non-competition Agreement, the Successor
Provider shall be deemed to have provided the written assurances
required by this Subsection D.
E. Upon AMERICAN's request, TSG shall provide consultation services
for at least ninety (90) days after expiration of the Transition
Period, to be charged by TSG at market rates for similar services. As
part of such consultation services, TSG will retrieve, manipulate,
convert, transfer AG Data and AG Customer Data as required by the
Successor Provider at Current Rates.
25.2. SURVIVAL. The following provisions of this Agreement shall survive
the termination or Expiration of this Agreement:
A. Article IX -- Transfer and Property Taxes.
B. Section "11.2. RIGHTS IN JOINTLY OWNED SOFTWARE."
C. Section "11.5. ROYALTY AFTER EXPIRATION OR TERMINATION."
D. Section "12.5. MARKETING RIGHTS AFTER EXPIRATION OR TERMINATION."
E. Article XIII -- Non-competition.
F. The confidentiality provisions of Article XIV -- Confidential
Information.
G. Article XVII -- Non-solicitation of Employees.
H. Article XX -- Indemnification.
I. Article XXI -- Limitations of Liability.
J. Article XXIII -- Dispute Resolution.
K. Article XXV -- Transition Assistance; Survival.
L. Article XXVII -- Auditing Rights.
M. Article XXVIII -- Notices and Other Communications.
N. Article XXIX -- Miscellaneous Provisions.
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Article XXVI -- Insurance
26.1. TSG'S INSURANCE IN GENERAL. TSG, at its own expense, shall establish
and maintain general liability, workers compensation, automotive liability and
property damage, and computer fraud protection insurance coverages for all TSG
employees and Independent Contractors involved in providing TSG Services or
New/out-of-scope Services.
26.2. AG BUSINESS INTERRUPTION INSURANCE. If AMERICAN requests in writing
that TSG obtain insurance coverage on behalf of the Airline Group or AMERICAN,
including business interruption coverage, and provided AMERICAN reimburses TSG
for all out-of-pocket costs of obtaining such coverage, then TSG shall obtain
such coverage requested and designate the Airline Group as the named insured.
Article XXVII -- Auditing Rights
27.1. OPERATIONAL AUDIT. The Airline Group and its representatives, at the
Airline Group's expense and upon reasonable notice to TSG, shall have the right
to conduct an audit of TSG's operations (i) on an annual basis and (ii) more
frequently as reasonably requested by the Airline Group to the extent that
such audit will not unreasonably disrupt the operations of TSG, in order to
verify that TSG is exercising reasonable operational procedures in accordance
with customary standards in the data processing industry in its performance of
the TSG Services and to confirm TSG's performance of its obligations hereunder.
TSG will provide the Airline Group and its representatives access to the TSG
facilities at which TSG is performing the TSG Services, to TSG's personnel, to
the Airline Group's existing data and work product and to that being developed
by TSG hereunder at such facilities, and to reasonably related documentation.
To the extent applicable to the TSG Services, such audit may include an audit
of (i) software development practices and procedures, (ii) application and
operating systems, (iii) general controls and security practices and
procedures, (iv) disaster recovery and back-up procedures, (v) invoice
processing, (vi) Service Level compliance, and (vii) resource consumption. TSG
will provide to the Airline Group and its representatives any assistance that
they reasonably require in connection therewith at no additional charge to the
Airline Group, provided, however, that the Airline Group shall pay TSG, at
Current Rates for any technical resources and application development time
utilized by TSG and any other reasonable additional costs of TSG necessary for
the audit and not otherwise provided to the Airline Group hereunder. Airline
Group may, at its discretion, provide to TSG a copy of the audit report, or a
portion thereof, resulting from each such audit upon its completion, provided,
however, that if the Airline Group does not disclose any such report or portion
thereof, such report or portion shall not be the basis of any claim asserted by
Airline Group against TSG. In conducting each operational audit, the Airline
Group shall not be entitled to review any confidential or proprietary
information of any third party and shall not materially interfere with the
ability of TSG to perform the TSG Services or services for any other customer.
For the purposes of this Section 27.1, the Airline Group's representatives
shall be deemed to include any auditors or inspectors designated by any state
or federal agency to audit the Airline Group's business.
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27.2. RECORD-KEEPING AUDITS OF CHARGES. TSG shall maintain complete and
accurate books, records and accounts, in accordance with generally accepted
accounting principles, consistently applied, to support and document all
charges to the Airline Group. TSG shall retain such records for three (3)
years after creation, or for such longer period as required to comply with
government requirements. In addition, TSG shall retain such records for the
duration of any audit conducted pursuant to this Article XXVII and for the
duration of any Dispute. TSG shall permit the Airline Group or its
representatives access to TSG's facilities to perform an audit of TSG's
records to the extent necessary to verify TSG's charges billed to the Airline
Group (i) on an annual basis and (ii) more frequently as reasonably requested
by the Airline Group if and to the extent that such audit will not unreasonably
disrupt the operations of TSG. TSG need not provide the Airline Group with
access to cost data where the cost is not the basis for product service
prices/fees or termination fees. The Airline Group may, at its discretion,
provide to TSG a copy of the audit report, or a portion thereof, resulting from
each such audit upon its completion. As soon as reasonably practicable
thereafter, the parties will review any audit report (or portion thereof)
provided to TSG and work in good faith to agree upon any reimbursement of
charges or additional payments due to either party and any appropriate future
adjustments to TSG's charges and practices. TSG shall promptly forward to the
Airline Group the full amount of all overcharges revealed by such audit. The
Airline Group shall promptly pay TSG the full amount of undercharges revealed
by such audit, but may also offset the reasonable audit cost against amounts
due to TSG. Any financial audit performed or caused to be performed under this
Section 27.2 shall be at the Airline Group's expense, except (a) as provided
in the preceding sentence or (b) that if such audit demonstrates that TSG's
invoiced charges for the relevant period exceed the correct charges for that
period, excluding (from the invoiced and the correct charges) those Third Party
Pass Through Charges that are passed through pursuant to this Agreement, by
more than five percent, TSG shall pay or reimburse the Airline Group for the
reasonable costs of such audit. In conducting any financial audit, the Airline
Group shall not be entitled to review any confidential or proprietary
information of any third party, except that the Airline Group shall be entitled
to review any third-party invoices upon which TSG based any cost-plus or pass-
through charges made to the Airline Group or any invoices necessary to ensure
compliance with Sections "7.12. MOST FAVORED CUSTOMER," "11.4. OFFSET OF FEES,"
or "11.5. ROYALTY AFTER EXPIRATION OR TERMINATION" (subject to any
confidentiality restrictions that may apply to TSG with respect to such
invoices). If confidentiality restrictions apply to any such invoices, an
officer of TSG shall certify in the form of an affidavit, duly notarized, as to
the veracity of information provided by TSG to the Airline Group concerning the
contents of such invoices. The Airline Group, at its expense, may use an
independent accountant, under confidentiality restrictions, to verify the
contents of such invoices.
27.3. TERM OF AUDITS. During the term of this Agreement, the Airline Group
shall have the right to have all of the audits specified in this Article
encompass a period of time equal to the full current year and two years prior
to the current year for a total period of thirty-six months. Upon termination
or Expiration of this Agreement, the Airline Group shall have the right to
conduct an audit pursuant to Section "27.2. RECORD-KEEPING AUDITS OF CHARGES"
within one year after the date of such termination or Expiration, or an audit
at any time after termination or Expiration pursuant to this Article as may
otherwise be required by any state or federal agency.
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Article XXVIII -- Notices and Other Communications
28.1. FORM. Each notice, request, response, demand, claim, and other
communication required or permitted under this Agreement must be in writing and
must be transmitted, delivered, or sent by:
A. Personal delivery,
B. Courier or messenger service, whether overnight or same-day,
C. Prepaid telecopy or facsimile,
D. Certified United States mail, with postage prepaid and return
receipt requested, or
E. If an authorization by American regarding the commencement of
any TSG Service, electronic mail,
in any case addressed to the other Party at the address or number for that
Party set forth in Section 28.2 (or in the case of electronic mail, the
addressee's electronic mail address), or at such other address or number as the
recipient has designated by Notice to the other Party in accordance with this
Article 28.
28.2. ADDRESSES. The Parties shall transmit, deliver, or send
communications as follows:
A. If to AMERICAN: American Airlines, Inc.
4333 Amon Carter Boulevard
Mail Drop 5357
Fort Worth, Texas 76155
Telecopier: (817) 931-6944
Attention: Account Manager's name
B. If to AMERICAN and concerning Article XXIV -- Termination or
concerning a Force Majeure Event, then a copy to:
American Airlines, Inc.
4333 Amon Carter Boulevard
Mail Drop 5624
Fort Worth, Texas 76155
Telecopier: (817) 967-9220
Attention: President
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C. If to TSG: The SABRE Group, Inc.
4333 Amon Carter Boulevard
Mail Drop 5299
Fort Worth, Texas 76155
Telecopier: (817) 931-6382
Attention: Account Manager's name
D. If to TSG and concerning Article XXIV -- Termination or
concerning a Force Majeure Event, then a copy to:
The SABRE Group, Inc.
4333 Amon Carter Boulevard
Mail Drop 5620
Fort Worth, Texas 76155
Telecopier: (817) 967-4044
Attention: President
28.3. EFFECTIVENESS. Each communication transmitted, delivered, or sent:
A. In person, by courier or messenger service, or by certified
United States mail (postage prepaid and return receipt requested)
shall be deemed given, received, and effective on the date delivered
to or refused by the intended recipient (with the return receipt or
the equivalent record of the courier or messenger being deemed
conclusive evidence of delivery or refusal); or
B. By telecopy or facsimile transmission or by electronic mail
shall be deemed given, received, and effective on the date of actual
receipt (with the confirmation of transmission or the electronic
receipt being deemed conclusive evidence of such receipt, except where
the intended recipient has promptly notified the other Party that the
transmission is illegible).
Nevertheless, if the date of delivery or transmission is not a Business Day, or
if the delivery or transmission is after 5:00 p.m., local time in Fort Worth,
Texas, on a Business Day, the communication shall be deemed given, received,
and effective on the next Business Day.
Article XXIX -- Miscellaneous Provisions
29.1. ASSIGNMENT. Except as provided in Section "9.6. COOPERATION" or in
the next two sentences, neither Party may assign any of its rights or delegate
any of its duties or obligations under this Agreement without the other Party's
Consent. AMERICAN may assign its rights and delegate its duties and
obligations under this Agreement as a whole as part of the sale or transfer of
all or substantially all of its assets and business, including by merger or
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consolidation, to a Person (i) that assumes and has the ability to perform
AMERICAN's duties and obligations under this Agreement; and (ii) the core or a
principal part of the business of which is not competitive with the core or a
principal part of the business of TSG. TSG may assign its rights and delegate
its duties and obligations under this Agreement as a whole as part of the sale
or transfer of all or substantially all of its assets and business involved in
any manner in providing TSG Services, including by merger or consolidation, to
a Person (a) that assumes and has the ability to perform TSG's duties and
obligations under this Agreement; and (b) the core or a principal part of the
business of which is not competitive with the core or a principal part of the
business of the Airline Group. Any attempted assignment or delegation of any
rights, duties, or obligations in violation of this Section 29.1 shall be void
and without effect. Nothing in this Section 29.1, however, precludes TSG from
subcontracting the performance of any of the TSG Services as permitted by this
Agreement or precludes AMERICAN from extending the right to receive the TSG
Services to the American Related Entities.
29.2. AMENDMENT AND WAIVER. This Agreement may be amended or modified, and
any provision of this Agreement may be discharged or waived, only by a document
signed by the party against which the amendment, modification, discharge, or
waiver is sought to be enforced.
29.3. INTEGRATION. This Agreement supersedes
A. The Services Agreement between the Air Transportation Group
and the SABRE Group dated as January 1, 1995, and the service level
agreements entered before the Effective Date under that document;
B. Any and all prior or contemporaneous oral agreements or
understandings between the Parties regarding the subject matter of
this Agreement; and
C. Any and all prior written agreements or understandings between
the Parties regarding the subject matter of this Agreement, except for
those (other than the one described in Subsection A of this Section
29.3) entered into by representatives of the Parties or their
predecessors who were at Level 6 or above when such agreements or
understandings were entered into with the knowledge and consent of
such representative's supervising officer (which agreements or
understandings shall remain effective).
29.4. SEVERABILITY. If any part of this Agreement is for any reason found
to be unenforceable, all other parts of this Agreement nevertheless remain
enforceable.
29.5. SUCCESSORS. This Agreement binds and inures to the benefit of the
Parties and their respective legal representatives, successors, and permitted
assigns.
29.6. GOVERNING LAW. This Agreement must be interpreted or construed, and
its validity determined and performance enforced, under Texas law.
Information Technology Services Agreement
page 71
<PAGE> 72
29.7. REASONABLENESS. As concerns every provision of this Agreement, TSG
and AMERICAN agree to act reasonably and in good faith unless a provision
expressly states that AMERICAN or TSG may act in its sole discretion.
29.8. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, with the same effect as if all signatories had signed the same
document. All counterparts must be construed together to constitute one, and
the same, document. 29.9. FURTHER ASSURANCES. Each Party shall take such
actions, upon request of the other Party and in addition to the actions
specified in this Agreement, as may be necessary or reasonably appropriate to
implement or give effect to this Agreement, including cooperating in the
completion of copyright registration documents.
Information Technology Services Agreement
page 72
<PAGE> 73
SIGNATURES
AMERICAN AIRLINES, INC.
By: /s/ Scott D. Nason
-------------------------------------
Scott D. Nason, Vice President-
Information Technology
Services & Chief
Information Officer
THE SABRE GROUP, INC.
By: /s/ Michael J. Durham
-------------------------------------
Michael J. Durham, President
Information Technology Services Agreement
page 73
<PAGE> 74
Exhibit A: Definitions and Interpretation
I. Definitions.
In the Agreement, the following terms have the corresponding meanings:
"800 DECISION TREE SUPPORT": The design and programming of routing telephone
calls, managed as a component of Domestic Reservations Inbound described in
Exhibit B: TSG Services Description.
"AA FLIGHTS": Airline flight segments operated, whether by AMERICAN or another
Air Carrier, either under the airline code issued to AMERICAN by the
International Air Transport Association or under an airline marketing alliance
in which AMERICAN participates and which involves an exchange of passenger or
cargo traffic.
"ACCOUNT MANAGERS": TSG's Account Manager and AMERICAN's Account Manager
collectively.
(1) "TSG's Account Manager": The individual so designated in writing
by TSG from time to time.
(2) "AMERICAN's Account Manager": The individual so designated in
writing by AMERICAN from time to time.
"ADJUSTMENT AMOUNT": [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH
THE COMMISSION]
"AFFILIATE": A Person that directly or indirectly through one or more
intermediaries Controls, is Controlled by, or is under common Control with
another Person.
"AFFILIATED SPIN-OFF ENTITY": An entity that was a member of the Airline
Group, but was divested in part and remains an Affiliate of the Airline Group
or of AMR, or an entity resulting from the partial divestiture of a division or
business unit of a member of the Airline Group that remains an Affiliate of the
Airline Group or of AMR.
"AG CUSTOMER": A customer or prospective customer of the Airline Group to the
extent such customer purchases AG Mixed Services, but not any member of the
Airline Group itself.
"AG CUSTOMER DATA": The following data:
(1) All data provided by an AG Customer or with respect to an AG
Customer in order for TSG to provide the TSG Services to an AG
Customer;
(2) All data that is provided by or on behalf of TSG to the Airline
Group by means of TSG Services intended for an AG Customer; and
Exhibit A to Information Technology Services Agreement page 1
<PAGE> 75
(3) All data that is produced by means of TSG Services as an
intermediate step in using or producing any of the AG Customer Data.
"AG DATA": The following data, whether provided or produced before, on, or
after the Effective Date:
(1) All data that is provided by or on behalf of the Airline Group to
TSG in order for TSG to provide the TSG Services, including keyed
input and electronic capture of information by the TSG Services;
(2) All data that is provided by or on behalf of TSG to the Airline
Group by means of the TSG Services, including reports, bookings and
tickets, and all other output of the TSG Operated Software;
(3) All data that is produced by means of TSG Services as an
intermediate step in using or producing any of the AG Data, including
databases and files containing AG Data; and
(4) Passenger Name Records (PNR) secured to an AMERICAN pseudo-city
code.
"AG MIXED SERVICES": Certain services provided by the Airline Group to AG
Customers in which the Airline Group uses TSG Services or TSG Operated Software
to provide such services. The AG Mixed Services consist of one or more of the
Operations Mixed Services, Alliance Mixed Services, and Other Mixed Services.
"AG OTHER MIXED SERVICES COSTS": The Fees and other amounts described below
that TSG intends to charge or other amounts that a Successor Provider intends
to charge the Airline Group to provide the Other Mixed Services to an AG
Customer. The AG Other Mixed Services Costs include the following:
(1) The Fees that would be charged to the Airline Group;
(2) License fees for use of TSG software for the benefit of AG
Customers, unless TSG cannot demonstrate with written records that TSG
previously charged such license fees to TSG Customers or unless TSG
cannot demonstrate a fair but conservative market value license fee;
and
(3) Such fees as a third party vendor will require that TSG or a
Successor Provider pay to allow an AG Customer use of such Other Mixed
Services.
"AG OTHER MIXED SERVICES FEES": The fees that the Airline Group intends to
charge an AG Customer for providing Other Mixed Services.
Exhibit A to Information Technology Services Agreement page 2
<PAGE> 76
"AG SELF-PERFORMED SERVICES": Those services described in Exhibit O: AG
Self-performed Services, to the extent that the Airline Group performed such
services for itself as of the Effective Date.
"AGGREGATE ADJUSTMENT": The difference between the Benchmark Projected Fees
and the Reset Formulas Projected Fees.
"AIR CARRIER": A Person whose principal business activity is operating a
passenger or cargo airline.
"AIRLINE GROUP": AMERICAN and the American Related Entities collectively.
"AIRLINE GROUP'S CIO": The Chief Information Officer of the Airline Group as
identified in writing by AMERICAN from time to time. The Airline Group may
change its CIO upon Notice to TSG.
"AIRLINE GROUP INDEMNITEES": The Airline Group and their respective directors,
officers, employees, and agents, and the heirs, executors, successors, and
assigns of any of those Persons.
"AIRLINE INCIDENT": An occurrence of personal injury, death, or property
damage in connection with the operation of the Airline Group's aircraft.
"AIRPORT REGULATIONS": The following, to the extent applicable to TSG while on
any Airline Group airport locations: (i) All federal, state, county and
municipal statutes and ordinances, (ii) all rules, regulations, orders and
directives of the local, state and federal governments applicable to AMERICAN's
premises or to the Airline Group's or TSG's use or occupancy thereof, and (iii)
all rules, regulations, orders, directives, terms and/or conditions imposed by
the landlord under any applicable lease or otherwise applicable to the airport
within which the airport premises are located to the extent applicable to TSG's
operations within AMERICAN's premises. The Airport Regulations shall include
all applicable federal, state and local laws, executive orders and regulations
issued pursuant thereto, including (to the extent applicable to this Agreement)
Federal Aviation Administration rules and regulations, the provisions contained
within Section 202 of Executive Order 11246 (41 C.F.R. Section 60.1.4), Section
4.2 of the Vietnam Era Veterans Readjustment Act (41 C.F.R. Section 60-205.4),
Section 503 of the Rehabilitation Act (41 C.F.R. Section 60-741-4), the
Americans with Disabilities Act of 1990, 42 U.S.C. Section 121.01 et seq., as
well as all airport and air carrier security measures (contained, in part, in
14 C.F.R. Sections 107 and 108) contained within such provisions of AMERICAN's
document known as the "Approved Security Programs Manual" as are pertinent to
TSG's operations and supplied by AMERICAN to TSG. AMERICAN may from time to
time (but without any obligation to do so) supply TSG with Notice of any
subsequently enacted security requirements arising out of changes to law,
executive order or regulation applicable to TSG's operations under this
Agreement, and such requirements shall thereafter be an obligation of TSG under
this Agreement.
Exhibit A to Information Technology Services Agreement page 3
<PAGE> 77
"ALLIANCE MIXED SERVICES": Services provided by the Airline Group to AG
Customers that are required to effect the core or principal purposes, aspects,
or elements of operating or marketing alliances that the Airline Group has
formed or any other marketing relationships that are intended to increase the
Airline Group's passenger or cargo revenue, including FlyAAway Vacations,
Ticket Delivery Services, AAdvantage services to cooperative partners,
third-party airline cargo services, Code share operations, Interline
Agreements, and AA reservations services to travel agencies, corporate travel
offices, on-line networks, and general sales agents.
"AMERICAN": American Airlines, Inc., a Delaware corporation.
"AMERICAN RELATED ENTITIES": AMERICAN's wholly owned subsidiaries and AMR
Eagle Inc. and its wholly owned subsidiaries.
"AMR": AMR Corporation, a Delaware corporation and the corporate parent of
both Parties on the Effective Date.
"ANNUAL RE-RUN CAP": [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH
THE COMMISSION] during a period commencing on December 1 and ending on the
subsequent November 30, subject to monthly proration for shorter periods at the
beginning or end of the term of this Agreement.
"ARBITRATION RULES": The Rules for Commercial Arbitration of the American
Arbitration Association in effect at the time of an arbitration in accordance
with the Dispute Resolution Procedure.
"BASELINE MONITORING": The measures used to monitor and to report performance
levels of such TSG Services as existed on the Effective Date.
"BASELINE MONITORING COSTS": The expenses incurred by TSG and investments made
by TSG in the period July 1, 1995 through June 30, 1996 to perform Baseline
Monitoring and to achieve Historical SLA Standards.
"BENCHMARKING PROCESS": The process of the Parties' engaging one or more
Benchmark Providers and that Benchmark Provider's or those Benchmark Providers'
preparing and delivering the Benchmark Report.
"BENCHMARK PROJECTED FEES": The projected total Fees for the TSG Services if
the Current Rates were modified by Benchmark Results and applied to the
Projected Annual Volume.
"BENCHMARK PROVIDER": A Person, other than a Party or any Affiliate of a
Party, engaged to determine the anticipated market price for the next calendar
year (which shall be an Even-numbered Year) for services similar to the TSG
Services.
Exhibit A to Information Technology Services Agreement page 4
<PAGE> 78
"BENCHMARK REPORT": The written report or reports of the Benchmark Results
prepared by the Benchmark Provider or Benchmark Providers for the Parties.
"BENCHMARK RESULTS": The Benchmark Provider's or Benchmark Providers'
determination of the amounts at which the Rates should be set, and the
corresponding Fees, for the next calendar year (which shall be an Even-numbered
Year) in order to constitute or correspond to anticipated market prices for
that year for services substantially the same as TSG Services.
"BUSINESS DAY": A day other than Saturday, Sunday, national holidays in the
United States, December 30 through January 3, and AMR holidays.
"CAPPED ADJUSTMENT": The Unrealized Aggregate Adjustment, subject to a limit
or cap of the greater of:
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
"CLIENT SERVER DEVELOPMENT": Development services for client server
applications.
"CODE OUT": TSG's making such software changes are necessary to exclude TSG's
Customers other than the Airline Group from using certain software.
"COMMERCIAL SERVICES": The following services:
(1) Commercial CPU described in Exhibit B: TSG Services Description;
(2) Commercial DASD described in Exhibit B: TSG Services Description;
(3) Commercial Tape described in Exhibit B: TSG Services Description;
(4) Commercial Print described in Exhibit B: TSG Services Description;
(5) Commercial Microfiche described in Exhibit B: TSG Services Description;
(6) Commercial IMS described in Exhibit B: TSG Services Description; and
(7) Decision Enabling described in Exhibit B: TSG Services Description.
"COMPETE": To carry out, conduct, or engage in, or to attempt to carry out,
conduct, or engage in, any activity that is actually competitive with or may
potentially be competitive with a designated activity ("Competing" has the
correlative meaning.)
"CONFIDENTIAL INFORMATION": The information described in Section "14.1
CONFIDENTIAL INFORMATION."
"CONNECTIVITY SYSTEMS": VAX Services and Host Communications Complex (HCC)
described in Exhibit B: TSG Services Description.
"CONSENT": Prior, express, and written consent (which may not be unreasonably
withheld or delayed unless stated to be at a Party's sole discretion).
"CONSEQUENTIAL DAMAGES": Damages consisting of lost profits, lost income, or
lost savings or consequential, indirect, special, or incidental damages
(however described). "Consequential Damages" does not include any punitive or
exemplary damages.
"CONTROL": The right to exercise, directly or indirectly, more than fifty
percent of the voting power attributable to the equity interests in an entity.
("Controlling" and "Controlled" have correlative meanings.)
"CRITICAL TSG SERVICE": A TSG Service or system expressly designated as
"Critical" in an SLA.
Exhibit A to Information Technology Services Agreement page 5
<PAGE> 79
"CRS": An Electronic Travel Distribution System that is marketed principally to
Travel Agents and that collects, stores, and processes, and displays and
distributes, on a neutral and unbiased basis, information concerning air and
ground transportation, lodging and other travel-related products and services
offered by system participants.
"CURRENT DP SERVICES": The following services:
(1) Providing Development, Maintenance, and Enhancements for Real
Time Applications; and
(2) Providing Maintenance and Enhancements for Existing Applications.
"CURRENT RATE": A Rate that is then in effect.
"DATA CENTER SERVICES": The following services:
(1) Real Time Services:
a. PSS/FPC;
b. Flight Operating System (FOS) described in Exhibit B: TSG
Services Description; and
c. Virtual Machine Test System (VM Test) described in Exhibit
B: TSG Services Description.
(2) Commercial Services.
(3) VAX Services:
a. VAX1 described in Exhibit B: TSG Services Description;
Exhibit A to Information Technology Services Agreement page 6
<PAGE> 80
b. VAX2 described in Exhibit B: TSG Services Description; and
c. VAX5 described in Exhibit B: TSG Services Description.
(4) Host Communications Complex (HCC) as described in Exhibit B: TSG
Services Description.
(5) Mail Distribution services described in Exhibit B: TSG Services
Description.
(6) Client Server Services.
"DATA NETWORK SERVICES": The following services:
(1) SABREnet described in Exhibit B: TSG Services Description;
(2) International Managed Network Services (IMNS) described in
Exhibit B: TSG Services Description; and
(3) Custom Data Networks described in Exhibit B: TSG Services
Description.
"DATA PROCESSING SERVICES": The Data Center Services described in Exhibit B:
TSG Services Description and such services as the Parties agree in writing are
Data Processing Services.
"DEPOSITORY CERTIFICATES": Depository certificates in Stichting "The SITA
Foundation," a Netherlands Foundation.
"DERIVATIVE WORK": A derivative work as defined in Title 17 U.S.C. Section
101, as amended (which on the Effective Date states: "A 'derivative work' is a
work based on one or more preexisting works, such as a translation, musical
arrangement, dramatization, fictionalization, motion picture version, sound
recording, art reproduction, abridgement, condensation, or any other form in
which a work may be recast, transformed, or adapted. A work consisting of
editorial revisions, annotations, elaborations, or other modifications, which,
as a whole, represent an original work of authorship, is a 'derivative
work'.").
"DEVELOPMENT": The creation of a new software system. For the avoidance of
doubt, Development includes writing software to replace an old system with a
new system.
"DEVICE SUPPORT": Services that are defined in Exhibit B: TSG Services
Description.
"DISPUTE": Any dispute, disagreement, claim, or controversy arising in
connection with or relating to the Agreement, or the validity, interpretation,
performance, breach, or termination
Exhibit A to Information Technology Services Agreement page 7
<PAGE> 81
of the Agreement, including any claim of breach of representation or warranty
or of non-performance and any claim regarding bodily or other personal injury
or damage to tangible property.
"DISPUTE RESOLUTION APPENDIX": Exhibit M: Dispute Resolution Appendix,
containing the Dispute Resolution Procedure for, as an integral part of, the
Agreement.
"DISPUTE RESOLUTION PROCEDURE": The procedure or process by which a Dispute
must be resolved (except as otherwise stated or modified in the Agreement) as
described in the Dispute Resolution Appendix.
"DISPUTED INVOICE": An invoice for services rendered or performed by TSG under
this Agreement of which the Airline Group disputes the accuracy.
"DISTRIBUTED SYSTEMS SERVICES": The following services:
(1) Device Support described in Exhibit B: TSG Services Description;
(2) Moves/Installs (MCDUI) described in Exhibit B: TSG Services
Description;
(3) Integration Services described in Exhibit B: TSG Services
Description;
(4) Campus Telephone System described in Exhibit B: TSG Services
Description;
(5) Electronic Mail (e-mail) described in Exhibit B: TSG Services
Description;
(6) Domestic Reservations Support described in Exhibit B: TSG
Services Description;
(7) Information Display Systems Support described in Exhibit B: TSG
Services Description;
(8) Internet Access Services described in Exhibit B: TSG Services
Description; and
(9) X.400 described in Exhibit B: TSG Services Description.
"DOCUMENTATION": Instructions and related information for the use by end users
of software including user manuals, and instructions and related information
for the operation of software including run instructions, job control
instructions, balancing procedures, and input dependencies.
"EFFECTIVE DATE": July 1, 1996.
Exhibit A to Information Technology Services Agreement page 8
<PAGE> 82
"EGREGIOUS BREACH": A material breach that constitutes an intentional,
unequivocal refusal to perform a material obligation of this Agreement that
frustrates one or more bases of the bargain between AMERICAN and TSG to the
extent that a (non-breaching) reasonable business person would not have entered
into the Agreement or would not continue performing under the Agreement.
"ELECTRONIC TRAVEL DISTRIBUTION SYSTEM": A system providing any of the
following products or services, using computers and digital electronic
transmission of data via data network, telephone, wireless, or cable
transmission or otherwise:
(1) Publication and distribution of consumer travel-related
information from computerized databases.
(2) Processing of passenger travel-related reservations and related
transactions.
(3) Marketing and sales of passenger travel-related products and
services and related electronic transactions.
(4) Publication and distribution of passenger travel-related
documents (e.g., tickets).
"E-MAIL": Electronic Mail as defined in Exhibit B: TSG Services Description.
"ENHANCED DATA PROCESSING SERVICES": Services required to modify and/or
supplement the Data Processing Services and which include the following
services:
(1) Maintenance,
(2) Enhancement, and
(3) Development.
"ENHANCEMENT": One or more of the following modifications to the TSG Operated
Software:
(1) A modification to the TSG Operated Software to add a new function
or feature not contained in the TSG Operated Software's
specifications;
(2) A modification to the TSG Operated Software to add an interface
to the TSG Operated Software to Third Party Software; or
(3) Any other modification to the TSG Operated Software that is not
an Error Correction, Work-around, or Update.
"ERROR CORRECTION": A modification to the TSG Operated Software to correct a
Malfunction.
"EVEN-NUMBERED YEAR": 1998 and every second year thereafter.
"EXCEPTIONAL PERFORMANCE": TSG's exceeding certain performance criteria in any
SLA in accordance with such SLA that results in a Performance Increase.
"EXCLUSIVE SERVICES": The services described in Section "3.10. EXCLUSIVITY."
"EXISTING APPLICATIONS": All software applications or portions thereof written
by TSG or its predecessors and funded by the Airline Group.
"EXISTING CLIENT SERVER OPERATIONS": Client Server Services described in
Exhibit B: TSG Services Description, in existence as of the Effective Date.
Exhibit A to Information Technology Services Agreement page 9
<PAGE> 83
"EXPIRATION": The expiration of the term of the Agreement as stated in, or as
may be extended under, Article II -- Term, without regard to the duration of
the Transition Period. For the avoidance of doubt, "Expiration" does not
include a termination of the Agreement under Article XXIV -- Termination.
("Expire," "Expires," and "Expired" have correlative meanings.)
"EXPIRATION DATE": The date on which this Agreement Expires.
"EXTERNAL CLIENT SERVER DEVELOPMENT": Development services for client server
applications performed by the Airline Group after the Effective Date and
Development services for client server applications that are performed by a
third party.
"EXTRAORDINARY COSTS": Costs that would not have occurred if the increase in
volume arose because of the Airline Group's internal growth using TSG's then
existing facilities.
"EXTRAORDINARY EFFORTS": The same level of efforts that a party affected by a
Force Majeure Event could reasonably be expected to use on its own behalf to
remedy the consequences of such event.
"EXTRAORDINARY MISTAKE": Any action or omission of TSG in connection with
rendering or providing TSG Services under the Agreement, other than an Ordinary
Mistake, constituting a violation of TSG's written or otherwise clearly
established procedures for rendering or providing a service included in the TSG
Services, including any violation of written or otherwise clearly established
data security safeguards regarding AG Data or AG Customer Data.
"FAIR LICENSE FEE": The typical license fee that TSG or any of its
predecessors previously received for the software or, if there is no such
typical license fee, a conservative estimate of
a fair market value license fee.
"FAIR TRANSACTION VALUE": The fair market value of the rights granted by TSG
to the TSG Customer in the transaction relating to the Enhancement.
"FEES": The amounts charged by TSG to the Airline Group for the TSG Services.
"FIVE-YEAR SERVICES": Those categories of the TSG Services that TSG shall
provide to the Airline Group for a period of five years commencing upon the
Effective Date. The Five-year Services consist of the Existing Client Server
Operations.
"FORCE MAJEURE EVENT": Any circumstance beyond the reasonable control of a
Party or its employees or agents, and such delay could not have been prevented
by reasonable precautions and cannot reasonably be circumvented by any of those
Persons through the use of alternative sources, work-around plans, or other
means. "Force Majeure Events" shall include acts of
Exhibit A to Information Technology Services Agreement page 10
<PAGE> 84
civil or military authority, national emergencies, fire, flood or catastrophe,
acts of God, insurrection, war or riots, but shall not include labor
difficulties or strikes. "Force Majeure Event" also shall include the failure
by AMERICAN to provide utilities to TSG's operations at CentrePort IV as
required by the Central Plant Easement Agreement between AMERICAN and TSG dated
July 1, 1996.
"FORCE MAJEURE EVENT COMMENCEMENT": The date and time that a Force Majeure
Event commences.
"FORCE MAJEURE RECOVERY PLAN": A written plan for restoring a TSG Service
affected by a Force Majeure Event or for circumventing the consequences of a
Force Majeure Event on a TSG Service.
"GENERAL DAMAGES": Losses, claims, obligations, demands, assessments, fines
and penalties (whether civil or criminal), liabilities, expenses and costs
(including reasonable fees and disbursements of legal counsel and accountants),
bodily and other personal injuries, damage to tangible property, and other
damages, of any kind or nature, suffered or incurred by a Person. For the
avoidance of doubt, "General Damages" includes not only the actual damages of a
Person, but also punitive and exemplary damages and Consequential Damages of
such Person.
"GOVERNMENTAL AUTHORITY": Any federal, state, local, or foreign government or
governmental, quasi-governmental, administrative, or regulatory authority,
agency, body, or entity, including any court or other tribunal.
"HIGH RISK TSG SERVICE": A TSG Service or system designated as "High Risk" in
an SLA.
"HISTORICAL SLA STANDARD": The minimum performance level of a service
commensurate with the performance levels typical of such service during the
years 1994, 1995, and 1996, except for such periods of time when the
performance levels were clearly unacceptable.
"HOURLY LABOR RATES": The hourly rates charged by the SABRE Decision
Technologies division of TSG for applicable development, maintenance,
enhancement, and consulting services.
"INADEQUATE PERFORMANCE": TSG's failure to meet the applicable SLA Standard for
a specific service that results in a Performance Decrease.
"INDEMNIFIABLE LOSSES": Losses, claims, obligations, demands, assessments,
fines and penalties (whether civil or criminal), liabilities, expenses and
costs (including reasonable fees and disbursements of legal counsel and
accountants), bodily and other personal injuries, damage to tangible property,
and other damages, of any kind or nature, actually suffered or
Exhibit A to Information Technology Services Agreement page 11
<PAGE> 85
incurred by a Person. "Indemnifiable Losses" consists only of the actual
damages of a Person, and excludes any Consequential Damages and any punitive or
exemplary damages (however described) of such Person. For the avoidance of
doubt, the "Indemnifiable Losses" of an Indemnitee shall include any
Consequential Damages and any punitive or exemplary damages (however described)
awards against such Indemnitee in favor of a Person making a Third-Party Claim
against such Indemnitee.
"INDEMNIFICATION CLAIM": A claim or demand of a Party, on its behalf or on
behalf of one or more of its other Indemnitees, based on a Third-Party Claim,
for indemnification under Article XX -- Indemnification.
"INDEMNIFICATION CLAIM NOTICE": A notice from the Indemnified Party describing
an Indemnification Claim and the amount or the estimated amount of that
Indemnification Claim to the extent then feasible (though that estimate shall
not be determinative of the final amount of that Indemnification Claim).
"INDEMNIFICATION RESPONSE PERIOD": The 30 days after an Indemnification Claim
Notice is given during which the Indemnifying Party may investigate and
determine its responsibility or liability for an Indemnification Claim and
Notify the Indemnified Party of the Indemnifying Party's election to defend a
Third-Party Claim.
"INDEMNIFIED PARTY": A Party entitled to or seeking indemnification, on its
own behalf or on behalf of one or more of its other Indemnitees, under Article
XX -- Indemnification.
"INDEMNIFYING PARTY": A Party that has or is alleged to have an obligation to
indemnify the other Party's Indemnitees under XX -- Indemnification in response
to an Indemnification Claim.
"INDEMNITEES": The Airline Group Indemnitees or the TSG Indemnitees, or both.
"INDEPENDENT CONTRACTOR": An individual who is an independent contractor and
not an employee.
"INFORMATION SERVICES": Services that are based on TSG's providing to the
Airline Group information that is proprietary to a member of the Airline Group.
"INTERMEDIARY": A Person licensed or otherwise authorized by AMERICAN to use a
system, software, or information other than solely as a consumer or solely in
its internal business operations, except that "Intermediary" excludes a Person
that merely transmits or distrubutes such system, software, or information
without any modification or enhancement.
"JOINTLY OWNED SOFTWARE": Software developed after the Effective Date in which
the Airline Group and TSG possess an undivided one-half interest as tenants in
common without any obligation of accounting or contribution, except as
expressly provided for in the Agreement.
"KEY EMPLOYEE": A full-time employee of TSG designated by the Airline Group to
be subject to certain restrictions and conditions described in Article XVI --
Key Employees and Related Provisions.
"KEY EMPLOYEE LIST": The group who are Key Employees. The TSG employees named
in Exhibit I: Key Employees are deemed to be Key Employees.
Exhibit A to Information Technology Services Agreement page 12
<PAGE> 86
"LEVEL 5": A Party's employee-pay-grade Level 5 as of the Effective Date or,
after the Effective Date, an employee level having substantially the same level
of authority or responsibility.
"LEVEL 6": A Party's employee-pay-grade Level 6 as of the Effective Date or,
after the Effective Date, an employee level having substantially the same level
of authority or responsibility.
"MAINTENANCE": Providing Error Corrections, Work-arounds, Updates, and
services known as "SDT help desk services."
"MALFUNCTION": Any way in which the TSG Operated Software fails to perform in
accordance with the TSG Operated Software's specifications.
"MATERIAL ADVERSE IMPACT": The occurrence of one or more of the following:
A. An increase in the Fees;
B. A more than de minimis increase in an expense incurred by the
Airline Group;
C. A material adverse effect on TSG's performance in accordance with
TSG's actual, typical performance of the TSG Services; or
D. An increase in the Taxes payable by the Airline Group.
"MESSAGE": A processor instruction in a Real Time Application.
"MULTIHOSTING SERVICES": Providing one or more Real Time Applications to
another carrier in a separate software partition.
"NEW BILLING SYSTEM": The billing system that TSG is to design, develop, and
implement to replace the billing system in place upon the Effective Date.
"NEW HISTORICAL SLA STANDARD": The actual performance level of a TSG Service
after the Effective Date, except for such periods of time when the performance
levels may be reasonably construed as unacceptable.
"NEW/OUT-OF-SCOPE SERVICE": One or more of the services defined in the
following Subparagraphs:
(1) Services that are not described in Exhibit B: TSG Services
Description and do not have a price specified in Exhibit C: Rate and
Reset Schedule.
Exhibit A to Information Technology Services Agreement page 13
<PAGE> 87
(2) Services that are not within the scope of the TSG Services; and
(3) New/Out-of-scope Services include, but are not limited to,
services related to smart cards and intelligent voice response
systems.
"NON-EXCLUSIVE SERVICES": Any services other than those specified in Section
"3.10. EXCLUSIVITY." The Non-exclusive Services include those services
described in Section "3.11 NON-EXCLUSIVE SERVICES."
"NOTICE": Prior, written notice or other communication complying with Article
XXVIII -- Notices and Other Communications. Whenever a period of time is
stated for Notice, such period of time is the minimum period and nothing in
this Agreement shall be construed as prohibiting a greater period of time.
("Notify" has the correlative meaning.)
"ODD-NUMBERED YEAR": 1997 and every second year thereafter.
"OFF-THE-SHELF SOFTWARE": Software that can be implemented in production
without any, or with only minimal, customization or modification.
"OPERATIONS MIXED SERVICES": Services provided by the Airline Group to AG
Customers at or around airports and include ramp handling, passenger handling,
training services, fueling, weight and balance determinations, weather
forecasting, baggage handling, Admirals Club related services, ground handling,
maintenance operations, and in-flight magazines.
"ORDINARY MISTAKE": Any action or omission of TSG, in the ordinary course of
its business and in connection with rendering or providing TSG Services under
the Agreement, constituting a mistake or error of a kind that is not uncommon,
unusual, or atypical in the information technology business, such as a routine
programming or operator error.
"OTHER MIXED SERVICES": All services provided by the Airline Group to AG
Customers that include TSG Operated Software and/or TSG Services, other than
Operations Mixed Services and Alliance Mixed Services.
"OTHER SERVICES": The following TSG Services:
(1) Data Network Services; and
(2) Voice Network Services.
"OTHER THIRD PARTY SOFTWARE": Software used by TSG to provide TSG Services
that is not the property of TSG and not the Transferred Third Party Software.
Exhibit A to Information Technology Services Agreement page 14
<PAGE> 88
"OUTAGE": When a TSG Service is unavailable for productive use.
"PARTY": Each of the signatories to the Agreement, and their successors and
assigns as permitted by the Agreement. ("Parties" has the correlative
meaning.)
"PERFORMANCE DECREASE": A decrease of the Fees in the event of Inadequate
Performance.
"PERFORMANCE INCREASE": An increase of the Fees in the event of Exceptional
Performance.
"PERSON": An individual; a corporation, partnership, trust, association, or
entity of any kind or nature; or a Governmental Authority.
"PROJECTED ANNUAL NEGOTIATED FEES": The Fees projected to apply to the TSG
Services for the next Even-numbered Year, as negotiated and agreed upon by the
Parties corresponding to the Projected Negotiated Rates.
"PROJECTED ANNUAL RESET FEES": The Fees projected to apply to the TSG Services
for the next calendar year, calculated using the Reset Formulas then in effect,
as described in Section "7.4. PROJECTED ANNUAL RESET FEES."
"PROJECTED ANNUAL VOLUME": The volume, scope, or extent of the TSG Services
anticipated to be used or received by the Airline Group in the next calendar
year, as agreed upon by the Parties.
"PROJECTED NEGOTIATED RATES": Those Rates anticipated to apply to the TSG
Services for the next Even-numbered Year, as negotiated and agreed upon by the
Parties in an Odd-numbered Year, for use in the Parties' determining the Rates
that will actually apply for the next Even-numbered Year.
"PSS/FPC": The Real Time Services consisting of Passenger Services System
(PSS), including OCP and Fare Pricing Complex (FPC), as described in Exhibit B:
TSG Services Description.
"RADIO SERVICES": Radio Services as described in Exhibit B: TSG Services
Description.
"RATE": A rate charged to the Airline Group for any TSG Service, or for a unit
of service or another increment of use or receipt of any TSG Service, as
specified in the Rate and Reset Schedule.
"RATE AND RESET SCHEDULE": Exhibit C: Rate and Reset Schedule.
"REAL TIME APPLICATION": One of the following software applications described
in Exhibit B: TSG Services Description:
(1) PSS/FPC;
Exhibit A to Information Technology Services Agreement page 15
<PAGE> 89
(2) Flight Operating System (FOS) described in Exhibit B: TSG
Services Description; and
(3) Virtual Machine Test System (VM Test) described in Exhibit B:
TSG Services Description.
"RED TOLERANCE LEVEL": An unacceptable level of performance for a TSG Service
that is specified in Exhibit E: Agreed SLAs that results in a Performance
Decrease.
"RE-RUN": TSG Services used in the re-performing and/or correcting of
previously performed Data Center Services by TSG for the Airline Group.
"RESERVATIONS 800 SERVICES": Domestic Reservations Inbound Services (including
800 Decision Tree Support) as described in Exhibit B: TSG Services
Description.
"RESET FORMULA": A formula agreed by the Parties by which a Current Rate may
be adjusted or reset for use in the next calendar year.
"RETAINED RIGHTS": Defined in the Bill of Contribution, Assignment and
Assumption Agreement between AMERICAN and SABRE Properties, Inc. dated July 1,
1996.
"RFP": Request for proposal.
"RFQ": Request for quotation.
"SHARED HOST ENHANCEMENT/DEVELOPMENT": Enhancement of or Development for a
Real Time Application.
"SIGNIFICANT SERVICES": Design, programming, and related services for
customization and systems integration greater than twenty-five percent of the
total fees incurred by the Airline Group in the acquisition of such software.
"SITA": Societe Internationale de Telecommunications Aeronautiques, a Belgian
cooperative corporation.
"SITA AGREEMENTS": Agreements between AMERICAN and one or more members of the
SITA Group as described in Exhibit H: SITA Relationship.
"SITA GROUP": SITA and/or its affiliates or subsidiaries.
"SITA SABRENET SERVICES": Those SITA Services that are provided by SITA under
the SABREnet Services Agreement dated as of July 1, 1996.
Exhibit A to Information Technology Services Agreement page 16
<PAGE> 90
"SITA SERVICES": Services provided by the SITA Group that AMERICAN may
purchase under the SITA Agreements.
"SLA": Each of the written statements of performance levels for services
specified in Exhibit D: Services Subject to SLA.
