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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the fiscal year ended DECEMBER 31, 1999.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
Commission file number 1-12175
SABRE HOLDINGS CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 75-2662240
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4255 Amon Carter Blvd.
Fort Worth, Texas 76155
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 963-6400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
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Class A Common Stock, New York Stock Exchange
par value $.01 per share
Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No __.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 20, 2000 was approximately $5,581,043,100. As of March
20, 2000, 130,023,827 shares of the registrant's Class A Common Stock and no
shares of the registrant's Class B Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates by reference certain information from
the Proxy Statement for the Annual Meeting of Stockholders to be held May 17,
2000.
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PART I
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ITEM 1. BUSINESS
Sabre Holdings Corporation is a holding company incorporated in
Delaware on June 25, 1996. Pursuant to a reorganization consummated on July 2,
1996 (the "Reorganization"), the Company became the successor to the businesses
of The Sabre Group which were formerly operated as divisions or subsidiaries of
American Airlines, Inc. ("American") or AMR Corporation ("AMR"). Unless
otherwise indicated, references herein to the "Company" include Sabre Holdings
Corporation and its consolidated subsidiaries and, for any period prior to the
Reorganization, the business of AMR and American constituting The Sabre Group.
On October 17, 1996, the Company completed an initial public offering (the
"Offering") of 23,230,000 shares of its Class A Common Stock, par value $.01 per
share, constituting approximately 17.8% of the economic interest of the
Company's outstanding common equity. As of December 31, 1999, AMR owned all
107,374,000 shares of the Company's Class B Common Stock, representing
approximately 82.7% of the economic interest and 98.0% of the combined voting
power of all classes of voting stock of the Company. On March 15, 2000, AMR
exchanged all of its 107,374,000 shares of the Company's Class B Common Stock
for an equal number of shares of the Company's Class A Common Stock and
distributed such shares to AMR shareholders as a stock dividend. The
distribution consisted of AMR's entire ownership interest in the Company.
The Company is the world leader in the electronic distribution of
travel through its SABRE-Registered Trademark-1 computer reservations system
("the SABRE system"). In addition, the Company is a leading provider of
information technology solutions to the travel and transportation industries
and fulfills substantially all of the data processing, network and distributed
systems needs of American and AMR's other subsidiaries, Canadian Airlines
International, Ltd., ("Canadian"), US Airways, Inc. ("US Airways") and other
customers.
ELECTRONIC TRAVEL DISTRIBUTION
The SABRE system 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 the SABRE system,
travel agencies, corporate travel departments and individual consumers
("subscribers") can access information about and book reservations with airlines
and other providers of travel and travel-related products and services
("associates"). As of December 31, 1999, travel agencies with approximately
42,000 locations in over 100 countries on six continents subscribed to the SABRE
system. Subscribers are able to make reservations with approximately 450
airlines, 50 car rental companies and 230 hotel companies covering approximately
47,000 hotel properties worldwide.
During 1999, more airline bookings in North America were made through
the SABRE system than through any other global distribution system.
Approximately 60.8%, 57.4% and 67.4% of the Company's revenue in 1999, 1998 and
1997, respectively, was generated by the electronic distribution of travel,
primarily through booking fees paid by associates.
THE SABRE-Registered Trademark- GLOBAL DISTRIBUTION SYSTEM
The SABRE system, like other global distribution systems, creates an
electronic marketplace where travel providers display information about their
products and warehouse and manage inventory. Subscribers -- principally travel
agencies but also corporate travel departments and individual consumers --
access information and purchase travel products and services using the SABRE
system. In 1999, over 990 associates displayed information about their products
and services through the SABRE system, and the Company estimates that more than
$75 billion of travel-related products and services were sold through the SABRE
system.
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(1) Sabre, Commercial Sabre, Direct Connect, Turbo Sabre and Sabre Business
Travel Solutions are registered marks, and Airmax, Aircrews, Airflite,
Airprice, Basic Booking Request, Sabre BTS, Travelocity.com and Planet Sabre
are trademarks and/or service marks of an affiliate of Sabre Inc. All other
names are trade names, trademarks and/or service marks of their respective
company.
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In addition to providing information to subscribers about airlines and
other travel-related vendors, the SABRE system reports to the travel providers
transaction data about subscriber-generated reservations, allowing vendors to
better manage inventory and revenues. The SABRE system also allows travel agency
subscribers to print airline tickets, boarding passes and itineraries.
Additionally, the SABRE system provides subscribers with travel information on
matters such as currency, medical 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.
ASSOCIATE PARTICIPATION
The Company derives its electronic travel distribution revenues
primarily from booking fees paid by associates for reservations made through the
SABRE system for their products and services. In addition to airlines,
associates include car rental companies, hotel companies, railroads, tour
operators, ferry companies and cruise lines.
Airlines and other associates can display, warehouse, manage and sell
their inventory in the SABRE system. The booking fee paid by an associate
depends upon several factors, including the associate's level of participation
in the SABRE system and the type of products or services provided by the
associate. Airlines are offered a wide range of participation levels. The lowest
level of participation for airlines, SABRE-Registered Trademark- BASIC BOOKING
REQUEST-SM- participation level, provides schedules and electronic booking
functionality only. Higher levels of participation for airlines, such as
SABRE-Registered Trademark- DIRECT CONNECT-Registered Trademark- AVAILABIlITY
participation level, provide greater levels of communication with the SABRE
system, giving subscribers more detailed information and associates improved
inventory management. For an associate selecting one of the higher levels of
participation, the SABRE system provides subscribers with a direct connection
to the associate's internal reservation system, allowing the SABRE system 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. The Company also
provides associates, upon request, marketing data derived from the SABRE
system bookings for fees that vary depending on the amount and type of
information provided.
SUBSCRIBER ACCESS
Access to the SABRE system enables subscribers to electronically
locate, price, compare and purchase travel products and services provided by
associates. The Company tailors the interface and functionality of the SABRE
system 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 needed to use the SABRE system,
in return for fees that typically vary inversely with the travel agency's
productivity, as measured by the number of bookings generated. Such fees are
payable over the term of the travel agent's agreement with the Company,
generally five years in the United States and Latin America, three years in
Canada, and one year in Europe.
Because travel agencies have differing needs, the Company has
modified the SABRE system interface to meet the specific needs of different
categories of travel agents. Travel agents can choose interfaces that range
from simple, text-based systems to feature-laden graphical systems. For
example, the Company developed TURBO SABRE-Registered Trademark- software, an
advanced point-of-sale interface and application development tool that enables
advanced functionality such as customized screens, automated quality control,
database integration, and eliminates complex commands, reducing keystrokes and
training requirements.
PLANET SABRE-SM- software, which the Company introduced in February
1997, includes a graphical launch pad, which enables 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 software 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
software transforms the SABRE system from a complex command-oriented system
to an all-graphic interface with continued access to the SABRE system and its
capabilities.
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The Company provides online bookings solutions for travel agencies and
associate customers, including Web site development, business logic middleware,
and backend processing. The end consumer accesses the agency and
associate-specific Web sites via the Internet to locate, price, compare and
purchase travel products and services. Because functionality requirements differ
among customers, a suite of products has been developed to cater to specific
online needs. Travel agent and associate product offerings range from off the
shelf applications to fully customized solutions. License, consulting, and Web
hosting fees are recovered from the subscribers and vary with the level of
customization and volume generated by the site. The Company currently provides
Web hosting services for over 700 sites including the Travelocity.com-Registered
Trademark- Web site, ten major airlines, including American, Canadian and US
Airways and other associates and travel agencies.
The SABRE system interfaces are available in English, Spanish,
Portuguese, French, German, Italian and Japanese. 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.
CORPORATIONS. The Company markets the SABRE system to corporations
through the SABRE BUSINESS TRAVEL SOLUTIONS-Registered Trademark- system
("SABRE BTS"). Released in October 1996, SABRE BTS is designed for corporate
travelers, travel arrangers and travel managers. It is a fully-integrated
product suite for travel planning and booking, expense reporting and
decision-support. SABRE BTS provides corporations with tools to better manage
travel costs, ensure compliance with corporate travel policies, automate
expense reporting and obtain real-time information on all aspects of travel.