"SLA DATABASE": A database containing the information from which the
Historical SLA Standards were derived and to which TSG shall add the actual
performance data used to compare the performance of services to the SLA
Standards.
"SLA SERVICE TERMINATION EVENT": An event described in an SLA that gives the
Airline Group the right to terminate a specific TSG Service.
"SLA STANDARD": For a specific service, the acceptable level of performance
for such service specified in the applicable SLA.
"SLA TERMINATION EVENT": The occurrence of one or more of the following
events:
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
Exhibit A to Information Technology Services Agreement page 17
<PAGE> 91
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION.]
"SPIN-OFF COMPANY": An entity that was a member of the Airline Group, but was
divested to the extent that less than 50% of the voting power attributable to
the equity interests in such entity is owned by the Airline Group or its
Affiliates, or an entity resulting from the divestiture of a business unit or
division of a member of the Airline Group of which less than 50% of the voting
power attributable to the equity interests in such entity is owned by the
Airline Group or its Affiliates.
"STOCK AGREEMENT": Stock Transfer and Rights Agreement by and between AMERICAN
and TSG dated as of July 1, 1996, regarding inter alia, the Depository
Certificates.
"SUCCESSOR PROVIDER": The Airline Group's designee to provide services similar
to the TSG Services.
"TAXES": Foreign, federal, state and local sales, use, excise, value added, or
similar transfer taxes (including any related penalties, additions to tax, and
interest), however designated or imposed, which are in the nature of a
transaction tax.
"TEN-YEAR SERVICES": Those categories of the TSG Services that TSG shall
provide to the Airline Group for a period of ten years commencing upon the
Effective Date. The Ten-year Services consist of the following TSG Services:
Exhibit A to Information Technology Services Agreement page 18
<PAGE> 92
(1) Data Center Services, except for the operation of External Client
Server Development;
(2) Data Network Services;
(3) TSG Development;
(4) Existing Application Maintenance; and
(5) Existing Application Enhancement.
"TERMINATION DATE": The date on which termination of this Agreement is
effective without regard to the duration of the Transition Period.
"TERMINATION FOR CAUSE": Termination of this Agreement pursuant to Section
"24.1. TERMINATION FOR BREACH" or "24.2. TERMINATION FOR INADEQUATE
PERFORMANCE."
"TERMINATION LIQUIDATED DAMAGES": The amount calculated in accordance with
Exhibit K: Termination Liquidated Damages Calculation.
"THIRD-PARTY CLAIM": A claim of liability asserted against a Party by a Person
other than the other Party or either Party's Affiliates.
"THIRD-PARTY PASS-THROUGH CHARGES": Charges to TSG for certain services or
products that it acquires from third party vendors to enable it (in part) to
provide TSG Services, which charges TSG passes through as Fees charged to the
Airline Group for the following TSG Services:
(1) Reservation 800 Services;
(2) Corporate Inbound;
(3) ICS Services;
(4) Radio Services;
(5) Telecommunications services under the telecommunications
agreements that were assigned by AMERICAN to TSG on the Effective
Date, as part of the Procurement Agreements, under the Bill of
Contribution, Assignment and Assumption Agreement dated as of the
Effective Date between AMERICAN and SABRE Properties, Inc. (a
predecessor by merger to TSG); and
(6) SITA Services.
"THIRD PARTY STANDARD SUPPORT": For hardware, Third Party Standard Support is
the preventive and remedial maintenance that the third party vendor of such
hardware offers its
Exhibit A to Information Technology Services Agreement page 19
<PAGE> 93
customers on a fixed fee basis. For software, Third Party Standard Support is
such combination of Telephone Support, Error Corrections, Updates, and
Enhancements that the third party vendor of such software offers its customers
on a fixed fee basis.
"THIRD PARTY SUPPORTED PRODUCT": Any hardware or software provided by a third
party vendor and used by TSG to provide the TSG Services except for hardware
and software that constitute the Commercial Services, Real Time Applications,
and Connectivity Systems.
"THREE-YEAR SERVICES": Those categories of the TSG Services that TSG shall
provide to the Airline Group for a period of three years commencing upon the
Effective Date. The Three-year Services consist of the following TSG Services:
(1) Distributed Systems Service;
(2) Voice Network Services; and
(3) Radio Services.
"TORT DAMAGES": Bodily or personal injury or death or damage to real or
tangible personal property.
"TRANSFERRED SOFTWARE": Defined in the Bill of Contribution, Assignment and
Assumption Agreement by and between American Airlines, Inc. and SABRE
Properties, Inc. dated July 1, 1996.
"TRANSFERRED THIRD PARTY SOFTWARE": Defined in the Bill of Contribution,
Assignment and Assumption Agreement by and between American Airlines, Inc. and
SABRE Properties, Inc. dated July 1, 1996.
"TRANSITION ASSISTANCE": The services provided by TSG to the Airline Group, in
addition to the TSG Services and in accordance with Article XXIV -- Transition
Assistance; Survival, to enable the Airline Group to obtain services to replace
the TSG Services.
"TRANSITION PERIOD": The following periods of time during which TSG shall
provide Transition Assistance to the Airline Group:
A. The period commencing upon the date of AMERICAN's Notice of
termination of this Agreement and continuing up to 90 days after the
Termination Date;
B. For Three-year Services, Five-year Services, and Ten-year
Services, the period commencing upon the date of AMERICAN's Notice of
non-renewal and continuing for
Exhibit A to Information Technology Services Agreement page 20
<PAGE> 94
up to 90 days after the Expiration of this Agreement for the
Three-year Services, Five-year Services, or Ten- year Services, as the
case may be; or
C. For Three-year Services, Five-year Services, and Ten-year Services
and when AMERICAN has not given Notice of non-renewal, the period
commencing upon the respective dates of expiration of those Services
or the Expiration Date, as described in Section "2.3. EXTENSIONS OF
THE TERM," for the Three-year Services, Five-year Services, or
Ten-year Services or the Agreement, as the case may be, and continuing
up to 90 days thereafter.
"TRANSPORTATION BUSINESS": Transportation services, including air and ground
transportation services, provided directly by a designated Person or by any
other Person in which such the designated Person owns, through direct ownership
or indirect ownership through one or more other Persons, a greater than 5%
voting equity interest.
"TRAVEL AGENT": A Person acting as a travel agency accredited by
the Airline Reporting Corporation or the International Air Transport
Association to issue travel documents on behalf of third parties.
"TSG": The SABRE Group, Inc., a Delaware corporation.
"TSG CUSTOMER": Any customer of TSG, other than the Airline Group, for
services similar to TSG Services.
"TSG DEVELOPMENT": Development performed by TSG.
"TSG HIGHLY CONFIDENTIAL INFORMATION": Source code and technical documentation
(to the extent they constitute trade secrets or information not containing
trade secrets, but from which TSG's trade secrets can be derived), trade
secrets, and other information not containing TSG's trade secrets, but from
which TSG's trade secrets can be derived. For the avoidance of doubt, TSG and
the Airline Group agree that user manuals are generally not TSG Highly
Confidential Information and that file formats for input and/or output are not
TSG Highly Confidential Information. For the avoidance of doubt, decision
support source code and technical documentation are deemed to be TSG Highly
Confidential Information.
"TSG INDEMNITEES": TSG and its directors, officers, employees, and agents and
the heirs, executors, successors, and permitted assigns of any of those
Persons.
"TSG OPERATED SOFTWARE": All software used by TSG to provide the TSG Services,
including TSG Owned Software, Transferred Software, and Transferred Third Party
Software, and Other Third Party Software.
"TSG OWNED SOFTWARE": Software owned by TSG and used by TSG to provide the TSG
Services other than the Transferred Software and the Jointly Owned Software.
"TSG'S PRIMARY RESPONSIBILITIES": Any such responsibilities to which the
Airline Group and TSG agree in writing are TSG's Primary Responsibilities and
the following TSG Services:
A. Management of Reservations 800 Services;
B. Device Support provided in the System Operations Control Center;
Exhibit A to Information Technology Services Agreement page 21
<PAGE> 95
C. Commercial Services;
D. Real Time Services; and
E. Integration Services as defined in Exhibit B: TSG Services
Description.
"TSG SERVICES": Services consisting of the Data Processing Services, the
Enhanced Data Processing Services, and the Other Services and described in
Exhibit B: TSG Services Description or in this Agreement.
"TSG SOFTWARE INCOME": The license fees or equivalent compensation that TSG
receives for granting the right to use the Jointly Owned Software and the
license fees or equivalent compensation that TSG receives for operating the
Jointly Owned Software for the benefit of a TSG Customer.
(1) For the avoidance of doubt, TSG Software Income does not include
the following:
a. Income to TSG for providing maintenance;
b. Income to TSG for modifying software to meet TSG Customer
specifications;
c. Taxes; and
d. Implementation fees, training fees, and consulting fees.
(2) For the avoidance of doubt, TSG Software Income includes the
following:
a. Compensation TSG receives in kind as some or all of
license fees; and
b. The present value of license fees to be paid in
installments.
"UNAPPLIED CAPPED ADJUSTMENT": The excess of the Unrealized Aggregate
Adjustment over the Capped Adjustment.
"UNREALIZED AGGREGATE ADJUSTMENT": The excess of the difference (expressed as
an absolute value) between the Projected Annual Reset Fees and the Projected
Annual Negotiated Fees over the Adjustment Amount.
"UNSUPPORTED PRODUCT": A Third Party Supported Product that is no longer
supported by a third party vendor.
Exhibit A to Information Technology Services Agreement page 22
<PAGE> 96
"UNUSUAL RE-RUN": A Re-run in all the following circumstances:
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
"UPDATE": Any modification to the TSG Operated Software for one or more of the
following reasons:
(1) A modification of the TSG Operated Software because of a change
made to the operating system environment in which the TSG Operated
Software executes;
(2) Periodic installation of a collection of such Error Corrections
that have been provided to any user or licensee of the TSG Operated
Software since the last Update;
(3) A modification of the TSG Operated Software because of a change
in the law or regulations applicable to the TSG Operated Software;
(4) A modification to Third Party Software that TSG chooses to
install;
(5) A modification of the TSG Operated Software to remove a
Work-around and install an Error Correction; and
(6) A modification of the TSG Operated Software because of a change
to the hardware environment in which the TSG Operated Software
executes.
"VOICE MAIL": Voice Mail as described in Exhibit B: TSG Services Description.
"VOICE NETWORK SERVICES": The following services:
(1) Reservation 800 Services;
(2) Corporate Inbound described in Exhibit B: TSG Services
Description;
(3) ICS (Inter City System) described in Exhibit B: TSG Services
Description;
(4) Domestic/International Telephone Support described in Exhibit B:
TSG Services Description;
Exhibit A to Information Technology Services Agreement page 23
<PAGE> 97
(5) Voice Mail described in Exhibit B: TSG Services Description; and
(6) Video Conferencing described in Exhibit B: TSG Services
Description.
"WAIVED RE-RUN FEES": Any Fees not charged to the Airline Group pursuant to
Section "7.10. PAYMENT FOR RE-RUNS."
"WIND-DOWN COSTS": Costs that TSG would be forced to absorb and be unable to
efficiently reallocate to another customer or service as a result of AMERICAN's
termination of this Agreement pursuant to Sections "24.4. TERMINATION FOR
CONVENIENCE" OR "3.13 EFFECT OF DIVESTITURES, MERGERS, AND ACQUISITIONS," if
applicable. [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
"WORK-AROUND": A modification to the TSG Operated Software to disable a
function in the TSG Operated Software in order to bypass a Malfunction
temporarily.
II. Interpretive Matters.
The Agreement is the result of the Parties' negotiations, and no provision of
this Agreement shall be construed for or against either Party because of the
authorship of that provision. In the interpretation of the Agreement, except
where the context otherwise requires:
1. "including" or "include" does not denote or apply any
limitation;
2. "or" has the inclusive meaning "and/or";
3. "and/or" means "or" and is used for emphasis only;
4. "$" refers to United States dollars;
5. the singular includes the plural, and vice versa, and each
gender includes each of the others;
6. captions or headings are only for reference and are not to be
considered in interpreting the Agreement;
7. "Article," "Section," and "Subsection" refer to an Article,
Section and Subsection, respectively, of the Agreement, unless
otherwise stated in the Agreement;
Exhibit A to Information Technology Services Agreement page 24
<PAGE> 98
8. if an ambiguity arises in a Subsection's, Section's, or
Article's cross-reference to another Section or Article, the
cross-referenced heading controls over the cross-referenced
Section or Article number.
Exhibit A to Information Technology Services Agreement page 25
<PAGE> 99
EXHIBIT B
DESCRIPTION OF SERVICES
Common - Page 1
<PAGE> 100
DESCRIPTION OF SERVICES
GENERAL DESCRIPTION OF SERVICES
COMMON TO ALL LINES OF BUSINESS
Common - Page 2
<PAGE> 101
SABRE Group Descriptions of Services
General
AG refers to the Airline Group; TSG refers to The SABRE Group, Inc.
In general, SABRE Group intends to manage the services that it provides to the
Airline Group in the same manner in which they were managed immediately before
the IT services Agreement was signed, and the pricing in the agreement
contemplates operations in the same manner as has been practiced.
Most SABRE Group services are provided as part of a shared pool of services.
For example, the Passenger Services System provides reservations services to
many users through a pool of technical resources. Dedicated services (those
which cannot be shared) that are requested within a shared service are not part
of those products' descriptions. Usually, dedicated resources can be provided
at extra cost (e.g., physically segregating commercial data from other
customers' data would require dedicated DASD).
TSG will run any software at AG's request, provided that the software has been
maintained up-to-date and that TSG has performed or approved any required
system integration. To the extent that the software must be run in a new
environment not then currently provided by TSG, AG and TSG must mutually agree
upon appropriate compensation.
For any new system proposed by AG, TSG will advise AG of TSG's recommendation
for the best solution, including the best production environment in which to
operate the system. AG may select the production environment in which the
application will run. If AG chooses a production environment different than
the one which TSG recommended, and AG's choice has a material adverse effect on
the performance or costs of the production environment, then TSG and AG will
negotiate appropriate adjustments to SLAs and/or fees.
For development or enhancements, AG may, but is not required to engage TSG at
contract rates to complete a scoping study to evaluate the feasibility and cost
of undertaking a project. AG may also engage TSG to complete the project, or
may bid the project. AG may use the scoping study in its RFP if it chooses to
bid the project; TSG will be invited to respond, but will not charge AG for the
Common - Page 3
<PAGE> 102
costs of its proposal, beyond the scoping study. (Information shared with
third parties is subject to Article XIV - Confidentiality. Bidding is subject
to Section 3.12 of the Agreement.)
For new systems or enhancements, AG bears the costs of: 1) moving the software
into the service it will use for operations; 2) any application-related
software that must be written to use the software (like job control language
software for commercial applications); and 3) any database or system security
setup that is required to prepare the software for use. (Defining new users'
security for an existing system is included in usage charges, like commercial.)
TSG will provide to AG a comprehensive estimate of these applications related
costs (including test system usage and run costs) for Target Pricing and
application proposal analysis purposes. These requirements are not included in
the operational services. Application-level performance tuning is not included
as part of operational services except where specifically noted.
A part of most services is forecasting demand and providing for resources in
advance of their consumption, recognizing that acquisition of additional
resources can be a lengthy process. However, AG may intend to change usage
significantly for one or more resources. The SABRE Group will continue to
provide forecasts of demand for review by the Airline Group, in particular by
AG's CIO for TSG products and services; the SABRE Group will provide resources
to accommodate the demand (including a reasonable contingency allowance), to
which AG concurs or modifies through this review. AG will advise TSG of any
significant changes in demand as soon as practical (subject to Section 3.14).
If demand from AG exceeds forecast, TSG will endeavor to meet demand as soon
as practical, and to allocate resources as a temporary measure when meeting
such excess demand, as has been the recent practice.
SABRE Group will continue to provide AG, without additional charge, reasonably
requested reports for AG to understand billing changes and resource usage
including new reports to understand the new billing changes, billing units and
new billing methodologies. However, applications tuning analysis and reports,
or reports that consume unusually large amounts of resources such as traces, at
AG's request, will be subject to an additional charge through Billable Labor.
Common - Page 4
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BILLABLE LABOR (DEDICATED SUPPORT & CONSULTING)
SERVICE DEFINITION & OBJECTIVE
The service traditionally referred to as "Billable Labor" may also be referred
to as either Dedicated Support or Consulting. This service is charged at an
hourly rate which varies with the level of the person performing the work and
includes those services provided by SCS/SDT employees which are not covered by
another SCS/SDT Product or Service as outlined in the Agreement. Billable
Labor will also apply to all new applications development, enhancements, and
research and consulting services for existing applications and real time
systems.
Please see attached Exhibit C for detailed guidelines.
SERVICE SCOPE
Common - Page 5
<PAGE> 104
Billable Labor covers the following SCS/SDT activities:
o Installation and supportof non-standardend user softwareand/or
hardwareproducts not subjectto devicesupport charges. Examples
ofnon-standard products include:mass storage units, scanners,information
displays, securitysystems, spine roadsigns, AutoTA readers, PublicAddress
Systems, etc.
o Support for requirements exceeding standard service levels. Examples
include: extended service hours, increased number of support shifts,
specialized LAN device configurations, workstation backup services when
appropriate back-up device has been acquired by AG
o Engineering and/or consulting design and development assistance.
Examplesinclude: assistance with customized platform selection, technology
evaluation to meet specific business requirements, specialized information
technology planning services, etc.
o Generationof ad-hocand/or recurring reportswhich are atAG's request
(notethis does notinclude ad-hoc reportsthat are intendedto help resolve
billing questions).
o Applicationsoftware loading orsupport for softwareother than thecorporate
standardadvanced office suitethat is loadedand supported aspart of the
Device Support product.
o New applications development work(1) which includes complete project
management and coordination of the change control process.
o Out-of-pocket expenses, including travel and incidental expenses, are
charged in accordance with Exhibit C.
o Consulting (e.g. for Year 2000 Project).
DIRECT
Direct Charges are for miscellaneous services, ordered by AG, not covered
elsewhere, and are typically small services or products. Direct expenses are
charged in accordance with Exhibit C.
- ---------------------------------
(1) It is anticipated that most new applications development work awarded to SDT
will be managed by Target Pricing
Common - Page 6
<PAGE> 105
DESCRIPTION OF SERVICES
DATA CENTER SERVICES
Data Center Services - Page 1
<PAGE> 106
REAL-TIME SERVICES
Real-time products consist of: PSS, FPC, FOS, and VM test. Several services
are provided with respect to all real-time products, including:
o Forecast demand for real-time processing. Evaluate real-time
processing hardware alternatives and plan and acquire hardware.
Maintain hardware configuration data. Service and maintain hardware,
including: preventive maintenance, repair of equipment,
reconfiguration and installation/deinstallation.
o Provide problem tracking and resolution processes, policies and
procedures. Maintain problem records for TSG problem investigation
and resolution purposes, track problems and resolve problems in a
timely manner. Provide change management and control processes,
policies and procedures. Schedule, coordinate and communicate planned
system outages.
o Develop and maintain disaster recovery policies and plans to recover
real-time systems' data, hardware and operating systems in the event
of a disaster.
o Operate and monitor the real-time systems. Provide technical coverage
for real-time operating system software, hardware and applications.
o Maintenance of the databases needed for AG business, e.g., flight
schedules, agent assembly area (AAA), AAA initiation table, TRACS
(Trouble Reporting and Correction System), city database
(encode/decode tables), daylight savings time, fuel surcharges, ticket
designators, contract bulk fares and rules, universal address table
(UAT), automated message switching (AMS).
The following Service Scope items apply to all real-time product services:
Data Center Services - Page 2
<PAGE> 107
o TSG will continue to forecast TSG product / service resource usage.
AG will inform TSG of any significant changes to the forecast as soon
as practical. If demand from AG exceeds the forecast, TSG will
attempt to accommodate the demand as soon as practical, subject to
Section 3.14.
o System monitoring and coverage functions are provided 24 hours a day,
365 days a year.
Services related to all real-time products available from TSG at extra cost
(generally at Billable Labor rates) include:
o Consulting to review plans for new application software projects and
determine hardware/software resources required to run the new
applications and/or customized applications at a level greater than
the highest level previously established. TSG will continue to
provide to AG, without additional charge, reasonable requests for
reports to understand AG billing charges and resource usage. In
general, modeling or simulation of one system's expected performance
or resource consumption against another will result in additional
charges at billable rates.
o Security consulting for new development projects.
TSG has the right to determine the process for implementing new Real Time
applications and the timing of such implementations; however, TSG will review
with AG the proposed implementation schedule to accommodate AG schedule
requests. AG has the right to prioritize AG's Real Time implementations.
Data Center Services - Page 3
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PSS/FPC
SERVICE DEFINITION & OBJECTIVE
PSS - Passenger Services System
The Passenger Services System is an interactive environment housing
the SABRE computer reservation system.
FPC - Fare Pricing Complex The Fare Pricing Complex (FPC) is an
interactive environment executing applications used to price a ticket
in SABRE.
o The fare process, including QCP fare loads, performed by SABRE Travel
Information Network includes: receiving and processing all fare components,
including fares, rules, routings, and footnotes, provided by the airline
directly or by the fare vendor acting on instruction from the airline.
o Monitor the existing system, including: the scheduling and execution of
existing on-line and off-line production jobs; and technical coverage of
the system. These services include on-site support, at the Tulsa data
center facilities, twenty-four (24) hours a day, seven (7) days a week.
o Support the PSS/FPC databases including making backup archival copies of
the databases to provide for recoverability, generally once in each
twenty-four (24) hour period, and initiating database reorganizations.
o Plan and acquire hardware related to PSS/FPC. Evaluate strategic and
tactical hardware alternatives and implement appropriate plans.
o Support applications implementations.
o Retrieve, mount and return system activity tapes to storage. Coordinate
movement of disaster recovery data to vault storage.
o Provide change control; i.e., use reasonable efforts to validate that
changes adhere to established standards before implementation into the
production environment.
o Maintain the operating system software for PSS and FPC. Apply TSG
operating system software fixes and minor enhancements as required.
(Updates are implemented through new versions of control programs which are
generally processed twice annually for PSS).
o Build and process system utilities as required to support the systems.
(System utilities are generally processed on a weekly/bi-monthly schedule).
o Provide computer storage and processor resource management.
o Maintain and modify disaster recovery software and execute system
recoveries.
SERVICE SCOPE
Personnel to aid and care for these services are available 24 hours a day, 365
days a year.
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FOS
SERVICE DEFINITION & OBJECTIVE
FOS - Flight Operating System
The Flight Operating System supports applications designed to supply
pertinent information related to aircraft movements.
o Monitor the existing system, including: the scheduling and execution of
existing on-line and off-line production jobs; and technical coverage of
the system. These services include on-site support, at the Tulsa data
center facilities, twenty-four (24) hours a day, seven (7) days a week.
o Support the FOS database, including making backup archival copies of the
databases for recoverability purposes, generally once in each twenty-four
(24) hour period.
o Plan and acquire hardware related to FOS. Evaluate strategic and tactical
hardware alternatives and implement appropriate plans.
o Support applications implementations.
o Retrieve, mount and return system activity tapes to storage. Coordinate
movement of disaster recovery data to vault storage.
o Provide change control; i.e., use reasonable efforts to validate that
changes adhere to established standards before implementation into the
production environment.
o Maintain the operating system software for FOS. Apply TSG operating system
software fixes and minor enhancements as required. (Updates are
implemented through new versions of control programs which are generally
processed twice annually for FOS).
o Build and process system utilities as required to support the system.
(System utilities are generally processed on a weekly/bi-monthly schedule).
o Provide computer storage and processor resource management.
Maintain and modify disaster recovery software and execute system recoveries as
needed.
SERVICE SCOPE
Personnel to aid and care for these services are available 24 hours a day, 365
days a year. There is limited Tulsa data center management personnel during
the weekends, holidays and hours before 8am and after 5pm Monday through
Friday.
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VM TEST
SERVICE DEFINITION & OBJECTIVE
VM Test provides a complex that closely resembles the real-time
production systems (PSS/FPC and FOS) to support development and
testing of new applications and new system software functionality.
o Operate and monitor the existing system, including: the scheduling and
execution of existing on-line and off-line production jobs; and technical
coverage of the system. These services include on-site support, at the
Tulsa data center facilities, twenty-four (24) hours a day, seven (7) days
a week.
o Support the VM Test database. Periodically restore the VM Test databases
to support applications development and testing (generally once a week from
FOS and about every 10 weeks from PSS).
o Plan and acquire hardware related to VM Test. Evaluate strategic and
tactical hardware alternatives and implement appropriate plans.
o Support applications implementations and development.
o Retrieve, mount and return system activity tapes to storage.
o Provide change control; i.e., use reasonable efforts to validate that
changes adhere to established standards before implementation into the
production environment.
o Maintain the operating system software for VM Test. Apply TSG operating
system software fixes and minor enhancements as required.
o Build and process system utilities as required to support the system.
(System utilities are generally processed on a weekly/bi-monthly schedule).
o Provide computer storage and processor resource management.
o Maintain and modify disaster recovery software and execute system
recoveries as needed.
SERVICE SCOPE
Personnel to aid and care for these services are available 24 hours a day, 365
days a year. There is limited Tulsa data center management personnel during
the weekends, holidays and hours before 8am and after 5pm Monday through
Friday.
Related products available at extra cost (typically Billable Labor) through the
SABRE Group include:
o Special test system restore requests only with the written approval of AG
CIO.
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COMMERCIAL SERVICES
Commercial Services include: CPU, DASD, IMS, Tape, Print, Microfiche, Decision
Enabling and Mail Distribution Services. In general, the Commercial Services
are a family of service offerings. Included in each Commercial Service are the
following:
o Forecast demand for commercial processing. Evaluate commercial
processing hardware alternatives and plan and acquire hardware.
Maintain hardware configuration data. Service and maintain hardware,
including: preventive maintenance, repair of equipment,
reconfiguration and installation/deinstallation. Provide usage
performance statistics and operations monitoring tools.
o Negotiate mainframe software licensing terms and conditions and
pricing. Maintain third-party contracts as required by TSG contracts
and license agreements. Maintain controls to comply with licensing
requirements. Maintain an accurate inventory of third party software
used in the commercial processing complex. Notify AG of new software
releases and release schedule for software impacting AG service.
o Provide help desk function for problems related to the commercial
systems. Help desk function includes accepting AG calls, logging
appropriate problem data, resolving problems or queuing them to a
second level support function (such as engineering, TSG support, or
other technical support areas with skill set to address the problem)
for resolution. Note that this does not include SCS help for questions
and/or problems related to function of the application. However, SDT
runs an application help desk service. Provide procedures and
supporting technical manuals necessary for AG to understand and comply
with security management.
o Process AG security authorization requests. Activate and deactivate
system access in accordance with published security policies and
procedures agreed to by TSG and AG. Select, install and maintain the
appropriate security tools required to administer system security.
Develop, implement, monitor and enforce security standards, policies
and access controls. Evaluate, design, and implement resolutions to
security problems. Provide security help desk support via phone.
Provide centralized user security account tracking and auditing.
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<PAGE> 112
o Provide problem tracking and resolution processes, policies and
procedures. Maintain problem records for TSG problem investigation
and resolution purposes, track problems and resolve problems in a
timely manner. Provide change management and control processes,
policies and procedures. Schedule, coordinate and communicate planned
system outages.
o Develop and maintain disaster recovery policies and plans to
facilitate recovery of commercial systems' data, hardware and
operating systems, in the event of a disaster. Disaster recovery
services include definition and execution of file backup and file
recovery procedures, storage of backup files in a reasonably protected
area, conducting backup and routine recovery procedures and archiving
inactive files as agreed to between TSG and AG.
o Monitor, operate and maintain the commercial system computing
equipment and associated peripherals. Provide technical coverage for
commercial operating system software, hardware and applications used
in the service.
o Provide data center facilities support services including: facilities
maintenance and engineering, electrical power, cooling, heating,
physical security processes, systems and personnel.
o Maintain documentation of system and utility software, hardware
configuration data, and operating instructions required to process
AG's applications, in commercially usable form.
The following Service Scope items apply to all commercial product services:
o TSG will continue to forecast TSG product / service resource usage
needs. AG will inform TSG of any significant changes to the forecast
as soon as practical, in accordance with Section 3.14 of the
Agreement. If demand from AG exceeds the forecast, TSG will attempt
to accommodate the demand as soon as practical.
o System monitoring and coverage functions are provided 24 hours a day,
365 days a year.
o Help desk is available 24 hours a day, 365 days a year.
o New security access requests are processed during normal business
hours, Monday - Friday.
o Analyzing and modifying software to improve its efficiency ("tuning")
is limited to operating system type software, or software resources
shared across the commercial environment. Tuning does not include
analysis and modification of application systems. Applications level
tuning is available at additional charge, generally at Billable Labor
rates.
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Services related to all commercial products available from TSG at extra cost
include :
o Consulting to review plans for new application software projects and
determine hardware/software resources required to run the new
applications. TSG will continue to provide AG, without an additional
charge, reasonable requests for reports to understand AG billing
charges and resource usage. In general, modeling or simulation of
expected resource consumption, and/or benchmarking of one system's
expected performance or resource consumption against another will
result in additional charges at Billable Labor rates. However, any
resources used by TSG to develop a competitive bid for a new / out of
scope service will be at TSG's expense.
o Dedicated evaluation, testing, implementation of software products
outside of the standard TSG software portfolio.
o Security consulting for new development projects.
TSG will publish a list of software products used to provide the commercial
services and associated features to AG. (See the attached list). The list will
be updated as changes are made by TSG. This list of software tools will be
kept on file with AG CIO and TSG contact. In general, TSG will discuss any
planned changes, including additions and/or planned retirements, with AG prior
to implementing the change when AG service is affected. Products used solely
by TSG in performing services and not charged directly to AG may be changed at
TSG discretion without prior discussion with AG.
TSG does not warranty third party data accuracy, timeliness or dependability of
suppliers selected and managed by AG, but is responsible for the performance of
suppliers selected by TSG.
TSG has the right to determine the process for implementing new commercial
applications and the timing of such implementations; however, TSG will review
with AG the proposed implementation schedule to accommodate AG schedule
requests. AG has the right to prioritize AG's commercial implementations.
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TSG COMMERCIAL SOFTWARE PRODUCT LIST
The following products are used to provide commercial services, and are
included in TSG's software portfolio as of 12/31/95. (This list is not
necessarily all-inclusive.) It is TSG's responsibility for installation,
support, and upgrades to the software listed below as well as any new features
supplied by third party vendors incorporated within the software listed below,
subject to Section 3.5 of the Agreement.
<TABLE>
<S> <C>
APPLICATION DEVELOPMENT LANGUAGES:
Vision: Builder Enhanced Formatter APL2, AFM/APL2, APL2 Editor
APL Assembler
COBOL (Common Business Oriented Language) C/370
FORTRAN ISPF (Interactive System Productivity Facility)
PL/I (Programming Language 1) REXX
SAS (Statistical Analysis System)
DEBUGGING/TESTING AIDES:
BTS (Batch Terminal Simulator) TSOMON (TSO monitor)
CMF AbendAid
Hiperstation INSPECT/PLITEST
MVS QuickRef SmartTest
STROBE
CODE GENERATORS:
IEF (Information Engineering Facility) TELON
DATABASE MANAGEMENT SYSTEMS (DBMS)
Finalist On-line Interface
DB2 (Database 2) IMS (Information Management System)
Teradata
</TABLE>
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<PAGE> 115
<TABLE>
<S> <C>
OPERATING SYSTEMS AND TRANSACTION MANAGEMENT SOFTWARE:
MVS (Multiple Virtual System) Teradata
IMS (Information Management System)
DBMS PRODUCTS/UTILITIES:
BMP Restart DBT (Database Tools)
Delta IMS Image Copy Plus
InfoPak for IMS Load Plus
Local Copy Plus Prefix Resolution Plus
Pointer Checker Plus Secondary Index Utility
Unload Plus
DB2 PRODUCTS/UTILITIES:
Access for DB2 Bachman DBA
DB2 Data Packer DB2 Image Copy Plus
DB2 Load Plus DB2 Recover Plus
DB2 Unload Plus Move for DB2
TERADATA PRODUCTS/UTILITIES:
Arcmain CL/I
Fastload Multiload
AD HOC REPORTING TOOLS:
MXG Mailer's Choice
MICS Crosstabs
Easytrieve Express MDB
PADRE QMF/SQL (Query Management Facility/Structured Query
Language)
SAS (Statistical Analysis System) Vision: Builder
GRAPHICS SOFTWARE FOR MAINFRAME:
GDDM (Graphical Data Display Manager) Postscript Interpreter
CONNECTIVITY/DATA ACCESS:
Simware APPC (Advanced Program to Program Communications)
Connect: Direct TCP/IP (Transmission Control Protocol/Internet Protocol)
</TABLE>
Data Center Services - Page 11
<PAGE> 116
<TABLE>
<S> <C>
TPX (Terminal Productivity Executive) Relay
Sequelink SQLHOST
Softswitch
UTILITIES:
Astex PDSMAN
SAMs: Allocate SAMs: Disk
StopX37 VSAM Manager
VSAM Mechanic Prevail Automation
JES 3270 VTAM Printer Support ODE II
Compaktor
FATAR (Fast Analysis of Tape and Recovery) FATS (Fast Analysis of Tape Surfaces)
FDR/DSF (Fast Dump Restore) TSO PLUS
SoftAudit Proc Syncsort
DXUTIL High Volume Print Facility
CA-1 CA-11
Infopac - ABS Omegamon
BookManager COBOL Structuring Facility/Conversion Aid
Docutext FileAid
Flasher Infoman (Information Management System)
Job Scan PMF (Print Management Facility)
PSF/MVS (Print Services Facility/Multiple Virtual Storage)
RACF (Resource Access Control Facility) Resolve
RMDS (Report Management and Distribution System) Syncsort
Ultimizer VSAM I/O Plus
XrefPlus XCOM 6.2
MIMGR (Multi-Image Integrity) SILO Host Component
THE FOLLOWING PRODUCTS ARE CURRENTLY IN PLANNED RETIREMENT STATUS:
IAM (Innovation Access Method) Unitech
Compaktor Panvalet
GPSS (General Purpose System Simulator) Pipeline
Dup Detective
</TABLE>
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COMMERCIAL CPU
SERVICE DEFINITION & OBJECTIVE
Basic service provided to AG is computer processing, currently provided via an
MVS (Multiple Virtual System) operating system. The commercial environment
is suitable for processing and data storage of both ad hoc and recurring
business support work such as accounting, finance, human resources, operations,
and marketing analysis, and enables customers to process high volumes of
business transactions and to store and manipulate data in a secure but shared
environment using a variety of commercially available third party and custom
designed software development tools, data management utilities and ad hoc query
capabilities. Service includes the following functions:
o Installation, maintenance and tuning of operating system software and
related software utilities required by TSG to process AG's
applications. Execution of all system startups and fallbacks for
scheduled and unscheduled outages.
o Provide AG with installation and emergency maintenance and repair
services required to respond to unscheduled downtime. Initiate
corrective measures for system outages, initiate corrective measure to
resolve hardware and software problems and incidents and coordinate
resolution of software interruptions and system performance problems.
o Installation, maintenance and tuning of mainframe connectivity
software that provides network access to the commercial system.
Maintain, operate and monitor communications access hardware and
software including routers, front-ends, gateways, firewalls and other
connectivity components. Create and maintain connectivity software
parameters which define AG printers, terminals and other devices to
the network, thus enabling access to the commercial system.
Workstation equipment to access the commercial processing environment
is provided in the Device Support and Moves/Installs products.
o Provide connectivity to external companies for data transmissions
through implementation and maintenance of transmission software.
Implement and monitor data transmissions.
o Schedule AG batch jobs and required utilities based on priorities
mutually agreed to by AG and TSG and so that on-line applications
dependent on batch processing will be available as scheduled. Execute
production batch schedule. Perform permanent and on request/temporary
schedule changes for commercial batch jobs. Monitor execution of
on-line, batch and ad-hoc processing according to established
priorities. Respond expeditiously to requests from authorized AG
personnel to priority job execution. Report commercial job status.
Recover abended jobs. Execute reruns of commercial jobs. Maintain
software tools required for TSG to implement AG's batch work. Inform
AG and obtain approval when batch reruns will impact production
processing.
o Installation, maintenance, and operation of third party software
products. Maintenance of inter operability between third party
software products, operating systems and applications as required to
process AG's applications.
o Conduct operating system and utility software performance monitoring
and tuning. Analyze system problems, conduct root cause analysis and
implement required fixes. Install and maintain selected mainframe
programming languages and existing end-user programming tools.
Administer, test and install operating system software and associated
utility software tools.
o Maintain and support a data dictionary for the commercial environment
which identifies application systems and owners. Service includes a
help desk which provides data dictionary information to AG's
developers. This function also provides data identifying owners to
application system relationship for system security administration and
billing.
SERVICE SCOPE
Related services available from TSG at extra cost (generally at Billable Labor
rates) include :
o Training for mainframe end-user computing tools such as SAS and APL.
o Setup of new data transmissions such as a new electronic data
interchange partners.
o Provision of program loads and changes which include: preparation of
schedules for the installation of application systems, scheduling of
all program loads prior to implementation, coding of JCL (Job Control
Language), batch job documentation, distribution catalog, scheduling
setup for new systems and jobs.
o Labor for ad-hoc query performance and tuning consulting.
o Applications tuning and efficiency review consulting.
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COMMERCIAL DASD
SERVICE DEFINITION & OBJECTIVE
Basic product is electronic DASD (Direct Access Storage Device) storage on
which to store AG's data and includes the following related services:
o Allocate DASD storage space, optimize DASD storage utilization,
analyze allocation of DASD and monitor the DASD storage system.
Provide data back-up and recovery according to established guidelines.
Monitor performance of storage resources to identify and resolve
bottlenecks impacting storage system performance. Execute database
maintenance and reorganizations on schedule agreed to by AG and
provide data compression consistent with the manner in which provided
at the effective date.
o Install and maintain software tools required by TSG to manage the
DASD storage environment.
SERVICE SCOPE
o Data storage requests are accommodated as quickly as possible within
available inventory of storage, assuming AG-required approvals have
been obtained.
o Allocation of storage for AG is available during normal business
hours. Allocation can take place outside normal business hours, on an
emergency basis, to support production processing.
o Related services available at extra cost from TSG include:
Dedicated storage space restricted to AG use only and not available as
shared resource for other TSG customers (DASD rates).
Recovery of data lost through AG error (e.g., recovery of deleted data
sets - Billable Labor rates)
o Labor to review data element requirements within any database or
dataset and/or labor to implement and maintain application software
changes that enable AG to identify opportunities to reduce storage
requirements.
Access to data stored on DASD is dependent on AG's direction for retention and
disaster recovery standards for backup of data. Data is deleted on schedule
specified by AG via TSG dataset registration process.
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COMMERCIAL IMS
SERVICE DEFINITION & OBJECTIVE
Basic service provided to AG is on-line transaction processing using IMS
software in an MVS operating system environment. Service includes the
following functions:
o Monitor the IMS System. Install and maintain IMS system software and
supporting utilities. Provide IMS data base management software
system monitoring and support.
o Create and execute application and system database recovery
procedures. Develop and install software tools required to meet
service commitments, including evaluation and certification of 3rd
party vendor products, and conduct database software performance and
tuning.
SERVICE SCOPE
Related services available from TSG at extra cost (generally at Billable Labor
rates) include:
o Consulting, design and implementation of IMS databases for new
development projects.
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COMMERCIAL MICROFICHE
SERVICE DEFINITION & OBJECTIVE
o Provide microfiche supplies
o Create microfiche masters and copies.
o Prepare microfiche for delivery according to distribution
instructions.
o Provide and maintain standard selection of software tools required to
enable microfiche printing.
SERVICE SCOPE
o Microfiche is processed 24 hours per day, 365 days per year.
o Testing and implementation of microfiche output for new applications
is considered Billable Labor.
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COMMERCIAL PRINT
SERVICE DEFINITION & OBJECTIVE
o Produce printed output at selected sites (currently, AMR Headquarters
and Tulsa campuses). Services include provision and printing of
standard stock paper forms and secure storage and printing of special
forms provided by AG, such as payroll checks.
o Prepare print for delivery according to distribution instructions.
o Provide and maintain software to enable routing of printed output to
AG's local printers.
SERVICE SCOPE
o Print is processed 24 hours a day, 365 days a year at both DFW and TUL
locations. Standard response time for printed output varies by
application, volume of print, print format, etc. Generally, printed
test and production output will be available for distribution during
the same day output is generated.
o In general, priority is given to production print output over test
output (user generated) when print capacity is constrained.
Priorities can be altered at AG's request.
o Special forms are provided by AG.
o Capability to route print generated in the commercial environment to
AG's local site is limited by the capability of the VPS (Virtual Print
Software) software which requires a VPS capable printer with
associated connectivity capability. Services related to provision
and maintenance of local printers and connectivity software are
covered in other TSG products.
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COMMERCIAL TAPE
SERVICE DEFINITION & OBJECTIVE
Basic tape handling provided to AG is tape storage for AG's data. Tape
handling includes the following functions:
o Provision of tape services and tape supplies
o Retrieve, mount and store tapes.
o Transfer tape media to and from vault to meet archival requirements.
o Process AG requests for tape shipping/receiving from non-AMR
vendors/customers.
o Optimize tape utilization and process and evaluate tape space
requests. Analyze the allocation of tape storage so that tape
resources are utilized efficiently. Implement and maintain tape
management software tools required by TSG to manage the tape storage
environment.
o Acceptance of tapes from and distribution of tapes to AG's third party
vendors and/or customers at the same level provided prior to the
effective date.
SERVICE SCOPE
o Tapes are retrieved, stored and mounted 24 hours a day, 365 days a
year.
o Tapes shipped/received to and from external sources only during normal
business hours, Monday - Friday
o Postage for tapes shipped to external sources is billed separately to
AG. Tapes shipped to non-AMR locations and not returned to the data
center will incur a one time charge per tape for the tape and
associated handling.
o Related tape handling available from TSG at extra cost (generally at
Billable Labor rates) include after-hours / rush tape handling.
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DECISION ENABLING
SERVICE DEFINITION & OBJECTIVE
The Decision Enabling computing system is primarily used for ad-hoc, customer
controlled and generated queries of large amount of data. Service is currently
provided via Teradata computing equipment and includes:
o Provide and maintain operating system software and related software
utilities required by TSG to manage the decision enabling environment.
o Provide and maintain connectivity of systems into the decision
enabling environment.
o Monitor the system operation. Conduct operating system level
performance monitoring and tuning. Analyze system problems, conduct
root cause analysis and implement required fixes. Execute production
batch schedule to load data into the Teradata processing complex.
Monitor execution of batch load according to established priorities.
Report load job status. Recover abended jobs as required.
o Allocate storage space as requested and approved by AG, optimize DASD
storage utilization, analyze allocation of DASD and monitor the DASD
storage system. Restore and reload data as required due to system
error.
SERVICE SCOPE
Related services available at extra cost (generally at Billable Labor rate)
from TSG include :
o Restore and/or reload of data due to AG error
o Query performance tuning and consulting
o Decision enabling processing alternatives consulting
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MAIL DISTRIBUTION SERVICES
SERVICE DEFINITION & OBJECTIVE
o Pick up and deliver commercial print, microfiche, payrolls,
international mail, interoffice mail, tapes, express packages,
supplies and copy paper.
o Mail tapes and commercial print to other airlines, banks, credit card
companies, etc. , as specified by AG.
o Provide mail inserting into envelopes. Process all outbound US and
international mail.
SERVICE SCOPE
Work limited to the Tulsa, Oklahoma site. Delivery time varies according to
schedules published periodically in satellite location mail pick-up facilities;
schedules will be mutually agreed to by TSG and AG. Delivery locations in TUL
include: Administration Building, Automation Shop, CAM Building, corporate
real estate, facilities and maintenance, fleet service, guard gate, hanger
1,2,3,4,5,6, new warehouse, turbine building, airport operations, airport
cargo, airport baggage services, airport aircraft maintenance, airport shop,
archives, composite center, Triad I, Triad II, Sheraton hotel CTO (City Ticket
Office), and US Post Office Northeast Station.
Distribution Services operates 4:00 a.m. - 5:00 p.m. , Monday through Friday.
Weekend Coverage (Saturday- Sunday) is for drop-off of commercial printed
output only, from 6:00 a.m. to 2:30 p.m.
Tapes received by TUL mail room after 2:00 p.m. will be mailed on next business
day. Tape shipments are processed according to instructions unique to each
shipment.
Related services available from TSG at extra cost (SCS Billable Labor rates)
include:
o Labor for special mail handling requested by AG. For example,
delivery of reports to TUL TRIAD location on Friday evenings due to
weekend work schedule for AG.
All postage fees are paid by AG through direct bill.
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CLIENT SERVER SERVICES
SERVICE DEFINITION & OBJECTIVE
Services for Client/Server systems vary according to the location where service
is provided. Pricing of services is generally based on labor hours, but may
vary by the location.
The following describes the general Client/Server services provided by TSG:
o Acquisition, coordination, installation of operating system and 3rd party
software
o Application program installation and/or coordination
o Setup, testing and execution of back-up/recovery plans, and verify
backup/restore
o Disaster recovery planning assistance as requested by AG
o Management of the servers, including home directories and disk space
management
o System capacity planning and performance monitoring
o Maintenance of security and access control, activation and deactivation of
AG and TSG systems access in accordance with established security policies
and procedures
o Enforcement of system access password changes in accordance with
established security polices and procedures
o Coordination and interface with AG's Help Desk service to resolve problems
o Fault isolation and problem analysis/management
o Software/Hardware Change Management coordination
o Development of detailed support documentation
Database management and technical services provided include:
o Database server sizing, planning, and scoping activities
o Installation, maintenance, and upgrades of database and utility software
and tools on production servers
o Configuration of connectivity software
o Coordination with third party support to report and resolve database
problems
o Database performance monitoring and tuning, upgrades, reorganizations, and
related routine maintenance
o Technical consulting for database design, application performance tuning
and other services, as requested by AG
Additional services that will be provided by TSG include (at no additional
charge):
o Maintenance, operation and monitoring of all client server computer system
equipment and peripherals, including CPUs, DASD, tape, and printers
o Monitoring and operation of on-line, batch, and ad hoc query processing
o Scheduling of all program loads and updates prior to implementation in the
production system
o Installation and emergency maintenance and repair services required to
respond to unscheduled downtime
SERVICE SCOPE
DFW location generally provides coverage 5 days per week, Monday through
Friday, 8:30 a.m. to 5:30 p.m. with 7x24 on-call coverage for servers
located in the CP4 computer center, and at customer request. The TUL
data center provides coverage as requested by AG; as of the effective
date, this is 7x24 coverage.
All software to be loaded into TSG systems must comply with the
reasonable standards established by TSG to assure system integrity and
reliability. Standards may include, but not be limited to,
specific code requirements, implementation process, change methodology,
and systems and software documentation.
Client/Server- based system charges are on a cost-plus basis (fully
allocated cost), in accordance with Exhibit C.
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DESCRIPTION OF SERVICES
CONNECTIVITY SYSTEMS
Data Center Services - Page 22
<PAGE> 127
CONNECTIVITY SERVICES
CONNECTIVITY SERVICES FOR VAX 1, VAX 2, VAX 5, AND HCC INCLUDES:
For all VAX and HCC:
o Acquisition, coordination, installation of operating system and 3rd party
software
o Systems management including system monitoring and tuning
o Application program development, testing, and implementation
o Application support and maintenance
o Configuration of connectivity software
o Setup, testing and execution of back-up/recovery plans, and verify backup /
restore
o Disaster recovery planning assistance
o System capacity planning and performance monitoring
o Maintenance of security and access control in accordance with established
security policies and procedures
o Coordination and interface with Help Desk service to resolve problems
o Trouble-shooting and problem analysis / resolution
o Software /hardware change management coordination
o Development of detailed support documentation
ADDITIONALLY, FOR VAX 5 ONLY:
Database management services which include:
o Database server sizing , planning, and scoping activities
o Installation, maintenance, and upgrades of database and utility software
and tools on production servers
o Coordination with third party support to report and resolve database
problems
o Database performance monitoring and tuning, upgrades, reorganizations, and
related routine maintenance
o Technical consulting for database design, application performance tuning
and other services, as requested by AG
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VAX 1
SERVICE DEFINITION & OBJECTIVE
o PCFOS / PCEAAGLE / PCRET / PCRES / PCFRT
Definition: Interface between the Flight Operating System (FOS) host and AA
Flight Crew members, as well as AMR Eagle and its subsidiaries' crew members,
in performing the trip bidding function. PCRET/PCRES provides the interface
between the SABRE host and two other user communities, employee retirees and
current employees. PCFRT provides the interface to Freight SABRE which allows
shippers to create air/way bills locally on a personal computer then, by dialup
service, transmit them to the host.
Objective: Provide terminal services to home-based personal computers(PCs).
Provides an international Dial-up (DUP) interface to the SABRE and FOS hosts.
o Total Access Applications: Direct Connect AIR, Direct Connect Auxiliary,
Multi Access, Direct Access and Weather.
Definition: Interface to external, non-AMR travel service providers for SABRE
and its subscribers.
Objective: Up-to-date booking and reservation information on external travel
service provider inventories of services.
o Credit Card Verify
Definition: Direct interface to Lufthansa, American Express, VISA, and Alaska
Air credit card data bases.
Objective:. To verify credit card status of passengers booking flights in
SABRE.
o InterActive AAdvantage
Definition: Dial-up function allowing Frequent Flyer customers to check their
AAdvantage mileage and process them into Passenger Name Records (PNRs) if they
wish.
Objective: Allow the Frequent Flyer customer to view their AAdvantage mileage
data from the convenience of their personal computer.
SERVICE SCOPE
Related services available from TSG at extra cost (provided to AG at Billable
Labor rates) include:
o Specialized and/or dedicated hardware and software, and/or security
consulting support for new development projects.
o Security controls and design consultation to new software and platform
development efforts.
o Installation, maintenance, and tuning of specialized systems software, at
AG's request, which is not essential to providing a stable, reliable
environment.
o Installation, maintenance and operation of non-standard hardware platforms
or networking products, at AG's request, that are not currently in
operations in the data center, excluding hardware upgrades, retirements,
and sunset procedures.
o If AG requests a level of dedicated support higher than the highest level
previously established, AG will pay an additional charge for this increased
service.
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VAX 2
SERVICE DEFINITION & OBJECTIVE
Definition
A system that integrates all travel related components necessary to provide
customers full-service tours or vacation packages known as Fly AAway
Vacations(FAV).
Objective
To provide a mechanism to sell American Airline seats in conjunction with other
leisure services. To provide pre- arranged tour packages with direct interface
to other travel service providers (i.e. cars and other CRSs).
The functions performed by the hardware and software in VAX 2 supports a base
reservations systems used by AA reservations agents to create FAV bookings. It
is also used for accounting of these bookings as well as providing direct data
interface to SABRE, Hertz, AVIS, and Budget. VAX 2 and VAX 1 work in
conjunction to allow FAV to be accessed by other subscribers. VAX 2 hardware
and software also provide the capability of WORLDSPAN subscribers plus several
European user groups to create FAV bookings. A faxing service is provided to
confirm passenger data with various vendors. A mechanism that will allow FAV
bookings to be performed via the INTERNET is in development as of this writing.
SERVICE SCOPE
Related services available from TSG at extra cost (provided to AG at Billable
Labor rates) include:
o Specialized and/or dedicated hardware and software, and/or security
consulting support for new development projects.
o Security controls and design consultation to new software and platform
development efforts.
o Installation, maintenance, and tuning of specialized systems software, at
AG's request, which is not essential to providing a stable, reliable
environment.
o Installation, maintenance and operation of non-standard hardware platforms
or networking products, at AG's request, that are not currently in
operations in the data center, excluding hardware upgrades, retirements,
and sunset procedures.
o If AG requests a level of dedicated support higher than the highest level
previously established, AG will pay an additional charge for this increased
service.
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VAX 5
SERVICE DEFINITION & OBJECTIVE
ELECTRONIC SPECIFICATION MAINTENANCE:
Definition: This application provides data pertaining to the various American
Airline airplane fleets.
Objective: Support a data base of aircraft fleet data which aids in
maintaining/adhering to FAA policy/procedure standards.
SERVICE SCOPE
Related services available from TSG at extra cost (provided to AG at Billable
Labor rates) include:
o Specialized and/or dedicated hardware and software, and/or security
consulting support for new development projects.
o Security controls and design consultation to new software and platform
development efforts.
o Installation, maintenance, and tuning of specialized systems software, at
AG's request, which is not essential to providing a stable, reliable
environment.
o Installation, maintenance and operation of non-standard hardware platforms
or networking products, at AG's request, that are not currently in
operations in the data center, excluding hardware upgrades, retirements,
and sunset procedures.
o If AG requests a level of dedicated support higher than the highest level
previously established, AG will pay an additional charge for this increased
service.
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HOST COMMUNICATIONS COMPLEX (HCC)
SERVICE DEFINITION & OBJECTIVE
Definition:
Provides a centralized interface environment to manage host-to-host (e.g.
computer system to computer system) communications processing between SABRE and
associated service providers (e.g. hotels, car rentals, and computer
reservation systems). Transmission of data is included as part of Data Network
Services.
Objective:
The HCC environment alleviates the need for customized communications routines
in SABRE applications and can provide a single interface point for access to
SABRE, FOS and other Real-time systems.
The HCC provides message translation and transmission to and from SABRE and the
computer systems of contractual business partners (international and domestic).
SERVICE SCOPE
The HCC does not provide function and/or application processing of the data
that is passed between any of the sending and receiving computer systems,
including those that are the responsibility of The SABRE Group. Related
services available from TSG at extra cost include:
o Specialized and/or dedicated hardware and software, and/or security
consulting support for new development projects.
o Security controls and design consultation to new software and platform
development efforts.
o Installation, maintenance, and tuning of specialized systems software, at
AG's request, which is not essential to providing a stable, reliable
environment.
o Installation, maintenance and operation of non-standard hardware platforms
or networking products, at AG's request, that are not currently in
operations in the data center, excluding hardware upgrades, retirements,
and sunset procedures.
o If AG requests a level of dedicated support higher than the highest level
previously established, AG will pay an additional charge for this increased
service.
TSG will continue to forecast TSG product / service resource usage needs. AG
will inform TSG of any significant changes to the forecast as soon as
practical. If demand from AG exceeds the forecast, TSG will attempt to
accommodate the demand as soon as practical.
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DESCRIPTION OF SERVICES
DISTRIBUTED SYSTEMS AND SERVICES
Distributed Systems and Services - Page 1
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DEVICE SUPPORT SERVICES
SERVICE DEFINITION & OBJECTIVE
Device support services are provided by TSGto facilitate the development
andsupport of corporate standard end user intelligent workstations,non-
intelligent terminals, notebookcomputers, docking stations, printers,and
departmental servers which receivemonthly device support charges. These devices
arelisted in thedatabase of productsmaintained byTSG. Theseservices
areprovided to design,deploy, manage,and maintainend user devicesas well as
related infrastructure components which connect to networks that are supported
by TSG.
In that this service is intended for standard products, the following items
will be supported but billed as part of Billable Labor:
o Support of non-standard hardware, software and non-infrastructure hardware
products
o AG specificsupport functions whichrequire moresophisticated levels of
support thandescribed in thisdescription (PYM/OS/2 skills,SOC/Macintosh
skills)
o Consulting on new technologies
o Infrastructure required for device relocations
o Out of scopemaintenance: includes supportfor devices notcurrently being
chargeddevice support fees;any maintenance providedover and abovein- scope
maintenance (see the following pages)
Travel expenses for supportingremote AG customersat locationswhere there isnot
adomiciled technician arenot includedin thedevice support rate,and are
billableto the end userstation/branch. Anychanges to DeviceSupport Services or
priceimpacts ofsuch changes must bemutually agreed uponby AG and TSG.
SERVICE SCOPE
Device Support of AG owned end user workstations includes the support and
maintenance of the LAN and desktop hardware. Device Support of AG owned, end
user workstations includes the acquisition, installation, and support of the
corporate operating system (currently NetWare for LANs and Windows for desktop
workstations - includes virus detection software), the corporate advanced
office systems platform (currently InterAAct, including Word, Excel, Access,
Paradox, Powerpoint, Project, LAN Workgroup, SequeLink and ABC FlowCharter),
SABRE and Commercial Host Connectivity (currently via SABREView and Eicon
respectively, and LAN infrastructure connectivity, along with providing LAN
software access, data security, and fileserver virus detection. Note some of
the software listed are 'additional cost options' for which a one-time license
charge is assessed. These include ABC FlowCharter, Powerpoint, Project, LAN
Workgroup and SequelLink. There are no additional monthly charges for these
products. Large increases in application Help Desk calls will trigger
renegotiation, unless such increase is temporary in nature and / or associated
with a hardware / software upgrade. The types of services provided range
widely from technology planning to operations support. Detailed services are
as follows:
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PLANNING
o Evaluate and recommend technology standards, processes, and procedures for
operationally critical and administrative environments (including LANs and
desktop devices).
o Project Management
o Determine Workload Requirements
o Evaluate Project Costs
o Form Project Team
o Initiate, Define and Construct Project
o Negotiate Project Timing & Workload
o Track Project and Issue Updates to AG
o Define Project Deliverables and Completion Criteria
o Providing Local Area Network configuration management
o Infrastructure capacity planning, engineering, design, and documentation
o Testing of infrastructure cabling and components
o Providing administrative support of LAN growth
o Developing environment specific SABRE views (emulators)
o Developing and implementing widely applicable end user business solutions
o Manage any Subcontractor Relationships
o Post Project review
o Planning and monitoring the acquisition and warehousing of equipment
inventory
o Coordination of training on use of the corporate standard advanced office
platform.
o Administration
o Scheduling
o Consulting
o Additional charges will be assessed for AG requested, third party reference
materials, product documentation, user manuals and the like. As in the
past, TSG will provide (without additional charge), TSG authored reference
materials which document product features and describe use of third party
products.
o Planning corporate-wide new software releases for standard software
o Managing relationships with third party hardware and software vendors
o Providing and maintaining technical documentation for technical support
staff
o Providing AG service account management
o Assisting AG with cost quotation
o Assist Sales and Product Managers with demonstrations of products
o Marketing of SCS Products and Services
STANDARD PRODUCT INTEGRATION
o Testing of new releases or upgrades to corporate standard software
applications for successful integration into the end user's device and
environment type.
o Testing of new or upgraded corporate standard hardware devices for
successful integration into the end user's environment type.
o Certify that products which attach to networks managed and supported by TSG
will work as required.
MAINTENANCE SERVICES
o Providing Vendor Management and Contract Administration for third party
maintenance providers of corporate standard hardware and software
o Monitoring the performance of maintenance vendors, and resolving associated
problems
o Virus detection / elimination to the extent provided prior to the effective
date.
Maintenance services are available in three categories:
(Normal)
5 days per week, 12 hours per day, corresponding to normal business hours from
7 am to 7 pm, this is currently the standard provision.
(Premium)
7 days per week, 18 hours per day; examples of Premium support are DFW, ORD,
MIA, JFK & LAX (included in standard Device Support rates). Additional sites
can be included in this service offering at additional cost.
(Critical)
7 days per week, 24 hours per day, currently in place at SOC & domestic
reservation centers. Additional sites can be included in this service offering
at extra cost.
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HELP DESK SERVICES
o Providing Help Desk Support for resolution of AG hardware and software
problems
o Respond to AG "how-to" questions regarding the standard software suite
o Creating, tracking and managing trouble tickets and escalating them to
technical support and engineering as required.
These services are available to AG customers worldwide, 7 days a week, 24 hours
a day, for corporate standard hardware and software products.
SITE SUPPORT / OPERATIONS
o Maintaining Asset Inventories
o Monitoring and ensuring Local Area Network / Environment availability
o Providing data center support for fileservers and gateways, for those
located in TSG data centers. Providing centralized monitoring for remote
systems and intelligent devices which have visibility to the monitoring
systems
o Performing backup services for SCS supported infrastructure Fileservers
where an appropriate backup device/solution has been acquired by AG.
o Providing software license administration for standard products.
o Balancing system loads.
o Performing on-site technical troubleshooting and problem resolution, or
managing third party vendor resolution.
END USER NON-COMPLIANCE
Correction of the following will be billed at applicable Billable Labor rates:
o Address problems which occur as a direct result of an end user not
complying with the corporate standard hardware and software products
o Support of trouble calls arising from the end-user attaching non-supported
products to the LAN
o AG moving, installing, changing or de-installing their own devices and
calling SCS for the connection or to correct improper work
o Misuse, abuse or damage to the equipment caused by the customer or
accidental damage (sprinkler systems discharge).
TSG acknowledges that many AG users have non-standard hardware and software and
will not bill AG any extra charge as a result of the non-standard
software/hardware for the rollout of the next generations of corporate standard
hardware and software.
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MOVES / INSTALLS
SERVICE DEFINITION & OBJECTIVE
Moves / Installs consists of moves, changes, deinstalls, upgrades, and installs
of AG owned equipment.
The service does not include site preparation of walls, doors, flooring
or similar facilities related items. Typically services start with
notification from AG (typically Corporate Real Estate) to The SABRE Group
that the site is ready. This notification includes assurance that all local
permits and the like have been received from local authorities such as airport
boards.
Related services supporting infrastructure development (cabling, and
network access components such as routers or switches) or custom application
requirements (such as a cargo or curbside location) are billed on a project
related time and material basis as described in the Billable Labor product.
Software loads of other than corporate standard advanced office operating
software is also billed on a time and material basis.
Devices to be attached to a network must be in the product database
currently approved products section (mutually determined by AG and TSG).
If devices are not on this list, activities will be billed as a project on
a time and materials basis.
Infrastructure cabling (inside walls/under floor) is covered under device
support for standard devices and under Billable Labor (time & materials) on a
project basis for non standard implementations.
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<PAGE> 137
SERVICE SCOPE
EQUIPMENT INSTALLATION consists of adding a workstation, printer, or
departmental file server and is billed per installation. Installation increases
AG's equipment inventory count and requires a funding document for acquisition
of the equipment. Pre-delivery activities performed for an install are; AG
consulting, site surveys, ordering circuits and addresses for network
connection, cost quotation assistance, vendor coordination, premise engineering
design review, equipment order coordination and tracking, equipment receiving
coordination and bill of materials verification, project coordination with
Corporate Real Estate, cabling (from device to wall outlet in office), and
confirm site ready for install; Delivery activities of: unbox and setup of
equipment, wiring connections, out of box failure resolution, configuration of
equipment, loading of standard InterAAct/e-mail operating software, test the
equipment and peripheral devices (printers), troubleshooting of equipment,
asset tagging the equipment, clean up of install area, advise AG in operational
use and addresses; Post-delivery activities of: coordinate AG acceptance,
update billing records, and complete asset management documentation.
EQUIPMENT MOVE consists of relocating an existing device and is billed per
move. A move does not affect AG equipment inventory count and thus usually
does not require a funding document for acquisition of equipment. Services
performed for a move are; Pre-delivery activities of: AG consulting, site
surveys, ordering circuits and addresses for network connection , cost
quotation assistance, vendor coordination, premise engineering design review,
project coordination with Corporate Real Estate, cabling (from device to wall
outlet in office), and confirm site ready for the move; Delivery activities of:
disconnect equipment and inside cabling, secure equipment for transport,
relocate device, unbox and setup of equipment, wiring connections,
reinitialize and configure equipment, test the equipment and peripheral devices
(printers), post-installation functional testing of standard software
applications (Windows, DOS, InterAAct, e-mail), asset tag the equipment, clean
up of move area, advise AG in operational use and addresses; Post-delivery
activities of: coordinate AG acceptance, update billing records, and complete
asset management documentation.
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SERVICE SCOPE CONT'D
EQUIPMENT CHANGE modifies a device s components and is billed per change. A
change does not alter AG equipment inventory count but may require a funding
document for acquisition of component parts. Activities performed for a change
are; Pre-delivery activities of: AG consulting, site surveys, ordering
addresses for network connection, cost quotation assistance, premise
engineering design review, equipment order coordination and tracking, equipment
receiving coordination and bill of materials verification, cabling (from device
to wall outlet in office), and confirm site ready for change; Delivery
activities of: unbox, setup, and installation of component, wiring connections,
out of box failure resolution, configuration of equipment, test the equipment
and peripheral devices, troubleshooting of equipment, clean up of install area,
advise AG in operational use and addresses; Post-delivery activities of:
coordinate AG acceptance, update billing records, and complete asset management
documentation. Note: an equipment change is any change to an existing device -
a swap out of one device for another is considered an upgrade as defined below.
EQUIPMENT UPGRADE consists of replacing (swapping out) one device for another
device of greater capability and is billed per upgrade. An upgrade does not
alter AG s equipment inventory count but does require a funding document for
the new device. Activities performed for an upgrade are; Pre-delivery
activities of: AG consulting, site surveys, cost quotation assistance, premise
engineering design review, equipment order coordination and tracking, equipment
receiving coordination and bill of materials verification, cabling (from device
to wall outlet in office), and confirm site ready for install; Delivery
activities of: disconnect existing equipment, box existing equipment, label box
of existing equipment, unbox and setup new equipment, wiring connections, out
of box failure resolution, configuration of equipment, transfer of existing
standard InterAAct/e-mail operating software, test the equipment and peripheral
devices (printers), troubleshooting of equipment, asset tagging the equipment,
clean up of install area, advise AG in operational use and addresses;
Post-delivery activities of: coordinate AG acceptance, arrange shipping of old
equipment, update billing records, and complete asset management documentation.
EQUIPMENT DEINSTALLATION consists of removing (deinstalling) an existing device
and is billed per deinstallation. A deinstallation reduces AG s equipment
inventory count and does not require a funding document. Services performed for
a move are; Pre-delivery activities of: AG consulting, vendor coordination,
confirm site ready for the deinstall; Delivery activities of: disconnect
equipment and inside cabling, secure equipment for transport, box equipment,
label boxes for shipment, arrange for transport of equipment, clean up of move
area; Post-delivery activities of: ship equipment, delete circuits and
addresses, update billing records, and complete asset management documentation.
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INTEGRATION SERVICES
SERVICE DEFINITION & OBJECTIVE
Integration Service provides required integration testing and consulting
services which use reasonable efforts to validate that all components of the
distributed, networked environment - hardware and software - work together on
desktops and networks managed by TSG. Integration testing reduces the
potential for lost productivity due to incompatibilities among system
components for a successful implementation into a production environment.
Integration services is a consulting and project driven product, therefore,
each project is negotiated with AG as to timing, cost and deliverables.
SERVICE SCOPE
Integration Services conducts testing in the integration lab which is equipped
to simulate typical user environments such as reservations, maintenance and
engineering, airports, etc. These 'standard platforms' are used to test new
applications, although configurations can be customized. AG & TSG development
groups can preview how products will work in the targeted environment.
Operational and performance issues can be isolated without impacting the end
user community, and effects on the LAN can be monitored.
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INFORMATION DISPLAY SYSTEMS SUPPORT
SERVICE DEFINITION & OBJECTIVE
Information display systems are inherently project driven thus TSG performs
installation project management, site surveys, hardware moves, changes,
upgrades, installation and removals for all American Airlines' FIDS systems;
such as SPECTRDYNE FIDS, TELEX PC FIDS, ITS FIDS, INFAX MINI FIDS, FIDS II,
FIDS Lite, Franitte Packard and INFAX Ramp Signs (RIDS), VICON and American
Dynamics CCTV systems in all locations. Provide technical support to 3rd party
maintenance vendors worldwide to identify and resolve critical hardware
maintenance problems.
SERVICE SCOPE
Perform project management and site surveys -- from the initial site visit to
developing exact equipment and material orders required to complete project.
Moves -- relocation of existing FIDS systems including intelligent work
station, distribution hardware and FIDS monitors. Changes and upgrades -- to
AG provided system and application software; intelligent work stations;
distribution hardware and infrastructure; and FIDS monitors. Installs -- from
the install of a complete FIDS system including AG provided system and
application software and hardware; intelligent work stations; distribution
infrastructure; all cabling termination and FIDS monitors equipment maintenance
is based on available sparing from supplier. Removals -- including from the
removal of a complete FIDS system to the removal of a single component of a
FIDS system. Site ready notification is required from AG (typically via
corporate real estate or local airport authority). Cable and cable
installation are not included under the Billable Labor portion of this product.
Rather this is part of the infrastructure capital spending that is allocated as
part of the funding process. AG is responsible for sparing, TSG will provide
interface to 3rd parties to facilitate acquisition and use of spare equipment.
SERVICE EXCLUSION(S)
Excludes spine road signs at DFW Airport & cable television
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INTERNET ACCESS SERVICES
SERVICE DEFINITION & OBJECTIVE
Provides Internet protocol based network access to the most common,
business-oriented Internet information services for active AMR/AA employee
desktop (work location) workstations. As of second quarter 1996, these
services include World Wide Web browsing, Gopher, Anonymous FTP, Anonymous
Telnet, Secure HTTP/SSL, and Usenet news subscriptions/posting. Internet
Services is not an e-mail service or e-mail address. Internet Services does
not provide workstations, client software or communications protocols (TCP/IP,
WINSOCK.DLLs, etc.) or provide direct end-user support for these software
categories. It does include servers associated with functions described above.
Internet Services is currently not available for remote/dial-up connections or
any TCP/IP configurations which allocate workstation addresses in a random
fashion. Internet Services proxy servers and Internet connection infrastructure
is located in a secure computing facility with seven days a week, 24 hours a
day coverage. Proxy servers and Internet communications circuits are monitored
regularly. TSG adds additional capacity based on usage patterns and demand,
which is funded as part of the product cost. Provide proxy and firewall
connection services that facilitate the use of Internet information application
software.
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DOMESTIC RESERVATIONS SUPPORT
SERVICE DEFINITION & OBJECTIVE:
Support of AG owned ACD/Voice services for the Reservations Offices located in
Dallas, Texas (SRO), Hartford, Conn. (ERO), Cincinnati, Ohio (CRO), Tucson,
Arizona (SWRO), Raleigh, NC (SERO), San Antonio, TX (SATRO). This includes
providing all Domestic Reservations support services performed historically by
TSG. These services, some of which are broadly described below, will continue
to be provided at the established costs within the scope of AG's agreement and
TSG will continue past practices.
o Maintain ACD equipment and connected hardware (e.g., ACD Master CRT, mirrored
masters, remote mirrored CRTs, ACD RO CRTs, ACD printer, Hot Line, ACD
Supervisor pads, Agent monitoring equipment, Agent pads).
o Maintain the ACD Calls processing system, agent data, reports processor,
in/outbound ACD trunks, and PBX systems, and support incidents resulting
from ACD software problems.
o Support AG in resolving and/or dispatching the vendor on EMPS printer/CRT/
processor, Call Management System, Handicapped System, AutoTA, IDS, and back
up unit at all Reservations Offices, and VRU problems at the SRO and SWRO.
o Perform moves, changes, deinstalls, upgrades and installs of all ACD
associated/related hardware and software.
o Support field installation of ACD features, model changes and engineering
changes.
o Retain ACD Call Report Detail information and ACD monthly summary
information.
o Support data requests (e.g., RIS data, Print Call Log data)
o Support TOPMS requests on the FPDL link.
Support the following services according to 24-hours a day, 7-days a week
standard for offices listed above.
o At all Reservations Offices, provide facility assistance for third party
contractors for the environmental systems which support the communications
center computer equipment. Environmental systems include power, air
handlers, air conditioners, UPS, water sensor system, fire and smoke alarm
systems, and humidifiers. At the CRO and ERO, also schedule and coordinate
maintenance for UPS and emergency generators.
o Provide ACD technical support which includes the following support
parameters:
o Provide ACD certified technicians at each of these 6 locations during peak
periods (0800 and 1630 local time) Monday through Friday, except holidays.
o Provide additional coverage by ACD certified technicians during non peak
hours at AG's request due to periods of abnormally high activity (e.g.,
farewars, etc.) upon reasonable advance notice.
o Support PBX systems at the ERO, SERO, SWRO & SATRO, and maintain PBX
stations at all RO sites.
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SERVICE DEFINITION & OBJECTIVE (CONT'D)
Below are examples of additional services and functions that have historically
been performed by TSG in connection with its comprehensive Domestic
Reservations support service offering. Such services (consulting, management,
& support services described below) will continue to be provided within the
scope of the Agreement until TSG and AG mutually agree to adjust accordingly:
o Respond to service incidents due to Reservations' modifications of the
software, or service incidents due to any non ACD software programs.
o Repair or replace parts for equipment that is damaged unintentionally (parts
provided at AG expense).
o Provide additional support for client based applications (e.g., QIK-Res,
Prism, and tape backup/recovery).
o Support PBX hardware/software, which includes resolving hardware problems,
providing for installations, moves, adds and changes, enhancing software, and
dispatching and tracking vendors.
o Clean workstations (e.g., IWSs) and printers, including preventive
maintenance, re-seating of boards, and LCS as time permits.
o Download ACD daily system and agent summary data to records system and
perform special system recoveries.
o Provide technical assistance for PC hardware and software, ACD network, 800
network, overflow & diversion routing, inventory orders, new equipment, and
equipment changes.
o Repair or replace agent consoles (currently Rockwell equipment).
o Refurbish ACD channel bank (e.g., repairing or replacing faulty encoder,
decoder, TX/RX logic, power supplies and alignment of LTMs) and other ACD
components.
o Support Travel Center Cluster Office in Carrollton, TX, which includes
support and maintenance of all remote ACD and console equipment,
hardware/software infrastructure to off-premise cluster facilities, and
QIK-Res updates.
o Support environmental and facilities systems, including performing daily and
periodic system checks, monitoring and responding to alarm conditions,
overseeing vendor repair assistance, and performing power shutdowns.
o Install and maintain systems designed for the Handicapped (e.g., TDD Hearing
Impaired).
o Maintain ATV machines, which includes providing resolution of problems or
dispatching the vendor.
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ELECTRONIC MAIL
SERVICE DEFINITION & OBJECTIVE
TSG will provide AG with the corporate standard in electronic mail (currently
Novell GroupWise). This current service provides a comprehensive e-mail system
with fully integrated, time-management capabilities and includes corporate
forms access. TSG will provide standard e-mail to the following platforms at
AMR: networked Windows (e.g., InterAAct); networked Macintosh; modem connected
Windows or Macintosh (via remote GroupWise client). In addition, mail transfer
from the corporate standard platform and other compatible AMR e-mail systems
will be provided. Users of all other e- mail products which migrate to the
corporate standard e-mail system will incur a one-time license fee as well as
an activation fee, followed by a monthly charge. The activation fee will only
be assessed the first time a site is upgraded, if at least 80% of the users at
that location are activated during that initial activation. Incremental users
at an existing site will not be assessed an install fee, however they will
incur a one time license fee.
SERVICE SCOPE
Features provided in the current e-mail product include the following e-mail
functionality:
o Send, receive, forward, edit, reply, file and delete messages
o Send and receive file attachments within the corporate standard electronic
mail system
o Carbon copy and blind copy messages
o Create, store and use distribution lists
o Flag messages according to priority (high, medium, low)
o Utilize user-based security (password; private)
o Server specific proxy rights
o Track message status (e.g. open, read, deleted, etc.)
o Utilize calendar functions
o Archiving facility (saving messages to local hard drive)
o Outbound fax (low volume output - i.e., not "blast faxes" to large groups)
o Remote capability
o Word processing-type capabilities (e.g. spell check, thesaurus, word wrap)
o Discussion groups (bulletin board)
o Scheduling (including resources / e.g. conference rooms)
o On-line documentation (e.g. Help)
o Provide a standard set of user-friendly Rules to perform functions
automatically
o Macro language capability to launch applications
o Automatic deletion of messages from servers (60 days old) - any changes in
retention policy must first be approved by AG's CIO
o Send/Receive of Internet e-mail messages
o Directory Management / synchronization
o AG and TSG will negotiate how and at what cost (if any) to provide visiting
user access to the visitor's home mail box
TSG will include future upgrades (including additional functionality, if any)
provided by third party vendors. Optional functionality, available at extra
cost to TSG, will be provided to AG at an additional cost.
SERVICE EXCLUSION(S)
Due to continuing migration from HPDESK to the corporate standard e-mail system
a specific service description of HP Desk has not been included although
similar services to those listed above will continue to be provided while users
are being converted to the corporate standard e-mail product. Similarly, AG
utilizes many other non-standard e-mail products (Lotus Notes, PROFS, etc.)
which have not been detailed here.
Distributed Systems and Services - Page 13
<PAGE> 145
X.400
SERVICE DEFINITION & OBJECTIVE
TSG will provide a corporate standard e-mail interface service via the X.400
messaging system. This messaging system allows for the delivery of electronic
communication between intra-corporate and external messaging systems. All
electronic mail traversing the X.400 is commonly known as external e-mail
(i.e., external to AG's corporate standard e- mail system).
External e-mail uses the X.400 messaging protocol that can act as a link
between AG's standard e-mail system and other electronic mail systems worldwide
(whether within AMR or external to AMR).
In addition to a monthly charge for intra-company X.400 services, AG is charged
a usage fee (charge per kilo-character) for each message sent via the X.400
gateway external to AMR. Note that external e-mail can be sent via the
Internet without this additional charge however, there are security and
functionality constraints that should be considered. In addition, any charges
incurred by TSG due to AG requesting connectivity to additional third party
providers or use of third party devices (such as gateways) will be passed
through to the requesting customer.
SERVICE SCOPE
X.400 allows the following functionality:
o Allows for communication with internal and external e-mail systems.
o Send, receive, forward, reply to messages across the X.400.
o File attachments can be included in most messages.
o Carbon copy and blind copy recipients are processed by X.400.
o Distribution lists are retained from one system to another.
o Messages can be prioritized to three levels of transmission.
o Security during message transmission.
o Message failure transmission notification sent to sending user.
o Tracking status of messages available on send.
o Audit tracking available for message flow.
o Messages are resubmitted if receiving messaging system does not accept
messages.
o X.400 provides a means for intra-corporate messaging systems to share user
directories.
Distributed Systems and Services - Page 14
<PAGE> 146
CAMPUS TELEPHONE SYSTEM
SERVICE DEFINITION & OBJECTIVE
The Campus Telephone System (CTS) provides inter- and intra-office business
telephone service for tenants of the buildings on the AMR HDQ Campus at Fort
Worth and Tulsa. Included is the management of voice terminal, processing,
switching equipment, third party and customer owned telephone systems and
equipment at the campus sites. Voice equipment includes PBX, Centrex systems,
ACDs, key telephone systems and telephone instruments. Installation of
telephone circuit, telephone programming, telephone numbers, lines, telephone
sets, are included in TSG Campus Telephone System product (HDQ, Tulsa).
Tenants include, but are not limited to the employees of AMR, American
Airlines, Inc., The SABRE Group, AMR Services, Data Management Services, and
AMR Eagle and its subsidiaries. Included are operator services, consulting on
best use of telephone systems and billing analysis.
The Campus Telephone System (CTS) provides installation service, on-campus
relocation service software modification service and consulting services.
The CTS will bill the user for the replacement cost of stolen equipment, or the
repair cost for equipment damaged by misuse, loss or abuse.
Training for other services other than Multiline Telephones is done upon a time
and materials basis. ACD MIS service, equipment and training are provided and
supported at additional cost.
Any work done after hours, or on an AMR holiday will be subject to special
rates. CTS Supplemental Service will provide consulting service on a time and
material basis.
CTS includes interfaces to TSG supplied long distance service and voice mail
products.
CTS personnel are not responsible for facilities modifications, electrical work
and/or furniture relocation.
Distributed Systems and Services - Page 15
<PAGE> 147
SERVICE SCOPE
In the HDQ campus, service is defined by the Plexar Tariff acquired from
Southwestern Bell Telephone.
At the Tulsa campus, service is defined by the Meridian PBX product
description. Both of these documents/service descriptions are available for
review.
<PAGE> 148
DESCRIPTION OF SERVICES
NETWORK SERVICES
Network Services - Page 1
<PAGE> 149
SABREnet
SERVICE DEFINITION & OBJECTIVE
SABREnet is a data network product provided by The SABRE Group. SABREnet
allows users to transmit data information from the originating location to
anywhere the network goes. Examples of everyday traffic include flight
bookings, E-mail, FOS information, and commercial and host product use.
SABREnet provides a means of transmitting data information across the United
States, Canada, and parts of the Caribbean. SABREnet extends up to the
DSU/modem or WAN router at AG site; any equipment or service beyond this point
is not part of the SABREnet offering. On the host side, the network extends up
to the connection point into the front-end processors. SABREnet solutions
include business planning, network planning, engineering, capacity planning,
contract negotiation, provisioning, implementation, operation, maintenance,
reporting, billing, analysis, and other miscellaneous management services.
The Dial Services product includes two distinct offerings. Point to Point
Protocol (PPP) Dial provides remote access into Internet Protocol (IP) hosts;
these are typically LAN-based client/server applications. X.28 Dial provides
remote access into X.25 hosts such as SABRE and Commercial. Both dial
offerings are supported at access speeds up to 28.8 kbps, or through ISDN
access, up to 128 kbps. Dial services are provided predominantly through
CompuServe, SABREnet and SITA.
SERVICE SCOPE
SABREnet provides both low speed dedicated access at 9.6 kbps and high speed
dedicated access at rates of 56 kbps and above. In the United States this
service is provided over digital access circuits; outside the US, service is
provided via both analog and digital circuits. For both low speed and high
speed access, equipment may be placed at AG sites to support highly
concentrated locations such as airports. For critical locations, network
availability is provided via either dial back-up or fully redundant and
diversely routed dedicated connections into the network. SABREnet also
provides connections to external networks through internationally recognized
X.25 and X.75 gateway protocols. This service is arranged either to support a
specific AG requirement or to provide general SABREnet public access to
external networks. SABREnet also supports inter-networking services to meet
client/server and LAN-to-LAN application requirements by placing a wide-area
network (WAN) router at AG location.
SABREnet & Dial Services are available 24 hours a day, 7 days a week.
Network Services - Page 2
<PAGE> 150
INTERNATIONAL MANAGED NETWORK SERVICES (IMNS)
SERVICE DEFINITION & OBJECTIVE
International Managed Network Services (IMNS) includes the services and
products procured under telecommunications service agreements with the
providers of international data networks. The objective of IMNS is to provide
customers with a global data network facilitating real-time data transfer
between international locations and the SABREnet gateway or other international
locations. IMNS solutions include business planning, network planning,
engineering, capacity planning, contract negotiation, provisioning,
implementation, operation, maintenance, reporting, billing and analysis.
Non-real-time messaging services such as store and forward and Common User
Terminal Emulation (CUTE) are not part of this product, but are within the
scope of other TSG services. Other products provide end-user equipment like
PCs or SABREnet equipment (beginning with the gateways) or international
routers.
SERVICE SCOPE
IMNS provides X.25/AX.25 and Frame Relay in support of query-response
transactions, file transfer, LAN interconnection and imaging to international
AG locations.
The International Managed Data Networks are available 24 hours a day, 7 days a
week.
Network Services - Page 3
<PAGE> 151
CUSTOM DATA NETWORKS
Service Definition & Objective
Custom Data Networks are those data networks created when the business
requirements or data characteristics of a customer do not lend themselves to
routine network management, maintenance and/or infrastructure support. The
objective of the Custom Data Networks product is to provide data networking
solutions not available through offerings by SABREnet or International Managed
Networks. Custom solutions include business planning, network planning,
engineering, capacity planning, contract negotiation, provisioning,
implementation, operation, maintenance, reporting, billing and analysis.
Custom Data Networks do not include end-user equipment such as PCs, SABRE host
equipment (beginning with the front end processor) or routers.
SERVICE SCOPE
Components of the Custom Data Networks currently include:
o Store and forward message service that facilitates worldwide
communications for interline, intraline and industry correspondent
traffic. Typical interline and intraline messages contain information
on flight safety, inventory update, aircraft movement, lost baggage
and ticket sales. The most common industry correspondent messages
contain order entry, invoice, shipment movement, customs documents or
hotel confirmation information.
o Commercial data circuits which are point-to-point circuits providing
administrative connectivity from the HDQ campus and field locations to
the commercial host systems.
o Caribbean access circuits for regional airline locations requiring
access to the Tulsa host. As SABREnet nodes are not located
throughout the Caribbean, long-haul circuits are required to carry
data traffic to the nearest SABREnet or Custom entry point.
o Direct links which are used for certain specialized locations
supporting specific airline programs which require connectivity to the
network via dedicated circuits.
o Dial access which provides airline employees the functionality needed
to connect to the SABRE host from a PC via dial-up connection to
SABREnet.
o Dial back-up which provides back-up connectivity for certain custom
locations.
The Custom Data Networks are available 24 hours a day, 7 days a week.
Network Services - Page 4
<PAGE> 152
RADIO SERVICES
SERVICE DEFINITION & OBJECTIVE
Radio Services are provided through the following products:
1. Air/Ground Radio Services - radio frequency voice and data
communications between aircraft and AG-specified points on the ground, as
required by the Federal Aviation Administration.
2. Land Mobile (Business) Radio Services - radio frequency voice and data
communications between AG's specified points on the ground, typically
intra-airport communication.
3. Management, Engineering, and Consulting services as provided below:
SERVICE SCOPE
Radio Services supports the AMR Airline Group (AG) except AMR Eagle and its
subsidiaries. Radio Services include:
o Engineering, coordinating, provisioning and managing voice and data
communications and infrastructure maintenance services obtained
through multiple third party service providers,
o Strategic planning and participation in new technology development and
implementation,
o Cost control and budget management for all radio operating expenses,
o Appropriate hardware and equipment acquisition for a variety of radio
systems,
o Participating in contract negotiations and signing as authorized AA
representatives,
o Support for AA-owned Lima HF Radio (Air to Ground HF Radio),
o Maintenance and service contracts for over 10,000 ground radios (Land
Mobile Business Radio)
o Managing and coordinating deployment of emergency communication
equipment,
o Coordinating license acquisition and renewals (includes AA Jet Fleet),
o Editorial support for AA Flight Operating Manual,
o Representing AA at specified industry forums and user groups.
Radio Services are available 24 hours a day 7 days a week. Radio Service Staff
is available Mondays through Fridays, 8:00 am to 4:30 pm Central Standard Time
and available 24 hours a day 7 days a week via SOC RMOD emergency contact list
Network Services - Page 5
<PAGE> 153
DOMESTIC RESERVATIONS INBOUND
SERVICE DEFINITION & OBJECTIVE
Provide inbound voice communications services for AG domestic reservations.
Services include engineering, provisioning, operations, planning and
management. These services primarily consist of the toll-free ("800") networks
used by AG's customers. To reliably deliver these calls, TSG also maintains
access and rerouting facilities and manages network call routing controls (800
Decision Tree Support).
SERVICE SCOPE
The service includes:
o Engineering includes the application of technology in response to
customer's needs.
o Provisioning includes all aspects of ordering, delivering and testing
services.
o Operations includes maintenance of the network using reasonable
efforts to optimize network reliability, including traffic engineering
and problem resolution.
o Planning is the proactive analysis and communication of changes in
related technology, marketplaces and regulatory treatments.
o Management is the administration of the service, including tariff
analysis, contract management and vendor coordination. Third party
contract renegotiation is included in the base fee, with sharing of
renegotiated benefits as specified in this Agreement.
Network Services - Page 6
<PAGE> 154
CORPORATE INBOUND
SERVICE DEFINITION & OBJECTIVE
Complete inbound voice communications services for the Airline Group
organizations (excluding "Domestic Reservations Inbound" a separate product).
Services include engineering, provisioning, operations, planning and
management. These services primarily consist of the toll-free ("800") networks
used by AG other than domestic reservations inbound. To deliver these calls,
SCS also maintains access and rerouting facilities and manages network call
routing controls.
SERVICE SCOPE
The service includes:
o Engineering includes the application of technology in response to
customer's needs.
o Provisioning includes all aspects of ordering, delivering and testing
services.
o Operations includes maintenance of the network using reasonable
efforts to optimize network reliability, including traffic engineering
and problem resolution.
o Planning is the proactive analysis and communication of changes in
related technology, marketplaces and regulatory treatments.
o Management is the administration of the service, including tariff
analysis, contract management and vendor coordination. Third party
contract renegotiation is included in the base fee, with sharing of
renegotiated benefits as specified in this Agreement.
Network Services - Page 7
<PAGE> 155
ICS (Inter City System)
SERVICE DEFINITION & OBJECTIVE
ICS (Inter City System) is the administrative and operations long distance
telephone system for AG. ICS provides all long distance telephone calling from
domestic AG locations and uses a system of authorization codes to control and
account for calls to non-AG locations. A standard seven digit dialplan
simplifies calling most AG locations domestically and internationally. AG
Blue Card (Telephone Calling Card) allows domestic and international calls from
non AG locations.
SERVICE SCOPE
ICS supports all business units of AG. Service is provided to all domestic AG
locations down to and including individual home based workers. ICS is being
extended to selected international locations as resources permit. Weekly
analysis of authorization code usage for unusual, excessive, or abusive calling
patterns is provided. Details of calls made by each user of an authorization
code are made available monthly.
Limited service at international locations is included where feasible under
local conditions. The list attached shows current locations served.
Additional locations will be added as resources and international rules permit.
Call tracing, special call detail reports and specialized requests for
traffic/tariff analysis are available at extra cost (generally at SCS Billable
Labor rates).
ICS service is available 24 hours a day, 7 days a week.
It is AG's responsibility to provide telephone terminal equipment (excluding
HDQ and Tulsa campuses), and provide in- house cable to the ICS network point
of connection. In any case where AG implements telephone system changes
without TSG involvement, AG must advise the local telephone company of the
primary inter-exchange carrier selection, and provide any related telephone
numbers to TSG. Where TSG implements telephone system changes, these functions
will be provided.
International locations served as of July, 1996
Antigua
Argentina
Aruba
Anguilla
Belgium
Curacao
Dominica
France
Germany
Grenada
Guadeloupe
Haiti
Italy
Martinique
Nevis
Scotland
Spain
St. Kitts
St. Lucia
St. Maarten (Dutch)
St. Maarten (French)
Sweden
Switzerland
Turks/Caicos
United Kingdom
Network Services - Page 8
<PAGE> 156
DOMESTIC / INTERNATIONAL TELEPHONE SUPPORT
SERVICE DEFINITION & OBJECTIVE
TSG provides cost-effective telephone system planning, design, consulting,
engineering, implementation, and support services for AG (except AMR Eagle and
its subsidiaries) domestically and internationally. TSG recommends telephone
system modifications based on changing AG requirements. TSG negotiates third
party service contracts such as rate stabilization contracts, maintenance
contracts and local trunking contracts for AG.
SERVICE SCOPE
This service (domestic and international) supports AG, except AMR Eagle and its
subsidiaries, which has its own communications staff.
o Consulting activities: Conduct project feasibility studies; prepare
proposals and cost quotations; develop and coordinate request for
proposal / information documents; evaluate technical and financial
aspects of new technology opportunities.
o Engineering activities: Review and plan equipment design requirements
for office expansions, upgrades, relocation's and startups; Analyze
existing and new trunking requirements; Identify suppliers and
participate in/lead negotiations for Hardware/Software, network
services and equipment maintenance contracts; oversee project
management.
o Support activities: Manages equipment/service implementation. Provide
on-site equipment installation and troubleshooting services, and
coordinate local circuit provisioning requirements.
o Audit Service: For domestic locations and on a case by case basis for
international locations, arranges for review of local communications
bills on AG or TSG initiative, and makes service change
recommendations to reduce costs.
o Equipment provisioning services are provided as far as legally allowed
by government regulatory guidelines that prohibit third party vendors,
such as TSG, from ordering equipment on behalf of the actual purchaser
/ benefactor / payee party, such as AG.
o Billing validations services are not provided in cases where the large
number of telephone service providers utilized internationally for
local, intra-country and long distance services makes the validation
effort prohibitively complex.
o Services not included but available under special arrangements are:
Public address systems and wireless PBX systems.
Network Services - Page 9
<PAGE> 157
VIDEO CONFERENCING
SERVICE DEFINITION & OBJECTIVE
Provides users with meeting rooms equipped with Video Conferencing Systems.
Systems are capable of connecting to other AMR locations and external (other
companies) systems throughout the world. Rooms are near strategic locations
which represent high concentration of employees. Room scheduling, management,
trouble reporting and maintenance are included in the Video Conferencing
Service.