The Company also sells COMMERCIAL SABRE-Registered Trademark- software
to corporations and home-based travel agents that are sponsored by travel
agencies. Using COMMERCIAL SABRE software, a traveler or agent can connect to
the SABRE system and make bookings which are automatically delivered to the
sponsoring agency where travel documents are issued.
INDIVIDUAL CONSUMERS. Through the Company's Travelocity.com Web site,
individual consumers can compare prices, make travel reservations and obtain
destination information online. This product is available to individual
consumers free of charge.
The Travelocity.com Web site is accessible through the Internet and
computer on-line services. It features booking and purchase capability for all
airline, car rental and hotel companies for which booking and purchase
capability is available in the SABRE system. Vacation and cruise packages are
available as well. The Travelocity.com Web site also offers access to a database
of destination and interest information, articles from travel correspondents and
interactive maps. The Travelocity.com Web site has over 10 million members and
logs more than 150 million page views per month. The Internet address for the
Travelocity.com Web site is www.travelocity.com.
The Company has entered into numerous co-branding agreements to provide
access to the Travelocity.com Web site on complementary Internet portals and
other Web sites. These agreements include arrangements for Travelocity.com to be
the booking service for Netscape Communications Corporation's Netcenter Travel,
Yahoo! and Yahoo! Travel, the GO Network Travel Center and the @Home Network.
The Company receives booking fees and commissions from travel providers
for purchases of their travel products and services pursuant to reservations
made through the Travelocity.com Web site.
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On March 7, 2000, the Company completed the merger of
Travelocity.com, an operating unit of the Company ("Travelocity.com") and
Preview Travel, Inc. ("Preview"), an independent publicly-traded company
engaged in consumer direct travel distribution over the Internet. Under the
terms of the merger agreement, shareholders of Preview received one share of
Travelocity.com Inc., a newly created subsidiary of the Company, for each
share of Preview held, and Preview was merged into Travelocity.com Inc., the
surviving entity. Shares of Travelocity.com Inc. stock now trade under the
symbol "TVLY" on the Nasdaq National Market ("Nasdaq"). Terrell B. Jones, the
former president of Travelocity.com is the president and chief executive
officer of Travelocity.com Inc. In connection with the merger, the Company
contributed the existing assets and businesses of Travelocity.com and
approximately $100 million in cash to Travelocity.com LP, a Delaware limited
partnership (the "Partnership"). Immediately following the merger,
Travelocity.com Inc. contributed the assets and businesses obtained from the
acquisition of Preview to the Partnership. As a result of the merger, the
Company owns an economic interest of approximately 70% in the combined
businesses, composed of a 62% direct interest in the Partnership and a 22%
interest in Travelocity.com Inc., which holds a 38% interest in the
Partnership. The Partnership and the Company have entered into intercompany
agreements that provide for, among other things, the continued access to the
SABRE system for content and reservations services, the providing of
technology, administrative and facilities resources, and the allocation of
intellectual property rights. The Company also agreed to a Non-Competition
Agreement under which it agrees that it will not enter into the business of
offering real time travel-related reservations, services and content directly
to consumers through a travel-related Internet site for a period of two years.
On October 2, 1999, the Company entered into an agreement with
America Online, Inc. ("AOL") that became effective upon the consummation of
the merger of Travelocity.com with Preview. The agreement provides, among
other things, that the Travelocity.com Web site will be the exclusive
reservations engine for AOL's Internet properties. Travelocity.com, as
assignee of the agreement, will be obligated for carriage payments of up to
$200 million and AOL and Travelocity.com will share advertising revenues and
commissions over the five year term of the agreement. In connection with the
closing of the merger with Preview, Travelocity.com paid $40 million to AOL
under the terms of this agreement.
INTERNATIONAL MARKETING
The Company is actively involved in marketing the SABRE system
internationally either directly or through joint venture or distributorship
arrangements. The Company's global marketing partners principally include
foreign airlines that have strong relationships with travel agents in such
airlines' primary markets and entities that operate smaller global
distribution systems or other travel-related network services.
In February 1998, the Company signed long-term agreements with ABACUS
International Holdings Ltd. which created a Singapore-based joint venture
company to manage travel distribution in the Asia/Pacific region. The Company
owns 35 percent of the joint venture company, called ABACUS International
Ltd., and provides it with transaction processing and product development
services on the SABRE system.
COMPETITION
Although distribution through traditional travel agents continues to
be the primary method of travel distribution, new channels of direct
distribution to businesses and consumers, through computer on-line services,
the Internet and private networks, are developing rapidly. The adoption of
these tools is currently quite low, but it is growing quickly. The Company
believes that it has positioned its SABRE BTS system and Travelocity.com Web
site products and services to effectively compete in these emerging
distribution channels.
The global market to attract and retain agency subscribers is
intensely competitive. 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. The Company
competes in electronic travel distribution primarily against other large and
well-established global distribution systems. The Company's principal
competitors in marketing to travel agents include Amadeus, Galileo and
Worldspan. Each of these competitors offers many products and services
substantially similar to those of the Company.
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The Company potentially faces many new competitors as new travel
distribution channels develop, including new Internet based
business-to-business ("B2B") and business-to-consumer ("B2C") channels. Still,
significant barriers exist for these new players including: significant
capital investment, development or acquisition of hardware and software
systems with global scales and reach, and ability to connect to disparate
travel suppliers' and travel agents' systems. Many of these channels will
continue to require services from a global distribution system such as the
SABRE system. The Company has and will continue to offer transaction
processing and other services to parties that compete directly with the
Travelocity.com Web site and SABRE BTS as such parties require access to the
Company's offerings. For example, the Company provides transaction processing
services to Cheap Tickets and Lowestfare.com although such companies compete
against the Travelocity.com Web site. For the provision of these services, the
Company receives booking fees for bookings made through these and other
travel-related Web sites.
The Company markets the SABRE system to corporations through SABRE
BTS. The Company's main competitors in the B2B channel in marketing to
corporations include American Express, GetThere.com, Oracle's E-Travel, Xtra
Online Corporation and Travel Technologies Group.
The Company offers its B2C channel primarily through the
Travelocity.com Web site. The main competitors of the Travelocity.com Web site
in marketing to consumers include Expedia (owned primarily by Microsoft
Corporation), Priceline.com and GetThere.com. Increasingly, many travel
suppliers are developing their own Web sites, some of which offer an array of
products and services, that directly target consumers. Various major airlines
have recently announced their intention to launch Internet Web sites in the
United States, Europe and Asia to provide booking services for airline travel,
hotel accommodations and other travel services offered by multiple vendors.
Several hotels have announced plans for similar multi-vendor Web sites.
Certain of these sites have stated their intention to make certain discounted
fares and prices available exclusively on their proprietary or multi-vendor
Web sites. The multi-airline Web site planned for the United States market is
currently the subject of an antitrust challenge by the American Society of
Travel Agents. The Company is currently unable to predict the impact such
sites may have on its travel distribution business.
CRS INDUSTRY REGULATION
The Company's electronic travel distribution business is subject to
regulation in the United States, the European Union, Canada and Australia.
These regulations generally address the relationships among computer
reservation systems ("CRSs"), airline associates, and travel agency
subscribers. These regulations do not currently address relationships with
non-airline associates, but the regulations in the European Union were revised
effective March 15, 1999 and include rail associates in certain circumstances.
In general, these regulations are directed at ensuring fair competition among
travel providers. Among the principles addressed in the current regulations
are: unbiased CRS displays of airline information, fair treatment of airline
associates by CRSs, equal participation by airlines in non-owned CRSs, and
fair competition for subscribers. The CRS regulations in the United States are
currently under review. In addition, the Department of Civil Aviation of
Brazil is considering the adoption of comprehensive CRS regulations. The
Company does not believe that the revisions to the European Union code, the
possible revisions to the United States code, or possible adoption of a code
in Brazil will materially adversely affect its operations.
OTHER REGULATION
The Company may be impacted by regulations affecting issues such as:
exports of technology, telecommunications, data privacy and electronic
commerce. Some portions of the Company's business, such as its Internet-based
electronic travel distribution, may be affected if regulations are adopted in
these areas. Any such regulations may vary among jurisdictions. The Company
believes that it is capable of addressing these regulatory issues as they
arise.
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INFORMATION TECHNOLOGY SOLUTIONS
The Company is a leading provider of information technology services
to the travel and transportation industries. The Company employs its airline
technology expertise to offer information technology solutions to clients that
face similar complex operations issues, including airport, railroad and
hospitality companies. The services offered by the Company include software
development and product sales, transactions processing, consulting, as well as
comprehensive information technology outsourcing. The Company provides data
processing, network and distributed systems services to American and AMR's
other subsidiaries, Canadian, US Airways and other customers, fulfilling
substantially all of their information technology requirements. Approximately
39.2%, 42.6% and 32.6% of the Company's revenue in 1999, 1998 and 1997,
respectively, was generated by the provision of information technology
solutions.
The Company is aggressively pursuing strategic information technology
relationships that add a new dimension to traditional outsourcing agreements
by integrating its airline applications and business processes into customer
operations. Clients enter into strategic agreements with the Company in order
to benefit from its extensive airline industry expertise, experience with
complex operating and transaction environments and its extensive suite of
software products and services.
The Company offers a comprehensive set of information technology
solution services to the airline industry. These solutions include: (i)
information technology outsourcing; (ii) software development, sales and
licensing; and (iii) consulting, which includes capabilities ranging from
reengineering to functional consulting. 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.
(i) INFORMATION TECHNOLOGY OUTSOURCING: The Company offers
information technology outsourcing to airlines for desktop, data center,
network and application development. The Company extends real-time transaction
processing services by providing 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. The Company also provides services
for establishing systems security, voice networks, data center connectivity,
helpdesk support and desktop applications. Some of the major clients for the
outsourcing business include American Airlines, Canadian Airlines, US Airways
and Gulf Air.
(ii) SOFTWARE DEVELOPMENT, SALES AND LICENSING: The Company provides
software solutions to more than 150 airlines or airline associations. These
solutions have many applications for airlines. For example, (a) with the
SABRE-Registered Trademark- AIRMAX-TM- revenue management system, airlines can
seek to enhance revenue using statistical and database sources that estimate
the economic implications of fare actions before they are implemented, (b)
with the SABRE-Registered Trademark- AIRPRICE-TM- fares management system,
airlines can analyze and manage fares and react to competitors' changes, (c)
with the SABRE-Registered Trademark- AIRFLITE-TM- flight scheduling system,
airlines can determine superior flight schedules and (d) with the
SABRE-Registered Trademark- AIRCREWS-TM- crew management system, airlines can
improve crew member scheduling thus reducing staffing costs. The Company
develops ready off the shelf products as well as customized software for some
of its larger clients. Some of the most popular products support flight
scheduling, flight operations, revenue management, crew scheduling, sales
automation, cargo tracking, passenger systems and frequent flyer programs. The
Company's solutions have helped American Airlines become one of the most
technologically advanced airlines in the world.
(iii) CONSULTING: The Company's consulting services assist businesses
in the travel and transportation industries in collecting and analyzing
operational and customer data in order to improve internal operations and
product distribution in the market place. These services enable businesses to
improve airport and other operations and optimally distribute their fares,
schedules and inventories through all available channels - with special
emphasis on distribution through computer reservations and global distribution
systems.
The Company distributes its solutions and consulting services through
a sales and marketing organization with offices in ten cities on four
continents (Dallas, London, Paris, Kuwait City, Hong Kong, Sydney and
Auckland). 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 nearly 550 clients located in
more than 85 countries.
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In 1995, as a subcontractor of American, the Company began providing
information technology services to Canadian. The services contract was signed
in conjunction with AMR acquiring a significant ownership stake in Canadian.
On January 5, 2000, Canadian was acquired by Air Canada, and AMR no longer
owns an interest in the airline. Air Canada currently receives information
technology services from a competitor of the Company. Prior to the acquisition,
the Company had been bidding to provide comprehensive information technology
services to Air Canada. Air Canada is currently working to integrate
Canadian's operations with its own, which will include the integration of
information technology services. The Company is cooperating with Air Canada
in the integration and conversion of information technology systems and
services and intends to pursue opportunities to provide services to Air
Canada. It is uncertain what impact this change in ownership may have on the
services provided to Canadian by the Company.
In 1996, the Company executed an information technology services
agreement with American for a term of ten years for most services (three and
five years for others). Under this agreement, the Company provides data
processing, network, distributed systems and applications development
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. The Company completes nearly all of the
applications development for American. Additionally, the Company managed the
AMR Year 2000 project office and completed most of AMR system's Year 2000
testing and compliance enhancements.
In January 1998, the Company completed the execution of a 25-year,
multibillion dollar technology agreement with US Airways to provide
substantially all of US Airways' information technology services. As a part of
the agreement, the Company purchased approximately $47 million of US Airways'
information technology assets, hired more than 600 former employees of US
Airways and granted to US Airways two tranches of stock options, each to
acquire 3 million shares of the Company's Class A Common Stock. The agreement
covers the management and operation of US Airways' systems and information
technology services. Additionally, the Company agreed to assist US Airways in
making its information systems Year 2000 compliant. For further discussion of
the US Airways transaction, see Note 4 to the Consolidated Financial
Statements.
In connection with the US Airways agreement, in December 1998, the
Company successfully managed the largest information technology system
migration ever performed in the airline industry. Within a two-day timeframe
more than 200 US Airways systems were successfully converted or migrated,
including all core systems - Passenger Service System, Flight Operating System
and Cargo - and other systems such as yield management and in-flight dining.
The migration included the conversion of more than 3.5 million passenger name
records and more than two million electronic tickets to the SABRE system.
In February 1998, the Company executed a 10-year information
technology services agreement with Gulf Air. Under the terms of the agreement,
the Company will be responsible for all of Gulf Air's information technology
infrastructure, including application development and maintenance, as well as
data center and network management.
In November 1998, the Company executed a 10-year agreement with
Aerolineas Argentinas that calls for the airline to outsource the management
and provision of certain information technology functions to the Company and
for the Company to provide certain information technology services to
Aerolineas Argentinas' affiliate, Austral Lineas Aereas-Cielos Del Sur.
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COMPETITION
In information technology solutions, the Company competes both
against solutions companies and full-service providers of technology
outsourcing, 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 Global Services, Unisys, Andersen Consulting and Lufthansa
Systems. The Company believes that its competitive position in the travel and
transportation industries is enhanced by its experience in developing systems
for American and other airlines and by its ability to offer not only software
applications but also systems development, integration and maintenance and
transaction processing services.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs approximated $48 million for 1999, $39
million for 1998 and $24 million for 1997.
SEGMENT INFORMATION
Financial information for the Company's operating segments and
geographical revenues and assets are included in Note 12 to the Consolidated
Financial Statements.
INTELLECTUAL PROPERTY
The Company uses software, business processes, and other proprietary
information to carry out its business. These assets and related patents,
copyrights, trade secrets, trademarks and intellectual property rights are
significant assets of the Company. The Company relies on a combination of
patent, copyright, trade secret and trademark laws, confidentiality procedures
and contractual provisions to protect these assets. The Company has
implemented a program to seek patent protection on key technology and business
processes of its business. The Company's software and related documentation
are also protected under trade secret and copyright laws. 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.
EMPLOYEES
As of December 31, 1999 the Company had approximately 10,500
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 based in the United
States are represented by a labor union.
Effective upon the spin-off of the Company from AMR, the Company
ceased to be subject in the United States to the Railway Labor Act and became
subject to the Fair Labor Standards Act ("FLSA"). Among the implications of
the change in law, the Company has increased obligations to pay overtime
compensation to non-exempt employees. The Company does not expect to incur
material increased overtime costs. In addition, it is relatively easier for
unions to organize collective bargaining units under the FLSA.
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ITEM 2. PROPERTIES
The Company's principal executive offices are located in Fort Worth,
Texas, primarily in three buildings, two of which are owned by the Company and
one of which is leased from the Dallas/Fort Worth International Airport Board
under a lease that expires in 2019, subject to four renewal options of five
years each, exercisable at the option of the Company. Additionally, the
Company leases office facilities in Westlake, Texas under leases expiring in
2003, subject to a three-month or a three-year option, exercisable at the
option of the Company. The Company also leases office facilities in
approximately 70 other locations worldwide.