SERVICE SCOPE
Video Conferencing currently provides service availability for AG at the
following locations: HDQ CPII, HDQ CPIV, HDQ CPV, and Tulsa TRIAD. The Video
Conferencing staff provides a single point-of-contact for scheduling,
demonstrations, problem support, and information. Rooms exist in various
configurations with a minimum of a document camera attached to the video
system. Some systems have Power Point for presentation tools, VCR's for record
and playback, and overhead projectors. Initial demonstrations will be
provided to new users showing them the functions and directions to use the
systems.
The Video Conferencing rooms are available 24 hours a day, 7 days a week for
general use. Users are required to schedule and coordinate room usage through
the Video Conferencing Scheduler.
Network Services - Page 10
<PAGE> 158
VOICE MAIL
SERVICE DEFINITION & OBJECTIVE
The Voice Mail product provides voice messaging services, which include message
storage and retrieval, and dial by name capabilities. Installation of telephone
and telephone circuit, telephone programming, telephone numbers, lines,
telephone sets or features associated with an individual mailbox, including
telephone forwarding and message waiting, are not included in the voice mail
product, but are an end user cost in locations where AG owns the phone system,
and elsewhere may be obtained through TSG Campus Telephone System product (
HDQ, Tulsa). The monthly costs of toll-free numbers are also excluded, but may
be obtained through TSG Corporate Inbound product.
SERVICE SCOPE
o There are voice mail systems operational at AMR Headquarters, STIN
Headquarters, Tulsa Maintenance Base, Chicago Sales, Dallas Sales, New
York Sales, Nashville Airport and Sales, San Francisco Sales, Los
Angeles Sales, Las Colinas STIN and Tulsa Triad. TSG is currently
implementing new systems at Dallas-Ft. Worth Airport, Solana Office
Building, London Hounslow, Las Colinas Cargo Services, and LaGuardia
Airport. The systems support both on-premise and remote subscribers.
Varying capabilities, termed "Class of Service", are offered.
o TSG provides AG support for service creation, user training, user
guides, problem resolution, system administration, system maintenance,
capacity management, system audits, mailbox tracking and billing
questions.
o Not all Classes of Service may be available in all locations, due to
technical limitations
o The voice mail systems are available 24 hours per day, excluding
planned maintenance and system upgrades. Service level objectives
will be negotiated as part of a detailed service level agreement.
Planned maintenance and upgrade activities are conducted on weekends
or outside of normal business hours, excluding holidays. (Generally
on an annual basis.)
o System administration and problem resolution are provided from a
central site from 8 a.m. to 4:30 p.m. US Central Time, excluding
weekends and holidays.
o For system locations other than Headquarters, STIN Headquarters,
Solana, Tulsa, Triad and Nashville, the major subscriber community,
generally Passenger Sales, must designate a site coordinator who can
act as a local point of contact for information and distribution of
user literature, and insure facility access for the service vendor to
accomplish system maintenance and repair.
Network Services - Page 11
<PAGE> 159
EXHIBIT C
Rate and Reset Schedule
[Confidential Portion Omitted and Filed Separately with the Commission]
17 Pages Redacted
<PAGE> 160
Exhibit D: Services Subject to SLA
I. CRITICAL TSG SERVICES (SERVICES AND SYSTEMS)
A. Flight Operating System (SABRE FOS), includes Cargo SABRE
B. Passenger Services System (PSS)/Functional Processing Complex
(FPC) (SABRE-PSS/FPC)
C. Pricing QCP Loads
Exhibit D to Information Technology Services
page 1
<PAGE> 161
II. HIGH RISK TSG SERVICES (SERVICES AND SYSTEMS)
A. High Risk TSG Services (Services and Systems)
1. AAdvantage/AATMS
2. AAIRPASS
3. AFM2, Release, APL2
4. American Airworthiness Directive Tracking System
(AADITS)
5. ALEGRO/DINAMO
6. American Airlines Purchasing and Inventory Control
System (AAPICS), PO-WALKER
7. American Assistant Load Planner (AALP)
8. Automated Time & Attendance (AUTOTA)
9. Cargo Accounting Revenue System (CARS)
10. Cargo Information Database (CIDB)
11. Cargo Routing Guide
12. CargoManager (a/k/a Cargo Runner Manager)
13. Consolidated Computer Reservation Systems (CONCRS)
14. Corporate Ledger and Accounting System (CLAS)
15. Domestic Res Support and Telephone - Domestic and
International Reservations Inbound
16. TDS-Editor
17. FINPACS
18. Flight and Traffic Statistics (FATS)
Exhibit D to Information Technology Services
page 2
<PAGE> 162
19. Flight Crew Resource Manning (FCRM)
20. FlyAAway Vacations Systems (including
WorldSpan-System One-Tour Source, ATOP, Automated
System for Tours (FAAST), Integrated Tours,
Multi-Access Links)
21. Freight SABRE Drain (FSD)
22. Gate Manager
23. ICaPS and Optimization Models
24. Integrated Fuel Management and Tracking System
(IFMAATS)
25. Allocation Systems
26. Integrated Forecasting System (IFS) and FAM
27. Passenger Revenue Accounting System (PRAS)
28. Payroll
29. Policy Based Pricing (PBP)
30. QIK Cargo
31. QIK Res
32. Radio - Air to Ground
33. RF Bar Code Scanning
34. SABRE Plus
35. Schedule Analysis System (SAS)
36. Shipment Receive System (SRS)
37. StaffManager (Includes Ops Advisor, Ramp Manager)
38. Time When Due (TWD)
Exhibit D to Information Technology Services
page 3
<PAGE> 163
39. Dial AA Flight
40. TDS Controller
B. High Risk TSG Services (Services and Systems) (Common)
1. Custom Data Networks
2. DB2 for production IMS
3. Device Support - Airport, HDQ, M&E Supplemental Svcs
4. E-Mail
5. Hardware & Software Acquisitions (standard and
non-standard)
6. Help Desk
7. Host Communication Complex
8. Information Management System (IMS)
9. International Managed Network Services (SITA)
10. Internet Services
11. LAN Availability
12. Report Management and Distribution System (RMDS)
13. SABRENet (AANet)
14. Statistical Analysis System (SAS)
15. Software Asset Management
16. Telephone Services - Corporate Inbound
17. Telephone Services - Domestic
18. Telephone Services - International
Exhibit D to Information Technology Services
page 4
<PAGE> 164
19. Telephone Services - Inter City System (ICS) &
telephone calling cards
20. Telephone Services - Voice Mail
21. Telephone Services - HDQ/TUL
22. Telephone Services - moves, adds, changes, etc.
23. Teradata
24. Time Sharing Option (TSO)
25. Virtual Machine (VM) and Conversation Monitor Systems
(CMS)
26. Worldwide Access Complex (VAX1, VAX2, and VAX5)
27. Real-time Frontend Complex
Exhibit D to Information Technology Services
page 5
<PAGE> 165
Exhibit H: SITA Relationship
SITA AGREEMENTS
The "SITA Agreements" consist of the following:
1. SABREnet Services Agreement between SITA and AMERICAN dated July 1,
1996.
2. Each of the Agreements listed below between SITA and AMERICAN, each as
amended by that certain Master Amendment, dated June 20, 1996, between
those two parties:
<TABLE>
<CAPTION>
AA CONTRACT # AGREEMENT TITLE DATE
------------- --------------- ----
<S> <C> <C>
SVC-AE926-0051 Agreement for Aircom Service 9/1/88
SVC-AE926-0635 Telecommunications Services Agreement 1/1/93
SVC-AE926-0635A Amendment to Telecommunications Services 4/13/95
Agreement
Agreement for CUTE Service at Frankfurt Airport 3/14/85
Amendment No 1 to the Agreement for CUTE 2/12/86
Service at Frankfurt Airport
** Amendment No 2 to the Agreement for CUTE
Service at Frankfurt Airport
** Amendment No 3 to the Agreement for CUTE
Service at Frankfurt Airport
Amendment No 4 to the Agreement for Cute 6/88
Service at Frankfurt Airport
SVC-AE926-0151 Amendment No 5 to the Service Guarantee
Agreement for CUTE Service at Frankfurt Airport
SVC-AE926-0151 Amendment No 6 to the Service Guarantee 3/12/91
Agreement for CUTE Service at Frankfurt Airport
SVC-AE926-0151 Amendment No 7 to the Service Guarantee 5/24/91
Agreement for CUTE Service at Frankfurt Airport
SVC-AE926-0424** Master Service Guarantee Agreement for CUTE2 1/17/92
Service
SVC-AE926-0424 Exhibit 1 - Connection and Configuration Request 1/17/92
Form - PHL Airport
SVC-AE926-0424 Exhibit 1 - Connection and Configuration Request 1/17/92
</TABLE>
<PAGE> 166
<TABLE>
<S> <C> <C>
Form - GRU Airport
SVC-AE926-0424 Exhibit 1 - Connection and Configuration Request 5/13/92
Form - MUC Airport
Exhibit 1 - Connection and Configuration Request 3/26/96
Form - Manchester
Exhibit 1 - Connection and Configuration Request 4/20/96
Form - Dusseldorf Airport
</TABLE>
<PAGE> 167
<TABLE>
<CAPTION>
AA CONTRACT # AGREEMENT TITLE DATE
------------- --------------- ----
<S> <C> <C>
SVC-AE926-0217 Service Guarantee Agreement for CUTE Service at 1/23/90
Stockholm - Arlanda Airport
SVC-AE926-0217-01 Amendment No. 1 to the Service Guarantee 1/17/92
Agreement for CUTE Service at Stockholm - Arlanda
Airport
SVC-AE926-0315 Service Guarantee Agreement for CUTE Service at 3/12/91
Dusseldorf Airport
SVC-AE926-0315-2A Amendment No 2 to the Service Guarantee 2/6/92
Agreement for CUTE Service at Dusseldorf Airport
SVC-AE926-0314 Service Guarantee Agreement for CUTE Service at 3/12/91
Hong Kong Kai Tak Airport
SVC-AE926-0313 Service Guarantee Agreement for CUTE Service at 3/12/91
Los Angeles Bradley Terminal Airport
SVC-AE926-1316 Service Guarantee Agreement for CUTE Service at 3/12/91
Rio de Janeiro International Airport
SVC-AE926-0331 Service Guarantee Agreement for CUTE Service at 6/11/92
Munich Airport
SVC-AE926-0331/1 Amendment No. 1 to the Service Guarantee 5/24/91
Agreement for CUTE Service at Munich Airport
SVC-AE926-0373 Service Guarantee Agreement for CUTE Service at 6/11/92
Santiago de Chile Airport
SVC-AE926-0004 Service Guarantee Agreement for CUTE Service at 6/30/92
San Jose Juan Santamaria International Airport
SVC-AE926-0592 Service Guarantee Agreement for CUTE Service at 1/8/93
Berlin-Tegel Airport
** Service Guarantee Agreement for CUTE Service at 7/26/93
Bogota El Dorado International Airport
</TABLE>
<PAGE> 168
<TABLE>
<S> <C> <C>
** Service Guarantee Agreement for CUTE Service at 7/26/93
El Salvador International Airport
** Service Guarantee Agreement for CUTE Service at 7/29/93
Guayaquil - Simon Bolivar Airport
** Service Guarantee Agreement for CUTE Service 7/29/93
at Quito - Mariscal Airport
</TABLE>
<PAGE> 169
SITA SABRENET SERVICES FLOW CHART
In order to provide the orderly administration of the SITA SABREnet Services,
the following arrangements shall be effective regarding the provisioning of
SITA SABREnet Services:
Sales of SITA SABREnet
Services
<TABLE>
<CAPTION>
AMERICAN AMERICAN
(For the Airline Group's (For Sale to TSG)
Consumption)
<S> <C>
Tax-paid invoice from SITA on the
Airline Group's consumption of
SITA SABREnet Services used in TSG
operations
Tax-free invoicing by SITA to AMERICAN
for resale, without margin, to TSG.
SITA provides tax calculations to ease
administrative burden on resale of
nonmargin sales to TSG.
TSG charges a management fee to AMERICAN
for network management of SITA SABREnet
Services that AMERICAN purchases for the
Airline Group as described below.
</TABLE>
<PAGE> 170
<TABLE>
<S> <C>
Structure permits TSG to provide resale
exemption certificates to AMERICAN to
exclude sales tax from SITA SABREnet
Services to be resold by TSG to third
parties without pyramiding sales tax on
its SITA SABREnet Services costs.
</TABLE>
INVOICING REQUIREMENTS
The Airline Group will pay its own taxable usage of SITA SABREnet Services as
specified in the SABREnet Services Agreement plus any applicable sales or
similar taxes thereon. TSG will separately calculate and invoice a management
fee on a per port basis for the SITA SABREnet Services purchased by the Airline
Group. The management fee shall be equal to the excess of (a) the per port
charge for SITA SABREnet Services from TSG to the Airline Group set forth in
the Rate and Reset Schedule over (b) the per port charge (including the related
SITA tax) for the same SITA SABREnet Services from SITA to AMERICAN under the
SABREnet Services Agreement. The per port charge for SITA SABREnet Services
from TSG to the Airline Group may not exceed the amount thereof set forth in
the Rate and Reset Schedule.
<PAGE> 171
Exhibit K: Termination Liquidated Damages Calculation
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
2 Pages Redacted
Exhibit K to Information Technology Services Agreement page 1
<PAGE> 172
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
Exhibit K to Information Technology Services Agreement page 2
<PAGE> 173
Exhibit L: Transition Assistance Service Descriptions
Part I: General Assistance to Successor Provider.
A. The Transition Assistance Services will include the following:
1. Continuing to perform during the Transition Period any or all of the
TSG Services then being performed by TSG.
2. Providing to Successor Provider the specific services described in
Part II: Specific Assistance to Successor Provider.
3. Assisting Successor Provider in developing a plan for the transition
of all requested operations from TSG. TSG is not responsible for the
creation of the plan.
4. Providing to appropriate personnel of Successor Provider, during a
mutually defined time period, training in the performance of the
specific TSG Services that are to be transferred.
5. Providing Successor Provider with other information regarding TSG
Services that are required to implement the transition plan, and
providing such information regarding TSG Services as is reasonably
prudent or necessary in order for the Successor Provider to assume
responsibility for, and continue the performance of, TSG Services in
an orderly manner, so as to minimize, as much as possible, disruption
in the operations of the Airline Group.
6. With respect to all TSG Operated Software as of the commencement of
the Transition Period, TSG shall provide to Successor Provider source
code (subject to third party consents as necessary), master file and
field descriptions and record layouts, run documentation and job
control listings and other similar information necessary for Successor
Provider to run all TSG Operated Software.
7. Airline Group and TSG agree to negotiate in good faith, a purchase
price for assets that Airline Group wants and TSG will no longer
require.
8. Subject to Section "17.1. NON-SOLICITATION OF EMPLOYEES," TSG will
allow Successor Provider to make employment offers to all TSG
employees (other than key managers) assigned primarily to perform TSG
services. To the extent any TSG employee covered by the preceding
sentence has signed an employment agreement or other arrangement with
TSG precluding or hindering such employee's ability to be recruited or
hired by Successor Provider, TSG agrees that such restriction is null
and void and will not seek to enforce such restriction or to otherwise
preclude or hinder
Exhibit L to Information Technology Services Agreement page 1
<PAGE> 174
such employee from being recruited or hired by Successor Provider.
TSG shall provide Successor Provider reasonable access to such
employees for the purposes of interviews, evaluations, and
recruitment. Upon the written request of the Successor Provider, TSG
will provide Successor Provider with the names, job titles and work
locations of the applicable employees.
9. TSG will make available to Successor Provider any equipment owned or
leased by TSG that is then solely dedicated to the performance of the
TSG services. The Successor Provider may purchase the equipment at
the TSG's then current book value and/or assume TSG's rights and
obligations with respect to any such equipment leased by the TSG.
10. TSG will make available to Successor Provider any third party services
being utilized by TSG in the performance of the TSG Services. Subject
to any necessary consents from third party vendors, TSG will also be
entitled to retain the right to continue utilizing any third party
services as required in connection with the performance of services
for any other TSG customer.
B Access to Systems Information.
In providing the Transition Assistance Services, TSG shall prior to the
Expiration Date or the Termination Date, provide the Successor Provider
reasonable access to information concerning the use of equipment, TSG Operated
Software, personnel, third parties and other resources then being used by TSG.
TSG's obligations in this paragraph are in all cases subject to any prohibition
or restrictions on the use or disclosure of Transferred Third-Party Software
and Other Third-Party Software contained in the license agreements for such
software, provided however that TSG and Successor Provider shall use reasonable
efforts to obtain a waiver of any such prohibition or restriction.
1. Provided there is no charge to TSG, TSG shall use reasonable efforts
to cause third party licensors to assign or grant a license for Other
Third Party Software to the Airline Group with permission for the
Successor Provider to operate and use such software for the benefit of
the Airline Group at no charge and pursuant to terms and conditions
acceptable to the Airline Group for the following Other Third party
Software:
A. Any Other Third Party Software including application and
TPF operating software (including all updates, enhancements,
improvements and modifications).
B. All other operating software that is necessary to operate
application software and to which the Successor Provider
cannot obtain rights on a commercially reasonable basis, along
with the related documentation, data base management
Exhibit L to Information Technology Services Agreement page 2
<PAGE> 175
systems, data and technical information.
2. Before the end of the Transition Period, TSG shall grant the Airline
Group a non-exclusive, royalty-free, irrevocable, non-transferable
license to use, possess, copy, modify, and prepare Derivative Works of
the TSG Owned Software for the Airline Group's and its Affiliates'
internal business purposes, to permit another to exercise these rights
on the Airline Group's behalf for such internal business purposes, and
for the Airline Group's use as authorized by Section "12.5.
MARKETING RIGHTS AFTER EXPIRATION OR TERMINATION."
Before a third party is allowed access to such software or any other
Confidential Information of TSG, the third party must provide
sufficient written assurance to TSG that the third party will maintain
the confidentiality of the software and will not use the software for
any purposes other than for processing the internal work of the
Airline Group and its Affiliates. A third party that has executed an
Agreement substantially in the form of Exhibit N:
Non-disclosure/Non-competition Agreement shall be deemed to have
provided sufficient written assurances to TSG.
3. At the Airline Group's sole option, TSG shall provide Maintenance for
TSG Owned Software at mutually agreed upon terms and conditions and
TSG will offer new releases of TSG Owned Software at reasonable fees.
Exhibit L to Information Technology Services Agreement page 3
<PAGE> 176
Part II - Specific Responsibilities
I. TSG Responsibilities.
A. Provide to Successor Provider copies of documentation used by TSG in
performing the TSG Services.
B. Provide to the Successor Provider copies of other information
regarding the TSG Services that are required to implement the
transition plan, including but not limited to the following:
1. A list of all program and relevant procedure libraries
required by the Airline Group.
2. Copies of all security tables and rules used in the provision
of TSG Services to the Airline Group.
3. Copies of all terminal definition tables.
4. Copies of all relevant system information and other required
documentation.
5. System modifications created on behalf of the Airline Group,
including relevant documentation, run sheets, and job
scheduling.
6. Network access documentation.
7. Premise documentation.
8. Help Desk documentation.
C. Identify, record and provide control release levels of Other Third
Party Software.
D. Review and explain the data center, network and premise documentation
to the Successor Provider operations staff. Data center, network and
premise documentation describes operational and security procedures.
E. Freeze all non-critical software changes, other than modifications
necessary to address processing problems or to implement regulatory
changes upon the Airline Group's Notice to TSG.
F. Notify all outside vendors whose participation is relevant to the
transition of procedures to be followed during the Transition Period.
Exhibit L to Information Technology Services Agreement page 4
<PAGE> 177
G. Review all software libraries (test and production) with Successor
Provider operations staff.
H. Assist the Successor Provider in establishing naming conventions.
I. Assist the Successor Provider in its analysis of the DASD space
required for the databases and software libraries.
J. Provide machine readable current version of the source code, if
available, for TSG Owned Software (or in which the Airline Group holds
Retained Rights) in a form reasonably requested by the Airline Group.
K. Deliver all Documentation for the TSG Owned Software.
L. Provide Successor Provider reasonable access to TSG personnel who were
performing TSG Services.
M. Provide interim tapes of the AG Data, as reasonably requested.
N. Provide to Successor Provider multiple copies of the Airline Group
DASD volumes as requested by Successor Provider in cartridge or tape
medium.
O. Cooperate with Successor Provider in preparing and conducting of
transition testing to facilitate the orderly transfer of services.
P. Copy to cartridge, tape, or such other medium reasonably requested by
AMERICAN, all requested data files and other Confidential Information
of the Airline Group subject to the Airline Group's written
instructions.
Q. Deliver tapes of production data files (with content listings) and
printouts of control file information to Successor Provider.
R. Provide assistance to Successor Provider in the loading of data files
on Successor Provider's systems.
S. Provide assistance to Successor Provider with the turnover to
Successor Provider of the Network Services and in the execution of
parallel testing.
T. Provide assistance to Successor Provider with the Distributed Systems
Services transition.
U. After the Transition Period, TSG shall provide additional assistance
as reasonably
Exhibit L to Information Technology Services Agreement page 5
<PAGE> 178
requested by the Airline Group to facilitate continuity of operations
at market rates.
V. Before the end of the Transition Period, TSG shall return to the
Airline Group, at the Airline Group's request, any remaining property
of the Airline Group in TSG's possession or under its control,
including any remaining reports, data and other Confidential
Information of the Airline Group.
W. Certify to the Airline Group in writing that all the Airline Group
data and files have been removed from TSG's systems.
II. The Airline Group Responsibilities.
During the Transition Period, the Airline Group shall provide to TSG the
transition assistance described below:
A. Identify an individual to be the central point of contact between the
Airline Group and TSG during the Transition Period.
B. Make available to TSG, as reasonably requested by TSG, management
decisions, personnel information, approvals and acceptances necessary
for TSG to properly assist in the transition.
C. Cooperate with TSG in establishing appropriate testing criteria and
procedures for, and in the testing and conversion of applications and
systems.
D. Freeze all non-critical maintenance and enhancement requests during
the Transition Period, to ensure the integrity of the AG Data and
application programs being transferred from TSG to the Successor
Provider.
E. Schedule transition review meetings with the Successor Provider and
TSG to review status of transition according to the Successor
Provider's transition plan.
F. The Airline Group is responsible for managing the transition.
Exhibit L to Information Technology Services Agreement page 6
<PAGE> 179
Exhibit M: Dispute Resolution Appendix
Information Technology Services Agreement
A. Defined Terms. Various terms used in this Dispute Resolution
Appendix, which begin with a capital letter, are defined in the
Definitional Appendix to Information Technology Services Agreement.
In addition, the following terms used only in this Dispute Resolution
Appendix have the corresponding meanings:
"COMPLEX DISPUTE LIST": The "Complex Dispute List," or if
that list is not then maintained by the American Arbitration
Association, another list of individuals having similar
qualifications maintained by the American Arbitration
Association.
"INITIAL EXECUTIVE REVIEW COMMITTEE": A committee consisting
of the Airline Group's CIO and the TSG division president
designated by TSG's Account Manager.
"SECOND EXECUTIVE REVIEW COMMITTEE": A committee consisting
of American's President and TSG's President.
"QUALIFICATIONS": Inclusion in the Complex Dispute List or
having extensive knowledge or experience, or both, regarding
information technology services similar to the TSG Service or
TSG Services that are the subject of the Dispute.
The interpretative matters set forth in the Definitional Appendix also
apply to this Dispute Resolution Appendix.
B. Dispute Resolution Procedure.
1. General Procedure. Except as otherwise stated in the
Agreement, the Parties shall resolve all Disputes in
accordance with this procedure:
(a) Each Party shall instruct its Account Manager to
promptly negotiate in good faith with the other
Party's Account Manager to resolve the Dispute.
(b) If the Account Managers do not resolve the Dispute
within ten Business Days (or such longer period as
the Account Managers may agree) after the date of
referral of the Dispute to them, the Dispute shall be
referred (by either or both of the Account Managers)
to the Initial Executive Review Committee for
resolution.
Exhibit M to Information Technology Services Agreement page 1
<PAGE> 180
(c) If the Initial Executive Review Committee does not
resolve the Dispute within ten Business Days (or such
longer period as that Committee may agree) from the
date of referral to it, the Dispute shall be referred
(by that Committee or any of its members) to the
Second Executive Review Committee for resolution.
(d) If the Second Executive Review Committee does not
resolve the Dispute within ten Business Days (or such
longer period as that Committee may agree) after the
date of referral to it, either Party may submit the
Dispute to non-binding mediation in accordance with
Section B.2 of this Dispute Resolution Appendix.
(e) If the Dispute is not resolved by any of the
preceding steps and is not submitted to or is not
resolved by mediation, then either Party may submit
the Dispute to binding arbitration in accordance with
Section B.3 of this Dispute Resolution Appendix.
A referral under any of Sections B.1(a), B.1(b), and B.1(c) of this
Dispute Resolution Appendix shall be made by written notice to the
Persons designated in the applicable Section or Sections. That notice
shall be in a form described in the Agreement or an electronic mail
message and addressed to each Person at his office address or
electronic mail address; each notice shall be given and effective as
described in the Agreement or, in the case of electronic mail, upon
actual receipt. The date of referral is the last date that notice is
given to all of the Persons to whom the Dispute must have been
referred.
2. Mediation. The mediation of an unresolved Dispute shall be
conducted in this manner:
(a) Either Party may submit the Dispute to mediation by
giving notice of mediation to the other Party. The
Parties shall attempt to agree upon and appoint a
sole mediator who has the Qualifications promptly
after that notice is given.
(b) If the Parties are unable to agree upon a mediator
within ten days after the date the Dispute is
submitted to mediation, either Party may request the
Dallas office of the American Arbitration Association
to appoint a mediator who has the Qualifications.
The mediator so appointed shall be deemed to have the
Qualifications and to be accepted by the Parties.
Exhibit M to Information Technology Services Agreement page 2
<PAGE> 181
(c) The mediation shall be conducted in the Dallas-Fort
Worth metropolitan area at a place and a time agreed
by the Parties with the mediator, or if the Parties
cannot agree, as designated by the mediator. The
mediation shall be held within 20 days after the
mediator is appointed.
(d) If either Party has substantial need for information
from the other Party (in addition to information
obtained under Section 23.2 of the Agreement) in
order to prepare for the mediation, the Parties shall
attempt to agree on procedures for the formal
exchange of information; if the Parties cannot agree,
the mediator's determination shall be effective.
(e) Each Party shall be represented in the mediation by
at least its Account Manager or another natural
Person with authority to settle the Dispute on behalf
of that Party and, if desired by that Party, by
counsel for that Party. The Parties' representatives
in the mediation shall continue with the mediation as
long as the mediator requests.
(f) The mediation shall be subject to Chapter 154 of
Title 7 of the Texas Civil Practice and Remedies
Code.
(g) Unless otherwise agreed by the Parties, each Party
shall pay one-half of the mediator's fees and
expenses and shall bear all of its own expenses in
connection with the mediation. Neither Party may
employ or use the mediator as a witness, consultant,
expert, or counsel regarding the Dispute or any
related matters.
3. Arbitration. The arbitration of an unresolved Dispute shall
be conducted in this manner:
(a) Either Party may begin arbitration by filing a demand
for arbitration in accordance with the Arbitration
Rules. The Parties shall attempt to agree upon and
appoint a panel of three arbitrators promptly after
that demand is filed. Each of those arbitrators must
have the Qualifications, and at least one of those
arbitrators must be included in the Complex Dispute
List (unless no list of that kind is then
maintained).
(b) If the Parties are unable to agree upon any or all of
the arbitrators within ten days after the demand for
arbitration was filed (and do not agree to an
extension of that ten-day period), either Party may
request the Dallas office of the American Arbitration
Association to appoint the arbitrator or
Exhibit M to Information Technology Services Agreement page 3
<PAGE> 182
arbitrators, who have the Qualifications (and at
least one of whom must be included in the Complex
Dispute List, unless no list of that kind is then
maintained), necessary to complete the panel in
accordance with the Arbitration Rules. Each
arbitrator so appointed shall be deemed to have the
Qualifications and to be accepted by the Parties as
part of the panel.
(c) The arbitration shall be conducted in the Dallas-Fort
Worth metropolitan area at a place and a time agreed
by the Parties with the panel, or if the Parties
cannot agree, as designated by the panel. The panel
may, however, call and conduct hearings and meetings
at such other places as the Parties may agree or as
the panel may, on the motion of one Party, determine
to be necessary to obtain significant testimony or
evidence.
(d) The Parties shall attempt to agree upon the scope and
nature of any discovery for the arbitration in
addition to the information available under Section
23.2 of the Agreement. If the Parties do not agree,
the panel may authorize any and all forms of
discovery, including depositions, interrogatories,
and document production, upon a showing of
particularized need that the requested discovery is
likely to lead to material evidence needed to resolve
the Dispute and is not excessive in scope, timing, or
cost.
(e) The arbitration shall be subject to the Federal
Arbitration Act and conducted in accordance with the
Arbitration Rules to the extent they do not conflict
with this Section B.3 of this Dispute Resolution
Appendix. The Parties and the panel may, however,
agree to vary the provisions of this Section B.3 of
this Dispute Resolution Appendix or the matters
otherwise governed by the Arbitration Rules.
(f) The panel has no power to:
(i) rule upon or grant any extension, renewal, or
continuance of the Agreement;
(ii) award remedies or relief either expressly
prohibited by the Agreement or under
circumstances not permitted by the Agreement;
or
(iii) grant provisional or temporary injunctive
relief before rendering the final decision or
award.
Exhibit M to Information Technology Services Agreement page 4
<PAGE> 183
(g) Unless the Parties otherwise agree, all Disputes
regarding or related to the same topic or event that
are subject to arbitration at one time shall be
consolidated in a single arbitration proceeding.
(h) A Party or other Person involved in an arbitration
under this Section B.3 may join in that arbitration
any Person other than a Party if
(i) the Person to be joined agrees to resolve the
particular dispute or controversy in
accordance with this Section B.3 and the
other provisions of this Dispute Resolution
Appendix applicable to arbitration; and
(ii) the panel determines, upon application of the
Person seeking joinder, that the joinder of
that other Person will promote the
efficiency, expedition, and consistency of
the result of the arbitration and will not
unfairly prejudice any other party to the
arbitration.
(i) The arbitration hearing shall be held within 30 days
after the appointment of the panel. Upon request of
either Party, the panel shall arrange for a
transcribed record of the arbitration hearing, to be
made available to both Parties.
(j) The panel's final decision or award shall be made
within 30 days after the hearing. That final
decision or award shall be made by unanimous or
majority vote or consent of the arbitrators
constituting the panel, and shall be deemed issued at
the place of arbitration. The panel shall issue a
reasoned written final decision or award based on the
Agreement and Texas law; the panel may not act
according to equity and conscience or as an amicable
compounder or apply the law merchant.
(k) The panel's final decision or award may include:
(i) recovery of Damages to the extent permitted
by the Agreement; or
(ii) injunctive relief in response to any actual
or threatened breach of the Agreement or any
other actual or threatened action or omission
of a Party under or in connection with the
Agreement.
(l) The panel's final decision or award shall be final
and binding upon the Parties, and judgment upon that
decision or award may be entered in any
Exhibit M to Information Technology Services Agreement page 5
<PAGE> 184
court having jurisdiction over either or both of the
Parties or their respective assets. The Parties
specifically waive any right they may have to apply
or appeal to any court for relief from the preceding
sentence or from any decision of the panel made, or
any question of law arising, before the final
decision or award. If any decision by the panel is
vacated for any reason, the Parties shall submit that
Dispute to a new arbitration in accordance with this
Section B.3.
(m) Each Party shall pay one-half of the arbitrators'
fees and expenses, and shall bear all of its own
expenses in connection with the arbitration. The
panel has the authority, however, to award recovery
of all costs and fees (including attorneys' fees,
administrative fees and the panel's fees and
expenses) to the prevailing Party in the arbitration.
4. Recourse to Courts. Nothing in the Dispute Resolution
Procedure limits the right of either Party to apply to a court
or other tribunal having jurisdiction to:
(a) enforce the Dispute Resolution Procedure, including
the agreement to arbitrate in this Dispute Resolution
Appendix;
(b) seek provisional or temporary injunctive relief, in
response to an actual or impending breach of Article
XIV of the Agreement or otherwise so as to avoid
irreparable damage or maintain the status quo, until
a final arbitration decision or award is rendered or
the Dispute is otherwise resolved; or
(c) challenge or vacate any final arbitration decision or
award that does not comport with Section B.3 of this
Dispute Resolution Appendix.
5. Submission to Jurisdiction. Each Party irrevocably submits to
the jurisdiction of the federal courts of the United States
and the state courts of Texas located in Tarrant County,
Texas. Each Party waives any defense or challenge to that
jurisdiction based on lack of personal jurisdiction, improper
venue, or inconvenience of forum.
6. Confidentiality. The proceedings of all negotiations,
mediations, and arbitrations as part of the Dispute Resolution
Procedure shall be privately conducted. The Parties shall
keep confidential all conduct, negotiations, documents,
decisions, and awards in connection with those proceedings
under the Dispute Resolution Procedure.
Exhibit M to Information Technology Services Agreement page 6
<PAGE> 185
Exhibit P: Electronic Travel Distribution System
A. The members of the Airline Group may use, or may cause TSG to use,
PSS/FPC to develop, maintain, manage, operate and use an Electronic Travel
Distribution system in their own internal operations.
B. AMERICAN may use, or may cause TSG to use, PSS/FPC to develop,
maintain, manage, market and provide an Electronic Travel Distribution System
for and/or to other Persons subject to the requirements that any such
Electronic Travel Distribution System (i) must be branded using the name
"American Airlines" and/or the name of an airline marketing alliance in which
any member of the Airline Group participates and which involves an exchange of
passenger or cargo traffic, (ii) if provided directly to Travel Purchasers
(i.e., other than by an Intermediary), must (A) apply a minimum 90-minute
penalty in its availability displays to Air Carrier services that Compete with
AA Flights and (B) favor AA Flights in all other displays that include multiple
Air Carriers, and (iii) if provided indirectly to Travel Purchasers (i.e., by
an Intermediary), must (A) apply a minimum 360-minute penalty in its
availability displays to Air Carrier services that Compete with AA Flights, (B)
favor AA Flights in all other displays that include multiple Air Carriers, and
(C) be provided to Travel Purchasers without modification or enhancement of the
information or software provided by the Airline Group to such Intermediary.
(1) Providing any such Electronic Travel Distribution System
described above in this Section B to any Person shall not be an Other
Mixed Service. Accordingly, any charge by the Airline Group for
access to, or the opportunity to use, such Electronic Travel
Distribution System shall not be subject to Subsection D of Section
"12.2. THE AIRLINE GROUP'S PROVISION OF SERVICES TO AG CUSTOMERS" of
the Agreement.
(2) The Airline Group shall not market or provide any such
Electronic Travel Distribution System described above in this section
B or any CRS to any Travel Agent if that Travel Agent has during the
preceding six calendar months generated 25% or more of its total
bookings through the SABRE system (and for this purpose "SABRE system"
does not include any Electronic Travel Distribution System provided by
the Airline Group). Further, the Airline Group shall not:
a. Permit or facilitate the use of PSS/FPC or any other
software that would allow the use of any such Electronic
Travel Distribution System in a manner contrary to any of the
preceding provisions of this section B; or
b. Permit or facilitate any Person's use of any such
Electronic Travel Distribution System, or information provided
by or through any such Electronic
Exhibit P to Information Technology Services Agreement
page 1
<PAGE> 186
Travel Distribution System, in a manner contrary to any of the
preceding provisions of this section B.
If TSG or any member of the Airline Group learns that any such
Electronic Travel Distribution System is being used in a manner not
permitted by this section A, then the Airline Group shall cooperate
with TSG, at AMERICAN's expense, to cause such impermissible use to be
terminated, including, if technologically feasible and economically
practicable, blocking any further such use.
(3) To the extent that any such Electronic Travel Distribution
System described above in this section B is provided directly or
indirectly to Travel Purchasers, the statement or logo "Powered by
SABRE" must clearly appear on the screen used to conduct schedule or
fare inquiries in such Electronic Travel Distribution System.
(4) If the restrictions set forth above in this Section B imposed
upon the Airline Group's marketing or providing an Electronic Travel
Distribution System (i) would prevent the Airline Group from marketing
and providing an Electronic Travel Distribution System as marketed and
provided by, in connection with the Transportation Business of, any
Air Carrier that Competes with AMERICAN's Transportation Business and
(ii) would be likely, in AMERICAN'S sole judgment, to place AMERICAN
at a disadvantage in Competing against such Air Carrier in the
Transportation Business, then AMERICAN may market and provide such an
Electronic Travel Distribution System subject to the following
requirements:
a. Prior to marketing and providing such an Electronic
Travel Distribution System, AMERICAN shall give TSG a Notice
containing a description of the nature and scope of such
Electronic Travel Distribution System that AMERICAN proposes
to market and provide in order to alleviate such a competitive
disadvantage.
b. AMERICAN shall consult with TSG, within ten days
after such Notice, concerning measures and/or compensation
that may be appropriate in order to mitigate, to the extent
possible, the adverse impact of AMERICAN's marketing and
providing such an Electronic Travel Distribution System on the
economic expectations of TSG under the Agreement while still
alleviating such competitive disadvantage to AMERICAN. If the
Parties are unable to agree upon such appropriate measures
and/or compensation, then AMERICAN may market and provide such
an Electronic Travel Distribution System and the issue of
what, if any, measures and/or compensation to TSG may be
appropriate shall constitute a Dispute to be resolved in
accordance with the Dispute Resolution Procedure.
Exhibit P to Information Technology Services Agreement
page 2
<PAGE> 187
C. All bookings of travel-related products or services through any
Electronic Travel Distribution System described in the first sentence of
section B above, other than AA Flights, shall be queued to the SABRE CRS. The
Airline Group shall be deemed to be a SABRE CRS subscriber for the purposes of
creating bookings other than bookings of AA Flights, and all booking fees and
other revenues derived from such bookings shall be treated as if generated
through the SABRE CRS. TSG shall be obligated to develop and implement, at its
own expense, any additional technology necessary to queue such bookings other
than bookings of AA Flights to the SABRE CRS and to determine and collect the
booking fees for such bookings. TSG shall not be entitled to any booking fees
or other revenues for bookings of AA Flights, other than the PSS/FPC processing
Fees associated with such bookings of AA Flights payable at the Current Rates
set forth in the Rate and Reset Schedule. The Parties intend that TSG shall
not be entitled to any PSS/FPC processing Fees associated with any booking for
which TSG receives a booking fee or other booking-derived revenue.
Nevertheless, the technology does not now exist to determine the correlation
between bookings and PSS/FPC processing Fees with any precision. Therefore,
the Parties will estimate that correlation, and such estimate may be revised
from time to time by their agreement. If the technology is developed to
determine such correlation with some precision, then the Parties will use that
technology and discontinue use of their estimates. Nothing in this section C,
however, shall obligate either Party to develop such technology.
D. If the Airline Group develops itself or causes a Person other than TSG
to develop any functionality that provides input to or receives output from
PSS/FPC in or for any Electronic Travel Distribution System described in the
first sentence of section B above, then:
(1) If that functionality is offered or provided to any
Intermediary, AMERICAN shall promptly offer and provide it to TSG, for
TSG's use with or in its equivalent products, on terms that are the
same as or equivalent to the most favorable terms on which such
functionality is provided to any such Intermediary.
(2) If that functionality is not offered or provided to any
Intermediary, AMERICAN shall promptly negotiate with TSG (but is not
obligated to agree upon) the terms on which such functionality would
be provided to TSG for TSG's use with or in its equivalent products.
In this section D, "functionality" refers to how an Electronic Travel
Distribution System operates or is used, and not the travel-related products or
services that are offered by or through an Electronic Travel Distribution
System.
Exhibit P to Information Technology Services Agreement
page 3
<PAGE> 1
EXHIBIT 10.8
MARKETING COOPERATION AGREEMENT
between
AMERICAN AIRLINES, INC
and
THE SABRE GROUP, INC.
Dated as of July 1, 1996
<PAGE> 2
MARKETING COOPERATION AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Extension of Support Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3 Coordination of Marketing Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.1 Marketing Liaison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.2 Informational Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4 Professional SABRE Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.1 Participation in other CRSs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.2 Level of Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.3 Annual Sales Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.4 Sales Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.5 Employee Reviews . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.6 Strategic Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.7 Initial Goods and Services Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.8 Annual Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.9 Quarterly Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.10 Joint Sponsorship of Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5 BTS Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.1 Participation in other Corporate Direct Systems . . . . . . . . . . . . . . . . . . . . . . . 5
5.2 Level of Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.3 Marketing and Licensing Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.4 American Supplied Functionality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.5 AAdvantage Miles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6 SI Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.1 Participation in other Consumer Direct Systems . . . . . . . . . . . . . . . . . . . . . . . 6
6.2 American Supplied Functionality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.3 Promotional Tickets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.4 AAdvantage Miles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.5 Joint Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7 Market Share Information (MIDT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
7.1 Source of MIDT Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.2 MIDT Information System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.3 American Processing Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.1 Professional SABRE Support Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.2 BTS Support Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.3 SI Products Support Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.4 Payment Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.5 Interest on Late Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.6 Billing Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.1 Indemnification for Certain Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.2 Property Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.3 Contested Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.4 Tax Refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.5 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.6 No Other Tax Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.7 Taxes and Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.8 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.1 Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.2 Use of Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.3 Excluded Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.4 Standard of Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.5 Permitted Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.6 Required Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.7 Title to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.8 Return of Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.9 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
11 Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
11.1 Right to Approve Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12 Performance Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
13 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.1 Termination for Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.2 Termination for Nonpayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
14.3 Termination for Insolvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
14.4 Nonexclusive Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15 Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15.1 Cross Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15.2 Marketing Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15.3 Infringement Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16 Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
17 Equitable Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
18 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
18.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
18.2 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
18.3 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
18.4 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
18.5 Subsequent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
18.6 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
18.7 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
18.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
18.9 Relationship of Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
18.10 Non-Competition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
18.11 Third-Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
18.12 Approvals and Similar Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
18.13 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
18.14 Modification and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
18.15 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Attachments
Schedule A Professional SABRE Support Payments
Exhibit A-1 to Schedule A Example of Calculation of Professional SABRE Support Payments
Exhibit A-2 to Schedule A Current American Accounts
Schedule B BTS Support Payments
Schedule C SI Products Support Payments
Attachment A Defined Terms
Attachment B Dispute Resolution Procedures
</TABLE>
iii
<PAGE> 5
MARKETING COOPERATION AGREEMENT
This Marketing Cooperation Agreement is made and entered into as of July 1,
1996 by and between American Airlines, Inc. and The SABRE Group, Inc.
RECITALS
WHEREAS, STIN is an operating division of TSG that markets
Professional SABRE, BTS and other Travel Distribution Systems principally to
travel agencies, corporations and other businesses; and
WHEREAS, SABRE Interactive is an operating division of TSG that
markets easySABRE and Travelocity and other Travel Distribution Systems
principally to individual consumers; and
WHEREAS, this Agreement is ancillary to a reorganization transaction
on the Effective Date under which, inter alia, the assets of STIN and SABRE
Interactive were indirectly contributed by American to TSG; and
WHEREAS, before the Effective Date, American's Air Transportation
Group, and its STIN and SABRE Interactive operating divisions cooperated in
marketing American's travel services and Travel Distribution Systems; and
WHEREAS, TSG and American believe that there will be mutual benefit in
having American continue to provide support in marketing STIN and SABRE
Interactive Travel Distribution Systems to mutual customers of American and
TSG; and
WHEREAS, American and TSG now desire to describe the support that
American will provide in marketing STIN and SABRE Interactive Travel
Distribution Systems and the compensation that TSG will pay to American in
consideration for such support;
NOW, THEREFORE, in consideration of the mutual covenants set forth
below, American and TSG hereby agree as follows:
1 Definitions Terms used as defined terms in this Agreement will,
unless otherwise indicated, have the meanings ascribed thereto in
Attachment A hereto.
2 Term The term of this Agreement will commence on the Effective Date
and, unless terminated earlier as provided herein, will expire when
the last Support Period expires or terminates.
2.1 Extension of Support Periods Upon any scheduled expiration of
any Support Period, including any Support Period that may have
been previously extended under this Section 2.1, that Support
Period will be automatically extended for twelve (12)
1
<PAGE> 6
months, unless at least sixty (60) days prior to such
scheduled expiration, either Party provides Notice to the
other Party that the notifying Party does not desire to extend
that Support Period.
3 Coordination of Marketing Support
3.1 Marketing Liaison American will appoint an individual from
within its Passenger Sales organization who, during the Term,
will be dedicated to supporting TSG's marketing organization
and coordinating the management of this Agreement on behalf of
American. Such individual will be responsible for: (a)
managing the ongoing relationships and promotional programs
between American's Passenger Sales organization and TSG's
field sales organizations; (b) developing an annual sales
plan, in conjunction with American's Passenger Sales and
Distribution Planning organizations, as it relates to
American's marketing functions for TSG; (c) planning and
executing quarterly executive strategy meetings between the
American and TSG executive sales team; (d) coordinating TSG's
presence and participation in American's annual Executive
Business Council event; (e) identifying, planning and
executing joint promotional opportunities, including employee
recognition plans; (f) coordinating American's implementation
of its sales plan for TSG and American's execution of TSG's
tactical plans related to travel agency, corporate and
consumer distribution.
3.2 Informational Meetings Prior to October 1, 1996, each of TSG
and American will provide its sales organization with an
overview of this Agreement and the processes by which it will
be managed by its sales organization.
4 Professional SABRE Support In support of TSG's marketing of
Professional SABRE, each of American and TSG will provide during the
Professional SABRE Support Period the marketing and promotional
support described in this Section 4 and specified as its obligation.
4.1 Participation in other CRSs American will not provide to any
CRS other than SABRE any of the marketing support described in
Section 4. Nothing in this Agreement will prevent American
from: (i) having its products and services displayed or listed
in any CRS, (ii) authorizing any CRS to use American's
trademarks and tradenames in connection with advertising
American's participation in such CRS; and (iii) endorsing
another CRS, provided, however, that American may not endorse
such CRS as being preferred over SABRE or having qualities
superior to SABRE.
4.2 Level of Support American will provide marketing and
promotional support to Professional SABRE that is at least at
the same level and quality as American's Passenger Sales
organization provided to Professional SABRE during the twelve
months prior to the Effective Date. During June of each
Contract Year, the Representatives of each Party shall meet
and the Parties shall negotiate regarding methods to be
employed during the next Contract Year for incentivizing
Corporate
2
<PAGE> 7
Customers to make their Bookings through SABRE. If the
Parties fail to agree upon such methods, then such failure
shall constitute a Dispute that shall be resolved through the
Dispute Resolution Procedures and, pending such resolution,
the Parties shall continue to employ the methods upon which
they most recently agreed.
4.3 Annual Sales Plan. In June of each Contract Year, American
will prepare and submit to TSG its annual sales plan for the
marketing of Professional SABRE for the following Contract
Year. American and TSG shall thereafter consult on that sales
plan.
4.4 Sales Training In each Contract Year after the initial
Contract Year, American will provide, by itself and/or jointly
with TSG, and will cause each of its Passenger Sales
organization sales personnel to receive, a minimum of eight
hours of training relating to American's obligations to market
Professional SABRE and the TSG products and services related
to Professional SABRE. American may conduct such training in
conjunction with other educational events or may offer such
training through self-study, multi-media or other automated
education and training methodology. Such training will
include updates on new TSG products, services, strategies and
customer incentives.
4.5 Employee Reviews American will tell each of its Passenger
Sales organization sales personnel during his/her performance
reviews that part of his/her job function is to market
Professional SABRE pursuant to this Agreement.
4.6 [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
4.6.1 PARTICIPATION IN OTHER CRSs [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
4.6.2 LEVEL OF SUPPORT [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION]
4.6.3 TSG may purchase from American additional promotional
items of the type that are generally used by American
for promotional purposes. [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
4.6.4 Except as permitted by Section 4.6.2, promotional
goods and services obtained by TSG under this Section
4.6 [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION] shall not be used by
TSG's employees or by the Strategic Customers for
TSG's other business purposes, such as attending TSG
training sessions.
3
<PAGE> 8
4.7 Initial Goods and Services Credit On September 30, 1996,
American will provide to TSG a credit usable towards TSG's
purchase from American of marketing and promotional goods and
services [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION] TSG may in any of such Contract Years
apply a greater or lesser amount of such credit.
4.8 Annual Credit At the end of the each Contract Year, American
will issue to TSG a credit [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION] which TSG may, not
withstanding paragraph 2(c) of Schedule A, apply in TSG's
discretion against the amounts owed to American under Section
8.1 of this Agreement.
4.9 Quarterly Reporting At the end of each calendar quarter, and
at the end of each calendar year, American will advise TSG of
the Value of the promotional goods and services provided by
American during that period.
4.10 Joint Sponsorship of Events American and TSG will jointly
participate in and sponsor various events, functions and
activities, including, but not limited to: (i) American and
TSG's annual global sales events, (ii) American and TSG's
regional conferences, (iii) promotional events, functions and
activities for American and TSG top accounts (e.g., American's
Executive Business Council, National Accounts functions, TSG's
top account functions, etc.), (iv) various American and TSG
local customer events, functions and activities, (v) special
event tickets for Strategic Customer entertainment (e.g., NCAA
Basketball Final Four, World Cup, etc.), (vi) sponsorship of
recognition or familiarization trips for key customers
(American will provide transportation of key customers and
other items at the discretion of the Managing Director of its
Passenger Sales organization), (vii) TSG sponsorship,
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] of recognition events, functions and activities
for American's top Passenger Sales employees. Joint
participation and sponsorship in such events, functions and
activities includes participation in the events, providing
financial support, training, promotional materials, and other
goods and services as mutually agreed from time to time.
4.10.1 American and TSG will each budget [CONFIDENTIAL
PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] during each Contract Year to fund its
participation and events, functions and activities of
the types described in Section 4.10. American and
TSG will agree as part of their annual budgeting
processes on the types of events, functions and
activities they will jointly sponsor and in which
they will jointly participate, and the level of
funding to be allocated to each events, functions and
activities. If American and TSG are unable to agree
on the events, functions and activities that they
will jointly fund during a Contract Year, then
4
<PAGE> 9
each Party will provide to the other Party
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION] funding for events, functions
and activities chosen by the other Party,
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION]
5 BTS Support In support of TSG's marketing of BTS, each of American
and TSG will provide during the BTS Support Period the marketing and
promotional support described in this Section 5 and specified as its
obligation.
5.1 Participation in other Corporate Direct Systems American will
not market, endorse or promote any Corporate Direct System
other than BTS. American will not provide to any other
Corporate Direct System any of the marketing support described
in Section 5. Nothing in this Agreement will prevent
American from: (i) having its products and services displayed
or listed in any Corporate Direct System, and (ii) authorizing
any Corporate Direct System to use American's trademarks and
tradenames in connection with advertising American's
participation in such Corporate Direct System.
5.2 Level of Support During November of each Contract Year, the
Representatives of each Party shall meet and the Parties shall
negotiate regarding methods to be employed during the next
Contract Year for incentivizing Corporate Customers to make
their Bookings through SABRE using BTS. If the Parties fail
to agree upon such methods, then such failure shall
constitute a Dispute that shall be resolved through the
Dispute Resolution Procedures and, pending such resolution,
the Parties shall continue to employ the methods upon which
they most recently agreed.
5.3 Marketing and Licensing Agent The Parties will negotiate and
execute a BTS License Agreement under which TSG will designate
American as its non-exclusive marketing and licensing agent
for BTS and will grant to American the non-exclusive,
world-wide right to market and license BTS, at American's
option, either in the name of and on behalf of TSG, or in
American's own name as a sublicensor, to Corporate Customers
pursuant to a form of BTS end user license agreement that is
mutually acceptable to TSG and American. Except as provided
in the BTS License Agreement, American agrees not to sell,
license, distribute or otherwise commercially exploit BTS,
during the BTS Support Period.
5.4 American Supplied Functionality American will grant to TSG
during the BTS Support Period the right to access American
information, inventory and functions for management of
corporate travel, excluding all American information and
applications that provide access to inventory not generally
viewable to and bookable by Travel Agents or the general
public. [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION]
5
<PAGE> 10
5.5 AAdvantage Miles Subject to American and TSG executing a
mutually agreeable AAdvantage Participation Agreement,
American will sell AAdvantage miles to TSG [CONFIDENTIAL
PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION] TSG
may use those AAdvantage miles under the same terms and
conditions as are then applicable to AAdvantage participants
with similar volumes of AAdvantage miles purchases.
6 SI Support In support of TSG's marketing of the SI Products, each of
American and TSG will provide during the SI Support Period the
marketing and promotional support described in this Section 6 and
specified as its obligation.
6.1 Participation in other Consumer Direct Systems Nothing in
this Agreement will prevent American from: (i) having its
products and services displayed or listed in any Consumer
Direct System, (ii) authorizing any Consumer Direct System to
use American's trademarks and tradenames in connection with
advertising American's participation in such Consumer Direct
System; and (iii) endorsing another Consumer Direct System in
any manner.
6.2 American Supplied Functionality [CONFIDENTIAL PORTION OMITTED
AND FILED SEPARATELY WITH THE COMMISSION] TSG will not
publish, disclose, cache or distribute NetSAAvers Program
fares. American may change or discontinue the NetSAAvers
Program at any time.
6.3 Promotional Tickets [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION] Such tickets shall be used by
TSG solely for purposes of promoting the SI Products.
6.4 AAdvantage Miles Subject to American and TSG executing a
mutually agreeable AAdvantage Participation Agreement,
American will sell AAdvantage miles to TSG [CONFIDENTIAL
PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION] TSG
may use these AAdvantage miles solely to promote AA Bookings
by AAdvantage members through SI Products [CONFIDENTIAL
PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION] Any
other TSG promotions targeted to American's AAdvantage members
using these [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION] miles will require prior approval of
American, which American may withhold in its discretion. If
American elects not to support a specific promotion to
AAdvantage members requested by TSG, TSG will have the right
to buy AAdvantage miles [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION] subject to the terms of
the AAdvantage Participation Agreement, TSG may use those
AAdvantage miles under the same terms and conditions as are
then applicable to AAdvantage participants with similar
volumes of AAdvantage miles purchases.
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6.5 Joint Development [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION] Any development costs related
to requirements unique to one Party will be fully funded by
that Party.
7 Market Share Information (MIDT) TSG will use the MIDT information as
specified in Schedule A in order to measure market share and to
quantify the benefits of American's marketing and promotional support
efforts under this Agreement.
7.1 Source of MIDT Information [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION]
7.1.1 If TSG is not able to obtain such MIDT information,
and if American is able to obtain such MIDT
information [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION] and if American is
permitted to disclose the MIDT information to TSG,
then, subject to Section 7.1.2, American will acquire
the MIDT information and will provide the MIDT
information to TSG monthly. [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
7.1.2 If American is unable to share such MIDT information
with TSG in detail, and if American is permitted to
disclose summary MIDT information to TSG, then
American will acquire, process and store the MIDT
information and will provide summary MIDT information
to TSG monthly, according to TSG's specifications and
as necessary [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
7.2 MIDT Information System In the event that American provides
MIDT information to TSG as described in Section 7.1.27.1.2,
American or its designee will, at TSG's expense, develop and
operate a system, if necessary, to calculate from such MIDT
summary information the number of all Bookings for each CRS
system included in such MIDT summary information, summed at
the regional and divisional level. American will also
monitor, at TSG's expense, and inform TSG of, changes that may
affect MIDT information so that American can properly maintain
and enhance the booking share measurement system as necessary.
7.3 American Processing Services American will provide to TSG
processing services at a level equivalent to the level of
processing services provided by American to TSG prior to the
Effective Date regarding the MIDT information. [CONFIDENTIAL
PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
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<PAGE> 12
8 Payments For the marketing and promotional support provided by
American under this Agreement, TSG will pay to American the amounts
specified in this Section 8.
8.1 Professional SABRE Support Payments For American's marketing
support of Professional SABRE as described in Section 4, TSG
will pay American the amounts calculated in accordance with
Schedule A to this Agreement.
8.2 BTS Support Payments For American's marketing support of BTS
as described in Section 5, TSG will pay American the amounts
calculated in accordance with Schedule B to this Agreement.
8.3 SI Products Support Payments For American's marketing support
of SI Products as described in Section 6, TSG will pay
American the amounts calculated in accordance with Schedule C
to this Agreement.
8.4 Payment Terms The preparation of statements for, and payment
schedule for, the services provided by American in connection
with (i) the support of Professional SABRE will be as set
forth on Schedule A, (ii) the support of BTS will be as set
forth on Schedule B, (iii) the support of SI Products will be
as set forth on Schedule C.
8.5 Interest on Late Payments Any amounts (excluding Taxes) not
paid when due will thereafter bear interest until paid at an
annual rate that is equal to the lesser of (i) the highest
rate allowed by applicable law and (ii) two percentage points
above the prime rate, as reported in the Wall Street Journal
from time to time.
8.6 Billing Disputes Each Party will have 90 days after the date
each statement was provided in which to verify the accuracy
and completeness of that statement, including the information
provided by each Party that was used to calculate that
statement (including any MIDT information). Any objection to
that statement by either Party must be submitted to the
Dispute Resolution Procedure within 90 days after the date
that statement was provided or any claim based on that
objection shall be waived. Each of TSG and American will have
the right to have an independent third party auditor review
the books and records of the other Party to the extent
reasonably required to verify the accuracy and completeness of
the information provided by the other that was used to
calculate any payments due under this Agreement.
9 Taxes
9.1 Indemnification for Certain Taxes Each of American and TSG
shall be responsible for [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION] the Taxes, imposed on,
based on, or measured by any transfer of services (except
transportation and AAdvantage miles) by one Party to the other
pursuant to this Agreement; provided, however, if a government
tax authority
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<PAGE> 13
assesses either Party for any service provided under this
Agreement (or otherwise so notifies either Party in writing of
the taxability of any such service) then starting with
purchases of such services made six months after the date of
such assessment (or such written notice), the Party purchasing
such service shall be responsible for [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION] the Taxes on
such future services purchased by it under this Agreement.
The purchasing Party shall be responsible for [CONFIDENTIAL
PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION] the
Taxes, imposed on, based on, or measured by any transfer of
property, transportation, or AAdvantage miles by one Party to
the other pursuant to this Agreement.
9.1.1 Notwithstanding the foregoing, neither Party shall
have any liability to the other for: (a) Taxes
incurred or arising with respect to any transaction
occurring after the termination of this Agreement;
(b) penalties resulting from tax return positions
taken by the Party being indemnified that are
unrelated to this Agreement, or from the willful
misconduct or gross negligence of the Party being
indemnified; (c) Taxes either not yet due and payable
or (unless payment is a condition to contest) being
contested in accordance with Section 9.3; or (d)
taxes based on or measured by the net income,
capital, net worth of the indemnified Party, or
franchise or similar taxes of the indemnified Party.
9.2 Property Taxes Subject to other leases and agreements, each
of TSG and American is responsible for the reporting and
payment of any ad valorem taxes due on property owned by it or
leased by it from a third party.
9.3 Contested Assessments If one Party (the "Tax Indemnitee")
receives notice from any taxing authority with respect to an
assessment or potential assessment or imposition of any Tax
("Tax Notice") that the other Party would be responsible for
indemnifying in whole or in part pursuant to Section 9.1 (the
"Assessed Taxes"), the Tax Indemnitee shall promptly provide
the other Party with a copy of such Tax Notice, and, at the
request of the other Party, shall timely contest the
assessment of the Assessed Taxes and diligently pursue such
contest until such assessment has been upheld by a decision of
an appellate court. If the other Party is liable to indemnify
the Tax Indemnitee for 100% of the Assessed Taxes under this
Agreement, then the cost of contesting that issue shall be
borne 100% by the other Party, who may direct the contest of
that issue. If the other Party is liable to indemnify the Tax
Indemnitee for 50% of the Assessed Taxes under this Agreement,
the cost of contesting that issue shall be borne 50% by the
other Party and in such situations the Tax Indemnitee shall
have the right to control the contest with respect to that
issue. Either Party may, or may require the other Party to,
settle the contest with respect to that issue, or withdraw the
issue from contest provided the Party requesting settlement or
withdrawal agrees to pay 100% of the Assessed Taxes assessed
or settled upon, and
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<PAGE> 14
further provided that any settlement is limited to the
Assessed Taxes and period at issue. Any Tax Notice provided by
either Party to the other Party under this Section 9.3 shall
also be copied directly to the tax department of that other
Party c/o the "Director of Taxes" at the other Party's address
for Notice.
9.4 Tax Refunds Either Party may in good faith require the other
to choose and do one of the following: (a) apply for and
diligently pursue a refund of Taxes otherwise subject to
indemnification by the requiring Party under Section 9.1, (b)
if permitted by law, assign its rights to a refund claim to
the requiring Party, (c) pay to the requiring Party an amount
equal to the Taxes paid by the requiring Party which would
have been subject of a refund claim with interest at the
statutory refund rate, or (d) follow the Dispute Resolution
Procedure and pay to the requiring Party the amount the
arbitrator determines is reflective of the weighted
probability of success of recovery of Taxes (with no reduction
for attorneys' fees) had the claim been pursued at the
judicial level until the result had been determined by the
decision of an appellate court. Except for clause (c) under
this Section 9.4 the Parties shall share in any refund (or
amount rewarded under clause (d) of this Section 9.4) of Taxes
paid under this Agreement in proportion to their share of
payment of such Taxes refunded.
9.5 Cooperation Each Party shall, at the expense of the requiring
Party, unless otherwise stated, provide the other with such
cooperation as such other Party may reasonably request in
contesting any Taxes and in minimizing Taxes incurred in
connection with this Agreement. All actions taken by either
Party pursuant to this Section 99 must be founded on a
reasonable tax position, and, the other Party at its expense,
may require the Party taking such action to either reverse its
actions or produce written advice of counsel (reasonably
acceptable to both Parties) that such action is in good faith
and based upon a position that is reasonable under the tax
laws.
9.6 No Other Tax Indemnity Section 9 contains the exclusive
allocations pursuant to this Agreement of responsibilities
between, and indemnification obligations of, the Parties
regarding Taxes, it being the intent of the Parties that
Section 15 does not apply to Taxes.
9.7 Taxes and Dispute Resolution Disputes between the Parties
concerning Section 9 are subject to the Dispute Resolution
Procedure; provided, however, that Disputes as to the amount
of Tax, if any, owed to a taxing authority (including disputes
between a Party and a taxing authority) may be resolved by any
appropriate administrative or legal procedure available to the
Parties under this Agreement but without regard to any
provisions of the Dispute Resolution Procedure.
9.8 Survival The indemnity obligations under Section 9.1 shall
continue on and after expiration or the termination of this
Agreement.
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<PAGE> 15
10 Confidentiality
10.1 Confidential Information Except as otherwise provided in this
Agreement or agreed to by the Parties, the following
information obtained by a Party from the other Party is
proprietary and confidential information of the disclosing
Party (the "Confidential Information"): (a) Information
relating to the disclosing Party's business, financial
condition or performance, or operations that the disclosing
Party treats as confidential or proprietary; (b) Copies of
records and other information obtained from a Party's
examination of the disclosing Party's records under Section
8.6; (c) The terms and performance of, any breach under, or
any Dispute regarding, this Agreement; (d) The Parties'
conduct, decisions, documents, and negotiations as part of,
and the status of, any Dispute resolution proceedings under
the Dispute Resolution Procedure; (e) Any other information,
whether in a tangible medium or oral and whether proprietary
to the other Party or not, marked or clearly identified by the
disclosing Party as confidential or proprietary. TSG
acknowledges and agrees that the list of Current American
Accounts attached as Exhibit A-2 is the Confidential
Information of American.
10.2 Use of Confidential Information Neither Party may use any of
the other Party's Confidential Information other than as
required to perform its obligations or exercise its rights and
remedies, including as part of the resolution of any Dispute
or of a tax audit or dispute, under this Agreement.
10.3 Excluded Information A Party has no obligation under this
Section 10 regarding any information, including information
that would otherwise be Confidential Information, to the
extent that the information: (a) is or becomes publicly
available or available in the industry other than as a result
of any breach of this Agreement or any other duty of that
Party; or (b) is or becomes available to that Party from a
source that, to that Party's knowledge, is lawfully in
possession of that information and is not subject to a duty of
confidentiality, whether to the other Party or another entity,
violated by that disclosure.
10.4 Standard of Care Each Party shall use the same degree of care
in maintaining the confidentiality and restricting the use of
the other Party's Confidential Information as that Party uses
with respect to its own proprietary or confidential
information, and in no event less than reasonable care.
10.5 Permitted Disclosures A party may disclose Confidential
Information to its officers, directors, agents, or employees
as necessary to perform any obligation or exercise any right
under this Agreement. Each Party shall inform each of those
persons to whom any Confidential Information is communicated
of the obligations regarding that information under this
Section 10 and impose on that person the obligation to keep
the Confidential Information confidential. Each Party shall
be responsible for any breach of that Party's obligations
under this Section 10 by its officers, directors, agents, or
employees.
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<PAGE> 16
10.6 Required Disclosures Each Party may disclose Confidential
Information in response to a request for disclosure by a court
or another governmental authority, including a subpoena, court
order, or audit-related request by a taxing authority,
subject to the requirements that such Party: (a) promptly
notifies the other Party of the terms and the circumstances of
that request; (b) consults with the other Party, and
cooperates with the other Party's reasonable requests, to
resist or narrow that request; (c) furnishes only information
that, according to written advice (which need not be a legal
opinion) of its legal counsel, that Party is legally compelled
to disclose; and (d) uses its reasonable efforts to obtain an
order or other reliable assurance that confidential treatment
will be accorded the information disclosed.
10.6.1 A Party need not comply with the conditions to
disclosure in Section 10.6 to the extent that (a) the
request or order of the governmental authority in
effect prohibits that compliance; or (b) on the
advice of legal counsel, it is otherwise legally
obligated to do so (for example, to comply with
applicable securities laws) or (c) it is necessary to
do so to defend that Party's tax position before, or
respond to any tax audit inquiry from, a governmental
authority.
10.7 Title to Information Confidential Information of a Party
disclosed by it to the other Party under this Agreement shall
remain the property of the disclosing Party. Except as
expressly granted in Section 10.2, nothing in this Agreement
grants or conveys to the other Party any ownership or other
rights in any Confidential Information of the other Party.
10.8 Return of Confidential Information Upon request of the
disclosing Party, the other Party shall return or, if
requested by the disclosing Party, shall destroy Confidential
Information of the disclosing Party in the other Party's
possession. The return or destruction (i) shall include
removal or deletion of Confidential Information from all data
bases and magnetic media of the other Party, and (ii) need not
be effected to the extent that it would be impractical or
unduly burdensome to effect.
10.9 Survival The obligations under Section 10 shall continue on
and after the expiration or termination of this Agreement.
11 Trademarks Each of American and TSG hereby grants to the other Party
during the relevant Support Period a license (or sublicense to the
extent permitted by any head license) to use and publish in
promotional and other similar materials, solely to the extent
reasonably required to perform its obligations under this Agreement,
the logos, tradenames, trademarks and service marks owned by or
licensed to the licensor.
11.1 Right to Approve Use Prior to either Party using the other
Party's proprietary marks on or in connection with any new
material in written or electronic form, the Party desiring to
use the marks will deliver to the other Party a copy of the
new written or electronic
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material for the other Party's review and approval in its sole
discretion. Any failure to approve or disapprove the material
within 10 business days of receipt will be deemed an approval
of that material. Neither Party may alter in any manner the
proprietary marks of the other. All goodwill associated with
any mark will be owned by the Party that is the licensor of
said mark.
12 Performance Review A designated Representative of American and a
designated Representative of TSG will meet as often as shall
reasonably be requested by either Party to review the performance of
the Parties under this Agreement. Each Party will bear its own costs
and expenses incurred in connection with such review.
13 Dispute Resolution Except to the extent provided in Section 9,
American and TSG agree to resolve all Disputes in accordance with the
Dispute Resolution Procedure, and American and TSG shall not exercise
any right of termination under Section 14.1 or Section 14.2 until the
Dispute Resolution Procedure has been followed.
14 Termination
14.1 Termination for Cause In the event that either Party
materially breaches this Agreement (except for a breach of
payment obligations hereunder), which breach is not
substantially cured within sixty (60) days after written
Notice is given to the breaching Party specifying the breach,
then the Party not in breach may, by giving written Notice
thereof to the breaching Party, terminate this Agreement in
whole, or terminate the Support Period that is related to the
area of support that is the subject of the breach, as of a
future date specified in such Notice of termination.
14.2 Termination for Nonpayment In the event that TSG breaches its
obligation to pay to American any amount due to American
hereunder and does not cure such breach within fifteen (15)
days after being given written Notice of such breach, then
American may, by giving written Notice thereof to TSG,
terminate this Agreement in whole, or terminate the Support
Period that is related to the area of support that is the
subject of the breach, as of a future date specified in such
Notice of termination.
14.3 Termination for Insolvency In the event that either Party is
unable to pay its debts generally as they come due or is
declared insolvent or bankrupt, is the subject of any
proceedings relating to its liquidation, insolvency or for the
appointment of a receiver or similar officer for it, makes an
assignment for the benefit of all or substantially all of its
creditors, or enters into an agreement for the composition,
extension, or readjustment of all or substantially all of its
obligations, then the other Party may, by giving written
Notice thereof to such Party, terminate this Agreement as of a
future date specified in such Notice of termination.
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14.4 Nonexclusive Remedy The termination rights under this Section
14 are not exclusive of any other equitable or legal right or
remedy of a non-breaching Party, including any right or remedy
granted in this Agreement.
15 Indemnities
15.1 Cross Indemnity TSG and American each agree to indemnify,
defend and hold harmless the other from any and all Losses
arising out of (i) the death or bodily injury of any agent,
employee, customer, business invitee or business visitor of
the indemnitor, or (ii) the damage, loss or destruction of any
real or tangible personal property of the indemnitor.
15.2 Marketing Indemnity To the extent that a Party incurs Losses
as the result of or in connection with any litigation, civil
or criminal investigation or similar proceeding arising out of
either Party's good faith performance of its marketing
obligations hereunder, and except for Losses described in
Section 15.3, such Losses shall be equitably allocated between
the Parties in accordance with the economic benefits to each
Party under this Agreement and the other Party shall indemnify
the Party suffering such Losses in accordance with such
allocation.
15.3 Infringement Indemnity Each Party agrees to indemnify, defend
and hold harmless the other Party from any and all Losses
arising out of any claims of infringement of any patent, or a
trade secret, or any copyright, trademark, service mark, trade
name or similar proprietary rights conferred by contract or by
common law or by any law of the United States or any state
alleged to have occurred because of systems provided or work
performed by the indemnitor; provided, however, that this
indemnity will not apply to the extent the indemnifying Party
is prejudiced by the Party claiming indemnification failing to
timely notify the other of any matters in respect of which the
foregoing indemnity may apply and of which the notifying Party
has knowledge and gives the other full opportunity to control
the response thereto and the defense thereof, including,
without limitation, any agreement relating to the settlement
thereof.
16 Limitation of Liability In the event that either Party shall be
liable to the other Party on account of the liable Party's performance
or nonperformance of its obligations under this Agreement, whether
arising by negligence, intended conduct, or otherwise, the measure of
damages shall not include any amounts for indirect, consequential or
punitive damages of any Party. Notwithstanding the foregoing, in the
event of the termination by TSG of this Agreement or the Professional
SABRE Support Period or the BTS Support Period pursuant to Section
14.1 hereof, American will be liable to TSG for any consequential
damages incurred by TSG as a result of the willful or intentional
breach of this Agreement by American that gave rise to TSG's right of
termination, [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH
THE COMMISSION]
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<PAGE> 19
17 Equitable Relief To the extent that monetary relief is not a
sufficient remedy for any breach of this Agreement, or upon any
impending breach of Section 10 the non-breaching Party shall be
entitled to injunctive relief as a remedy for that breach or impending
breach by the other Party, in addition to any other remedies granted
to the non-breaching Party in this Agreement. That injunctive relief
shall be sought through arbitration in accordance with Attachment B.
18 Miscellaneous
18.1 Notices All notices, requests, demands, and other
communications to be given or delivered under or by reason of
the provisions of this Agreement shall be in writing and shall
be deemed given (i) on the date sent, when sent by facsimile
or delivered personally against receipt, (ii) on the next
business day when sent by overnight Federal Express, Express
Mail or similar service and (iii) on the third business day
after being mailed when mailed by certified first class mail,
return receipt requested, to each Party at the following
address (or to such other address as that Party may have
specified by notice given to the other pursuant to this
provision):
If to TSG:
The SABRE Group, Inc.
4200 American Way Boulevard
Mail Drop 3430
Fort Worth, Texas 76155
Facsimile Number: 817/931-1652
Attention: President - STIN
with copy (that will not serve as the official
Notice) to: President - SABRE Interactive
If to AA:
American Airlines, Inc.
4333 Amon Carter Boulevard
Mail Drop 5276
Fort Worth, Texas 76155
Facsimile Number: 817/967-1651
Attention: Vice-President - Pricing and Yield Management
with copy (that will not serve as the official Notice)
to: Vice-President - Passenger Sales
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<PAGE> 20
18.2 Assignment This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the Parties
and their respective successors and permitted assigns, but
neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any Party without
the prior written consent of the other Party, which may not be
unreasonably withheld. As a condition to any assignment, the
surviving entity shall be required to assume and agree to be
bound by the obligations and provisions of this Agreement to
the same extent that it would have been bound had it been an
original Party to this Agreement and at the discretion of the
non-assigning Party may be required to demonstrate to the
reasonable satisfaction of the non-assigning Party that it can
fully perform its obligations under this Agreement.
18.2.1 [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION]
18.3 Severability Whenever possible, each provision of this
Agreement will be interpreted in such a manner as to be
effective and valid under applicable law, but if any provision
of this Agreement is held to be prohibited by or invalid under
applicable law, such provision will be deemed restated to
reflect the original intentions of the Parties as nearly as
possible in accordance with applicable law, and, if capable of
substantial performance, the remaining provisions of this
Agreement shall be enforced as if this Agreement was entered
into without the invalid provision.
18.4 Compliance with Laws The Parties shall comply with all
applicable laws and no Party shall perform any act, or fail to
perform any act, or be obligated to perform any act that could
either (i) result in any violation of any applicable law or
any governmental or quasi-governmental directive, policy or
guideline, including the finding of a violation on the
grounds that any act, accommodation or payment made by one
Party to the other constitutes an unlawful, discriminatory
preference or payment, or (ii) result in any material fine,
penalty or sanction. If any accommodation previously
provided, or payment previously made, by one Party to the
other Party shall be found to constitute a violation of any
law, directive, policy or guideline, the Party that benefited
from such accommodation or payment shall promptly refund to
the other Party the amount of such accommodation or payment.
18.5 Subsequent Events If any event described in Section 18.5.1,
Section 18.5.2, Section 18.5.3 or Section 18.5.4 occurs, then
the Parties will commence consultation within thirty (30) days
after such event in order to determine what, if any, changes
to this Agreement are necessary or appropriate in order to
preserve the expectations of the Parties as of and from the
Effective Date, including, but not limited to any amendment of
this Agreement, early termination of this Agreement, or the
increase or reduction of any payments hereunder. If the
Parties are unable to agree whether any such changes are
necessary, or to the terms of such changes, and if such
failure to reach agreement shall continue for a period of
thirty (30) days following the commencement of the
consultations provided for
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<PAGE> 21
herein, then the Party adversely affected by the change
described above may submit its proposed amendments for
arbitration in accordance with Attachment B.
18.5.1 Any material change in, or material change in the
interpretation or enforcement of, the statutes,
rules, regulations or orders of the U.S. Department
of Transportation or any other United States or other
government's agency or department of government
having jurisdiction over the regulation of the
marketing of air transportation or CRS services,
which change effects the marketing, provision or
operation of air transportation or CRS services, and
which change will, or is likely to, substantially
increase or impede either Party's performance
obligations hereunder or under any other agreement to
which it is a party, or substantially decrease the
benefit to a Party of the other Party's performance
hereunder or under any other agreement to which it is
a party, or require either Party to extend to any
third party any product or service provided hereunder
on terms no less favorable than those provided
hereunder.
18.5.2 If American, in its sole discretion, determines that
its continued performance of its obligations
hereunder will result in increased risks to American,
then American may cease performance of those
obligations that it has determined, in its sole
discretion, will result in that increased risk.
18.5.3 If TSG, in its sole discretion, determines that
American's continued performance of its obligations
hereunder will result in increased risks to TSG, then
American, at TSG's request, will cease performance of
those obligations that TSG has determined, in its
sole discretion, will result in that increased risk.
18.5.4 If either Party is required to refund to the other
Party any accommodation or payment pursuant to
Section 18.4.
18.6 Attorneys' Fees In the event attorneys' fees or other
out-of-pocket costs are incurred in connection with any
litigation arising out of or relating to this Agreement,
other than in connection with a mediation or an arbitration
contemplated by Attachment B hereto, to secure performance of
any of the obligations herein provided for, or to establish
damages for the breach thereof, or to obtain any other
appropriate relief, whether by way of prosecution or defense,
the prevailing Party shall be entitled to recover reasonable
attorneys' fees and out-of-pocket costs incurred therein.
18.7 Captions The captions used in this Agreement are for
convenience of reference only and do not constitute a part of
this Agreement and will not be deemed to limit, characterize
or
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<PAGE> 22
in any way affect any provision of this Agreement, and all
provisions of this Agreement will be enforced and construed as
if no caption had been used in this Agreement.
18.8 Counterparts This Agreement may be executed in one or more
counterparts all of which taken together will constitute one
and the same instrument.
18.9 Relationship of Parties Each Party is an independent
contractor working for itself and this Agreement shall not
constitute or be considered to create a partnership, joint
venture, agency, or employee and employer relationship between
the Parties. Neither Party shall have the power or authority
to bind or obligate the other Party, to make any monetary
commitment on behalf of the other Party or to compromise or
settle any dispute involving the other party without the
express prior written consent of the other Party. Neither
Party shall represent itself to be an agent or partner of the
other Party.
18.10 Non-Competition Agreement Each Party agrees that it will be
bound by and comply with its obligations under the
Non-Competition Agreement, dated as of July 1, 1996, among AMR
Corporation, American, TSG Corporation and TSG, which was
negotiated as part of and was considered as an essential part
of this Agreement and that each of American and TSG relied on
the covenants contained therein in entering into this
Agreement.
18.11 Third-Party Consents Each Party shall be responsible for
obtaining and maintaining any licenses, permits, consents, or
approvals of governmental authorities and other third parties
necessary or appropriate for it to perform its obligations
under this Agreement.
18.12 Approvals and Similar Actions Where agreement, approval,
acceptance, consent or similar action by either Party is
required by any provision of this Agreement, such action shall
not be unreasonably delayed or withheld.
18.13 Force Majeure If either Party is prevented, hindered, or
delayed in the performance or observance of any of its
obligations hereunder by reason of any circumstance beyond its
reasonable control, and such delay could not have been
prevented by reasonable precautions, then such Party shall be
excused from any further performance or observance of the
obligation(s) so affected for as long as such circumstances
prevail and such Party continues to use its best efforts to
recommence performance or observance whenever and to whatever
extent possible without delay.
18.14 Modification and Waiver This Agreement may be modified only
by a written instrument duly executed by or on behalf of each
Party. No delay or omission by either Party to exercise any
right or power hereunder shall impair such right or power or
be construed to be a waiver thereof. A waiver by either of
the Parties of any of the other's obligations hereunder or any
breach thereof will not be construed to be a waiver of any
succeeding breach thereof or of any other obligation
hereunder.
18
<PAGE> 23
18.15 Governing Law The laws of the State of Texas (other than the
choice of law rules) will govern all questions concerning the
construction, validity, enforceability and interpretation of
this Agreement and the performance of the obligations imposed
by this Agreement.
THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.
19
<PAGE> 24
IN WITNESS WHEREOF, American and TSG have each caused this Marketing
Cooperation Agreement to be signed and delivered by its duly authorized
representative, all as of the Effective Date.
THE SABRE GROUP, INC. AMERICAN AIRLINES, INC.
By: /s/ Michael J. Durham By: /s/ Donald J. Carty
----------------------- --------------------------
Name: Michael J. Durham Name: Donald J. Carty
Title: President Title: President
20
<PAGE> 25
SCHEDULE A
PROFESSIONAL SABRE SUPPORT PAYMENTS
1 Up-front Professional SABRE Support Payment. In consideration of the
marketing and promotional support services provided during the period
from January 1, 1996 to June 30, 1996 by American to its operating
divisions now contained in TSG, TSG will pay to American a one-time
payment of [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] at the beginning of the first Contract Year.
2 Recurring Professional SABRE Support Payment. The recurring charge
from American to TSG for the support provided in connection with
Professional SABRE will be calculated and paid as follows:
(a) TSG will pay to American a monthly payment during the
Professional SABRE Support Period in accordance with the
following:
(1) On the last day of each month of the initial Contract
Year during the Professional SABRE Support Period,
TSG will pay to American an amount equal to
one-twelfth (1/12) of the Adjusted Base Payment for
that Contract Year.
(2) On the last day of each of the first six months of
each Contract Year (other than the initial Contract
Year) during the Professional SABRE Support Period,
TSG will pay to American an amount equal to
one-twelfth (1/12) of the Adjusted Base Payment for
the prior Contract Year.
(3) On the last day of each of the last six months of
each Contract Year (other than the initial Contract
Year) during the Professional SABRE Support Period,
TSG will pay to American an amount equal to
one-twelfth (1/12) of the Adjusted Base Payment for
that Contract Year.
(b) Prior to August 31 of each Contract Year during the
Professional SABRE Support Period, TSG and American will
jointly calculate the Payment Adjustment. If the Payment
Adjustment is positive, the monthly payment due under Section
2(a) for January 31 of that Contract Year will be increased by
the Payment Adjustment. If the Payment Adjustment is
negative, the monthly payment due under Section 2(a) for
January 31 of that Contract Year will be decreased by the
Payment Adjustment.
(c) [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
A - 1
<PAGE> 26
(d) If at the expiration or termination of the Professional SABRE
Support Period, the total amounts paid by TSG to American
pursuant to this Section 2 exceeds the total of the Adjusted
Base Payments and the Payment Adjustments for all Contract
Years during the Professional SABRE Support Period, American
will reimburse TSG the excess amount within 60 days after the
end of the Professional SABRE Support Period. If at the
expiration or termination of the Professional SABRE Support
Period, the total of the Adjusted Base Payments and the
Adjusted Payments for all Contract Years during the
Professional SABRE Support Period exceeds the total amounts
paid by TSG to American pursuant to this Section 2, TSG will
pay American the excess amount within 60 days after the end of
the Professional SABRE Support Period.
Attached as Exhibit A-1 to this Schedule A are examples of the above
calculation.
3 [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
4 [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
5 [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
6 Alternative Payment Calculation Methods. American and TSG acknowledge that
the availability of [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH
THE COMMISSION] data may change from time to time. If any such change
creates a material impact on the calculation of the payments due under this
Schedule, American and TSG agree to negotiate in good faith to find a
mutually agreeable alternative method of calculating the payments so as to
preserve the original intent of the Parties.
A - 2
<PAGE> 27
EXHIBIT A-1 TO SCHEDULE A
EXAMPLE OF
PROFESSIONAL SABRE SUPPORT PAYMENT CALCULATION
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
2 PAGES REDACTED
A-1 - i
<PAGE> 28
<PAGE> 29
EXHIBIT A-2
CURRENT AMERICAN ACCOUNTS
This Exhibit A-2 contains the list of Current American Accounts as of the
Effective Date
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
14 PAGES REDACTED
A-2 - i
<PAGE> 30
SCHEDULE B
BTS SUPPORT PAYMENTS
1 BTS Support Payment. The fees payable by TSG to American for the
support provided in connection with BTS will be calculated and paid as
follows:
(a) Prior to November 30 of each BTS Contract Year, American and
TSG will jointly determine and prepare a statement for the
Annual BTS Support Payment for the prior BTS Contract Year.
(b) Within thirty days after the statement for the Annual BTS
Support Payment for the initial BTS Contract Year is finalized
and provided to TSG, TSG will pay that amount to American.
(c) On or prior to the last day of each month of each BTS Contract
Year (other than the initial BTS Contract Year) during the BTS
Support Period, TSG will pay to American an amount equal to
one-twelfth (1/12) of the Annual BTS Support Payment for the
prior BTS Contract Year.
(d) If the BTS Payment Adjustment for any BTS Contract Year is
positive, the payment due on or prior to November 30 under
Section 1(c) of this Schedule for that BTS Contract Year will
be increased by that BTS Payment Adjustment. If the BTS
Payment Adjustment for any BTS Contract Year is negative, the
payment due on or prior to November 30 under Section 1(c) of
this Schedule for that BTS Contract Year will be decreased by
that BTS Payment Adjustment.
(e) If at the expiration or termination of the BTS Support Period,
the total amounts paid by TSG to American pursuant to this
Section 1 exceeds the total of the Annual BTS Support Payments
for all BTS Contract Years during the BTS Support Period,
American will reimburse TSG the excess amount within 60 days
after the end of the BTS Support Period. If at the expiration
or termination of the BTS Support Period, the total of the
Annual BTS Support Payments for all BTS Contract Years during
the BTS Support Period exceeds the total amounts paid by TSG
to American pursuant to this Section 1, TSG will pay American
the excess amount within 60 days after the end of the BTS
Support Period.
(f) [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
B - 1
<PAGE> 31
SCHEDULE C
SI PRODUCT SUPPORT PAYMENTS
The fees payable by TSG to American for the support provided in connection with
the SI Products will be calculated and paid as follows:
1 Prior to August 31 of each Contract Year, American and TSG will
jointly determine and prepare a statement for the Annual SI Support
Payment for the prior Contract Year.
2 Within thirty days after the statement for the Annual SI Support
Payment for the initial Contract Year is finalized and provided to
TSG, TSG will pay that amount to American.
3 On or prior to the last day of each month of each Contract Year (other
than the initial BTS Contract Year) during the SI Support Period, TSG
will pay to American an amount equal to one-twelfth (1/12) of the
Annual SI Support Payment for the prior Contract Year.
4 If the SI Payment Adjustment for any Contract Year is positive, the
payment due on or prior to September 30 under Section 3 for that
Contract Year will be increased by that SI Payment Adjustment. If the
SI Payment Adjustment for any Contract Year is negative, the payment
due on or prior to September 30 under Section 3 for that Contract Year
will be decreased by that SI Payment Adjustment.
5 If at the expiration or termination of the SI Support Period, the
total amounts paid by TSG to American pursuant to this Schedule
exceeds the total of the Annual SI Support Payments for all Contract
Years during the SI Support Period, American will reimburse TSG the
excess amount within 60 days after the end of the SI Support Period.
If at the expiration or termination of the SI Support Period, the
total of the Annual SI Support Payments for all Contract Years during
the SI Support Period exceeds the total amounts paid by TSG to
American pursuant to this Schedule, TSG will pay American the excess
amount within 60 days after the end of the SI Support Period.
6 [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
C - 1
<PAGE> 32
ATTACHMENT A
DEFINED TERMS
As used in this Agreement, including the Annexes, Attachments and Schedules
thereto, the following defined terms shall have the meanings ascribed to them:
"AA BOOKING" means a Booking for a Segment under the IATA-issued designator
code for American Airlines, which is currently "AA", whether operated by
American or by another carrier.
"AA/BTS BOOKING" means an AA Booking (but only on flights operated by American
or American Eagle) made through BTS where the EPR Create City (Home Station) is
a BTS pseudo city code location. The key used to identify these bookings will
be based on assigning a BTS account type (e.g., "BT") for that pseudo city code
location.
"ADJUSTED BASE PAYMENT" means [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]; and (ii) with respect to each Contract Year
thereafter, the total amounts payable by TSG to American during the prior
Contract Year pursuant to Sections 2(a) and 2(b) of Schedule A.
"ADJUSTED BOOKINGS GROWTH" means, with respect to any given period, an amount
determined by the formula: [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION]
"ADJUSTED AMERICAN ACCOUNT BOOKINGS" means, with respect to any given period,
an amount equal to the American Account Bookings for that period of time
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
"AMERICAN" means American Airlines, Inc., a Delaware corporation.
"AMERICAN ACCOUNT BOOKINGS" means, with respect to any given period, all
Bookings that are created in or routed through SABRE by Current American
Accounts, plus all Bookings secured to a Current American Account location,
minus any AA/BTS Bookings and any SI Bookings.
A - 1
<PAGE> 33
"ANNUAL BTS SUPPORT PAYMENT" means, with respect to each BTS Contract Year, the
amount indicated below, based on the aggregate number of AA/BTS Bookings during
that BTS Contract Year (excluding AA/BTS Bookings in any jurisdiction where it
is not legally permissible for American to market BTS):
Total BTS Contract Annual BTS
Year AA/BTS Bookings Support Payment
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
"ANNUAL SI SUPPORT PAYMENT" means, with respect to each Contract Year, the
amount indicated below, based on the aggregate number of SI Bookings during
that Contract Year:
Total Contract Annual SI
Year SI Bookings Support Payment
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
"ARBITRATION RULES" means the Rules for Commercial Arbitration of the American
Arbitration Association in effect at the time of an arbitration in accordance
with Attachment B.
"ARC NUMBER" means an account number issued by the Airline Reporting
Corporation or by the International Air Transport Association to an individual
or entity for the purpose of authorizing such individual or entity to operate
as a travel agency.
"BOOKING" means a Segment reservation in SABRE which obligates a Participant to
pay a Booking Fee, less Segments canceled prior to the Segment Activity Date.
"BOOKING FEE" means the amount per Segment charged by STIN to Participants for
Bookings made through SABRE, as adjusted pursuant to Section 1(f) of Schedule
B.
"BTS" means the corporate travel management software marketed by TSG that is
referred to as Business Travel Solutions, including any versions thereof that
may be marketed under other names, as such software exists as of the Effective
Date and as it may be modified after the Effective Date.
"BTS CONTRACT YEAR" means each twelve month period (or such lesser period, if
the term of this Agreement terminates during the twelve month period)
commencing on October 1 of each year during the BTS Support Period.
"BTS PAYMENT ADJUSTMENT" means, with respect to each BTS Contract Year, the
Annual BTS Support Payment for the immediately preceding BTS Contract Year (the
"Prior BTS Contract Year") minus the Annual BTS Support Payment for the BTS
Contract Year immediately preceding the Prior BTS Contract Year.
A - 2
<PAGE> 34
"BTS REVENUE" means, with respect to the Savings Measurement Period, an amount
equal to the total ticketing revenue from all AA/BTS Bookings during the
Savings Measurement Period.
"BTS SUPPORT PERIOD" means the period of time beginning October 1, 1996 and
expiring on September 30, 2001, unless it is extended or terminated in
accordance with the terms of this Agreement.
"COMPLEX DISPUTE LIST" means the Complex Dispute List then maintained by the
American Arbitration Association or, if not maintained, another list of
individuals having similar qualifications.
"CONFIDENTIAL INFORMATION" will have the meaning ascribed thereto in Section 10
of the Agreement.
"CONTRACT YEAR" means each twelve month period (or such lesser period, if the
term of this Agreement terminates during the twelve month period) commencing on
July 1 of each year during the Term.
"CONSUMER DIRECT SYSTEM" means application software or an Internet or on-line
service (but specifically excluding Corporate Direct Systems) that is
principally marketed to end-users of travel-related services and which
connects such end-users directly to a Travel Distribution System.
"CORPORATE AGREEMENT" means any written and manually signed agreement between
American and any company or business entity contracting for scheduled air
travel on American on behalf of its employees at agreed upon discounts,
excluding military, government, charter, and single event travel agreements.
"CORPORATE CUSTOMER" means a company or entity that has entered into a
Corporate Agreement with American.
"CORPORATE DIRECT BOOKINGS" means (i) all airline Segment Bookings made through
Corporate Direct Systems, or (ii) total AA Bookings through Corporate Direct
Systems if, at the time of measurement, American and TSG are unable to clearly
identify all Bookings made through Corporate Direct Systems.
"CORPORATE DIRECT SYSTEM" means a Travel Distribution System that is integrated
with desktop travel management software selected by a company for use by its
employees (including, for example, travel policy enforcement, expense
management, and management reporting functionality); but excluding a CRS.