The Company's principal data center is located in an underground
facility in Tulsa, Oklahoma (the "Data Center"). 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. The SABRE system and the Company's data processing
services are dependent on the Company's central computer operations and
information processing facility located in the Data Center. In addition, the
Company leases a facility in Tulsa, Oklahoma, for its data tape archives under
a lease that expires in 2004, subject to one five-year renewal option. 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 server based and client/server
distributed systems.
During 1999, the Company entered into an agreement for the use of
land, an existing office building and the construction of a new corporate
headquarters facility in Southlake, Texas, as well as the development of new
data center facilities in Tulsa, Oklahoma. The initial term of the lease
expires in 2004, with two optional one-year renewal periods thereafter.
The Company's travel agency and corporate subscribers connect to the
SABRE system through leased access circuits. These leased access circuits, in
turn, connect to the domestic and international data networks leased by the
Company, such as those leased from Societe Internationale de
Telecommunications Aeronautiques ("SITA"), which is owned by a consortium of
airlines, including American.
The Company believes that its office facilities, Data Center and Fort
Worth Center will be adequate for its immediate needs and that the development
of the new headquarters facility in Southlake, Texas, and new data center
facilities in Tulsa, Oklahoma will accommodate expansion. The Company also
believes that its network access will be adequate for its immediate and
foreseeable needs. The Company, however, continuously invests to upgrade these
facilities to meet changing technological needs.
10
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
PAKISTAN INTERNATIONAL AIRLINES SHAREHOLDER DISPUTE
In August 1999, two shareholders of Pakistan International Airlines
("PIA") filed suit in Pakistan against PIA and others, including the Company,
claiming, among other things, that outsourcing and consulting agreements
between the Company and PIA violate the Pakistani constitution and therefore
are void. There are no direct claims for monetary damages against the Company.
In January 2000, the Court dismissed the claims involving the Sabre agreements.
PAKISTAN INTERNATIONAL AIRLINES ARBITRATION
On March 16, 2000, the Company initiated an arbitration proceeding in
Paris, France in which it is seeking to recover, from Pakistan International
Airlines, $8.5 million for services rendered plus lost profits and termination
fees. Because the arbitration has just begun, the Company cannot estimate the
time it will be completed or its results; however, the Company believes its
claims are valid and enforceable.
WORLDSPAN DISPUTE
On January 9, 1998, Worldspan LP ("Worldspan"), the former provider
of computer reservation system services to ABACUS International Holdings
("ABACUS"), filed a lawsuit against the Company in the United States District
Court for the Northern District of Georgia, Atlanta Division, seeking damages
and an injunction, and alleging, among other things, that the Company
interfered with Worldspan's relationship with ABACUS, violated the U.S.
antitrust laws, and misappropriated Worldspan's confidential information. The
same day, Worldspan filed a parallel lawsuit in the same court against ABACUS.
On February 26, 1998, the court denied Worldspan's motion for a preliminary
injunction against ABACUS. Thereafter, the court stayed the ABACUS case
pending arbitration between ABACUS and Worldspan. The arbitration concluded on
May 20, 1999. The Arbitration Tribunal has not yet issued a ruling in the
matter. Discovery continues in the case between Worldspan and the Company. The
Company believes that Worldspan's claims are without merit and is vigorously
defending itself. No trial date has been set.
INDIA TAX ISSUE
In 1998, the tax authority in India asserted that the Company has a
taxable presence in India. In March 1999, the Company received a $30 million
USD tax assessment (including interest) for the two years ending March 31,
1998. The Company challenged the assessment on the grounds that it does not
have a taxable presence in India and, even if it does, the assessment is based
on incorrect data. The United States government intervened on behalf of the
Company (and other U.S. companies currently facing similar tax-related issues
with the Indian government). Pursuant to that process, the Indian tax
authority stayed efforts to collect the assessment from the Company. The
Company appealed the validity and amount of the assessment within the Indian
tax authority. Although the Company did not prevail in its appeal at this
level on merits, a reassessment based on correct data was ordered. The Company
is awaiting that redetermination. The Company continues to believe that the
position of the Indian government is without merit and that it will ultimately
prevail either through the U.S. government's efforts or on its direct appeal.
The Company anticipates that it will appeal the case through judicial systems
in India.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended December 31, 1999.
11
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their positions and ages as of
December 31, 1999 are as follows:
<TABLE>
<S> <C>
William J. Hannigan.............. Director, President and Chief Executive Officer since December 1999.
President of SBC Global Markets in 1999; President of Business Communication
Services for Southwestern Bell/SBC 1998-1999; Chair of SBC DataComm Strategy
Task Force and Regional President of Central & West Texas Southwestern Bell
from 1997 to 1998; Vice President of Business and Government Markets Pacific
Bell from 1996 to 1997; Vice President of Engineering and Applications Support
for Sprint Corporation from 1995 to 1996. Age 40.
Bradford J. Boston............... Executive Vice President--Product Development and Delivery since May
1999; Senior Vice President and Executive Vice President--Sabre Technology
Solutions from 1997 to May 1999; Senior Vice President and
President--Sabre Computer Services from June 1996 to July 1997; Senior Vice
President for American Express Travel Related Services from 1994 to 1996;
Senior Vice President for Visa International from 1993 to 1994; and Vice
President for United Airlines/Covia Partnership from 1991 to 1993. Age 45.
Jeffery M. Jackson............... Executive Vice President, Chief Financial Officer and Treasurer since
August 1998; Vice President and Controller for American Airlines from January
1998 to August 1998; Vice President--Corporate Development and Treasurer for
American Airlines from 1995 to 1998; Vice President and Treasurer for American
Airlines from 1992 to 1995. Age 43.
Terrell B. Jones................. Executive Vice President--Travelocity.com since May 1999. Senior
Vice President--Sabre Interactive and Chief Information Officer from July 1996
to May 1999. President--Sabre Computer Services from 1993 to 1996; Division
Vice President--SCS Systems Planning & Development for American from 1991 to
1993; Managing Director & Vice President--STIN Product Development for
American from 1987 to 1991. Age 51.
Eric J. Speck.................... Executive Vice President--Marketing & Sales since May 1999;
Senior Vice President--Sabre Travel Information Network from April 1997 to May
1999. Vice President--Sabre Europe from August 1995 to March 1997; Vice
President--Marketing of Sabre Travel Information Network from October 1994 to
August 1995. Age 43.
Andrew B. Steinberg.............. Executive Vice President, General Counsel and Corporate Secretary
since October 1996. Associate General Counsel for American from 1994 to 1996;
Senior Attorney for American from 1991 to 1994. Age 41.
</TABLE>
All officers serve at the discretion of the Board of Directors.
12
<PAGE>
PART II
- -------------------------------------------------------------------------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Class A Common Stock is traded on the New York Stock
Exchange (symbol TSG). The approximate number of record holders of the Company's
Class A Common Stock at March 20, 2000 was 14,058. At December 31, 1999 all of
the 107,374,000 shares of the Company's Class B Common Stock were owned by AMR
and there was no public trading market for such shares. At March 20, 2000 no
shares of the Company's Class B Common Stock were outstanding as a result of the
exchange by AMR of Class B Common Stock for Class A Common Stock, all of which
shares were distributed by AMR to AMR shareholders on March 15, 2000.
The range of the high and low sales prices for the Company's Class A
Common Stock on the New York Stock Exchange by quarter for the two most recent
fiscal years was:
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
Quarter Ended:
March 31, 1999 47.75 38.25
June 30, 1999 70.625 44.937
September 30, 1999 72.00 39.50
December 31, 1999 56.125 39.75
Quarter Ended:
March 31, 1998 36.50 26.062
June 30, 1998 38.625 32.50
September 30, 1998 43.125 29.312
December 31, 1998 44.875 23.00
</TABLE>
No cash dividends on Class A or Class B Common Stock were declared or
paid during 1999. On February 7, 2000, the Company declared a one-time cash
dividend on all outstanding shares of the Company's Class A and Class B Common
Stock. The aggregate amount of the dividend was $675 million, or approximately
$5.20 per share, and was paid to shareholders on February 18, 2000. In the
future, the Company intends to retain its earnings to finance future growth and,
therefore, does not anticipate paying any additional cash dividends on its
common stock. Any determination as to the future 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.
13
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(IN MILLIONS, EXCEPT PER SHARE DATA AND OTHER DATA WHERE INDICATED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA (1):
Revenues $ 2,434.6 $ 2,306.4 $ 1,788.4 $ 1,625.1 $ 1,530.7
Operating expenses 2,062.1 1,956.0 1,475.8 1,295.2 1,149.2
------------- ------------- ------------- ------------- -------------
Operating income 372.5 350.4 312.6 329.9 381.5
Other income (expense), net 155.4 21.1 11.0 (24.0) (11.4)
------------- ------------- ------------- ------------- -------------
Income before income taxes 527.9 371.5 323.6 305.9 370.1
Income taxes 196.0 139.6 123.7 119.3 144.2
============= ============= ============= ============= =============
Net earnings $ 331.9 $ 231.9 $ 199.9 $ 186.6 $ 225.9
============= ============= ============= ============= =============
Earnings per common share, basic $ 2.56 $ 1.78 $ 1.53 $ 1.43 ---
============= ============= ============= ============= =============
Earnings per common share, diluted $ 2.54 $ 1.78 $ 1.53 $ 1.43 ---
============= ============= ============= ============= =============
BALANCE SHEET DATA
(AT END OF PERIOD) (1):
Current assets $ 976.4 $ 944.4 $ 877.6 $ 694.5 $ 271.2
Total assets 1,951.2 1,926.8 1,504.0 1,287.1 729.4
Current liabilities 525.1 400.8 311.5 289.8 218.6
Debenture payable to AMR --- 317.9 317.9 317.9 ---
Stockholder's net investment --- --- --- --- 432.1
Stockholders' equity 1,262.0 953.7 757.3 569.6 ---
OTHER DATA (1):
Operating margin 15.3% 15.2% 17.5% 20.3% 24.9%
Percentage of revenue from
unaffiliated customers 75.8% 75.1% 70.6% 69.2% 64.2%
Direct reservations booked using the
SABRE system (2) 370 358 360 349 323
Total reservations processed using
the SABRE system (3) 439 409 372 356 328
Cash flows from operating activities $ 495.4 $ 450.8 $ 372.8 $ 415.8 $ 395.9
Capital expenditures $ 168.0 $ 320.0 $ 218.1 $ 184.3 $ 166.8
</TABLE>
- -------------------------------------------------------------------------------
(1) The Company has significant transactions with AMR and American. The terms
of many of the agreements with AMR and its affiliates were revised
effective January 1, 1996 as a result of the plans for the Reorganization.
In connection with AMR's divestiture of its entire ownership interest in
the Company in the first quarter of 2000, certain of these agreements were
again revised. See Note 5 to the Consolidated Financial Statements.
(2) CRS reservations for which the Company collects a booking fee.
(3) Includes direct reservations plus reservations processed by joint venture
partners using the SABRE system.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SUMMARY
During 1999, the Company generated approximately 60.8% of its revenue
from electronic travel distribution services and approximately 39.2% of its
revenue from information technology solutions services. The following table sets
forth revenues by affiliation and geographic location as a percentage of total
revenues:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Affiliation:
Unaffiliated customers 75.8% 75.1% 70.6%
Affiliated customers 24.2 24.9 29.4
=========== =========== ===========
Total 100.0% 100.0% 100.0%
=========== =========== ===========
Geographic:
United States 73.7% 74.3% 72.4%
International 26.3 25.7 27.6
----------- ----------- -----------
Total 100.0% 100.0% 100.0%
=========== =========== ===========
</TABLE>
Total revenues have grown at a compound annual growth rate of 14.4% for
the three years ended December 31, 1999. Revenues from affiliated customers,
American Airlines, Inc. ("American") and other subsidiaries of AMR Corporation
("AMR"), have declined as a percentage of total revenues because of growth in
the Company's external business. Revenues from unaffiliated customers grew at a
compound annual growth rate of 17.9% during the three years ended December 31,
1999, to $1,845 million in 1999. As a result of AMR's divestiture of its entire
ownership interest in the Company in 2000, revenues for future services
performed for AMR will be accounted for as unaffiliated revenues. International
revenues grew at a compound annual growth rate of 16.0% for the three years
ended December 31, 1999, to $641 million in 1999. Revenues from the United
States grew at a compound annual rate of 13.9% over the same period, to $1,794
million in 1999.
Total operating expenses have grown at a compound annual growth rate of
16.8% for the three years ended December 31, 1999. The Company's primary
expenses consist of salaries, benefits and other employee-related costs,
depreciation and amortization, communication costs and subscriber incentives,
representing approximately 77.2%, 76.5% and 75.1% of total operating expenses in
1999, 1998 and 1997, respectively. Those expenses grew at a compound annual
growth rate of 18.5% for the three years ended December 31, 1999, primarily due
to the Company's growth, the incremental costs of the Company's Year 2000
efforts, expenses associated with the US Airways, Inc. ("US Airways")
outsourcing agreement and other expenses incurred to support growth in
information technology outsourcing. As a result, operating margin decreased from
17.5% in 1997 to 15.3% in 1999.
15
<PAGE>
SEASONALITY
The following table sets forth quarterly financial data for the Company (in
millions except per share data and percents):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- -------- -------
<S> <C> <C> <C> <C>
1999
Revenues $ 638.1 $ 638.8 $ 617.2 $ 540.5
Operating income 112.1 95.9 120.6 43.9
Operating margin 17.6% 15.0% 19.5% 8.1%
Net earnings $ 92.7 $ 63.5 $ 78.4 $ 97.3
Earnings per common share, basic $ .71 $ .49 $ .61 $ .75
Earnings per common share, diluted $ .71 $ .48 $ .55 $ .75
Direct reservations booked using the
SABRE system 99 97 94 80
Total reservations booked using the
SABRE system 116 115 112 96
1998
Revenues $ 554.1 $ 576.6 $ 604.3 $ 571.4
Operating income 114.5 109.3 98.4 28.2
Operating margin 20.7% 19.0% 16.3% 4.9%
Net earnings $ 71.8 $ 68.5 $ 71.4 $ 20.2
Earnings per common share, basic $ .55 $ .53 $ .55 $ .16
Earnings per common share, diluted $ .55 $ .52 $ .55 $ .16
Direct reservations booked using the
SABRE system 97 92 91 78
Total reservations booked using the
SABRE system 104 107 106 92
</TABLE>
The travel industry is seasonal in nature. Bookings, and thus booking
fees charged for the use of the SABRE system, 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. See Note 13 to the Consolidated Financial Statements for further
information on quarterly financial results.
AFFILIATE AGREEMENTS WITH AMR AND AMERICAN
The Company, AMR and American have entered into various agreements,
collectively referred to as the "Affiliate Agreements", including those
described below. An agreement for the provision of information technology
services to American by the Company (the "Technology Services Agreement"), an
agreement for the provision of marketing support by American for the Company's
travel agency products, SABRE BTS and the Travelocity.com Web site (the
"Marketing Cooperation Agreement"), an agreement for the provision of management
services by American to the Company (the "Management Services Agreement"),
agreements for the provision of travel services by American to the Company and
its employees (the "Corporate Travel Agreement" and the "Travel Privileges
Agreement"). See Note 5 to the Consolidated Financial Statements for a
description of each agreement. The rates under the agreements are adjusted or
renegotiated from time to time, and current rates may represent an increase or
decrease over previous rates. The financial terms of the Affiliate Agreements
were applied to the Company's operations commencing January 1, 1996.
16
<PAGE>
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 1999, revenues from services provided under the Technology
Services Agreement with a remaining service term of (i) two years represented
approximately 1.4% of total revenues, (ii) three years represented approximately
3.8% of total revenues and (iii) seven years represented approximately 12.3% 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. Beginning in 1998, the formulas for annually adjusting certain rates
under the Technology Services Agreement are adjusted every two years through
negotiations of the parties which are to be guided by benchmarking procedures
set forth in the agreement.