"CRS" means a Travel Distribution System that is principally marketed to and
used by Travel Agents and that processes and displays information and
availability of products
A - 3
<PAGE> 35
and services without bias towards any particular supplier of those travel
products or services; but excluding a Corporate Direct System.
"CURRENT AMERICAN ACCOUNTS" means the Travel Agents and other accounts
initially listed on Exhibit A-2 to the Agreement, as it may be modified at the
end of each Contract Year in accordance with Section 4 of Schedule A.
"DISPUTE" means any dispute, disagreement, claim, or controversy arising in
connection with or relating to this Agreement, or the validity, interpretation,
performance, breach, or termination of this Agreement, including any claim of
breach of representation or warranty or of non-performance.
"DISPUTE RESOLUTION PROCEDURE" means the procedure for addressing Disputes as
set forth on Attachment B.
"EFFECTIVE DATE" means July 1, 1996.
"EXECUTIVE REVIEW COMMITTEE" means a committee consisting of TSG's President -
STIN and President - SABRE Interactive, and American's Senior Vice President -
Marketing , Vice President - Passenger Sales, and Vice President - Pricing and
Yield Management.
"LOSSES" means all losses, liabilities, damages and claims (excluding Taxes),
and all costs and expenses related thereto (including any and all reasonable
attorneys fees and costs of investigation, litigation, settlement, judgment,
interest and penalties).
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
"NETSAAVERS PROGRAM" means any American marketing program offering
substantially the same features as the American marketing program known as
NetSAAvers, as such program exists as of the Effective Date.
"NOTICE" means a written communication that complies with Section 18.1 of the
Agreement.
"PARTICIPANT" means any air carrier (including scheduled, charter, domestic
and international airlines), car rental company, surface transportation
carrier, hotel or lodging provider, railroad, steamship company, cruise or tour
operator or other vendor of travel related products, information or services
which has an agreement with TSG for the display of information regarding its
products or services in SABRE.
"PARTY" means either of the signatories to the Agreement. "Parties" means all
of the signatories to the Agreement.
A - 4
<PAGE> 36
"PAYMENT ADJUSTMENT" means, with respect to each Contract Year, the arithmetic
total (whether positive or negative) of [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
"PROFESSIONAL SABRE" means the SABRE interface application software marketed by
TSG to Travel Agents, as it exists as of the Effective Date and as it may be
modified and enhanced after the Effective Date.
"PROFESSIONAL SABRE SUPPORT PERIOD" means the period of time beginning on the
Effective Date and expiring on June 30, 2006, unless it is extended or
terminated in accordance with the terms of this Agreement.
"QUALIFICATIONS" means being included in the Complex Dispute List, or having
extensive knowledge or experience regarding the Travel Distribution Systems
industry.
"REPRESENTATIVE" means (i) with respect to American, (A) Managing Director -
Sales Planning, if the Dispute involves Professional SABRE Support, and (B)
Managing Director - Distribution Planning, if the Dispute involves BTS Support
or SI Product Support, and (ii) with respect to TSG, (A) Vice President - North
American Sales & Planning and Managing Director - STIN Finance, if the Dispute
involves Professional SABRE Support, (B) Vice President - BTS, if the Dispute
involves BTS Support, and (C) Vice President - SABRE Interactive, if the
Dispute involves SI Product Support.
"SABRE" means the CRS owned, operated and marketed by STIN.
"SAVINGS MEASUREMENT PERIOD" means (i) the fifth BTS Contract Year of the BTS
Support Period, if the term of the BTS Support Period is not terminated prior
to the end of the fifth BTS Contract Year, or (ii) if the term of the BTS
Support Period is terminated by American for a breach of this Agreement by TSG
prior to the end of the fifth BTS Contract Year, the last 12 months of the BTS
Support Period.
"SEGMENT" means (i) for airline bookings, each separate flight segment
reservation identified by a separate flight number in a PNR, multiplied by the
number of passengers booked in that PNR for that flight segment; (ii) for hotel
bookings, each separate reservation that is processed through SABRE regardless
of the number of rooms, suites or other accommodations or the number of persons
or the duration of the stay; (iii) for car rental bookings, each separate
reservation that is processed through SABRE regardless of the number of
vehicles or persons or the duration of the rental, and (iv) for any other
product or service, each separate reservation for such product or service that
is processed through SABRE regardless of the number of products or services or
the number of persons or the duration of the products or services.
"SEGMENT ACTIVITY DATE" means the first date listed in a SABRE PNR for the
relevant Segment.
A - 5
<PAGE> 37
"SI BOOKINGS" means AA Bookings made via an SI Product (i) where the EPR
Create City Code (Home Station) is a pseudo city controlled by TSG or by an
agent of TSG, or (ii) secured to a pseudo city controlled by TSG or by an agent
of TSG.
"SI PAYMENT ADJUSTMENT" means, with respect to each Contract Year, the Annual
SI Support Payment for the immediately preceding Contract Year (the "Prior
Contract Year") minus the Annual SI Support Payment for the Contract Year
immediately preceding the Prior Contract Year.
"SI PRODUCT" means any of the Consumer Direct System software applications
marketed by or on behalf TSG, including without limitation the applications
referred to as Travelocity and easySABRE, as such applications exist as of the
Effective Date and as they may be modified and enhanced after the Effective
Date.
"SI SUPPORT PERIOD" means the period of time beginning on the Effective Date
expiring on June 30, 2001, unless it is extended or terminated in accordance
with the terms of this Agreement.
"STRATEGIC CUSTOMERS" [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH
THE COMMISSION]
"STIN" means the SABRE Travel Information Network operating division of TSG.
"SUPPORT PERIOD" means any of the Professional SABRE Support Period, BTS
Support Period, and SI Support Period.
"TARGET BOOKINGS" means, with respect to any three consecutive calendar months
beginning on or after September 1, 1998, the lesser of (a) [CONFIDENTIAL
PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
"TARGET BOOKINGS PERIOD" means any three consecutive calendar months in which
the Target Bookings were achieved.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
"TAXES" means any foreign, federal, state or local sales, use, excise, value
added or similar transfer taxes (including penalty and interest) imposed on,
based on, or measured by consideration for, any transfer of services or
property pursuant to this Agreement.
"TERM" will have the meaning ascribed thereto in Section 2 of the Agreement.
"TRAVEL AGENT" means an individual or entity that has been assigned an ARC
Number.
A - 6
<PAGE> 38
"TRAVEL DISTRIBUTION SYSTEM" means a electronic distribution system that
provides any or all of the following services, via data network, telephone,
wireless or cable transmission or otherwise: (a) electronic publication and
distribution of travel-related information from computerized databases; (b)
electronic processing of passenger travel-related reservations and related
transactions; (c) electronic marketing and sales of passenger travel-related
products and services and related electronic transactions; (d) electronic
publication and distribution of passenger travel-related documents (e.g.,
tickets).
"TOTAL AVAILABLE MARKET" means, with respect to any given period of time, an
amount equal to (i) the American Account Bookings for that period of time,
divided by (ii) the Market Share for that period of time.
"TSG" means The SABRE Group, Inc., a Delaware corporation.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
A - 7
<PAGE> 39
ATTACHMENT B
DISPUTE RESOLUTION PROCEDURE
1. General Procedure. Except as otherwise stated in the Agreement, the
Parties shall resolve all Disputes in accordance with this procedure:
(a) Each Party shall instruct its appropriate Representative(s) to
promptly negotiate in good faith with the other Party's
appropriate Representative(s) to resolve the Dispute.
(b) If the Representatives do not resolve the Dispute within ten
business days (or such longer period as the Representatives
may agree) after the date of referral of the Dispute to them,
the Dispute shall be referred (by either or both of the
representatives) to the Executive Review Committee for
resolution.
(c) If the Executive Review Committee does not resolve the Dispute
within ten business days (or such longer period as that
Committee may agree) from the date of referral to it, either
Party may submit the Dispute to the President of each of TSG
and American for resolution, who may submit the Dispute to
non- binding mediation in accordance with Section 2 of this
Dispute Resolution Appendix.
(d) If the Presidents do not resolve the Dispute (if submitted to
them) and it is not submitted to or resolved by mediation,
either Party may submit the Dispute to binding arbitration in
accordance with Section 3(c) of this Attachment.
A referral under any of Sections 1(a), 1(b) or 1(c) of this Attachment shall be
made by written Notice to the persons designated in the applicable Section or
Sections. That Notice shall be in a form described in this Agreement or an
electronic mail message and addressed to each person at his office address or
electronic mail address; each Notice shall be given and effective as described
in this Agreement or, in the case of electronic mail, upon actual receipt. The
date of referral is the last date that Notice is given to all of the persons to
whom the Dispute must have been referred.
2. Mediation. The mediation of an unresolved Dispute shall be conducted
in this manner:
(a) Either Party may submit the Dispute to mediation by giving
Notice of mediation to the other Party. The Parties shall
attempt to agree upon
B - 1
<PAGE> 40
and appoint a sole mediator who has the Qualifications
promptly after that Notice is given.
(b) If the Parties are unable to agree upon a mediator within ten
days after the date the Dispute is submitted to mediation,
either Party may request the Dallas office of the American
Arbitration Association to appoint a mediator who has the
Qualifications. The mediator so appointed shall be deemed to
have the Qualifications and to be accepted by the Parties.
(c) The mediation shall be conducted in the Dallas-Fort Worth
metropolitan area at a place and a time agreed by the Parties
with the mediator, or if the Parties cannot agree, as
designated by the mediator. The mediation shall be held
within 20 days after the mediator is appointed.
(d) If either Party has substantial need for information from the
other Party in order to prepare for the mediation, the Parties
shall attempt to agree on procedures for the formal exchange
of information; if the Parties cannot agree, the mediator's
determination shall be effective.
(e) Each Party shall be represented in the mediation by at least
its appropriate Representative(s) or another natural person
with authority to settle the Dispute on behalf of that Party
and, if desired by that Party, by counsel for that Party. The
Parties' Representatives in the mediation shall continue with
the mediation as long as the mediator requests.
(f) The mediation shall be subject to Chapter 154 of Title 7 of
the Texas Civil Practice and Remedies Code.
(g) Unless otherwise agreed by the Parties, each Party shall pay
one-half of the mediator's fees and expenses and shall bear
all of its own expenses in connection with the mediation.
Neither Party may employ or use the mediator as a witness,
consultant, expert, or counsel regarding the Dispute or any
related matters.
3. Arbitration. The arbitration of an unresolved Dispute shall be
conducted in this manner:
(a) Either Party may begin arbitration by filing a demand for
arbitration in accordance with the Arbitration Rules. The
Parties shall attempt to agree upon and appoint a panel of
three arbitrators promptly after that demand is filed. Each
of those arbitrators must have the Qualifications, and at
least one of those arbitrators must be included in the Complex
Dispute List (unless no list of that kind is then maintained).
B - 2
<PAGE> 41
(b) If the Parties are unable to agree upon any or all of the
arbitrators within ten days after the demand for arbitration
was filed (and do not agree to an extension of that ten-day
period), either Party may request the Dallas office of the
American Arbitration Association to appoint the arbitrator or
arbitrators, who have the Qualifications (and at least one of
whom must be included in the Complex Dispute List, unless no
list of that kind is then maintained), necessary to complete
the panel in accordance with the Arbitration Rules. Each
arbitrator so appointed shall be deemed to have the
Qualifications and to be accepted by the Parties as part of
the panel.
(c) The arbitration shall be conducted in the Dallas-Fort Worth
metropolitan area at a place and a time agreed by the Parties
with the panel, or if the Parties cannot agree, as designated
by the panel. The panel may, however, call and conduct
hearings and meetings at such other places as the Parties may
agree or as the panel may, on the motion of one Party,
determine to be necessary to obtain significant testimony or
evidence.
(d) The Parties shall attempt to agree upon the scope and nature
of any discovery for the arbitration. If the Parties do not
agree, the panel may authorize any and all forms of discovery,
including depositions, interrogatories, and document
production, upon a showing of particularized need that the
requested discovery is likely to lead to material evidence
needed to resolve the Dispute and is not excessive in scope,
timing, or cost.
(e) The arbitration shall be subject to the Federal Arbitration
Act and conducted in accordance with the Arbitration Rules to
the extent they do not conflict with this Section 3(c). The
Parties and the panel may, however, agree to vary the
provisions of this Section 3(c) or the matters otherwise
governed by the Arbitration Rules.
(f) The panel has no power to:
(1) rule upon or grant any extension, renewal, or
continuance of this Agreement;
(2) award remedies or relief either expressly prohibited
by this Agreement or under circumstances not
permitted by this Agreement;
(3) grant provisional or temporary injunctive relief
before rendering the final decision or award; or
B - 3
<PAGE> 42
(4) grant any equitable relief or remedy that would
compel American to perform any of its obligations
under the Agreement where either American or TSG has
determined, in its sole discretion, that continued
performance of those obligations may result in
increased risks to it.
(g) Unless the Parties otherwise agree, all Disputes regarding or
related to the same topic or event that are subject to
arbitration at one time shall be consolidated in a single
arbitration proceeding.
(h) A Party or other person involved in an arbitration under this
Section 3(c) may join in that arbitration any person other
than a Party if
(1) the person to be joined agrees to resolve the
particular dispute or controversy in accordance with
this Section 3(c) and the other provisions of this
Attachment applicable to arbitration; and
(2) the panel determines, upon application of the person
seeking joinder, that the joinder of that other
person will promote the efficiency, expedition, and
consistency of the result of the arbitration and will
not unfairly prejudice any other Party to the
arbitration.
(i) The arbitration hearing shall be held within 30 days after the
appointment of the panel. Upon request of either Party, the
panel shall arrange for a transcribed record of the
arbitration hearing, to be made available to both Parties.
(j) The panel's final decision or award shall be made within 30
days after the hearing. That final decision or award shall be
made by unanimous or majority vote or consent of the
arbitrators constituting the panel, and shall be deemed issued
at the place of arbitration. The panel shall issue a reasoned
written final decision or award based on the Agreement and
Texas law; the panel may not act according to equity and
conscience or as an amicable compounder or apply the law
merchant.
(k) The panel's final decision or award may include:
(1) recovery of Damages to the extent permitted by this
Agreement; or
(2) injunctive relief in response to any actual or
threatened breach of this Agreement or any other
actual or threatened action or omission of a Party
under or in connection with this Agreement.
B - 4
<PAGE> 43
(l) The panel's final decision or award shall be final and binding
upon the Parties, and judgment upon that decision or award may
be entered in any court having jurisdiction over either or
both of the Parties or their respective assets. The Parties
specifically waive any right they may have to apply or appeal
to any court for relief from the preceding sentence or from
any decision of the panel made, or any question of law
arising, before the final decision or award. If any decision
by the panel is vacated for any reason, the Parties shall
submit that Dispute to a new arbitration in accordance with
this Section 3(c).
(m) Each Party shall pay one-half of the arbitrators' fees and
expenses, and shall bear all of its own expenses in connection
with the arbitration. The panel has the authority, however,
to award recovery of all costs and fees (including attorneys'
fees, administrative fees and the panel's fees and expenses)
to the prevailing Party in the arbitration.
4. Recourse to Courts. Nothing in this Attachment limits the right of
either Party to apply to a court or other tribunal having jurisdiction to:
(a) enforce the provisions of this Attachment;
(b) seek provisional or temporary injunctive relief, in response
to an actual or impending breach of Article V of this
Agreement or otherwise so as to avoid irreparable damage or
maintain the status quo, until a final arbitration decision or
award is rendered or the Dispute is otherwise resolved; or
(c) challenge or vacate any final arbitration decision or award
that does not comport with Section 3 of this Attachment.
5. Submission to Jurisdiction. Each Party irrevocably submits to the
jurisdiction of the federal courts of the United States and the state courts of
Texas located in Tarrant County, Texas. Each Party waives any defense or
challenge to that jurisdiction based on lack of personal jurisdiction, improper
venue, or inconvenience of forum.
6. Confidentiality. The proceedings of all negotiations, mediations, and
arbitrations pursuant to this Attachment shall be privately conducted. The
Parties shall keep confidential all conduct, negotiations, documents,
decisions, and awards in connection with those proceedings under this
Attachment.
B - 5
<PAGE> 1
EXHIBIT 10.10
TRAVEL PRIVILEGES AGREEMENT
Between
AMERICAN AIRLINES, INC.
and
THE SABRE GROUP, INC.
Dated as of: July 1, 1996
<PAGE> 2
TRAVEL PRIVILEGES AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1 DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 TERM AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Termination of Information Technology Services Agreement . . 1
2.2 Events of Default . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Rights Upon Default . . . . . . . . . . . . . . . . . . . . . 2
3 EMPLOYEES OF AFFILIATES . . . . . . . . . . . . . . . . . . . . . . . 3
3.1 Acquired Affiliates . . . . . . . . . . . . . . . . . . . . . 3
3.2 Transfer of a Partial Interest in an Affiliate . . . . . . . 3
4 CHANGE OF CONTROL . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.1 Acquisition by Air Carrier . . . . . . . . . . . . . . . . . 3
4.2 Transfer of Eligible Employees to Non-Affiliate . . . . . . . 3
4.3 Post-Affiliation with American . . . . . . . . . . . . . . . 3
5 EMPLOYEE TRAVEL PRIVILEGES . . . . . . . . . . . . . . . . . . . . . . 4
5.1 D1, D2 and D3 Travel Privileges . . . . . . . . . . . . . . . 4
5.2 A2, A4 and A6 Travel Privileges . . . . . . . . . . . . . . . 4
5.3 A9 Travel Privileges . . . . . . . . . . . . . . . . . . . . 4
5.4 ID20 Travel Privileges . . . . . . . . . . . . . . . . 4
6 RETIREE TRAVEL PRIVILEGES . . . . . . . . . . . . . . . . . . . . . . 5
6.1 D2 and D3 Travel Privileges . . . . . . . . . . . . . . . . . 5
6.2 A2, A4 and A6 Travel Privileges . . . . . . . . . . . . . . . 5
6.3 A9 Travel Privileges . . . . . . . . . . . . . . . . . . . . 5
6.4 ID20 Travel Privileges . . . . . . . . . . . . . . . . 5
7 BOOKINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.1 Booking Procedures . . . . . . . . . . . . . . . . . . . . . 5
7.2 Reservations System Access . . . . . . . . . . . . . . . . . 5
8 CHANGES TO TRAVEL PRIVILEGES . . . . . . . . . . . . . . . . . . . . . 6
9 NON-DISCRIMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
10 TRAVEL CARDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
10.1 Issuance of Travel Cards . . . . . . . . . . . . . . . . . . . 6
10.2 Maximum Number of Travel Cards . . . . . . . . . . . . . . . . 7
10.3 Non-Transferrable . . . . . . . . . . . . . . . . . . . . . . . 7
10.4 Recovery of Travel Cards . . . . . . . . . . . . . . . . . . . 7
10.5 Lost, Destroyed, Transferred or Stolen Travel Cards . . . . . . 7
11 ABUSE OF TRAVEL CARDS AND TRAVEL PRIVILEGES . . . . . . . . . . . . . . 7
11.1 Risk of Misappropriated Travel Cards, Employee Numbers
and Passes . . . . . . . . . . . . . . . . . . . . . . . . . . 7
11.2 Abuse of Travel Privileges by Eligible Employees and Eligible
Retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
12 CHARGES FOR TRAVEL PRIVILEGES . . . . . . . . . . . . . . . . . . . . . 8
12.1 Charges for Eligible Employee Travel Privileges . . . . . . . . 8
12.2 Charges for Eligible Retiree Travel Privileges . . . . . . . . 8
12.3 Date for Determining Travel Charges . . . . . . . . . . . . . . 8
12.4 Readjustment of Charges . . . . . . . . . . . . . . . . . 8
13 INVOICES AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . 8
13.1 Travel Activity Reports . . . . . . . . . . . . . . . . . . . . 8
13.2 Invoices . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
14 PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
14.1 Time of Payment . . . . . . . . . . . . . . . . . . . . . . . . 9
14.2 Manner and Place of Payment . . . . . . . . . . . . . . . . . . 9
14.3 No Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . 9
14.4 Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
14.5 Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
14.6 Disputed Charges . . . . . . . . . . . . . . . . . . . . . . . 9
14.7 Late Charges . . . . . . . . . . . . . . . . . . . . . . . . . 10
15 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
15.1 Allocation of Responsibility for Taxes . . . . . . . . . . . . 10
15.2 Claims for Refunds . . . . . . . . . . . . . . . . . . . . . . 10
15.3 Refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
15.4 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . 10
16 LIMITS OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . 10
17 NO ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
17.1 Transfer to Affiliate . . . . . . . . . . . . . . . . . 11
17.2 Conditions of Transfer . . . . . . . . . . . . . . . . 11
18 CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . 12
18.1 Non-Disclosure . . . . . . . . . . . . . . . . . . . . 12
18.2 Return of Confidential Information . . . . . . . . . . 12
18.3 No Adequate Remedy at Law . . . . . . . . . . . . . . 12
19 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
19.1 Accrued Obligations . . . . . . . . . . . . . . . . . . 12
19.2 Survival in General . . . . . . . . . . . . . . . . . . 13
19.3 Survival as to Eligible Retirees . . . . . . . . . . . 13
20 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 13
20.1 Additional Representations and Warranties . . . . . . . 13
20.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . 13
20.3 Binding Effect . . . . . . . . . . . . . . . . . . . . 14
20.4 Integration. . . . . . . . . . . . . . . . . . . . . . 14
20.5 No Third Party Beneficiaries . . . . . . . . . . . . . 14
20.6 No Partnership . . . . . . . . . . . . . . . . . . . . 14
20.7 Waiver . . . . . . . . . . . . . . . . . . . . . . . . 14
20.8 Multiple Originals . . . . . . . . . . . . . . . . . . 15
20.9 Invalidity of Provisions . . . . . . . . . . . . . . . 15
20.10 Force Majeure . . . . . . . . . . . . . . . . . . . . . 15
20.11 Governing Law . . . . . . . . . . . . . . . . . . . . . 15
20.12 Dispute Resolution . . . . . . . . . . . . . . . . . . 15
20.13 Choice of Forum . . . . . . . . . . . . . . . . . . . 15
20.14 Compliance with Laws . . . . . . . . . . . . . . . . . 16
</TABLE>
Attachments
SCHEDULE A Travel Charges for Eligible Employees
SCHEDULE A-1 Allocated Administrative Costs
SCHEDULE B Travel Charges for Eligible Retirees
SCHEDULE C Maximum Number of Travel Cards
APPENDIX A Defined Terms
APPENDIX B Dispute Resolution Procedures
iii
<PAGE> 5
TRAVEL PRIVILEGES AGREEMENT
This Travel Privileges Agreement (together with the schedules and
appendices attached hereto, the "Agreement") is made and entered into as of the
first day of July, 1996, by and between American Airlines, Inc., a Delaware
corporation ("American"), and The SABRE Group, Inc., a Delaware corporation
("The SABRE Group").
RECITALS
WHEREAS, American makes available to its own employees and retirees
certain Travel Privileges as provided in AA Travel Policies; and
WHEREAS, as part of a reorganization of the technology business of AMR
Corporation, American transferred certain assets and employees of its STIN,
SCS, SDS and SABRE Interactive divisions to The SABRE Group; and
WHEREAS, American and The SABRE Group desire to make available to
certain employees and retirees of The SABRE Group Travel Privileges equivalent
to those enjoyed by employees and/or retirees of American; and
WHEREAS, American is willing to provide such Travel Privileges and The
SABRE Group is willing to pay for such Travel Privileges in accordance with the
terms and conditions in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings set forth herein, the Parties hereto agree as follows:
1 DEFINED TERMS Capitalized terms used and not otherwise defined herein
shall have the meanings assigned to such terms in the list of Defined Terms
annexed hereto as Appendix A. This Agreement shall be interpreted in
accordance with the rules of interpretation in Appendix A.
2 TERM AND TERMINATION This Agreement shall be effective as of The
Effective Date and shall continue in effect until June 30, 2008, unless this
Agreement is terminated sooner as provided elsewhere herein.
2.1 Termination of Information Technology Services Agreement
This Agreement may be terminated by American upon ninety (90) days Notice to
The SABRE Group in the event that the Information Technology Services Agreement
between American and The SABRE Group dated July 1, 1996 (or any replacement
agreement with The SABRE Group) is terminated by American due to a material
breach by The SABRE Group.
1
<PAGE> 6
2.2 Events of Default The occurrence of any one or more of
the following events shall constitute an Event of Default pursuant to the
terms of this Agreement:
2.2.1 A Party materially breaches any warranty,
agreement or covenant, or materially misrepresents any representation,
given by it in this Agreement, and such breach or misrepresentation
is not corrected or cured by such Party within the Cure Period.
2.2.2 A Party shall admit in writing its inability
to pay its debts generally as they become due.
2.2.3 A Party shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or substantially all of its
assets, (ii) make a general assignment for the benefit of its
creditors, (iii) commence a voluntary case under the U.S. Bankruptcy
Code, (iv) file a petition seeking to take advantage of any other law
relating to bankruptcy, insolvency, reorganization, winding-up or
composition or readjustment of debts, (v) fail to controvert in a
timely and appropriate manner, or acquiesce in writing to, any
petition filed against it in an involuntary case under the U.S.
Bankruptcy Code, or (vi) take any corporate action for the purpose of
effecting any of the foregoing.
2.2.4 A proceeding or case shall be commenced,
without the application or consent of a Party, in any court of
competent jurisdiction, seeking (i) its liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of its
debts, (ii) the appointment of a trustee, receiver, custodian,
liquidator or the like of such Party or of all or substantially all of
its assets, or (iii) similar relief in respect of such Party under any
law relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or readjustment of debts, and such proceeding or case
shall continue undismissed for a period of ninety (90) days, or an
order of relief against such Party shall be entered in an involuntary
case under the U.S. Bankruptcy Code or under any similar law.
2.3 Rights Upon Default Upon the occurrence of an Event of
Default, the Party not causing such Event of Default will be entitled to
immediately terminate this Agreement and all Travel Privileges granted
hereunder by giving Notice to the other Party and to seek all legal and
equitable remedies to which it is entitled, including without limitation all
actual and direct damages it may have suffered by virtue of such Event of
Default, except as limited hereunder. In the event of a Dispute as to whether
an Event of Default has occurred, the exercise of rights under this Section
shall be suspended until resolution of such Dispute.
3 EMPLOYEES OF AFFILIATES
3.1 Acquired Affiliates
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
3.2 Transfer of a Partial Interest in an Affiliate
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
2
<PAGE> 7
CHANGE OF CONTROL
4.1 Acquisition by Air Carrier
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
4.2 Transfer of Eligible Employees to Non-Affiliate
American shall immediately be entitled to terminate, and upon such a
termination The SABRE Group shall immediately revoke, Travel Privileges and
Travel Cards that were provided to Eligible Employees who are (i) transferred
to a Person that is not an Affiliate of The SABRE Group, or (ii) are on
secondment for more than twenty-four (24) months in the aggregate (whether or
not consecutively) to the same Person.
4.3 Post-Affiliation with American Unless American
expressly consents in writing, which consent may be withheld in American's sole
discretion, the SABRE Group may not provide any Travel Privileges or Travel
Cards to any employees who are hired on or after the date on which The SABRE
Group ceases to be an Affiliate of American ("Disaffiliation Date").
4.3.1 In the event that an Eligible Employee who
holds Travel Privileges in any of Pass Categories A2, A4 or A6 after
the Disaffiliation Date ceases to hold such Travel Privileges for any
reason, The SABRE Group may give such travel privileges to another
Eligible Employee in accordance with the following Section.
4.3.2 Notwithstanding anything in Section 10.2 to
the contrary, on and after the Disaffiliation Date:
(a) the maximum number of Eligible Employees who may hold Travel
Privileges in Pass Category A2 shall be the number of Eligible
Employees who held such Travel Privileges immediately prior to the
Disaffiliation Date.
(b) the maximum number of Eligible Employees who may hold Travel
Privileges in Pass Category A4 shall be the remainder of (i) the
number of Eligible Employees who held such Travel Privileges in any of
Pass Categories A2 or A4 immediately prior to the Disaffiliation Date,
minus (iii) the number of Eligible Employees who from time to time
after the Disaffiliation Date hold Travel Privileges in Pass Category
A2.
(c) the maximum number of Eligible Employees who may hold Travel
Privileges in Pass Category A6 shall be the remainder of (i) the
number of Eligible Employees who held Travel Privileges in any of Pass
Categories A2, A4 or A6 immediately prior to the Disaffiliation Date,
minus (iii) the number of Eligible Employees who from time to time
after the Disaffiliation Date hold Travel Privileges in any of Pass
Categories A2 or A4.
3
<PAGE> 8
5 EMPLOYEE TRAVEL PRIVILEGES
5.1 D1, D2 and D3 Travel Privileges Subject to Section
10.2, The SABRE Group shall be entitled to give Eligible Employees the ability
to exercise Travel Privileges for D1, D2 and D3 Pass Category Space Available
travel on AA as specified in AA Travel Policies in a manner identical to that
available to American's employees. The SABRE Group shall not be entitled to
issue D3 passes to any individual other than an Eligible Employee or Eligible
Retiree, subject to the limits specified in AA Travel Policies.
5.2 A2, A4 and A6 Travel Privileges Subject to Section
10.2, The SABRE Group shall be entitled to give Eligible Employees who are
members of Senior Management the ability to exercise Travel Privileges for A2,
A4 and A6 Pass Category Positive Space travel on AA as specified in AA Travel
Policies in a manner identical to that available to American's equivalent
senior management employees.
5.3 A9 Travel Privileges Subject to Section 10.2, The SABRE
Group shall be entitled to give Eligible Employees the ability to exercise
emergency Travel Privileges in Pass Category A9 for travel on AA in the
circumstances and otherwise as specified in AA Travel Policies in a manner
identical to that available to American's employees.
5.4 ID20 Travel Privileges The SABRE Group shall be
entitled to give Eligible Employees the ability to purchase ID20 tickets for
travel as specified in AA Travel Policies in a manner identical to that
available to American's employees. ID20 tickets shall not be used for business
travel.
6 RETIREE TRAVEL PRIVILEGES
6.1 D2 and D3 Travel Privileges The SABRE Group shall be
entitled to give Eligible Retirees the ability to exercise Travel Privileges
for D2 and D3 Pass Category Space Available travel on AA as specified in AA
Travel Policies in a manner identical to that available to American's similarly
situated retirees.
6.2 A2, A4 and A6 Travel Privileges The SABRE Group
shall be entitled to give Eligible Retirees who retire as members of Senior
Management the ability to exercise Travel Privileges for A2, A4 and A6 Pass
Category Positive Space travel on AA as specified in AA Travel Policies in a
manner identical to that available to American's equivalent senior management
retirees.
6.3 A9 Travel Privileges The SABRE Group shall be entitled to
give Eligible Retirees the ability to exercise personal emergency Travel
Privileges in Pass Category A9 for travel on AA in the circumstances and as
otherwise specified in AA Travel Policies in a manner identical to that
available to American's retirees.
4
<PAGE> 9
6.4 ID20 Travel Privileges The SABRE Group shall be
entitled to give Eligible Retirees the ability to purchase ID20 tickets for
travel as specified in AA Travel Policies in a manner identical to that
available to American's retirees. ID20 tickets shall not be used for business
travel.
7 BOOKINGS
7.1 Booking Procedures Eligible Employees, Eligible
Retirees and Guests shall make all bookings for travel in the exercise of
Travel Privileges exclusively through American's Reservation System and shall
not make such bookings through any CRS or any other reservations system.
American shall not pay booking fees or other charges to The SABRE Group to the
extent related to the exercise of Travel Privileges.
7.2 Reservations System Access If requested by The SABRE
Group, American shall promptly give Eligible Employees and Eligible Retirees
direct computer access to the AA Reservations System at the Agreed Access Level
for use in the exercise of Travel Privileges. The SABRE Group shall encourage
all Eligible Employees and Eligible Retirees to make all bookings hereunder
using the direct computer access available to them. All computer access to the
AA Reservations System provided hereunder shall be used exclusively in
connection with the exercise of Travel Privileges and within the Agreed Access
Level.
8 CHANGES TO TRAVEL PRIVILEGES Subject to Section 9, American may,
from time to time, in its sole discretion, make changes to the AA Travel
Policies affecting Travel Privileges hereunder, including without limitation
changes in availability or changes in pricing as provided in Article 12.
American shall consult with The SABRE Group regarding such change as early as
practicable, so that The SABRE Group can provide at least as much notice to
Eligible Employees and Eligible Retirees as American provides to its own
employees and retirees. No such change shall be effective as to Eligible
Employees or Eligible Retirees before such change is applicable to American's
own employees and retirees.
9 NON-DISCRIMINATION It is the intention of the parties that the
Eligible Employees and Eligible Retirees who are given Travel Privileges will
have the same travel privileges as American gives to its own employees and
retirees, respectively. American shall honor the Travel Privileges given by
The SABRE Group under this Agreement in the same manner that it honors similar
privileges given to its own employees and retirees. American and its personnel
will not discriminate against Eligible Employees or Eligible Retirees in making
changes to AA Travel Policies or in the application of AA Travel Policies, or
against Eligible Employees or Eligible Retirees or their Guests in the use of
Travel Privileges. AA Travel Policies affecting the exercise of Travel
Privileges will be determined and applied to Eligible Employees, Eligible
Retirees and American's employees and retirees without regard to company
affiliation. American shall not amend AA Travel Policies if such amendment
would adversely affect the Travel Privileges given under this Agreement, unless
such
5
<PAGE> 10
adverse affect applies equally to American's own employees and retirees.
American shall not make any changes in Pass Category designations or the
assignment of Travel Privileges within Pass Categories which would adversely
affect the Travel Privileges given under this Agreement, unless such adverse
affect applies equally to American's own employees and retirees. Any such
change by American will be applied to Eligible Employees and Eligible Retirees
and to American's employees and retirees, respectively, in a non-discriminatory
manner. Boarding priority will be determined and applied on the basis of Pass
Category (subject to normal procedural variances), without regard to company
affiliation. American will investigate reports of discrimination against
Eligible Employees or Eligible Retirees in the application of AA Travel
Policies and against Eligible Employees or Eligible Retirees or their Guests in
the use of Travel Privileges, and American shall take appropriate action
against any American employee or contractor that it determines to have violated
this Agreement, including counseling or other disciplinary action.
10 TRAVEL CARDS
10.1 Issuance of Travel Cards American, upon request from
The SABRE Group, shall issue Travel Cards to Eligible Employees, Eligible
Retirees and Spouses in accordance with American's standard procedures. For
each Travel Card to be issued, The SABRE Group shall provide American a written
request containing the following information: Eligible Employee or Eligible
Retiree name, Spouse name, employee ID number, and Social Security Number.
10.2 Maximum Number of Travel Cards The maximum number
of Eligible Employees who may have Travel Privileges in any year shall be
limited to the numbers specified in Schedule C.
10.3 Non-Transferrable Travel Cards and Travel Privileges
shall not be transferrable by any present or former Eligible Employee,
Eligible Retiree or Spouse.
10.3.1 The SABRE Group cannot revoke Travel
Privileges from an Eligible Employee and reissue them to another
Eligible Employee, except in instances of abuse of the Travel
Privileges by the Eligible Employee from whom the Travel Privileges
are revoked.
10.4 Recovery of Travel Cards The SABRE Group shall
recover from any individual who ceases, for any reason, to be an Eligible
Employee, Eligible Retiree or Spouse all Travel Cards issued to such
individual. Recovered Travel Cards shall be returned to American, or destroyed
by The SABRE Group at American's request. The SABRE Group shall not permit any
terminated employee to exercise Travel Privileges unless such employee is
otherwise an Eligible Employee.
10.5 Lost, Destroyed, Transferred or Stolen Travel Cards
The SABRE Group shall inform American as promptly as practicable in the event
that any Travel Card is lost, destroyed, transferred or stolen.
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<PAGE> 11
11 ABUSE OF TRAVEL CARDS AND TRAVEL PRIVILEGES
11.1 Risk of Misappropriated Travel Cards, Employee Numbers and
Passes The SABRE Group shall use commercially reasonable efforts to
recover misappropriated Travel Cards and travel passes, and to assist American
in preventing the use of Travel Cards, Eligible Employee identification
numbers and travel passes that are misappropriated by third parties. American
shall use commercially reasonable efforts to assist The SABRE Group to recover
misappropriated Travel Cards and passes presented to American Employees at its
ATO and CTO locations and to prevent misuse of misappropriated Eligible
Employee identification numbers. American and The SABRE Group shall share the
costs of the misuse of misappropriated Travel Cards, Eligible Employee
identification numbers and travel passes in proportion to the number of their
respective employees and retirees holding travel privileges. American and The
SABRE Group shall cooperate to recover payment for such costs from the culpable
individuals.
11.2 Abuse of Travel Privileges by Eligible Employees and
Eligible Retirees For good cause shown, and upon Notice from and as requested
by American, The SABRE Group shall, take appropriate disciplinary action
against any Eligible Employee or Eligible Retiree or Spouse who has transferred
a Travel Card or exercised Travel Privileges contrary to AA Travel Policies.
Such action shall be equivalent to the level of discipline that American takes
against its own employees and retirees in similar circumstances, and may
include requiring such employee to pay American for travel obtained contrary to
AA Travel Policies at the rates that American charges its own employees and
retirees in similar circumstances, and/or the suspension or termination of
Travel Privileges. In the event of the suspension or termination of an
individual's Travel Privileges, The SABRE Group shall use commercially
reasonable efforts to recover Travel Cards issued to such individual and to
assist American in preventing the use of such Travel Cards. The SABRE Group
shall bear all risks associated with the misuse of Travel Cards and Travel
Privileges by its Eligible Employees and Eligible Retirees, including without
limitation paying American for all travel obtained contrary to AA Travel
Policies at the rates that American takes against its own employees and
retirees in similar circumstances. AA shall, at The SABRE Group's expense,
provide commercially reasonable assistance to The SABRE Group to recover such
payments from culpable individuals. The SABRE Group shall, at The SABRE
Group's expense, assist American in prosecuting any individual whose use of
such Travel Cards or Travel Privileges was, in American's opinion, a violation
of criminal law.
12 CHARGES FOR TRAVEL PRIVILEGES
12.1 Charges for Eligible Employee Travel Privileges
For the exercise of Travel Privileges by Eligible Employees, American shall
charge The SABRE Group and The SABRE Group shall pay American the charges
described on Schedule A.
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<PAGE> 12
12.2 Charges for Eligible Retiree Travel Privileges
For the exercise of Travel Privileges by Eligible Retirees, American shall
charge The SABRE Group and The SABRE Group shall pay American the charges
described on Schedule B.
12.3 Date for Determining Travel Charges The applicable
Travel Charges for any Flight Segment shall be determined as of the date on
which travel on such Flight Segment was scheduled to begin.
12.4 Readjustment of Charges Charges shall be reset by
American on January 1 of each year in accordance with Schedule A and Schedule
B. American shall provide to The SABRE Group by December 1 of each year data
supporting the proposed readjustment of charges. In September of each year,
American shall provide The SABRE Group with a non-binding estimate of such
charges for budgeting purposes.
13 INVOICES AND REPORTS
13.1 Travel Activity Reports American will provide to The
SABRE Group on the fourth Business Day of each month a Travel Activity Report,
which shall be in the format typically produced by American for its own
internal use, and shall describe travel activity by each Eligible Employee,
Eligible Retiree, Spouse and Guest. The Travel Activity Report shall specify
all Flight Segments flown, and for each Flight Segment shall specify the
applicable Employee number, flight number, Pass Category, flight date, Travel
Charge, Travel Charge collected, Taxes and Surcharges, Taxes and Surcharges
collected, and taxable value for income tax reporting purposes.
13.2 Invoices American will submit on the fourth Business
Day of each month an invoice to The SABRE Group which will set forth the
amounts payable by The SABRE Group hereunder, including Travel Charges for
travel activity related to Travel Privileges by each Eligible Employee and
Eligible Retiree, plus applicable Taxes and Surcharges and other expenses
permitted by this Agreement, net of any Travel Charges, Taxes and Surcharges
collected by American.
14 PAYMENTS
14.1 Time of Payment All amounts billed in an invoice shall be
due and payable immediately upon receipt of such invoice and shall be late if
not paid within thirty (30) days after the date of such invoice.
14.2 Manner and Place of Payment The SABRE Group shall pay all
charges hereunder to American via internal transfer billing for so long as The
SABRE Group is an Affiliate of American, and thereafter via wire transfer of
immediately available funds to an account designated by American.
14.3 No Set-Off Payments hereunder shall be made without
deduction or set-off.
8
<PAGE> 13
14.4 Currency All amounts payable or creditable by either
Party to the other under this Agreement shall be paid or credited in United
States Dollars.
14.5 Audits The SABRE Group shall be entitled to conduct an
audit of those records necessary to validate the fees, charges and payments
hereunder; provided, however, that American shall not be required to turn over
Confidential Information of a third party. Absent a showing of good cause, the
audits shall take place no more frequently than once every six (6) months. The
audits shall be conducted either through internal auditors or disinterested
third parties, and in all cases in accordance with standard auditing
procedures. The SABRE Group shall bear the cost of the audit; provided,
however, that if an error in the charges is discovered as a result of the
audit, American shall correct the error and pay for the cost of the audit up to
the amount of the error. All records that may be necessary to validate the
charges and payments hereunder shall be retained for at least two (2) years
following the close of the calendar year to which such records relate.
14.6 Disputed Charges If within ninety (90) days after receipt
of an invoice hereunder, The SABRE Group provides Notice to American that The
SABRE Group in good faith reasonably disputes any or all of the charges billed
in such invoice, the Parties shall use their best efforts to resolve the
Dispute according to Section 20.12 and the Dispute Resolution Procedures. If
such Dispute is not resolved prior to the next invoice date, American will
issue a credit to The SABRE Group on such invoice for the amount of charges in
Dispute, which credit shall remain outstanding pending resolution of such
Dispute. Billing disputes for which Notice is not provided as specified herein
shall be deemed waived except in cases of fraud or obvious error.
14.7 Late Charges Any undisputed sum due hereunder that is not
paid within thirty (30) days after the date of the invoice shall thereafter
bear interest until paid at a rate of interest equal to one percentage point
(1%) per annum above the prime rate announced from time to time by the
principal New York office of Citibank, N.A., but in no event to exceed the
maximum rate of interest allowed by applicable law.
15 TAXES
15.1 Allocation of Responsibility for Taxes The SABRE Group
shall be responsible for (and shall indemnify and hold American harmless for)
all Taxes imposed in connection with this Agreement or the exercise of Travel
Privileges, provided, however, that American shall be responsible for all
Taxes, however designated or levied, that are imposed on, based on or measured
by American's income, revenues, capital, or net worth. The SABRE Group shall
be responsible for all Eligible Employee and Eligible Retiree income tax
withholding and income tax reporting relating to the exercise of Travel
Privileges.
15.2 Claims for Refunds Subject to American's reasonable
discretion, The SABRE Group may require American to apply, at The SABRE Group's
expense, for a refund of Taxes otherwise subject to indemnification under
Section 15. In lieu of pursuing such a claim, American may assign its rights
to a claim to The SABRE Group.
9
<PAGE> 14
15.3 Refunds American shall promptly pay over to The SABRE
Group an amount equivalent to any refund, credit, offset or abatement
(including interest thereon) received by American of Taxes, to the extent such
refunds, credits, offsets, or abatements are of amounts that were paid
hereunder by The SABRE Group to American or to a taxing authority.
15.4 Cooperation Each party shall cooperate as the other party
may reasonably request in minimizing Taxes incurred in connection with this
Agreement; provided, however, that neither party shall be required to take any
step that would be materially disadvantageous to its business or operations or
would require it to incur material additional costs unless the other party
agrees to reimburse the costs.
16 LIMITS OF LIABILITY EXCEPT AS PROVIDED BELOW, NEITHER PARTY SHALL BE
LIABLE UNDER ANY CIRCUMSTANCES FOR ANY EXEMPLARY, PUNITIVE, SPECIAL,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION LOST
PROFITS, REVENUE OR SAVINGS, EVEN IF SUCH PARTY HAS BEEN ADVISED, KNEW, OR
SHOULD HAVE KNOWN OF THE POSSIBILITY THEREOF.
EXCEPT AS PROVIDED BELOW, IN NO EVENT SHALL EITHER PARTY'S LIABILITY HEREUNDER
DURING ANY CALENDAR YEAR EXCEED THE CHARGES PAID BY THE SABRE GROUP DURING THE
PRECEDING CALENDAR YEAR.
IN THE EVENT THAT AMERICAN MATERIALLY BREACHES THIS AGREEMENT BY WILFULLY OR
INTENTIONALLY FAILING OR REFUSING TO PERFORM ITS OBLIGATIONS HEREUNDER, THEN
THE SABRE GROUP SHALL BE ENTITLED TO RECOVER ITS ACTUAL AND CONSEQUENTIAL
DAMAGES IN AN AMOUNT NOT TO EXCEED FIFTY MILLION DOLLARS ($50,000,000), AND IF
MONETARY DAMAGES AS SPECIFIED IN THE PRECEDING SENTENCE WOULD NOT BE AN
ADEQUATE REMEDY, THEN THE SABRE GROUP SHALL BE ENTITLED TO SPECIFIC ENFORCEMENT
OF THIS AGREEMENT. SPECIFIC ENFORCEMENT SHALL BE SOUGHT THROUGH ARBITRATION IN
ACCORDANCE WITH THE DISPUTE RESOLUTION PROCEDURES.
17 NO ASSIGNMENT Except as specifically set forth in this Agreement,
neither Party may assign, license, or otherwise transfer or convey this
Agreement or any of the rights or obligations created in this Agreement to any
third Person without the express prior written consent of the other Party,
which may be withheld in such parties sole discretion.
17.1 Transfer of Affiliate
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
17.2 Conditions of Transfer No assignment of this Agreement
shall be effective unless and until the transferee has executed a counterpart
of this Agreement evidencing its agreement to be bound by the provisions of and
to assume all of the obligations of the transferor under this
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<PAGE> 15
Agreement, whether present or contingent. The Person receiving such an
assignment must further agree to implement and maintain at its own expense any
procedures that American may reasonably require for administering, auditing,
tracking and reporting the exercise of Travel Privileges. No such assignment
shall relieve the transferor of any of its obligations under this Agreement
arising prior to the date of such assignment. No such assignment may
materially adversely affect the rights and obligations of the nonassigning
Party under this Agreement. No assignment by The SABRE Group shall be made to
any Air Carrier that is not an Affiliate of American, or to any Affiliate of
such an Air Carrier, without the express prior written consent of American,
which may be withheld in its sole discretion. Any attempted assignment or
other transfer except in accordance with the provisions of this Section shall
be null and void ab initio.