The Company also entered into a Tax-Sharing Agreement with AMR dated
July 1, 1996 (the "Tax-Sharing Agreement"), which in most respects formalizes
the Company's previous arrangements with AMR. See Note 2 to the Consolidated
Financial Statements for a description of the agreement.
The Company 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 under the circumstances described in
Note 5 to the Consolidated Financial Statements.
In connection with AMR's divestiture of its entire ownership interest
in the Company in the first quarter of 2000, certain of these agreements were
revised. Revisions to the Technology Services Agreement include extending
services provided by the Company relating to AMR's real time environment until
June 30, 2008 and AMR's client server operations until June 30, 2002.
Additionally, the Company and AMR entered into an agreement for indemnity of
taxes relating to the spin-off of the Company from AMR (the "Agreement on
Spin-off Taxes"). See Note 5 to the Consolidated Financial Statements.
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
ELECTRONIC TRAVEL DISTRIBUTION. Electronic travel distribution revenues for the
year ended December 31, 1999 increased approximately $156 million, 11.8%,
compared to the year ended December 31, 1998, from $1,325 million to $1,481
million. This increase was primarily due to growth in booking and other fees
from associates from $1,183 million to $1,311 million. The growth in fees from
associates was driven by an increase in booking volumes and an overall increase
in the average price per booking charged to associates due to a price increase
implemented in February 1999. The increase was also partially driven by
increases in bookings made through the Company's Travelocity.com Web site. Other
revenues increased approximately $28 million primarily due to services provided
to and equity income related to the Company's joint ventures and revenues from
sales of miscellaneous products and services.
Cost of revenues for electronic travel distribution increased
approximately $86 million, 9.4%, from $916 million to $1,002 million. This
increase was primarily attributable to increases in subscriber incentive
expenses, data processing costs and salaries and benefits, partially offset by
reductions in expenses associated with the Marketing Cooperation Agreement with
American. Subscriber incentive expenses increased in order to maintain and
expand the Company's travel agency subscriber base. Data processing costs
increased due to the growth in bookings and transactions processed. Salaries and
benefits increased due to an increase in the average number of employees
necessary to support the Company's business growth and annual salary increases.
17
<PAGE>
INFORMATION TECHNOLOGY SOLUTIONS. Revenues from information technology solutions
for the year ended December 31, 1999 decreased approximately $29 million, 3.0%,
compared to the year ended December 31, 1998, from $982 million to $953 million.
This decrease was primarily related to services performed under the information
technology services agreement with US Airways moving into a steady state and
decreases in software development sales, offset by increased revenues from other
information technology outsourcing agreements signed during 1998.
Cost of revenues for information technology solutions decreased
approximately $40 million, 4.7%, from $847 million to $807 million. This
decrease was primarily attributable to a decrease in contract labor expenses and
other services purchased, partially offset by an increase in salaries and
benefits expenses. Contract labor expenses decreased due to a planned reduction
in contract labor headcount. Other services purchased decreased due to the
completion of conversion services for US Airways in 1999. Salaries and benefits
increased due to higher average salaries and benefits costs and severance
charges related to the reduction in force of approximately 330 employees in
August 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $61 million, 31.6%, from $193 million to $254
million, primarily due to salaries, benefits and employee-related costs,
advertising and miscellaneous selling expenses. Salaries, benefits and employee
related costs increased as a result of sales growth initiatives and increased
administrative requirements to support the Company's growth. Advertising for the
Travelocity.com Web site and miscellaneous selling expenses also increased in
order to support the Company's growth initiatives.
OPERATING INCOME. Operating income increased $23 million, 6.6%, from $350
million to $373 million. Operating margins increased from 15.2% in 1998 to 15.3%
in 1999, due to an increase in revenues of 5.6%, while operating expenses
increased 5.4%.
INTEREST INCOME. Interest income increased by $2 million, due primarily to
higher average balances maintained in the Company's cash and short-term
investment accounts.
INTEREST EXPENSE. Interest expense decreased $9 million as a result of the
settlement in June 1999 of the $318 million debenture payable to AMR.
OTHER, NET. Other income (expense) increased $123 million, primarily due to a
$138 million gain recognized on the liquidation in 1999 of Equant depository
certificates held by American for the economic benefit of the Company, partially
offset by the one-time gain of $14 million recognized in 1998 as a result of the
favorable court judgment relating to Ticketnet Corporation, an inactive
subsidiary of the Company.
INCOME TAXES. The provision for income taxes was $196 million and $140 million
for 1999 and 1998, respectively. The increase in the provision for income taxes
corresponds with the increase in net income before the provision for income
taxes, partially offset by a lower effective tax rate due primarily to increased
foreign tax benefits. See Note 7 to the Consolidated Financial Statements for
additional information regarding income taxes.
NET EARNINGS. Net earnings increased $100 million, 43.1%, from $232 million to
$332 million, primarily due to the increases in other income and operating
income and the reduction in interest expense.
1998 COMPARED TO 1997
ELECTRONIC TRAVEL DISTRIBUTION. Electronic travel distribution revenues for the
year ended December 31, 1998 increased approximately $120 million, 10.0%,
compared to the year ended December 31, 1997, from $1,205 million to $1,325
million. This increase was primarily due to growth in booking fees from
associates from $1,081 million to $1,183 million. The growth in booking fees was
primarily driven by an overall increase in the average price per booking charged
to associates. Other revenues increased $16 million, due to services provided to
and equity income related to the Company's ABACUS joint venture and $2 million
related to revenues from sales of miscellaneous products and services.
18
<PAGE>
Cost of revenues for electronic travel distribution increased
approximately $63 million, 7.4%, from $853 million to $916 million. This
increase was primarily attributable to increases in subscriber incentives,
depreciation and amortization, salaries and benefits and other operating
expenses. Subscriber incentive expenses increased in order to maintain and
expand the Company's travel agency subscriber base. Depreciation and
amortization expenses increased primarily due to depreciating recently purchased
subscriber equipment over shorter estimated useful lives to reflect an increased
rate of technological changes coupled with an increase in capitalized software
and other long-term assets. These increases were offset by a reduction in a
reserve for obsolete computer equipment. Salaries and benefits increased
primarily due to annual salary increases. Other operating expenses increased
primarily due to equipment maintenance costs and other software development
expenses related to the Company's Year 2000 compliance program. These increases
were offset by the effect of the prior year write-off of a capitalized software
development project.
INFORMATION TECHNOLOGY SOLUTIONS. Revenues from information technology solutions
for the year ended December 31, 1998 increased approximately $399 million,
68.4%, compared to the year ended December 31, 1997, from $583 million to $982
million. Revenues from unaffiliated customers increased approximately $360
million, primarily due to services performed under the information technology
services agreement with US Airways and Year 2000 testing and compliance
enhancements for Canadian Airlines. Revenues from affiliated customers increased
approximately $39 million, primarily from Year 2000 services performed for AMR.
Cost of revenues for information technology solutions increased
approximately $397 million, 88.2%, from $450 million to $847 million. This
increase was primarily attributable to an increase in salaries, benefits and
employee-related costs, depreciation and amortization expenses and other
operating expenses. Salaries, benefits and employee-related costs increased due
to an increase in the average number of employees necessary to support the
Company's business growth and annual salary increases. The increase in
depreciation and amortization expenses is primarily due to the acquisition of
information technology assets to support the US Airways' contract and other
normal additions and replacements, as well as amortization of the deferred asset
associated with the US Airways' agreement. Other operating expenses increased
primarily due to increased data processing costs, other services purchased and
facility costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $21 million, 12.2%, from $172 million to $193
million, primarily due to an increase in salaries and benefits and legal and
professional fees. Salaries and benefits increased as a result of sales growth
initiatives and increased administrative requirements to support the Company's
growth. Legal and professional fees increased primarily due to the formation of
the ABACUS joint venture and the growth of outsourcing activity.
OPERATING INCOME. Operating income increased $37 million, 11.8%, from $313
million to $350 million. Operating margins decreased from 17.5% in 1997 to 15.2%
in 1998, due to an increase in revenues of 29.0%, while operating expenses
increased 32.5%.
INTEREST INCOME. Interest income decreased $4 million, due to lower average
balances maintained in the Company's short-term investment accounts.
INTEREST EXPENSE. Interest expense decreased $2 million, primarily due to lower
interest rates.
OTHER, NET. Other, net increased $12 million, primarily due to a one-time gain
from a favorable court judgment relating to Ticketnet Corporation, an inactive
subsidiary of the Company.
INCOME TAXES. The provision for income taxes was $140 million and $124 million
in 1998 and 1997, respectively. The increase in the provision for income taxes
primarily corresponds with the increase in income before the provision for
income taxes. See Note 7 to the Consolidated Financial Statements for additional
information regarding income taxes.
NET EARNINGS. Net earnings increased $32 million, 16.0%, from $200 million to
$232 million, primarily due to the increase in operating income and the
favorable court judgment regarding Ticketnet Corporation, an inactive subsidiary
of the Company.
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company had substantial liquidity at December 31, 1999, with
approximately $611 million in cash and short-term investments and $451 million
in working capital. At December 31, 1998, cash and short-term investments and
working capital were $538 million and $544 million, respectively. The Company
invests cash in short-term marketable securities, consisting primarily of
certificates of deposit, bankers' acceptances, commercial paper, corporate
notes and government notes.
The Company has historically funded its operations through cash
generated from operations. The Company's cash provided by operating activities
of $495 million, $451 million and $373 million in 1999, 1998 and 1997,
respectively, was primarily attributable to net earnings before noncash
charges.
Capital investments for 1999 and 1998 were $200 million and $466
million, respectively. Capital investments in 1999 included capital
expenditures for property and equipment of $168 million. Capital investments
in 1998 were substantially higher than 1999, due primarily to the acquisition
of $111 million in information technology assets in connection with the US
Airways outsourcing agreement and the investment of $140 million related to
the Company's interest in the ABACUS joint venture.
In 1997, the Company's Board of Directors authorized, subject to
certain business and market conditions, the repurchase of up to 1.5 million
shares of the Company's Class A Common Stock. During 1998 and 1997, the
Company purchased 1.5 million treasury shares at a cost of approximately $51
million. On March 16, 1999, the Company's Board of Directors authorized the
repurchase of up to an additional 1 million shares of the Company's Class A
Common Stock. On September 15, 1999, the Company's Board of Directors
authorized the repurchase of up to an additional $100 million of the Company's
Class A Common Stock during the next two years. During 1999, the Company
purchased approximately 1 million shares of the Company's Class A Common Stock
at a cost of approximately $60 million.
On March 17, 1999, the Company and American entered into a short-term
credit agreement pursuant to which American could borrow from the Company up
to a maximum of $300 million. During the first half of 1999, American borrowed
$300 million under the short-term credit agreement. As part of this agreement,
the original Credit Agreement between the Company and American, entered into
on July 1, 1996, was modified to terminate American's ability to borrow
additional funds under that agreement. Subsequently, in June 1999, the
Company, AMR and American entered into an omnibus financing agreement pursuant
to which (a) the $300 million outstanding from American under the short-term
credit agreement was applied against the $318 million debenture payable from
the Company to AMR; (b) the Company paid in June 1999 the remaining principal
balance, approximately $18 million, and all outstanding accrued interest under
the debenture; and (c) the Company and American renewed, extended and
reinstated American's ability to borrow funds under the original Credit
Agreement for an additional year to June 30, 2000. The renewed Credit
Agreement allows the Company to borrow up to $300 million from American and
American to borrow up to $100 million from the Company to meet short-term
working capital requirements. In connection with the spin-off of the Company
from AMR, American notified the Company that the original Credit Agreement
would be terminated on April 14, 2000.
During 1999, the Company entered into a syndicated lease financing
facility of approximately $310 million for the use of land and an existing
office building and the construction of a new corporate headquarters facility
in Southlake, Texas, as well as the development of new data center facilities
in Tulsa, Oklahoma. The financing facility will be accounted for as an
operating lease. The initial term of the lease extends through September 2004,
with two optional one-year renewal periods thereafter. At the end of each
renewal period, the Company is required to either renew the lease, purchase
the property for its original cost, or arrange for the sale of the property to
a third party, with the Company guaranteeing to the lessor proceeds on such
sale of approximately 85% of the original fair value of the leased facility,
or approximately $264 million.
20
<PAGE>
On October 2, 1999, the Company entered into an agreement with
America Online, Inc. ("AOL") that became effective upon the consummation of
the merger of Travelocity.com with Preview Travel, Inc. The agreement
provides, among other things, that the Travelocity.com Web site will be the
exclusive reservations engine for AOL's Internet properties. Travelocity.com,
as assignee of the agreement, will be obligated for carriage payments of up to
$200 million and AOL and Travelocity.com will share advertising revenues and
commissions over the five year term of the agreement. In connection with this
agreement, Travelocity.com paid $40 million to AOL upon the closing of the
merger on March 7, 2000.
On December 14, 1999, US Airways exercised one of its two tranches of
options to acquire 3 million shares of the Company's Class A Common Stock.
Pursuant to the terms of the exercised options, the Company settled the
options in cash in lieu of issuing stock and paid, on January 5, 2000,
approximately $81 million to US Airways. During the six-month period ending
December 31, 2000, US Airways may select an alternative vehicle of
substantially equivalent value in place of receiving stock for the second
tranche of options. The selection of an alternative vehicle, which must be
agreeable to the Company, may result in the payment of cash by the Company to
US Airways equal to the excess of the Company's stock price, subject to a cap
on share price of $127, over the option exercise price of $27 per share
multiplied by the 3 million options. If US Airways makes this election, the
second tranche of options will be terminated.
On February 4, 2000, the Company entered into a $300 million, senior
unsecured, revolving credit agreement (the "Credit Facility"), which expires
on September 14, 2004. Additionally, on February 4, 2000, the Company entered
into a short-term $200 million, senior unsecured, term loan agreement (the
"Interim Loan"), which matures on August 4, 2000. The proceeds from both the
Credit Facility and Interim Loan will be used for working capital, capital
expenditures, acquisitions, dividends and other corporate purposes. On
February 18, 2000, the Company utilized a portion of its available cash
balance and short-term investments and proceeds from both the Credit Facility
and Interim Loan to fund the $675 million dividend paid to shareholders. As of
February 29, 2000, borrowings under the Credit Facility and Interim Loan
amounted to approximately $149 million and $200 million, respectively.
On February 7, 2000, in connection with the separation from AMR, the
Company declared a one-time cash dividend on all outstanding shares of the
Company's Class A and Class B Common Stock. The aggregate amount of the
dividend was $675 million, or approximately $5.20 per share, and was paid to
shareholders on February 18, 2000. In the future, the Company intends to
retain its earnings to finance future growth and, therefore, does not
anticipate paying any additional cash dividends on its common stock. Any
determination as to the future 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.
On March 10, 2000, the Company filed a registration statement on Form
S-3 with the Securities and Exchange Commission through which the Company
intends to sell certain securities from time to time after the effective date
of the registration statement. The Company intends to use the proceeds from
the sale of any securities for general corporate purposes, including the
retirement of debt, additions to working capital, capital expenditures and for
acquisitions.
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 primarily 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 estimated capital
expenditures of approximately $200 million to $250 million for 2000.
The Company believes available balances of cash and short-term
investments, cash flows from operations and funds available under the Credit
Facility and Interim Loan combined with the ability to raise funds from the
sale of securities in connection with the registration statement on Form S-3
will be sufficient to meet the Company's cash requirements.
21
<PAGE>
INTEREST IN EQUANT
At December 31, 1998, American owned approximately 3.1 million
depository certificates representing beneficial ownership of common stock of
Equant, a telecommunications company affiliated with Societe Internationale de
Telecommunications Aeronautiques ("SITA"). Approximately 1.7 million of these
depository certificates were held by American for the economic benefit of the
Company.
In connection with a secondary offering of Equant common stock, in
February 1999 American liquidated approximately 923,000 depository
certificates. Approximately 490,000 of these certificates were liquidated for
the Company's benefit. The Company received proceeds of approximately $35
million from the transaction, resulting in a gain of approximately $35 million.