18 CONFIDENTIALITY
18.1 Non-Disclosure Neither Party shall use, sell, transfer,
publish, disclose, display or otherwise make available to any third party,
Confidential Information of the other Party except (a) as permitted or intended
by this Agreement, or (b) as may be required by applicable law or by any
government in the exercise of its lawful authority, in which case the Party
from whom disclosure is sought shall (i) promptly notify the other Party, (ii)
use reasonable and lawful efforts to resist making any disclosure of
Confidential Information not approved by such other Party, (iii) use reasonable
and lawful efforts to limit the amount of Confidential Information to be
disclosed, and (iv) cooperate with the other Party (at such other Party's
expense) to obtain a protective order, confidential treatment or other
appropriate relief to minimize the further dissemination of any Confidential
Information to be disclosed. In addition, neither Party shall disclose the
Confidential Information of the other Party to any employee or agent, except on
a need-to-know basis. Each Party shall ensure that all such employees and
agents recognize that the Confidential Information of the other Party is
subject to this non-disclosure obligation. The Party that receives
Confidential Information from the other Party agrees to maintain such
information in secrecy at all times, using the same degree of care with respect
to such Confidential Information as it uses in protecting its own proprietary
information and trade secrets.
18.2 Return of Confidential Information Upon termination of
this Agreement for any cause or reason, each Party shall deliver to the other
Party all of such other Party's Confidential Information (including all copies
thereof) then in its or its Affiliates' possession and shall purge any copies
thereof encoded or stored on magnetic or other electronic media or processors
then in its or its Affiliates' possession.
18.3 No Adequate Remedy at Law Each Party acknowledges and
agrees that the other Party will have no adequate remedy at law if there is a
breach or threatened breach of this Section and, notwithstanding anything to
the contrary in Appendix B, that the other Party shall be entitled to an
injunction against such breach. Nothing herein shall be construed as a waiver
of any other legal or equitable remedies which may be available to either Party
if the other Party breaches this Section.
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<PAGE> 16
19 SURVIVAL
19.1 Accrued Obligations Termination of this Agreement for
any cause shall not affect the transactions previously consummated under this
Agreement, nor release any Party from any liability, duty, or obligation which
at the time of termination has already accrued to the other Party or which
thereafter may accrue in respect of any act or omissions prior to such
termination, nor shall any such termination hereof affect in any way the
survival of any right, liability, duty, or obligation of the Parties which is
intended, expressly or impliedly, in accordance with the terms of this
Agreement to survive termination hereof.
19.2 Survival in General Notwithstanding anything to the
contrary contained herein, the rights and obligations under Articles 13, 14,
15, 16 and 18 shall survive any termination or expiration of this Agreement.
19.3 Survival as to Eligible Retirees Notwithstanding
anything to the contrary contained herein, the provisions hereunder relating to
rights and obligations of American and The SABRE Group with respect to Travel
Privileges for Eligible Retirees shall survive any termination or expiration of
this Agreement.
20 MISCELLANEOUS
20.1 Additional Representations and Warranties Each Party
represents and warrants to the other that: (i) it is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of formation and place of principal business; (ii) the performance
of its obligations hereunder has been duly authorized by all necessary
corporate action; (iii) this Agreement is a legal, valid and binding obligation
enforceable against it in accordance with its terms subject to limitations
under bankruptcy, insolvency, reorganization, liquidation and other laws and
equitable principles relating to or affecting the enforcement of creditors'
rights generally; (iv) neither the execution and delivery of this Agreement nor
the performance of any of its obligations hereunder, nor the consummation of
any of the transactions contemplated hereby, will violate any agreement to
which it is a party or any provision of its Certificate of Incorporation,
By-Laws or other document of corporate governance, nor any applicable law,
regulation, rule, judgment, order or decree; and (v) it has duly obtained or
made all consents, approvals or authorizations of, or registrations,
declarations or filings with, any governmental authority are required as a
condition to the valid execution, delivery and performance of this Agreement on
its part.
20.2 Notices Any notice or communication required or
permitted to be given or made to a Party under this Agreement must be typed in
English and personally delivered to the office of the person identified below
or delivered by registered mail with confirmed receipt (postage prepaid) or by
overnight courier or by telecopy (fax) with confirmation copy dispatched
simultaneously by registered mail with confirmed receipt (postage prepaid) to
the following addresses:
12
<PAGE> 17
If to The SABRE Group: The SABRE Group, Inc.
MD 4202
4255 Amon Carter Boulevard
Fort Worth, TX 76155
URGENT ATTENTION: SABRE Group Chief
Financial Officer
Telecopy: (817) 931-5582
If to American: American Airlines, Inc.
MD 5115
4333 Amon Carter Boulevard
Fort Worth, TX 76155
URGENT ATTENTION: Managing Director
Corporate Human Resources
Telecopy: (817) 967-4380
Notices delivered in the foregoing manner will be deemed effective on (i) the
day received if delivered personally or sent by courier; (ii) the business day
following the day received if sent by telecopy, or (iii) the third Business Day
following the date of dispatch by registered mail.
20.3 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Parties and their permitted successors and assigns.
20.4 Integration. This Agreement and the attachments hereto
constitute the entire agreement of the Parties pertaining to subject matter
hereof and supersede all prior agreements and understandings pertaining to that
subject, and this Agreement may not be amended, supplemented, or rescinded,
except in writing and signed by the authorized representatives of both Parties.
20.5 No Third Party Beneficiaries Except as specifically provided
herein, no provision of this Agreement shall be for the benefit of or be
enforceable by or create any right in third persons, including employees,
retirees or creditors of any Party.
20.6 No Partnership The Parties do not intend hereby to create a
partnership, joint venture or other business combination or collaboration. The
existence of any such arrangement or entity is expressly disclaimed.
20.7 Waiver A waiver of any covenant, duty, agreement, or
condition of this Agreement shall not be asserted against a Party unless it is
in writing signed by such Party. Failure by any Party to insist upon the
strict performance of, or to exercise any right or remedy upon the breach of,
any covenant, duty, agreement, or condition of this Agreement shall not
constitute a waiver of that or any other failure to perform or breach of that
or any other covenant, duty, agreement, or condition. No
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<PAGE> 18
waiver of a breach of any provision of this Agreement by either Party shall
constitute a waiver of any subsequent breach of the same or any other provision
hereof.
20.8 Multiple Originals This Agreement shall be executed in
counterparts or multiple originals, all of which together shall constitute one
agreement binding on each Party.
20.9 Invalidity of Provisions If any provision of this Agreement
is or becomes wholly or partly invalid, illegal, or unenforceable the validity,
legality, and enforceability of the remaining provisions shall continue in
force unaffected, and the Parties shall meet as soon as possible and negotiate
in good faith upon a replacement provision that is legally valid and that as
nearly as possible achieves the objectives of the Agreement and produces an
equivalent economic effect. A replacement provision shall apply as of the date
that the replaced provision had become invalid, illegal, or unenforceable. If
the Parties cannot reach agreement after good faith negotiations, a Party may
invoke the Dispute Resolution Procedures hereunder, the arbitrators shall have
the authority to determine a replacement provision that is legally valid and
that as nearly as possible achieves the objectives of the Agreement and
produces an equivalent economic effect, provided however, that such
determination may not materially increase the payment or performance
obligations of either Party.
20.10 Force Majeure Except for the obligations to make payment,
neither Party shall be liable to the other in the event and to the extent that
performance by such Party is delayed or prevented by Force Majeure; provided
that in the event any failure to pay results from a Force Majeure preventing
the actual transfer of funds (e.g., failure of communication lines for transfer
of funds) such obligation to pay shall be suspended until such time as that
particular Force Majeure preventing the transfer of funds ends. The Party
claiming the existence of a Force Majeure shall give Notice to the other Party
as soon as practicable of the existence of the Force Majeure and shall use all
reasonable efforts to bring the Force Majeure to an end as soon as possible.
If the Force Majeure continues for a period of ninety (90) days, the other
Party shall have the right, but not the obligation, to terminate the Agreement
upon sixty (60) days Notice.
20.11 Governing Law This Agreement shall be construed and
interpreted, and its validity and enforceability shall be determined, under the
laws of the State of Texas without regard to any conflicts of law rules.
20.12 Dispute Resolution Any Dispute shall be resolved in accordance
with the Dispute Resolution Procedures set forth in Appendix B.
20.13 Choice of Forum For any actions to enforce arbitral awards
issued in accordance with the Dispute Resolution Procedures in Appendix B or to
enforce the Parties' compliance with the Dispute Resolution Procedures in
Appendix B, each Party consents to the non-exclusive jurisdiction of the
competent courts in Fort Worth, Texas, in connection with any action or
proceeding arising under this Agreement. Each Party irrevocably waives any
objection it may now or hereafter have as to the venue of any such action or
proceeding brought in such a court or that such court is an
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<PAGE> 19
inconvenient forum. Each Party hereby waives personal service of process and
consents that service of process upon it may be made by certified or registered
mail, return receipt requested, at its address specified or determined in
accordance with Section 20.2.
20.14 Compliance with Laws The Parties hereto shall comply with all
applicable laws and no Party shall perform any act, or fail to perform any act,
or be obligated to perform any act that could either (i) result in any
violation of any applicable law or any governmental or quasi-governmental
directive, policy or guideline or (ii) result in any material fine, penalty or
sanction.
[REMAINDER OF PAGE IS INTENTIONALLY BLANK]
15
<PAGE> 20
IN WITNESS WHEREOF, the undersigned duly authorized representatives of
the Parties have executed this Travel Privileges Agreement as of the day and
year first written above.
AMERICAN AIRLINES, INC. THE SABRE GROUP, INC.
/s/ Donald J. Carty /s/ Michael J. Durham
By: Donald J. Carty By: Michael J. Durham
Title: President Title: President
16
<PAGE> 21
TRAVEL PRIVILEGES AGREEMENT
SCHEDULE A
TRAVEL CHARGES FOR ELIGIBLE EMPLOYEES
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
3 PAGES REDACTED
A - 1
<PAGE> 22
TRAVEL PRIVILEGES AGREEMENT
SCHEDULE A-1
ALLOCATED ADMINISTRATIVE COSTS
Travel Card Issuance
Travel Policy Administration
Travel Privileges Abuse Investigations
Ticket Loss Prevention
Personal SABRE usage
Non-Revenue Space Available Accounting
- - Collection Services (for off-payroll employees)
- - Billing to off-payroll employees
- - Journal entries/Imputed Income calculations for Eligible Employees
travelling A2/A4/A6
- - Written correspondence to us from SABRE employees requesting refunds
and disputing bills
- - Refunds on employee-discounted revenue tickets (ID-20s)
- - Refund requests via phone
Non-Revenue Ticket Stock
Notwithstanding anything to the contrary in the Agreement, The SABRE Group
shall not be obligated to bear any costs under the Agreement to the extent that
such costs are paid by it under the Management Services Agreement dated July 1,
1996 between the parties.
A - 2
<PAGE> 23
TRAVEL PRIVILEGES AGREEMENT
SCHEDULE B
TRAVEL CHARGES FOR ELIGIBLE RETIREES
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
2 PAGES REDACTED
B - 1
<PAGE> 24
[INFORMATION OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
B - 2
<PAGE> 25
TRAVEL PRIVILEGES AGREEMENT
SCHEDULE C
MAXIMUM NUMBER OF ELIGIBLE EMPLOYEES
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
1 PAGE REDACTED
C - 1
<PAGE> 26
TRAVEL PRIVILEGES AGREEMENT
APPENDIX A
DEFINED TERMS
1 Definitions. As used in the Agreement, the following terms shall have
the following meanings:
"AA" refers to American and each Affiliate of American that is an Air
Carrier, including, at the Effective Date, Executive Airlines, Inc., Flagship
Airlines, Inc., Simmons Airlines, Inc., and Wings West Airlines, Inc.
"AA Reservations System" means American's internal systems for making
bookings on AA, including without limitation, American's internal computer
reservations system, American's ATO or CTO locations, American's reservations
centers and American's automated voice response system.
"AA Travel Policies" refers to the policies, practices, rules,
regulations, restrictions, terms and conditions governing personal travel on AA
by American's employees, as promulgated and published by American from time to
time, including without limitation those published in the AA conditions of
carriage and tariffs, American's Employee Handbook, and AA Regulations. In the
event of a conflict among the provisions of any documents on the following
list, the document appearing first shall supersede those listed after such
document: AA conditions of carriage and tariffs, the Agreement, AA
Regulations, American's Employee Handbook.
"Affiliate" means, with respect to any entity at any time, any Person
that Controls such entity, is Controlled by such entity, or is under common
Control with such entity.
"AFS" means American Flagship Service offered by American, or any
domestic Flight Segment offering three Classes of Service.
"Agreed Access Level" means (A) so long as The SABRE Group is an
Affiliate of American, access to functions of the AA Reservations System that
are equivalent to those that American generally makes available to its
employees and retirees; (B) if The SABRE Group is not an Affiliate of American,
access to the following functions of the AA Reservations System: (1)"VNR"
display of the number of seats available to book in each cabin class and number
of non-revenue passengers flight listed in each cabin class; (2) "G*" (G Star)
display of the physical seats in each cabin class, number of reservations in
each cabin class, number of boarding passes issued in each cabin class.;(3)
Checking flight schedules; (4) Making bookings in the correct Pass Category;
(5) obtaining flight information (FLIFO); and (6) checking standby lists,
provided, however, that American may at its sole expense restrict access to
passenger name information on standby travel lists, so long as each Eligible
Employee and Eligible Retiree is able to determine his
A-1
<PAGE> 27
or her position on the standby travel list; provided further, that American
shall not be required to provide Eligible Retirees with any access or
functionality if American does not provide the same access or functionality to
its own retirees.
"Agreement" means the Travel Privileges Agreement dated July 1, 1996,
entered into by and between American and The SABRE Group, to which this
Appendix A is attached and made a part, and all schedules, appendices and
attachments thereto.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
"American" means American Airlines, Inc., a Delaware corporation.
"ATO" means an airport ticket office operated by an Air Carrier.
"Business Day" means a day other than Saturday, Sunday, and national
holidays in the United States and days on which banks in Texas are permitted to
close.
"Claims" means any and all liabilities, damages, losses, expenses,
claims, demands, suits, fines or judgments including, but not limited to,
attorneys' fees, expert witness costs, court costs and expenses incident
thereto.
"Class of Service" means any of Coach Class, Business Class or First
Class service or their equivalents.
"Coach Class Travel Charges" means charges for travel in an assigned
seat in the Coach Class cabin by an Eligible Employee or Guest traveling in
Pass Categories A2, A4, A6, A9, D1, D2 or D3, as specified in Schedule A to the
Agreement.
"Confidential Information" means the Agreement, AA Travel Policies and
any and all trade secrets, proprietary and confidential information that is
owned (jointly or severally) by a Party and/or such Party's Affiliate,
concerning its past, present or future research, development, business
activities or affairs (including, without limitation, market intelligence),
finances, properties, methods of operation, processes and systems, which are
reasonably considered by it to be confidential. Notwithstanding the foregoing,
the following will not constitute "Confidential Information": (a) information
which was already in the receiving Party's possession prior to the Effective
Date (unless the receiving Party is prohibited from disclosing such information
to a Person other than the receiving Party by a contractual, legal or fiduciary
obligation to the disclosing Party) or that is independently developed by the
receiving Party without the use of any Confidential Information of the
disclosing Party; (b) information that is obtained from a third person who,
insofar as is known to the receiving Party, is not prohibited from transmitting
the information to the receiving Party by a contractual, legal or fiduciary
obligation to the disclosing Party; and (b) information which is or which
becomes generally available to the public, other than as a result of disclosure
by the receiving Party.
A-2
<PAGE> 28
"Control" means, with respect to any Person, owning, directly or
indirectly, more than 50% of the capital stock (or other ownership interest, if
not a corporation) of such Person ordinarily having voting rights or otherwise
having the right or ability, by contract or otherwise, to direct the management
and policies of such Person. "Controlling" and "Controlled" shall have
corresponding meanings.
"CRS" means a computer system which collects, stores, processes,
displays and distributes information through computer terminals concerning air
and ground transportation, lodging and other travel related products and
services offered by system participants and which enables its subscribers and
other users to, among other things, (i) reserve or otherwise confirm the use
of, or make inquiries or obtain information in relation to, such products and
services, and/or (ii) issue tickets for the acquisition or use of such products
and services.
"CTO" means a city ticket office or other off-airport ticket office
operated by an Air Carrier.
"Cure Period" means a period which expires thirty (30) days after
receipt of Notice of a breach, misrepresentation or failure to perform from the
non-defaulting Party; provided, however, that (i) if the breach,
misrepresentation or failure is not capable of being cured within thirty (30)
days following the receipt of such Notice but is capable of being cured within
180 days following the receipt of such Notice, then the Cure Period shall
expire 180 days following the receipt of such Notice so long as the defaulting
Party commences a cure within thirty (30) days following the receipt of such
Notice and diligently pursues such cure to completion within 180 days after its
receipt of Notice; (ii) the Cure Period for any failure to pay any sum of money
shall be limited to ten (10) Business Days, (iii) no Cure Period shall apply if
the breach, misrepresentation or failure to perform is not capable of being
cured within 180 days following the receipt of Notice, (iii) no Cure Period
shall apply if the breach, misrepresentation or failure to perform has occurred
twice previously during the preceding twelve (12) months.
"Current D2 Rate" means the service charge rates that American's
employees pay for D2 personal travel.
"Dependent Children" has the meaning assigned to that term in AA Travel
Policies.
"Dispute" means any dispute, disagreement, claim or controversy
arising in connection with this Agreement, or the validity, interpretation,
performance, breach or termination of this Agreement, including any claim of
breach of representation or warranty or of non-performance.
"Dispute Resolution Procedures" means the dispute resolution
procedures attached as Appendix B to the Agreement.
"Dollars" or "$" means the lawful currency of the United States of
America.
A-3
<PAGE> 29
"Effective Date" means July 1, 1996.
"Eligible Employee" means an individual (i) who is a full-time or
part-time employee of The SABRE Group or any of its Affiliates, (ii) to whom
The SABRE Group elects to make available Travel Privileges, (iii) whose date of
employment by The SABRE Group or American or any of their respective Affiliates
occurred before the date on which The SABRE Group ceased to be an Affiliate of
American, and (iv) who has been continuously employed since such employment
date by The SABRE Group or American or any of their respective Affiliates.
"Eligible Retiree" means an Eligible Employee who retires from The
SABRE Group or one of its Affiliates during the term of the Agreement and who
would have been eligible to receive retiree travel privileges from American had
he or she been employed by American at the time of retirement from The SABRE
Group or one of its Affiliates.
"Event of Default" has the meaning assigned to that term in Section 2.2
of the Agreement.
"Flight Segment" means each separate flight segment reservation
identified in a PNR.
"Force Majeure" means acts of God, war, warlike conditions, strikes or
other labor disputes, work stoppage, fire, flood, valid or invalid acts of
government or any other cause, whether similar or dissimilar, beyond the
reasonable control of the Party whose ability to perform is affected.
"Guest" means an individual traveling at the invitation of an Eligible
Employee or an Eligible Retiree as permitted by AA Travel Policies.
"IFS" means International Flagship Service offered by American, or any
International Flight Segment offering three Classes of Service.
"Notice" means a notice meeting the requirements of Section 20.2 of the
Agreement.
"Party" means each of the signatories to the Agreement, and their
permitted successors and assigns.
"Pass Category" means travel pass category A2, A4, A6, A9, D1, D2, or
D3, as applicable to a particular Flight Segment.
"Person" means any individual, corporation, limited liability company,
partnership, firm, joint venture, association, joint-stock company, trust,
estate, unincorporated organization, governmental or regulatory body or other
entity.
"PNR" means a passenger name record residing on American's Reservation
System.
A-4
<PAGE> 30
"Positive Space" means a reservation to travel with a confirmed space
ticket.
"Premium Class Travel Charges" means charges for travel in an assigned
seat in the First Class or Business Class cabin (and the Coach Class cabin on
any AFS or IFS Flight Segment) by an Eligible Employee or Guest traveling in
Pass Categories A2, A4, A6, A9, D1, D2 or D3, as specified in Schedule A to the
Agreement.
"Senior Management" means Eligible Employees who are designated as
members of senior management by The SABRE Group. Currently, senior management
is defined as employees in AMR Corporation management levels 7 and higher.
There is no limit on the number of senior management employees that may be
designated by The SABRE Group.
"Space Available" means a reservation to travel with a boarding
priority behind any passengers with confirmed space tickets.
"Spouse" has the meaning determined according to AA Travel Policies.
"Surcharges" means any charges generally imposed on all passengers by
American in addition to the base fare for a Flight Segment, including without
limitation airport, fuel and security surcharges.
"The SABRE Group" means The SABRE Group, Inc., a Delaware corporation.
"Taxes" means all current and future taxes, assessments, fees, levies,
imposts, duties, or other similar governmental charges, including any interest
or penalty thereon, including without limitation employment taxes,
transportation taxes, excise taxes, departure taxes, passenger facility
charges, and facility user fees.
"Travel Card" means a plastic card which shall indicate, among other
things, the name, company affiliation and approved Pass Category for the
exercise of Travel Privileges of the individual to whom the card is issued.
"Travel Charges" means Coach Class Travel Charges and/or Premium Class
Travel Charges.
"Travel Privileges" means the privileges described in Articles 5 and 6
of the Agreement.
2 Rules of Interpretation. The following rules of interpretation apply
to the Agreement:
2.1 the word "or" is not exclusive and the words "include" and
"including" are not limiting;
A-5
<PAGE> 31
2.2 the words "hereby", "herein", "hereof", "hereunder" or other
words of similar meaning refer to the entire Agreement;
2.3 a reference to any agreement or other contract includes
permitted supplements, amendments and restatements;
2.4 a reference to a law includes any amendment or modification to
such law and any rules or regulations promulgated thereunder
or any law enacted in substitution or replacement therefor;
2.5 a reference to a Person includes its permitted successors and
assigns;
2.6 a reference to an Article, Section, Annex, Exhibit or Schedule
which does not specify a particular agreement is to the
relevant Article, Section, Annex, Exhibit or Schedule of the
Agreement;
2.7 a reference to an Article includes all Sections and
subsections contained in such Article, and a reference to a
Section or subsection includes all subsections of such Section
or subsection;
2.8 all article and section titles or captions in this Agreement
are for convenience only and shall not be deemed part of this
Agreement and in no way define, limit, extend, or describe the
scope or intent of any of its provisions;
2.9 all terms not otherwise defined herein or in the AA Travel
Policies shall have the meaning commonly ascribed thereto in
the airline industry.
A-6
<PAGE> 32
TRAVEL PRIVILEGES AGREEMENT
APPENDIX B
DISPUTE RESOLUTION PROCEDURES
A. Defined Terms. Various capitalized terms not otherwise defined in
this Dispute Resolution Procedures Appendix are defined in Appendix A
to the Travel Privileges Agreement dated as of July 1, 1996 between
American Airlines, Inc. and The SABRE Group, Inc. In addition, the
following terms used in this Dispute Resolution Procedures Appendix
have the following meanings:
"ARBITRATION RULES" means the Rules for Commercial Arbitration
of the American Arbitration Association in effect at the time
of an arbitration in accordance with these Dispute Resolution
Procedures.
"COMPLEX DISPUTE LIST" means the Complex Dispute List, or if
that list is not maintained, another list of individuals
having similar qualifications, maintained by the American
Arbitration Association.
"INITIAL EXECUTIVE REVIEW COMMITTEE" means a committee
consisting of the Representative of each party and the vice
presidents of each party responsible for overseeing their
respective human resources departments.
"REPRESENTATIVE" means, as to American, its managing director
responsible for overseeing its employee travel privileges
program, and as to The SABRE Group, its managing director
responsible for the administration of this Travel Privileges
Agreement.
"SECOND EXECUTIVE REVIEW COMMITTEE" means a committee
consisting of the Initial Executive Review Committee and the
senior vice presidents of American and The SABRE Group
responsible for overseeing their respective human resources
departments.
"QUALIFICATIONS" means (i) inclusion in the Complex Dispute
List or (ii) having extensive knowledge or experience about
the airline industry.
The interpretative matters set forth in the Definitional Appendix also
apply to this Dispute Resolution Appendix.
B. Dispute Resolution Procedure.
1. General Procedure. Except as otherwise stated in the
Agreement, the Parties shall resolve all Disputes in
accordance with this procedure:
B-7
<PAGE> 33
(a) Each Party shall instruct its Representative to
promptly negotiate in good faith with the other
Party's Representative to resolve the Dispute.
(b) If the Representatives do not resolve the Dispute
within ten Business Days (or such longer period as
the Representatives may agree) after the date of
referral of the Dispute to them, the Dispute shall be
referred (by either or both of the Representatives)
to the Initial Executive Review Committee for
resolution.
(c) If the Initial Executive Review Committee does not
resolve the Dispute within ten Business Days (or such
longer period as that Committee may agree) from the
date of referral to it, the Dispute shall be referred
(by that Committee or any of its members) to the
Second Executive Review Committee for resolution.
(d) If the Second Executive Review Committee has not
resolve the Dispute within ten Business Days (or such
longer period as that Committee may agree) after the
date of referral to it, either Party may submit the
Dispute to for resolution by the Parties' Presidents,
either of whom may submit the Dispute to non-binding
mediation in accordance with Section B.2 of this
Dispute Resolution Appendix.
(e) If the Dispute is not resolved by the Parties'
Presidents, and is not submitted to or resolved by
mediation, then either of the Parties' Presidents
may submit the Dispute to binding arbitration in
accordance with Section B.3 of this Dispute
Resolution Appendix.
A referral under any of Sections B.1(a), B.1(b), and B.1(c) of this
Dispute Resolution Appendix shall be made by written Notice to the
Persons designated in the applicable Section or Sections. The date of
referral is the last date that notice is given to all of the Persons
to whom the Dispute must have been referred.
2. Mediation. The mediation of an unresolved Dispute shall be
conducted in this manner:
(a) Either Party may submit the Dispute to mediation by
giving notice of mediation to the other Party. The
Parties shall attempt to agree upon and appoint a
sole mediator who has the Qualifications promptly
after that notice is given.
(b) If the Parties are unable to agree upon a mediator
within ten days after the date the Dispute is
submitted to mediation, either Party may request the
Dallas office of the American Arbitration Association
to appoint a mediator
<PAGE> 34
who has the Qualifications. The mediator so
appointed shall be deemed to have the Qualifications
and to be accepted by the Parties.
(c) The mediation shall be conducted in the Dallas-Fort
Worth metropolitan area at a place and a time agreed
by the Parties with the mediator, or if the Parties
cannot agree, as designated by the mediator. The
mediation shall be held within 20 days after the
mediator is appointed.
(d) If either Party has substantial need for information
from the other Party in order to prepare for the
mediation, the Parties shall attempt to agree on
procedures for the formal exchange of information; if
the Parties cannot agree, the mediator's
determination shall be effective.
(e) Each Party shall be represented in the mediation by
at least its Representative or another natural Person
with authority to settle the Dispute on behalf of
that Party and may be represented by counsel for that
Party. The Parties' representatives in the mediation
shall continue with the mediation as long as the
mediator requests.
(f) The mediation shall be subject to Chapter 154 of
Title 7 of the Texas Civil Practice and Remedies
Code.
(g) Unless otherwise agreed by the Parties, each Party
shall pay one-half of the mediator's fees and
expenses and shall bear all of its own expenses in
connection with the mediation. Neither Party may
employ or use the mediator as a witness, consultant,
expert, or counsel regarding the Dispute or any
related matters.
3. Arbitration. The arbitration of an unresolved Dispute shall
be conducted in this manner:
(a) Either Party may begin arbitration by filing a demand
for arbitration in accordance with the Arbitration
Rules. The Parties shall attempt to agree upon and
appoint a panel of three arbitrators who have the
Qualifications promptly after that demand is filed.
(b) If the Parties are unable to agree upon any or all of
the arbitrators within ten days after the demand for
arbitration was filed (and do not agree to an
extension of that ten-day period), either Party may
request the Dallas office of the American Arbitration
Association to appoint the arbitrator or arbitrators,
who have the Qualifications, necessary to complete
the panel in accordance with the Arbitration Rules.
Each arbitrator so appointed shall be deemed to have
the Qualifications and to be accepted by the Parties
as part of the panel.
B-9
<PAGE> 35
(c) The arbitration shall be conducted in the Dallas-Fort
Worth metropolitan area at a place and a time agreed
by the Parties with the panel, or if the Parties
cannot agree, as designated by the panel. The panel
may, however, call and conduct hearings and meetings
at such other places as the Parties may agree or as
the panel may, on the motion of one Party, determine
to be necessary to obtain significant testimony or
evidence.
(d) The Parties shall attempt to agree upon the scope and
nature of any discovery for the arbitration. If the
Parties do not agree, the panel may authorize any and
all forms of discovery, including depositions,
interrogatories, and document production, upon a
showing of particularized need that the requested
discovery is likely to lead to material evidence
needed to resolve the Dispute and is not excessive in
scope, timing, or cost.
(e) The arbitration shall be subject to the Federal
Arbitration Act and conducted in accordance with the
Arbitration Rules to the extent they do not conflict
with this Section B.3 of this Dispute Resolution
Appendix. The Parties and the panel may, however,
agree to vary the provisions of this Section B.3 of
this Dispute Resolution Appendix or the matters
otherwise governed by the Arbitration Rules.
(f) The panel has no power to:
(i) rule upon or grant any extension,
renewal, or continuance of the Agreement;
or
(ii) award remedies or relief either expressly
prohibited by the Agreement or under
circumstances not permitted by the
Agreement.
(g) Unless the Parties otherwise agree, all Disputes
regarding or related to the same topic or event that
are subject to arbitration at one time shall be
consolidated in a single arbitration proceeding.
(h) A Party or other Person involved in an arbitration
under this Section B.3 may join in that arbitration
any Person other than a Party if
(i) the Person to be joined agrees to resolve
the particular dispute or controversy in
accordance with this Section B.3 and the
other provisions of this Dispute
Resolution Appendix applicable to
arbitration; and
B-10
<PAGE> 36
(ii) the panel determines, upon application of
the Person seeking joinder, that the
joinder of that other Person will promote
the efficiency, expedition, and
consistency of the result of the
arbitration and will not unfairly
prejudice any other party to the
arbitration.
(i) The arbitration hearing shall be held within 30 days
after the appointment of the panel. Upon request of
either Party, the panel shall arrange for a
transcribed record of the arbitration hearing, to be
made available to both Parties.
(j) The panel's final decision or award shall be made
within 30 days after the hearing. That final
decision or award shall be made by unanimous or
majority vote or consent of the arbitrators
constituting the panel, and shall be deemed issued at
the place of arbitration. The panel shall issue a
reasoned written final decision or award based on the
Agreement and Texas law; the panel may not act
according to equity and conscience or as an amicable
compounder or apply the law merchant.
(k) The panel's final decision or award may include:
(i) recovery of Damages to the extent
permitted by the Agreement; or
(ii) injunctive relief in response to any
actual or threatened breach of the
Agreement or any other actual or
threatened action or omission of a Party
under or in connection with the
Agreement.
(l) The panel's final decision or award shall be final
and binding upon the Parties, and judgment upon that
decision or award may be entered in any court having
jurisdiction over either or both of the Parties or
their respective assets. The Parties specifically
waive any right they may have to apply or appeal to
any court for relief from the preceding sentence or
from any decision of the panel made, or any question
of law arising, before the final decision or award.
If any decision by the panel is vacated for any
reason, the Parties shall submit that Dispute to a
new arbitration in accordance with this Section B.3.
(m) Each Party shall pay one-half of the arbitrators'
fees and expenses, and shall bear all of its own
expenses in connection with the arbitration. The
panel has the authority, however, to award recovery
of all costs and fees (including attorneys' fees,
administrative fees and the panel's fees and
expenses) to the prevailing Party in the arbitration.
B-11
<PAGE> 37
4. Recourse to Courts. Nothing in the Dispute Resolution
Procedure limits the right of either Party to apply to a court
or other tribunal having jurisdiction to:
(a) enforce the Dispute Resolution Procedure, including
the agreement to arbitrate in this Dispute Resolution
Appendix;
(b) seek provisional or temporary injunctive relief, in
response to an actual or impending breach of the
confidentiality provisions of the Agreement or
otherwise so as to avoid irreparable damage or
maintain the status quo, until a final arbitration
decision or award is rendered or the Dispute is
otherwise resolved; or
(c) challenge or vacate any final arbitration decision or
award that does not comport with Section B.3 of this
Dispute Resolution Appendix.
5. Submission to Jurisdiction. Each Party irrevocably submits to
the jurisdiction of the federal courts of the United States
and the state courts of Texas located in Tarrant County,
Texas. Each Party waives any defense or challenge to that
jurisdiction based on lack of personal jurisdiction, improper
venue, or inconvenience of forum.
6. Confidentiality. The proceedings of all negotiations,
mediations, and arbitrations as part of the Dispute Resolution
Procedure shall be privately conducted. The Parties shall
keep confidential all conduct, negotiations, documents,
decisions, and awards in connection with those proceedings
under the Dispute Resolution Procedure.
B-12
<PAGE> 1
EXHIBIT 10.12
SOFTWARE MARKETING AGREEMENT
Between
AMR CORPORATION
THE SABRE GROUP HOLDINGS, INC.
and
THE SABRE GROUP, INC.
Dated as of September 10, 1996
Software Marketing Agreement
<PAGE> 2
SOFTWARE MARKETING AGREEMENT
This Software Marketing Agreement, dated as of September 10, 1996, is
made and entered into by and between AMR CORPORATION, a Delaware corporation,
and The SABRE Group, Inc., a Delaware corporation.
RECITALS
WHEREAS, AMR owns all of the shares of common stock of TSGH and all of
the shares of common stock of American; and
WHEREAS, as part of the reorganization of AMR's information technology
business, American transferred to TSG, directly or indirectly, on July 1, 1996,
certain intellectual property, including the Restricted Software; and
WHEREAS, the Restricted Software gives American a significant
competitive advantage in its air transportation business; and
WHEREAS, TSG desires to have AMR permit TSGH to issue less than twenty
percent of the common stock of TSGH to the public in an initial public
offering; and
WHEREAS, in order to maximize the overall value of its investment in
TSG and AA, AMR wishes to limit the ability of TSG to market the Restricted
Software.
NOW THEREFORE, in consideration of the mutual covenants set forth
below, the parties hereto agree as follows:
1. DEFINITIONS Whenever used in this Agreement, the capitalized terms
listed below shall have the respective meanings specified below:
"Affiliate" means, with respect to any entity at any time, any Person
that, directly or indirectly, Controls such entity, is Controlled by
such entity or is under common Control with such entity.
"Agreement" means this Software Marketing Agreement as it may be
amended and supplemented from time to time.
"American" means American Airlines, Inc., a Delaware corporation.
"AMR" means AMR Corporation, a Delaware corporation.
"Confidential Information" has the meaning ascribed to that term in
the IT Services Agreement.
1
Software Marketing Agreement
<PAGE> 3
"Control" means the ability to direct the management or operations of
a Person by reason of ownership of greater than 50% of the voting
equity interests of such Person. "Controlled" and "Controls" have
corresponding meanings.
"Dispute" means any dispute, disagreement, claim, or controversy
arising in connection with or relating to this Agreement, or the
validity, interpretation, performance, breach, or termination of this
Agreement, including any claim of breach of representation or warranty
or of non-performance.
"IT Services Agreement" means the Information Technology Services
Agreement dated as of July 1, 1996, between American and TSG.
"Key Employee" has the meaning ascribed to that term in the IT
Services Agreement.
"Market Limited Airline Software" means the Software listed under that
heading on Schedule A attached hereto, as that list may be
supplemented or amended by the parties.
"Market Limited Cargo Software" means the Software listed under that
heading on Schedule A attached hereto, as that list may be
supplemented or amended by the parties.
"Market Restricted Software" means the Software listed under that
heading on Schedule A attached hereto, as that list may be
supplemented or amended by the parties.
"Party" means a Person that has executed this Agreement.
"Person" means any individual, corporation, limited liability company,
partnership, firm, joint venture, association, joint-stock company,
trust, estate, unincorporated organization, governmental or regulatory
body or other entity.
"Restricted Software" means any or all of the Market Limited Airline
Software, the Market Limited Cargo Software, and the Market Restricted
Software.
"Software" means all computer programming code, instructions or
statements, whether in a form readable by individuals (source code) or
by machines (object code), and all documentation, materials,
algorithms, formulas, processes, compostitions, designs, data,
specifications, or procedures embodied in the applications, to the
extent that they were developed as part of a project funded in whole
or in substantial part by AMR or American or American Eagle, Inc.
"TSG" means The SABRE Group, Inc., a Delaware corporation.
2
Software Marketing Agreement
<PAGE> 4
"TSGH" means The SABRE Group Holdings, Inc., a Delaware
corporation.
2. TERM This Agreement shall be effective as of the completion
by TSGH of the initial public offering of its common stock and
shall continue in effect until the earliest to occur of (i)
expiration of the IT Services Agreement, and (ii) termination
of TSG's obligation to perform software maintenance,
development and enhancement services with respect to all
Restricted Software under the IT Services Agreement.
3. INITIAL PUBLIC OFFERING Subject to the satisfaction of
applicable governmental requirements, AMR will permit TSGH to
offer and sell to the public TSGH's common stock in an amount
such that, immediately following such initial public offering,
AMR would own not less than eighty percent of TSGH's total
outstanding common stock.
4. MARKETING RESTRICTIONS During the term of this Agreement, and
thereafter until the fifth annual anniversary of the most
recent date on which TSG performed services with respect to
any particular Restricted Software, which services provided a
material functional enhancement or major modification to that
particular Restricted Software, unless TSG has the prior
written approval of the Chief Executive Officer of AMR, TSGH
and TSG will not, and each will not permit any of its
Affiliates to:
a. transfer, assign, license, sublicense,
disclose, use or operate, anywhere in the
world, the Market Limited Airline Software
containing such material functional
enhancement or major modification for the
benefit of any of [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]; and
b. transfer, assign, license, sublicense,
disclose, use or operate, anywhere in the
world, the Market Limited Cargo Software
containing such material functional
enhancement or major modification for the
benefit of any of the following airlines:
[CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]; and
c. transfer, assign, license, sublicense,
disclose, use or operate, anywhere in the
world, the Market Restricted Software
containing such material functional
enhancement or major modification for the
benefit of any third party whatsoever.
5. TERMS OF THIRD PARTY AGREEMENTS TSGH and TSG will, and each
will ensure that its Affiliates will, include in any agreement
with any Person to which any Restricted Software is
transferred, assigned, licensed, sublicensed, disclosed, or as
3
Software Marketing Agreement
<PAGE> 5
to which any rights to market Restricted Software are granted,
a provision that imposes on such Person the obligations
imposed on TSGH and TSG in Sections 4.a, 4.b and 4.c, as
applicable to that Restricted Software. TSGH and TSG will
each use its best efforts to enforce any such provision.
6. KEY EMPLOYEES Until the one year anniversary of the most
recent date on which any Key Employee performed services with
respect to any particular Restricted Software, which services
provided a material functional enhancement or major
modification to that particular Restricted Software, unless
TSG has the prior written approval of the Chief Executive
Officer of AMR, TSGH and TSG will not, and each will not
permit any of its Affiliates to, assign or use that Key
Employee anywhere in the world to provide:
a. for any Person described in Section 4.a, with
respect to any software that performs
functions similar to the Market Limited
Airline Software, services similar to the
services performed by that Key Employee which
provided a material functional enhancement or
major modification to the Market Limited
Airline Software;
b. for any Person described in Section 4.b, with
respect to any software that performs
functions similar to the Market Limited Cargo
Software, services similar to the services
performed by that Key Employee which provided
a material functional enhancement or major
modification to the Market Limited Cargo
Software; and
c. for any Person described in Section 4.a, with
respect to any software that performs
functions similar to the Market Restricted
Software, services similar to the services
performed by that Key Employee which provided
a material functional enhancement or major
modification to the Market Restricted
Software.
TSGH and TSG will, and will ensure that its Key Employees
will, comply with the terms and conditions of Article XIV --
Confidential Information of the IT Services Agreement.
7. REPRESENTATIONS TSGH and TSG each represents, agrees and
acknowledges that:
a. the enforcement of Sections 4, 5 and 6 of
this Agreement would not be unduly burdensome
to it;
b. the provisions of Sections 4, 5 and 6 of this
Agreement were negotiated as part of, in
consideration of, and were considered as an
essential part of the
4
Software Marketing Agreement
<PAGE> 6
initial public offering of TSGH stock and are
ancillary to the agreements entered into as
part of that initial public offering; and
c. the restrictions in Sections 4, 5 and 6 of
this Agreement regarding the scope of
activities, duration, and geographic area
that are part of this Agreement are
reasonable and do not impose a greater
restraint on it than is necessary to protect
the goodwill and other business interests of
AMR and American.
8. LIMITS OF LIABILITY EXCEPT AS PROVIDED IN THE LAST
PARAGRAPH OF THIS SECTION, NO PARTY SHALL BE LIABLE UNDER ANY
CIRCUMSTANCES FOR ANY EXEMPLARY, PUNITIVE, TREBLE, STATUTORY,
SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, INCLUDING
WITHOUT LIMITATION LOST PROFITS, REVENUE OR SAVINGS, EVEN IF
SUCH PARTY HAS BEEN ADVISED, KNEW, OR SHOULD HAVE KNOWN OF THE
POSSIBILITY THEREOF.
IN THE EVENT THAT TSGH OR TSG MATERIALLY BREACHES SECTION 4 OR
SECTION 6 OF THIS AGREEMENT AS A RESULT OF TSGH'S OR TSG'S
INTENTIONAL ACT OR FAILURE TO ACT, OTHER THAN AS PROVIDED IN
THE FOLLOWING TWO PARAGRAPHS, THEN AMR SHALL BE ENTITLED TO
RECOVER FROM TSG, AS LIQUIDATED DAMAGES, AN AMOUNT EQUAL TO
THE PROFITS RECEIVED BY TSGH OR TSG RESULTING FROM SUCH
MATERIAL BREACH.
IN THE EVENT THAT TSGH OR TSG MATERIALLY BREACHES SECTION 6 OF
THIS AGREEMENT AS A RESULT OF TSGH'S OR TSG'S INTENTIONAL ACT
OR FAILURE TO ACT, OTHER THAN AS PROVIDED IN THE FOLLOWING
PARAGRAPH, AND SUCH MATERIAL BREACH DID NOT INVOLVE A
DISCLOSURE OF CONFIDENTIAL INFORMATION BY TSG, THEN AMR SHALL
BE ENTITLED TO RECOVER FROM TSG AN AMOUNT EQUAL TO AMR'S
DIRECT DAMAGES RESULTING FROM SUCH BREACH IN AN AGGREGATE
AMOUNT NOT TO EXCEED THE PROFITS RECEIVED BY TSG FROM THE
PROJECT INVOLVING SUCH MATERIAL BREACH.
IN THE EVENT THAT TSGH OR TSG MATERIALLY BREACHES SECTION 4 OR
SECTION 6 OF THIS AGREEMENT BY TSGH OR TSG KNOWINGLY AND
WILFULLY FAILING OR REFUSING TO PERFORM ITS OBLIGATIONS
HEREUNDER, THEN AMR SHALL BE ENTITLED TO RECOVER FROM TSG BOTH
(A) THE PROFITS RECEIVED BY TSG AS A CONSEQUENCE OF SUCH
MATERIAL BREACH, AND (B) AMR'S DIRECT AND CONSEQUENTIAL
DAMAGES RESULTING FROM SUCH BREACH IN AN AGGREGATE AMOUNT NOT
TO EXCEED $50,000,000.
5
Software Marketing Agreement
<PAGE> 7
9. REMEDIES If monetary damages permitted hereunder would not
be an adequate remedy for a breach or violation, or impending
breach or violation, of Section 4 or Section 6 of this
Agreement, then AMR shall be entitled, as a matter or right,
to specific enforcement of this Agreement under the Dispute
Resolution Procedures set forth in the IT Services Agreement,
restraining any breach or violation, or further or continued
breach or violation, of Section 4 or Section 6 of this
Agreement (such right to be cumulative of, and not in lieu of,
any other rights or remedies to which AMR may also
then be entitled).
10. NO ASSIGNMENT Except as specifically set forth in this
Agreement, no Party may assign, license, or otherwise transfer
or convey this Agreement or any of the rights or obligations
created in this Agreement to any third Person without the
express prior written consent of the other Parties, which may
be withheld in each such other Party's sole discretion.
Notwithstanding the preceding sentence, AMR may assign this
Agreement, as a whole but not in part, to any Affiliate or to
any Person into which AMR is amalgamated, merged or
consolidated, whether by contract, operation of law or
otherwise. This provision shall not be construed to prohibit
TSGH or TSG from merging into, consolidating with, or
transferring substantially all of its assets to, any Person,
so long as such Person agrees to be bound by the terms hereof.
11. ADDITIONAL REPRESENTATIONS AND WARRANTIES Each Party
represents and warrants to the other that: (i) it is a
corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of formation and
place of principal business; (ii) the performance of its
obligations hereunder has been duly authorized by all
necessary corporate action; (iii) this Agreement is a legal,
valid and binding obligation enforceable against it in
accordance with its terms subject to limitations under
bankruptcy, insolvency, reorganization, liquidation and other
laws and equitable principles relating to or affecting the
enforcement of creditors' rights generally; (iv) neither the
execution and delivery of this Agreement nor the performance
of any of its obligations hereunder, nor the consummation of
any of the transactions contemplated hereby, will violate any
agreement to which it is a party or any provision of its
certificate of incorporation, by-laws or other document of
corporate governance, nor any applicable law, regulation,
rule, judgment, order or decree; and (v) it has duly obtained
or made all consents, approvals or authorizations of, or
registrations, declarations or filings with, any governmental
authority are required as a condition to the valid execution,
delivery and performance of this Agreement on its part.
12. NOTICES Any notice or communication required or permitted to
be given or made to a Party under this Agreement must be typed
in English and personally delivered to the office of the
person identified below or delivered by registered mail with
confirmed receipt (postage prepaid) or by overnight courier or
by telecopy
6
Software Marketing Agreement
<PAGE> 8
(fax) with confirmation copy dispatched simultaneously by
registered mail with confirmed receipt (postage prepaid) to
the following addresses:
if to AMR:
AMR Corporation
4333 Amon Carter Boulevard
Mail Drop 5357
Fort Worth, Texas 76155
Attention: Chief Information Officer
Telecopier: 817-931-6944
if to TSGH or TSG:
The SABRE Group Holdings, Inc. or
The SABRE Group, Inc.
4255 Amon Carter Boulevard
Mail Drop 4462
Fort Worth, Texas 76155
Attention: President SDT
Telecopier: 817-963-2719
Notices delivered in the foregoing manner will be deemed
effective on (i) the day received if delivered personally or
sent by courier; (ii) the business day following the day
received if sent by telecopy, or (iii) the third business day
following the date of dispatch by registered mail.
13. BINDING EFFECT This Agreement shall be binding upon and
inure to the benefit of the Parties and their permitted
successors and assigns.
14. INTEGRATION This Agreement and the attachments hereto
constitute the entire agreement of the Parties pertaining to
subject matter hereof and supersede all prior agreements and
understandings pertaining to that subject, including the IT
Services Agreement to the extent that it is inconsistent with
this Agreement, and this Agreement may not be amended,
supplemented, or rescinded, except in writing and signed by
the authorized representatives of each of the Parties.
15. NO THIRD PARTY BENEFICIARIES No provision of this
Agreement shall be for the benefit of or be enforceable by or
create any right in third persons, including creditors of any
Party.
16. WAIVER A waiver of any covenant, duty, agreement, or
condition of this Agreement shall not be asserted against a
Party unless it is in writing signed by such
7
Software Marketing Agreement
<PAGE> 9
Party. No waiver of a breach or inadequate performance of any
provision of this Agreement by a Party shall constitute a
waiver of any subsequent breach or inadequate performance of
the same or any other provision hereof. Failure by any Party
to exercise any right or remedy upon the breach of, any
covenant, duty, agreement, or condition of this Agreement
shall not constitute a waiver of that breach or inadequate
performance or of any other breach or inadequate performance.
17. MULTIPLE ORIGINALS This Agreement may be executed in
counterparts or multiple originals, all of which together
shall constitute one agreement binding on each Party.
18. INVALIDITY OF PROVISIONS/BLUE PENCILING If any provision of
this Agreement is or becomes wholly or partly invalid,
illegal, or unenforceable the validity, legality, and
enforceability of the remaining provisions shall continue in
force unaffected, and the Parties shall meet as soon as
possible and negotiate in good faith upon a replacement
provision that is legally valid and that as nearly as possible
achieves the objectives of the Agreement and produces an
equivalent economic effect. A replacement provision shall
apply as of the date that the replaced provision had become
invalid, illegal, or unenforceable. If the Parties cannot
reach agreement after good faith negotiations, a Party may
invoke the Dispute Resolution Procedures under the IT Services
Agreement, and the arbitrators shall have the authority to
determine a replacement provision that is legally valid and
that as nearly as possible achieves the objectives of the
Agreement and produces an equivalent economic effect, provided
however, that such determination may not materially increase
the payment or performance obligations of any Party. If any
court or arbitration panel should determine that any
limitation regarding the scope of any activity restricted
herein, or the duration and geographic area of the
restrictions herein, is unenforceable, then this Agreement
shall not be invalidated, but shall be amended to the extent
required to render it valid and enforceable.
19. GOVERNING LAW This Agreement shall be construed and
interpreted, and its validity and enforceability shall be
determined, under the laws of the State of Texas without
regard to any conflicts of law rules.
20. DISPUTE RESOLUTION Any Dispute shall be resolved in
accordance with the Dispute Resolution Procedures set forth in
the IT Services Agreement.
21. CHOICE OF FORUM For any actions to enforce arbitral awards
issued in accordance with the Dispute Resolution Procedures
under the IT Services Agreement or to enforce the Parties'
compliance with those Dispute Resolution Procedures, each
Party consents to the exclusive jurisdiction of the competent
courts in Fort Worth, Texas, in connection with any action or
proceeding arising under this Agreement. Each Party
irrevocably waives any objection it may now or
8
Software Marketing Agreement
<PAGE> 10
hereafter have as to the venue of any such action or
proceeding brought in such a court or that such court is an
inconvenient forum. Each Party hereby waives personal service
of process and consents that service of process upon it may be
made by certified or registered mail, return receipt
requested, at its address specified or determined in
accordance with Section 12.
22. COMPLIANCE WITH LAWS The Parties hereto shall comply with
all applicable laws and no Party shall perform any act, or
fail to perform any act, or be obligated to perform any act
that could either (i) result in any violation of any
applicable law or any governmental or quasi-governmental
directive, policy or guideline or (ii) result in any material
fine, penalty or sanction.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
9
Software Marketing Agreement
<PAGE> 11
IN WITNESS WHEREOF, AMR and TSG, by their duly authorized representatives, have
executed this Software Marketing Agreement as of the date first above written.
AMR Corporation
By:/s/ Robert L. Crandall
-------------------------------------
Name: Robert L. Crandall
Title: President and Chief Executive
Officer
The SABRE Group Holdings, Inc.
By: /s/ Michael J. Durham
-------------------------------------
Name: Michael J. Durham
Title: President and Chief Executive
Officer
The SABRE Group, Inc.
By: /s/ Michael J. Durham
-------------------------------------
Name: Michael J. Durham
Title: President and Chief Executive
Officer
10
Software Marketing Agreement
<PAGE> 12
Software Marketing Agreement
Schedule A
RESTRICTED SOFTWARE
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
1 PAGE REDACTED
1
Software Marketing Agreement
<PAGE> 1
EXHIBIT 10.13
CANADIAN TECHNICAL SERVICES SUBCONTRACT
THIS CANADIAN TECHNICAL SERVICES SUBCONTRACT ("Subcontract") dated as
of July 1, 1996, is made and entered into by and between American Airlines,
Inc., a Delaware corporation ("American") and The SABRE Group, Inc., a Delaware
corporation ("TSG").
WHEREAS, AMR Corporation, a Delaware corporation ("AMR") agreed to
provide certain services to Canadian Airlines International Ltd. ("Canadian")
pursuant to that certain Services Agreement between AMR and Canadian dated
April 27, 1994 (as it may be amended from time to time as provided herein, the
"Canadian Services Agreement"); and
WHEREAS, as permitted by Section 9.2 of the Canadian Services
Agreement, AMR has assigned the Canadian Services Agreement to Airline
Management Services Holding, Inc., a Nevada corporation wholly owned by AMR
Corporation ("AMSH"), pursuant to that certain Assignment and Assumption
Agreement between AMR and AMSH dated August 14, 1994; and
WHEREAS, as permitted by Section 9.2 of the Canadian Services
Agreement, AMSH has subcontracted the performance of certain Support Services
under the Canadian Services Agreement to American pursuant to that certain
Canadian Services Agreement Subcontract (the "AMSH/AA Subcontract") between
AMSH and American dated as of July 1, 1996; and
WHEREAS, American and TSG have entered into that certain Information
Technology Services Agreement ("IT Agreement") dated July 1, 1996, pursuant to
which TSG has agreed to provide TSG Services (as such term is defined in the IT
Agreement) to American; and
WHEREAS, the parties desire that TSG provide to Canadian substantially
all of the Technical Services under the Canadian Services Agreement pursuant to
the terms and conditions of this Subcontract;
NOW THEREFORE, in consideration of the mutual promises contained
herein and for other good and valuable consideration, the receipt of which is
acknowledged, the parties hereby agree as follows:
1 Defined Terms. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to
such terms in the Canadian Services Agreement.
2 Subcontract. American hereby subcontracts the Technical
Services under the Canadian Services Agreement to TSG and
TSG hereby agrees to perform the Technical Services under the
Canadian Services Agreement.
3 Further Subcontracting. Subject to Section 9.2 of the
Canadian Services Agreement and Article VI of the IT
Agreement, upon 45 days prior written notice, TSG may
subcontract to a third party those portions of the Technical
Services that correspond to TSG Services under the IT
Agreement. Any other subcontracting hereunder shall be
subject to American's prior written consent, which shall not
be unreasonably delayed, conditioned or withheld.
4 Canadian Services Agreement. This Subcontract shall be
subject and subordinate to the terms and conditions of the
Canadian Services Agreement. Except as otherwise
Canadian Technical Services Subcontract
1
<PAGE> 2
expressly stated herein, the Technical Services shall be
performed by TSG in accordance with all of the terms and
conditions of the Canadian Services Agreement that are
applicable to the Technical Services, including without
limitation the following provisions of the Canadian Services
Agreement: Section 2.6 Changes in Base Services; Section 3.1
Calculation and Payment of Services Fee; Section 5.1 Covenants
of Vendor; Vendor's duty to transition Technical Services to
Canadian or a third party under certain circumstances as
provided in Section 6.2 Termination by Vendor and 6.4
Termination by Company; and Annex H to the Canadian Services
Agreement.
5 Fees. In exchange for its performance of the Technical
Services, TSG shall be entitled to receive from Canadian
that portion of the Base Services Fee payable by Canadian for
the Technical Services under the Canadian Services Agreement
as set forth in this Section 5. TSG shall receive no portion
of the Fixed Fee. Subject to the second paragraph of this
Section 5, (a) with respect to the Variable Fee, TSG shall
receive [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION] on all Technical Services other than
Applications Development Services (even though the Canadian
Services Agreement allows AMSH to collect a higher mark-up),
and (b) with respect to the Systems Development Fee, TSG shall
receive 100% of the mark-up on Applications Development
Services allowed under the Canadian Services Agreement. As a
continuation of current practice, TSG shall invoice Canadian
for such portion and shall receive payment of such portion
directly from Canadian.
Each year hereafter, beginning with the year ending December
31, 1997, not later than ninety (90) days after the end of
such year, TSG or American, as applicable, shall pay the
applicable amounts, if any, described below. TSG shall pay
American an amount equal to the remainder (if a positive
number) of (x) the total mark-up actually received by SDT
pursuant to the third sentence of this Section 5 for
applications maintenance and/or development labor performed by
SDT during such year minus (y) an amount, expressed in
dollars, calculated to be an operating margin of SDT on such
labor of [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION] American shall pay TSG an amount equal to
the remainder (if a positive number) of (w) an amount,
expressed in dollars, calculated to be an operating margin of
SDT of [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH
THE COMMISSION] on applications maintenance and/or development
labor performed by SDT during such year minus (z) the total
mark-up, expressed in dollars, actually received by SDT
pursuant to the third sentence of this Section 5 for such
labor. The term "SDT" means SABRE Decision Technologies, a
division of TSG.
At the outset of every Applications Development Services
project to which the pricing methodologies set forth in
Section 1(c)(ii)(1)(A) and (B) of Exhibit 3.1 to the Services
Agreement apply, TSG will use reasonable efforts to perform
and provide American with an analysis of such methodologies
with respect to such project prior to TSG's commencement of
such project. American and TSG shall mutually agree upon the
assumptions used in these methodologies in order to establish
the applicable methodology for calculating the payment due
from Canadian for such project. The choice of which
methodology to use for calculating the payment due from
Canadian shall be made by American in its sole discretion.
6 Travel. Under the subsection entitled "Other Costs" contained
in Section 2 of Schedule 1(b) to Exhibit 3.1 of the Canadian
Services Agreement, any travel charges payable by
Canadian Technical Services Subcontract
2
<PAGE> 3
TSG to American in connection with TSG's provision of
Technical Services may be included in VF Costs in calculating
the Variable Fee portion of the Base Services Fee. Under a
separate agreement, TSG is required to pay American travel
charges for travel on American. Currently, American is not
including any such travel charges in VF Costs and does not
require TSG to pay such travel charges in connection with
TSG's performance of Technical Services. If hereafter
American chooses to impose travel charges for TSG's travel on
American in connection with TSG's performance of Technical
Services, TSG shall be entitled to include such charges in its
costs for the purposes of calculating fees TSG is entitled to
receive pursuant to Section 5 hereof.
7 Guarantee. American hereby guarantees payment to TSG of the
portion of the Base Services Fee owing to TSG under the terms
of the Canadian Services Agreement for all Technical Services
actually performed by TSG, each such payment to be due and
payable by American to TSG not later than forty-five (45) days
after the due date for such payment under the terms of the
Canadian Services Agreement. In addition, if this Subcontract
terminates under Section 11 or 13 hereof, for any reason other
than the occurrence of a TSG Default, then American hereby
guarantees payment to TSG of the unamortized start-up costs
set forth as "Total" on the attached Attachment A under the
year indicated on Attachment A in which falls the effective
date of termination, prorated based upon the month in which
the termination occurs, minus those unamortized start-up
costs, if any, previously paid by Canadian or American in
connection with a partial termination described in the next
sentence. In the case of such termination of this Subcontract
with respect to less than all of the Technical Services,
American and TSG shall confer regarding the appropriate amount
of unamortized start-up costs attributable to such portion of
the Technical Services for which American guarantees payment
hereunder. Any unamortized start-up costs recovered by TSG
from American or Canadian shall thereafter be excluded from
the calculation of fees TSG is entitled to receive pursuant to
Section 5 hereof. In addition to the foregoing, if TSG is
required under generally accepted accounting principles to
write down TSG's unamortized start-up costs for the Technical
Services, then American agrees to pay TSG the amount of such
write down prior to the date TSG is required to take such
write down, without duplication of any amounts paid by
American under the second sentence of this Section 7; provided
however, that any such payment made by American under this
sentence shall be considered to be a payment by American of
TSG's unamortized start-up costs which shall thereafter be
excluded from the calculation of fees TSG is entitled to
receive pursuant to Section 5 hereof.
8 Taxes. TSG shall bear with respect to the Technical Services
provided under this Subcontract any and all taxes that are not
an obligation of Canadian under the Canadian Services
Agreement.
9 Indemnity. TSG shall be entitled to the benefits of the
indemnity by Canadian set forth in Section 8.1 of the Canadian
Services Agreement to the extent that any recoveries by
American from Canadian under such indemnity relate to
indemnifiable Losses that arise out of or relate to
performance by TSG of the Technical Services. TSG shall be
obligated to perform the indemnity of Canadian set forth in
Section 8.2 of the Canadian Services Agreement to the extent
any amounts payable by American or American's Affiliates under
such indemnity relate to indemnifiable Losses that arise out
of or relate to performance by TSG of the Technical Services.
Canadian Technical Services Subcontract
3
<PAGE> 4
10 Performance Standards. TSG agrees to perform the Technical
Services in accordance with the performance standards stated
in Section 2.5 of the Canadian Services Agreement; provided
however, that breach by TSG of this Section 10 shall not
constitute a TSG Default except under the circumstances
described in Section 12(a).
11 Term. This Subcontract shall be effective as of July 1, 1996
and shall continue until the earliest to occur of: (i)
termination or expiration of the Canadian Services Agreement,
(ii) termination or expiration of the IT Agreement, or (iii)
termination hereunder. TSG shall not be required to perform
hereunder beyond the existing twenty-year term of the Canadian
Services Agreement unless TSG has consented in writing to an
extended or renewal term.
12 Event of Default. The term "TSG Default" shall mean (a) TSG's
failure to perform the Technical Services that results in
termination of the Canadian Services Agreement by Canadian as
provided in Section 6.4(a)(i) of the Canadian Services
Agreement and (b) the occurrence of any event (after the
receipt of applicable notices and the expiration of applicable
cure periods) that results in American terminating the IT
Agreement under Section 24.1, 24.2, 24.3 or 24.5 of the IT
Agreement. The term "American Default" shall mean American's
failure to pay when due any amount owing hereunder and such
payment is not made within forty five (45) days after TSG has
given written notice to American specifying the existence of
such payment default.
13 Termination. American may, at its option, terminate this
Subcontract in its entirety immediately upon the occurrence of
any TSG Default. TSG may, at its option, terminate this
Subcontract in its entirety immediately upon the occurrence of
any American Default. In the event of any such termination by
either party, American and TSG shall have no further
obligation hereunder, except any obligations that accrued
prior to such termination.
13.1 Partial Termination. American may, at its
option from time to time, immediately
terminate this Subcontract as to any portion
of the Technical Services that relate to any
TSG Services that American has elected to
discontinue or terminate under the IT
Agreement. In the event of any such partial
termination, American and TSG shall have no
further obligation hereunder as to such
terminated portion of the Technical Services,
except as provided with respect to TSG's
unamortized start-up costs in the second and
third sentence of Section 7 hereof and except
any obligations that accrued prior to such
termination.
14 Enforcement. Upon TSG's request, and at TSG's expense,
American shall use reasonable efforts to enforce against
Canadian the provisions of the Canadian Services Agreement
that directly or indirectly impact or benefit TSG, for
example, Section 5.2 of the Canadian Services Agreement
concerning assistance, confidentiality, protection of
intellectual property, insurance, notice of material events
and taxes and Section 8.2 of the Canadian Services Agreement
concerning indemnity.
15 [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
Canadian Technical Services Subcontract
4
<PAGE> 5
16 Amendments. Except for changes or modifications instituted
pursuant to Section 2.6 of the Canadian Services Agreement,
TSG shall not be bound by any changes, modifications or
amendments of the Canadian Services Agreement insofar as same
impact the Technical Services unless TSG has consented in
advance in writing to same.
17 Third Party Assignment. Neither party may assign this
Subcontract except under the circumstances that would allow
such party to assign the IT Agreement. This Subcontract and
all of the provisions hereof shall be binding upon and inure
to the benefit of the parties hereto and their permitted
successors and assigns.
18 Counterparts. This Subcontract may be executed in one or more
counterparts all of which taken together will constitute one
and the same instrument.
19 Entire Agreement. This Subcontract, together with the
Canadian Services Agreement and the schedules and annexes
attached hereto, constitutes the entire agreement and
understanding among the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and
understandings, oral or written, relating to such subject
matter.
20 Amendments. This Subcontract may be amended or modified only
by a written instrument duly executed by or on behalf of each
party hereto. American may amend the Canadian Services
Agreement without the consent of TSG, provided, however, that
no such amendment shall increase any obligation of TSG
hereunder or otherwise adversely affect TSG hereunder without
the written consent of TSG.
21 Governing Law. This Subcontract shall be governed by and
construed and enforced in accordance with the laws of the
State of Texas.
22 Conflict. In the event of any conflict between the provisions
of the Canadian Services Agreement and the provisions of the
IT Agreement with respect to the Technical Services being
performed under this Subcontract, the provisions of the
Canadian Services Agreement shall control. In the event of
any conflict between the provisions of this Subcontract and
the provisions of either the Canadian Services Agreement or IT
Agreement, the provisions of this Subcontract shall control.
23 Independent Parties. The parties are independent; each has
sole authority and control of the manner of, and is
responsible for, its performance of this Subcontract. This
Subcontract does not create or evidence a partnership or joint
venture between the parties. Neither party may create or
incur any liability or obligation for or on behalf of the
other party except as described in this Subcontract. This
Subcontract does not restrict American from providing or
rendering any services, including services like the Technical
Services, to any other Person; nothing in this Agreement,
however, gives American the right to provide or render any
services in violation of any other agreement entered into by
the parties.
24 No Third Party Beneficiaries. All rights, remedies and
obligations of the parties under this Subcontract shall accrue
or apply solely to the parties hereto or their permitted
successors or assigns and there is no intent to benefit any
other Person, including without limitation Canadian.
Canadian Technical Services Subcontract
5
<PAGE> 6
25 Dispute. In the event of a Dispute (as defined in the IT
Agreement) under this Subcontract, the Dispute shall be
resolved in accordance with the Alternative Dispute Resolution
Procedures set forth in the IT Agreement.
26 Receipt of Canadian Services Agreement. TSG acknowledges
that it has received, and has had an opportunity to review
with its legal counsel, a copy of the Canadian Services
Agreement. To the extent relevant to the Technical Services,
the Canadian Services Agreement is hereby incorporated in this
Subcontract by this reference.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
Canadian Technical Services Subcontract
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have caused this Subcontract to be
duly executed by their authorized representatives as of the date first set
forth above.
<TABLE>
<S> <C>
AMERICAN AIRLINES, INC. THE SABRE GROUP, INC.
By: /s/ Jeffery M. Jackson By: /s/ Michael J. Durham
Name: Jeffery M. Jackson Name: Michael J. Durham
Title: Vice President Corporate Development Title: President and Chief Executive
and Treasurer Officer
</TABLE>
Canadian Technical Services Subcontract
7
<PAGE> 8
EXHIBIT A
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
1 PAGE REDACTED
Canadian Technical Services Subcontract
8
<PAGE> 1
EXHIBIT 10.27
EXECUTIVE TERMINATION BENEFITS AGREEMENT
THIS AGREEMENT, dated as of the ___th day of __________, 1996
is among The SABRE Group Holdings, Inc., a Delaware corporation, The SABRE
Group, Inc., a Delaware corporation (collectively, the "Company"), and
____________________ (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company considers it essential to the best
interests of the Company and its stockholders that its management be encouraged
to remain with the Company and to continue to devote full attention to the
Company's business in the event an effort is made to obtain control of the
Company through a tender offer or otherwise;
WHEREAS, the Company recognizes that the possibility of a
change in control and the uncertainty and questions which it may raise among
management may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders;
WHEREAS, the Company's Board of Directors (the "Board") has
determined that appropriate steps should be taken to reinforce and encourage
the continued attention and dedication of members of
1
<PAGE> 2
the Company's management to their assigned duties without distraction in the
face of the potentially disturbing circumstances arising from the possibility
of a change in control of the Company;
WHEREAS, the Executive is a key Executive of the Company;
WHEREAS, the Company believes the Executive has made valuable
contributions to the productivity and profitability of the Company;
WHEREAS, should the Company receive any proposal from a third
person concerning a possible business combination with or acquisition of equity
securities of the Company, the Board believes it imperative that the Company
and the Board be able to rely upon the Executive to continue in his position,
and that the Company be able to receive and rely upon his advice as to the best
interests of the Company and its stockholders without concern that he might be
distracted by the personal uncertainties and risks created by such a proposal;
and
WHEREAS, should the Company receive any such proposals, in
addition to the Executive's regular duties, he may be called upon to assist in
the assessment of such proposals, advise management and the Board as to whether
such proposals would be in the best interests of the Company and its
stockholders, and to take such other actions as the Board might determine to be
appropriate.
NOW, THEREFORE, to assure the Company that it will have the
continued undivided attention and services of the Executive and the
availability of his advice and counsel notwithstanding the possibility, threat
or occurrence of a bid to take over control of
2
<PAGE> 3
the Company, and to induce the Executive to remain in the employ of the
Company, and for other good and valuable consideration, the Company and the
Executive agree as follows:
1. Services During Certain Events
In the event a third party begins a tender or exchange offer,
circulates a proxy to stockholders, or takes other steps seeking to effect a
Change in Control (as defined in Section 2), the Executive agrees that he will
not voluntarily leave the employ of the Company, and will render the services
contemplated in the recitals to this Agreement, until the third party has
abandoned or terminated its efforts to effect a Change in Control or until
after such a Change in Control has been effected.
2. Change in Control
For purposes of this Agreement, a Change in Control of the
Company shall be deemed to have taken place if: (a) any "person" as defined in
Section 3(a)(9) of the Securities Exchange Act of l934, as amended from time to
time, (the "Exchange Act") and as used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) of the Exchange Act but
excluding the Company and any subsidiary of the Company and any employee
benefit plan sponsored or maintained by the Company or any subsidiary of the
Company (including any trustee of such plan acting as trustee), directly or
indirectly, becomes the beneficial owner (as defined in Rule 13(d)-3 under the
Exchange Act, as amended from time to time) of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities with respect to the
3
<PAGE> 4
election of Directors of the Company; or (b) during any twenty-four consecutive
month period, the individuals who, at the beginning of such period, constitute
the Board (the "Incumbent Directors") cease for any reason other than death to
constitute at least a majority thereof, provided, however, that a director who
was not a director at the beginning of such twenty-four month period shall be
deemed to have satisfied such twenty-four month requirement (and be an
Incumbent Director) if such director was elected by, or on the recommendation
of or with the approval of, at least two-thirds of the directors who then
qualified as Incumbent Directors either actually (because they were directors
at the beginning of such period) or by prior operation of the provisions of
this Section 2(b); or (c) the occurrence of a transaction requiring stockholder
approval for the acquisition of the Company by an entity other than the Company
or a subsidiary of the Company through purchase of assets, or by merger, or
otherwise. Notwithstanding anything else contained herein to the contrary, in
no event shall a Change in Control be deemed to occur solely by reason of (i) a
distribution to the shareholders of AMR Corporation ("AMR"), whether as a
dividend or otherwise, of all or any portion of the Company's stock or any
other voting securities of the Company held, directly or indirectly, by AMR or
(ii) a sale of all or any portion of the Company's stock or any other voting
securities of the Company held, directly or indirectly, by AMR in an unwritten
public offering.
3. Circumstances Triggering Receipt of Severance Benefits
(a) Subject to Section 3(c), the Company will provide the
4
<PAGE> 5
Executive with the benefits set forth in Sections 5 and 6 upon any termination
of the Executive's employment:
(i) by the Company at any time within the first 36 months
after a Change in Control;
(ii) by the Executive at any time within the first 12
months after a Change in Control;
(iii) by the Executive for "Good Reason" (as defined in
Section 3(b) below) at any time within the first 36 months after a
Change in Control.
(b) For purposes of Section 3(a)(iii), the Executive shall be
entitled to terminate his employment with the Company and its subsidiaries for
"Good Reason" after a Change in Control if:
(i) without the Executive's written consent, one or more of
the following events occurs at any time during the first thirty-six
(36) months after such Change in Control:
(A) the Executive is not appointed to, or is otherwise
removed from, any office or position with the Company
or its subsidiaries held by the Executive immediately
prior to the Change in Control for any reason other
than for Cause or in connection with the termination
of his employment with the Company or its
subsidiaries;
(B) the Executive's Base Salary rate or his annual
incentive compensation opportunity rate is reduced
below that in effect immediately prior to the Change
in Control for any reason other than for Cause or in
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connection with the termination of his employment
with the Company and its subsidiaries;
(C) the Executive's principal office is moved, without
the Executive's consent, to a location that is more
than 50 miles from its location immediately prior to
the Change in Control;
(D) for any reason other than for Cause or in connection
with the termination of his employment with the
Company and its subsidiaries, the Executive suffers a
significant reduction in the authority, duties or
responsibilities associated with his position with
the Company as in effect immediately prior to the
Change in Control, on the basis of which he makes a
determination in good faith that he can no longer
carry out such position in the manner contemplated by
the Executive and the Company prior to the Change in
Control;
(E) for any reason other than in connection with the
termination of his employment or in connection with a
bona fide restructuring of the Executive's benefits
that does not reduce the overall level of such
benefits, the Company asserts the intention to reduce
or reduces any benefit provided to the Executive
below the level of such benefit provided immediately
prior to the Change in Control other than pursuant to
the terms of any employment
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agreement between the Company or a subsidiary of the
Company and the Executive ("Employment Agreement")
(unless the Company agrees to fully compensate
Executive for any such reduction);
(F) a successor, where applicable, does not assume and
agree to the terms of this Agreement in accordance
with Section 10 below; or
(G) the Company purports to terminate Executive's
employment other than in accordance with the Notice
of Termination procedures set forth in Section 4
below.
(ii) the Executive notifies the Board in writing (care of the
Company) of the occurrence of such event;
(iii) within 30 days following receipt of such written
notice, the Board does not cure such event and deliver to the
Executive a written statement that it has done so; and
(iv) within 60 days following the expiration of the 30-day
period specified in clause (iii) above (without the occurrence of a
cure and written notice thereof as described in clause (iii) above),
the Executive voluntarily terminates his employment with the Company
and its subsidiaries.
(c) Notwithstanding Section 3(a) and (b) above, no benefits
shall be payable by reason of this Agreement in the event of:
(i) Termination of the Executive's employment with the
Company and its subsidiaries by reason of the Executive's death
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or Disability, provided that the Executive has not previously given a
valid "Notice of Termination" pursuant to Section 4. For purposes
hereof, "Disability" shall be defined as the inability of Executive
due to illness, accident or other physical or mental disability to
perform his duties for any period of six consecutive months or for any
period of eight months out of any twelve month period, as determined
by an independent physician selected by the Company and reasonably
acceptable to the Executive (or his legal representative), provided
that the Executive does not return to work on substantially a
full-time basis within 30 days after written notice from the Company
of an intent to terminate the Executive's employment due to
Disability;
(ii) Termination of the Executive's employment with the
Company and its subsidiaries on account of the Executive's retirement
at or after age 65, pursuant to the Company's Retirement Benefit Plan;
or
(iii) Termination of the Executive's employment with the
Company and its subsidiaries for Cause. For the purposes hereof,
Cause shall be defined as gross dishonesty or willful misconduct,
either of which is directly and materially harmful to the business of
the Company provided that any such termination for Cause shall not be
effective unless (A) the Executive shall have received thirty (30)
days' prior written notice from the Board of such alleged gross
dishonesty or willful misconduct, and (B) the Executive, with counsel,
shall
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<PAGE> 9
have had the opportunity to be heard by the Board regarding such
allegations.
This Section 3(c) shall not preclude the payment of any amounts
otherwise payable to the Executive under any of the Company's employee benefit
plans, programs and arrangements and/or under any Employment Agreement.
4. Notice of Termination
Any termination of the Executive's employment with the Company
and its subsidiaries as contemplated by Section 3 shall be communicated by
written "Notice of Termination" to the other party hereto. Any "Notice of
Termination" shall indicate the effective date of termination which shall not
be less than 30 days or more than 60 days after the date the Notice of
Termination is delivered (the "Termination Date"), the specific provision in
this Agreement relied upon, and will set forth in reasonable detail the facts
and circumstances claimed to provide a basis for such termination.
5. Termination Benefits
Subject to the conditions set forth in Section 3 and, at the
option of the Executive, the Payment Cap set forth in Section 7, the following
benefits (subject to any applicable payroll or other taxes required to be
withheld) shall be paid or provided to the Executive:
(a) Compensation
The Company shall pay to the Executive the sum of (i) two
times the greater of (A) the Executive's effective annual base salary at the
Termination Date or (B) the Executive's effective
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<PAGE> 10
annual base salary immediately prior to the Change in Control, plus (ii) two
times the greater of (x) the median annual bonus awarded to the Executive under
the Company's Incentive Compensation Plan or any other bonus plan (whether paid
currently or on a deferred basis) with respect to any l2 consecutive month
period during the last three fiscal years ending prior to the Termination Date
or (y) 50% of the highest median target bonus rate applicable to the Executive
for any period during such prior three-year period, multiplied by the
applicable annual base salary determined under Section 5(a)(i) above; provided,
however, that, if the Executive is within two years of his 65th birthday as of
the Termination Date, such combined amount shall be reduced to an amount
calculated by multiplying such combined amount by a fraction, the numerator of
which is the number of months from the Termination Date until the Executive's
65th birthday and the denominator of which is 24; the resulting amount to be
paid in a lump sum on the first day of the month following the Termination
Date.
(b) Health Insurance Benefits
The Company shall pay to the Executive an amount equal to the
cost at standard independent insurance premium rates as of the Termination Date
(or, if applicable and higher, the cost to the Executive of exercising his
right of continued coverage under the Consolidated Omnibus Budget
Reconciliation Act of 1986, as amended) of purchasing benefits for the
Executive on an individual basis which are equal to the Executive's
Company-paid participation (including dependent coverage) in the travel
accident, major
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medical, dental and vision care insurance plans, calculated as if such benefits
were continued during the 48-month period following the Termination Date (or
until the Executive's 65th birthday, if sooner), paid in a lump sum on the
first day of the month following the Termination Date; such payment to be in
lieu of (or offset by) any rights to continued coverage under such plans on a
Company-funded basis, subject to the terms of any Employment Agreement between
the Company and the Executive. Notwithstanding the foregoing, if the Executive
notifies the Company that, as of the Termination Date, he was unable to obtain
any aspect of the above-mentioned insurance coverage (including dependent
coverage) that is not provided through continued coverage on a Company-funded
basis at a rate no greater than the annualized amount paid to him pursuant to
this provision, the Company will continue to provide any such coverage to the
Executive.
(c) Retirement Benefits
The Executive shall be deemed to be completely vested in
Executive's currently accrued benefits under the Company's Retirement Benefit
Plan and Supplemental Executive Retirement Plan ("SERP") in effect as of the
date of Change in Control (collectively, the "Plans"), regardless of his actual
vesting service credit thereunder. In addition, the Executive shall be deemed
to earn service credit for benefit calculation purposes thereunder for the
period of 48 months following the Termination Date (or until the Executive's
65th birthday, if sooner). Benefits under the Plans will become payable at any
time designated by the
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Executive following termination of the Executive's employment with the Company
and its subsidiaries after the Executive reaches age 55, subject to the terms
of the Plans regarding the actuarial adjustment of benefit payments commencing
prior to normal retirement age. The benefit to be paid pursuant to the Plans
shall be calculated as though the Executive's compensation rate for each of the
5 years immediately preceding his retirement equaled the sum of (i) the greater
of (A) the Executive's effective annual base salary at the Termination Date or
(B) the Executive's effective annual base salary immediately prior to the
Change in Control, plus (ii) the greater of (A) the highest annual bonus
awarded to the Executive under the Company's Incentive Compensation Plan or any
other bonus plan (whether paid currently or on a deferred basis) with respect
to any l2 consecutive month period during the last three fiscal years ending
prior to the Termination Date or (B) 50% of the highest target bonus rate
applicable to the Executive during such prior three- year period, multiplied by
the applicable annual base salary determined under Section 5(c)(i) above. Any
benefits payable pursuant to this subsection 5(c) that are not payable out of
the Plans for any reason (including but not limited to any applicable benefit
limitations under the Employee Retirement Income Security Act of 1974, as
amended, or any restrictions relating to the qualification of the Company's
Retirement Benefit Plan under Section 401(a) of the Internal Revenue Code of
1986, as amended) shall be paid directly by the Company out of its general
assets.
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(d) Relocation Benefits
If the Executive moves his residence in order to pursue other
business or employment opportunities within 2 years after the Termination Date
and requests in writing that the Company provide relocation services, he will
be reimbursed for any expenses incurred in that initial relocation (including
taxes payable on the reimbursement) which are not reimbursed by another
employer. Benefits under this provision will include assistance in selling the
Executive's home and all other assistance and benefits which were customarily
provided by the Company to transferred executives prior to the Change in
Control.
(e) Executive Outplacement Counseling
At the request of the Executive made in writing within two
years from the Termination Date, the Company shall engage an outplacement
counseling service of national reputation to assist the Executive in obtaining
employment.
(f) Stock Based Compensation Plans
(i) Any issued and outstanding Stock Options and Stock
Appreciation Rights granted in connection with such Stock Options (to the
extent they have not already become exercisable) shall become exercisable in
accordance with the Company's 1996 Long Term Incentive Plan.
(ii) The Company's right to rescind any award of stock to the
Executive under the Company's 1996 Long Term Incentive Plan shall terminate
upon a Change in Control.
(iii) The Executive's rights under any other stock based
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<PAGE> 14
compensation plan shall vest (to the extent they have not already vested) in
accordance with the Company's 1996 Long Term Incentive Plan.
(g) Other Benefits
(i) The Company shall purchase or otherwise make available
to the Executive personal air travel on American Airlines and American Eagle
(a) under terms and conditions no less favorable than those that would have
applied to him as an "Eligible Employee" under the Travel Privileges Agreement
between the Company and American Airlines, Inc. ("American") dated as of July
1, 1996 ("Travel Agreement") if his employment with the Company had continued;
and (b) at an after tax cost to the Executive equal to the after tax cost the
Executive would have paid for personal air travel using the travel privileges
available to him as an "Eligible Employee" under the Travel Agreement if his
employment with the Company had continued. The Company shall provide such
personal air travel until the earliest to occur of: (i) June 30, 2008 and (ii)
a termination of the Travel Agreement by American other than due to the Change
of Control; except that if the Executive reaches age 55 before such an
occurrence the Company shall purchase or otherwise make available to the
Executive personal air travel on American Airlines and American Eagle (a) under
terms and conditions no less favorable than those that would have applied to
him as an "Eligible Retiree" under the Travel Agreement if he had retired from
the Company upon reaching age 55; and (b) at an after tax cost to the Executive
equal to the after tax cost the Executive would have paid for personal air
travel using the travel privileges available to him as an "Eligible Retiree"
under the Travel Agreement if he had retired from the Company upon reaching
age 55. If the Travel Agreement is terminated by American due to the Change in
Control, the Company shall provide the personal air travel described in this
paragraph (i) without regard to any termination of the Travel Agreement.
(ii) The Executive, at the Executive's option, shall be
entitled to continue the use of the Executive's Company-provided automobile for
48 months following the Termination Date (or until the Executive's 65th
birthday, if sooner) under the same terms that applied to the automobile
immediately prior to the Change in
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<PAGE> 15
Control, or to purchase the automobile at its book value as of the Termination
Date.
(iii) The Company shall pay to the Executive an amount equal
to the cost to the Company of providing any other perquisites and benefits of
the Company in effect immediately prior to the Change in Control, calculated as
if such benefits were continued during the 48-month period following the
Termination Date (or until the Executive's 65th birthday, if sooner), paid in a
lump sum on the first day of the month following the Termination Date.
(iv) Accrued Amounts
The Company shall pay to the Executive all other amounts
accrued or earned by the Executive through the Termination Date and amounts
otherwise owing under the then existing plans and policies of the Company,
including but not limited to all amounts of compensation previously deferred by
the Executive (together with any accrued interest thereon) and not yet paid by
the Company, and any accrued vacation pay not yet paid by the Company.
6. Payment of Certain Costs of Executive
If a dispute arises regarding a termination of the Executive
or the interpretation or enforcement of this Agreement, subsequent to a Change
in Control, the parties shall submit to the jurisdiction of the American
Arbitration Association to resolve the dispute promptly, and shall commence the
hearing before the Board of Arbitrators in Dallas, Texas, within thirty (30)
business days following service of notice of such dispute by one party on the
other. The Board of Arbitrators shall have no authority to order a
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<PAGE> 16
modification or amendment of this Agreement. The arbitration shall be governed
by the then current rules of the American Arbitration Association. The parties
agree that the decision of the Board of Arbitrators shall be final and binding
upon the parties thereto. All of the fees and expenses, including, without
limitation, any arbitration or legal expenses, incurred by the Executive in
successfully contesting or disputing any such termination (in whole or in part)
or in successfully obtaining or enforcing any right or benefit provided for in
this Agreement (in whole or in part) or in otherwise successfully pursuing his
claim (in whole or in part) will be paid by the Company, to the extent
permitted by law.
In the event that the Company refuses or otherwise fails to
make a payment when due and it is ultimately decided that the Executive is
entitled to such payment, such payment shall be increased to reflect an
interest factor, compounded annually, equal to the prime rate in effect as of
the date the payment was first due plus two points. For this purpose, the
prime rate shall be based on the rate identified by Chase Manhattan Bank as its
prime rate.
7. Treatment of Excess Parachute Payments
(a) Immediately following any Change in Control, and
again immediately following any Notice of Termination, and as of each such
date, the Company shall notify the Executive of the itemized and aggregate
present value of all termination benefits to which he would be entitled upon
termination under this Agreement or any other plan, program or arrangement
calculated in accordance with this Agreement (or, where applicable, such other
plan, program or
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arrangement) as of a projected Termination Date.
(b) The Company shall pay to the Executive, in addition
to any other benefit payable under this Agreement, the sum of (i) the amount of
any excise taxes payable by the Employee with respect to any payments, other
than those provided for under this Section 7(b), made to Executive, whether
under this Agreement or otherwise, which are "excess parachute payments" as
defined in Section 280G of the Code as then in effect (the "Reimbursable
Payments") and (ii) any Federal, state and local income taxes payable on the
amount described in (i) above. Notwithstanding the foregoing, if the Executive
receives a tax reimbursement payment under any other agreement or arrangement
maintained by the Company or a Subsidiary comparable to that described in the
preceding sentence the amount payable under this Section 7(b) shall be reduced
on a dollar for dollar basis by the amount of such other payment.
If the Executive receives a payment under this Section 7(b)
and it is established pursuant to a final determination of a court or an
Internal Revenue Service proceeding that, notwithstanding the good faith of the
Executive and the Company in applying the terms of this Agreement, the
aggregate amount of excise taxes actually payable on the Reimbursable Payments
is less than the amount determined in calculating the benefits paid under this
Section 7(b), then an amount equal to the excess of (i) the amount paid to
Executive under this Section 7(b) over (ii) the sum of (A) the amount of excise
taxes actually due on the Reimbursable Payments and (B) the Federal, state and
local income taxes payable on an
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amount equal to the actual excise taxes payable, shall be deemed for all
purposes a loan to the Executive made on the date of receipt of such excess,
which the Executive shall have an obligation to repay to the Company on demand,
together with interest on such amount at the applicable Federal rate (as
defined in Section 1274(d) of the Code) from the date of the Executive's
receipt of such excess until the date of such repayment.
(c) This Agreement shall not amend or modify and shall
not apply to payments under any plan or agreement entered into prior to June
15, 1984 and which is not thereafter amended or renewed in any significant
aspect within the meaning of Section 67(e) (2) of the Tax Reform Act of 1984.
8. Letter of Credit, etc.
In order to better insure the availability of funds to pay all
amounts provided for in Sections 5, 6 and 7, the Chief Financial Officer may on
behalf of the Company establish a "grantor" trust or standby Letter or Letters
of Credit or other suitable arrangements in an amount sufficient to cover such
amounts. The financial facility or arrangement selected by the Chief Financial
Officer shall be irrevocable as of a Change in Control and shall become
available to the Executive upon the Termination Date and upon presentation of
the documents specified in the Letter of Credit or other financial facility or
arrangement. All funds provided by the Company to cover such payment, if any,
shall revert to the Company after payment in full to the Executive, subject to
the applicable terms of the documents implementing such arrangements.
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9. Continuing Obligations
(a) The Executive hereby agrees that all documents, records,
techniques, business secrets and other information which have come into his
possession from time to time during his employment with the Company shall be
deemed to be confidential and proprietary to the Company and, except for
personal documents and records of the Executive, shall be returned to the
Company. The Executive further agrees to retain in confidence any confidential
information known to him concerning the Company and its subsidiaries and their
respective businesses so long as such information is not publicly disclosed,
except that Executive may disclose any such information required to be
disclosed in the normal course of his employment with the Company or pursuant
to any court order or other legal process.
(b) The Executive hereby agrees that, for a period of two
years after the Termination Date, he will not directly or indirectly solicit
any employee of the Company or any of its subsidiaries or affiliated companies
to join the employ of any entity that competes with the Company or any of its
subsidiaries or affiliated companies.
l0. Successors
(a) The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be
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required to perform it if no such succession had taken place. Failure of such
successor entity to enter into such agreement prior to the effective date of
any such succession (or, if later, within three business days after first
receiving a written request for such agreement) shall constitute a breach of
this Agreement and shall entitle the Executive to terminate his employment
pursuant to Section 3(a)(ii) or (iii) and to receive the payments and benefits
provided under Sections 5, 6 and 7. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which executes and delivers the Agreement provided
for in this Section 10 or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive dies while any amounts are payable to him hereunder, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to his devisee, legatee or other designee or, if there
is no such designee, to his estate.
11. Notices
For the purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when delivered or mailed by United States registered or
certified mail, return receipt requested,
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postage prepaid, addressed as follows:
If to the Executive:
--------------------
--------------------
--------------------
If to the Company:
The SABRE Group, Inc.
P. O. Box 6l9615
Mail Drop _____
D/FW Airport, Texas
7526l-96l5
ATTENTION: Secretary
With a copy to:
The SABRE Group, Inc.
General Counsel
P. O. Box 619615
D/FW Airport, Texas
75261-9615
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
l2. Governing Law
THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
l3. Miscellaneous
No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this
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Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or any prior or
subsequent time. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement (or in any employment
or other written agreement relating to the Executive).
l4. Separability
The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
l5. Non-assignability
This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign or transfer this
Agreement or any rights or obligations hereunder, except as provided in Section
l0. Without limiting the foregoing, the Executive's right to receive payments
hereunder shall not be assignable or transferable, whether by pledge, creation
of a security interest or otherwise, other than a transfer by his will or by
the laws of descent or distribution, and in the event of any attempted
assignment or transfer by Executive contrary to this Section the Company shall
have no liability to pay any amount so attempted to be assigned or transferred
to any person other than the Executive or, in the event of his death, his
designated beneficiary
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or, in the absence of an effective beneficiary designation, the Executive's
estate.
16. Termination
The Company may terminate this Agreement at any time by six
months' written notice of such termination given to the Executive; except that
such termination shall not be made, and if made shall have no effect, (a) as to
any payments or benefits payable hereunder to an Executive whose employment has
terminated pursuant to Section 3(a) or (b), (b) within three years after a
Change in Control or (c) during any period of time when the Company has
knowledge that any third person has taken steps reasonably calculated to effect
a Change in Control until, in the opinion of the Board (as constituted at the
time of the termination of this Agreement), the third person has abandoned or
terminated his efforts to effect a Change Control.
[Remainder of page left intentionally blank]
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IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered as of the day and year first above set forth, thereby
mutually and voluntarily agreeing that this Agreement supersedes and replaces
any prior similar agreements for such termination benefits.
THE SABRE GROUP HOLDINGS, INC.
By: ,its
----------------------
-----------------------------
THE SABRE GROUP, INC.
By: ,its
----------------------
-----------------------------
EXECUTIVE
By: , an
----------------------
-----------------------------
Individual
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<PAGE> 1
EXHIBIT 23.2
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 15, 1996, (except as to Note 1, for which
the date is July 22, 1996) in the Amendment No. 2 to the Registration Statement
on Form S-1 (No. 333-09747) and related Prospectus of The SABRE Group Holdings,
Inc. for the registration of shares of its common stock.
Our audits also included the financial statement schedule of The SABRE
Group Holdings, Inc. listed in Item 16(b). This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
Dallas, Texas
September 18, 1996