In July 1999, Equant officially notified the Company and American of
a reallocation, which had been previously anticipated, of depository
certificates among SITA members. Due to the Company's significantly higher
usage of the SITA network over the last four years, the Company's interests in
Equant increased substantially. The reallocation was effective as of June 30,
1999. Accordingly, as of that date, the number of depository certificates held
by American for the economic benefit of the Company increased to approximately
3.5 million.
In December 1999, in connection with an additional secondary offering
of Equant common stock, approximately 1.2 million certificates were liquidated
for the Company's benefit. The Company received proceeds of approximately $103
million from the transaction, resulting in an additional gain of approximately
$103 million.
At December 31, 1999, the number of depository certificates held by
American for the economic benefit of the Company was approximately 2.3 million
and the estimated value of these certificates was approximately $258 million,
based upon the market value of Equant's publicly-traded common stock. The
Company's carrying value of these depository certificates was nominal at
December 31, 1999 and December 31, 1998. Any future disposal of such
depository certificates may result in additional gains to the Company. Certain
restrictions limit the Company's ability to freely dispose of these depository
certificates.
ACQUISITION OF PREVIEW TRAVEL, INC.
On March 7, 2000, the Company completed the merger of Travelocity.com,
an operating unit of the Company ("Travelocity.com") and Preview Travel, Inc.
("Preview"), an independent publicly-traded company engaged in consumer direct
travel distribution over the Internet. Under the terms of the merger
agreement, shareholders of Preview received one share of Travelocity.com Inc.,
a newly created subsidiary of the Company, for each share of Preview held, and
Preview was merged into Travelocity.com Inc., the surviving entity. Shares of
Travelocity.com Inc. stock now trade under the symbol "TVLY" on the Nasdaq
National Market. In connection with the merger, the Company contributed the
existing assets and businesses of Travelocity.com and approximately $100
million in cash to Travelocity.com LP, a Delaware limited partnership (the
"Partnership"). Immediately following the merger, Travelocity.com Inc.
contributed the assets and businesses obtained from the acquisition of Preview
to the Partnership. As a result of the merger, the Company owns an economic
interest of approximately 70% in the combined businesses, composed of a 62%
direct interest in the Partnership and a 22% interest in Travelocity.com Inc.,
which holds a 38% interest in the Partnership. The Company recorded goodwill
and other intangibles of approximately $250 million based upon the ownership
of Travelocity.com exchanged for the ownership interest in Preview. The
Company will amortize the goodwill and intangibles over three years.
22
<PAGE>
YEAR 2000 COMPLIANCE
STATE OF READINESS. In 1995, the Company implemented a project (the "Year 2000
Project") intended to ensure that hardware and software systems operated or
licensed in the Company's business, including systems provided to its travel
agency subscribers and its outsourcing customers, were designed to operate and
properly manage dates beyond December 31, 1999 ("Year 2000 Compliant"). The
Year 2000 Project consisted of six phases: (i) awareness, (ii) assessment,
(iii) analysis, design and remediation, (iv) testing and validation, (v)
quality assurance review (to ensure consistency throughout the Year 2000
Project) and (vi) creation of business continuity strategy, including
contingency plans in the event of Year 2000 failures. In developing the
Company's proprietary software analysis, remediation and testing methodology
for Year 2000 compliance, it studied the best practices of the Institute of
Electrical and Electronics Engineers and the British Standards Institution.
The Company assessed (i) its over 1,000 information technology applications
and operating systems that will be utilized to process dates after December
31, 1999 ("IT Systems") and (ii) its non-information technology systems,
including embedded technology, relating to security, elevator control, HVAC
and other systems ("Non-IT Systems").
IT SYSTEMS. The Company completed all the phases of the Year 2000 Project for
all of its IT Systems, including its computer reservations and flight
operating system applications that perform such "mission critical" functions
as passenger bookings, ticketing, passenger check-in, aircraft weight and
balance, flight planning and baggage and cargo processing. All software
developed by the Company and currently being marketed is Year 2000 Compliant.
The Company has installed Year 2000 Compliant hardware and software at all of
its travel agency subscriber locations worldwide. The Company followed
structured clean management processes to keep all of its IT Systems Year 2000
ready.
NON-IT SYSTEMS. The Company completed the Year 2000 Project for all of its
Non-IT Systems. None of the Company's business and financial functions were
materially affected during the transition into the new century.
THIRD PARTY SERVICES. The Company relies on third party providers for many
services, such as telecommunications, utilities, data and credit card
transaction processing. In providing services to the Company, those providers
depend on their hardware and software systems and, in the case of
telecommunications and data service providers, on interfaces with the
Company's IT Systems. In preparation for the date change, the Company
performed extensive Year 2000 testing of its critical external interfaces. The
Company's external data and other feeds operated successfully during the
transition with no adverse impact on any of the Company's critical processes
and continue to operate successfully.
The Company's business is particularly dependent on its ability to transmit
data on a worldwide basis through telecommunications networks. For
telecommunications network services, the Company relies on third party service
providers throughout the world, including AT&T, SITA and MCI Worldcom. Many of
those service providers rely on other communications service providers that
are located in less developed countries and may have allocated limited
resources to Year 2000 compliance. The failure of a segment of the
telecommunications network could disrupt the Company's ability to provide
services to its customers. Depending on its severity, a disruption could have
a material, adverse effect on the Company's business, financial condition and
results of operations. To date, the Company has not experienced any material
telecommunication problems related to the transition into the new century.
COSTS OF YEAR 2000 PROJECT. As of December 31, 1999, the Company had incurred
$99 million, cumulatively, on Year 2000 efforts. The total costs include
approximately $31 million for the installation of Year 2000 Compliant hardware
and software at travel agency subscriber locations, approximately $32 million
for the Company's software applications, approximately $25 million related to
the Company's hardware and software infrastructure and approximately $11
million for project management and other labor costs. Costs associated with
the Year 2000 project were expensed as incurred and paid from operating cash
flows.
TRANSITION INTO THE NEW CENTURY. The Company developed and utilized an
extensive command center structure to monitor the transition into the new
century. All critical systems and components were closely monitored as they
transitioned into the year 2000. The Company has not experienced any material
disruptions of its systems or operations as a result of the Year 2000 issue,
nor are we aware of any disruptions in the systems or operations of our
third-party providers that would have a material effect on the Company.
However, it is still possible that future problems could arise with respect to
the Year 2000 issue.
23
<PAGE>
INFLATION
The Company believes that inflation has not had a material effect on
its results of operations.
OUTLOOK FOR 2000
The Company expects continued profitability and revenue growth in
2000. The Company expects the revenue growth rate from electronic travel
distribution to increase over the 1999 growth rate. The Company plans to grow
market share in each region and continue to invest in products that will
assist the travel agency community in meeting customer demands. The Company
expects revenue from information technology solutions to decrease, compared to
1999, due to reduced US Airways interim operations and conversion/migration
services as well as the sale of the Company's logistics business. However, the
Company intends to pursue new outsourcing contracts and additional software
development projects, but the timing and anticipated revenue growth from any
new contracts are uncertain. The Company expects to continue to invest in
emerging distribution channels and product development. The Company also
anticipates continued pressure on subscriber incentive expenses and intends to
manage such expenses to keep them in line with market share gains.
The Company expects improved operating margins in 2000 for the
information technology solutions business by controlling headcount and
employee-related expenses and reducing certain other expenses. The Company
expects operating margins from electronic travel distribution activities in
2000 to be consistent with 1999. The Company expects that selling, general and
administrative expenses will increase in 2000 as a result of the spin-off from
AMR. Additionally, interest income should decrease and interest expense
increase due to funding requirements for the $675 million dividend paid to the
Company's shareholders in February 2000.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued
Statement No. 137, DEFERRAL OF EFFECTIVE DATE OF FASB STATEMENT NO. 133.
Statement No. 137 deferred the implementation date of Statement No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which is now
required to be adopted in years beginning after June 15, 2000. Statement No.
133 requires the recognition of all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in fair value will either be recognized in income, or in comprehensive
income, until the hedged item is recognized in earnings. The ineffective
portion of a derivative's change in fair value will be immediately recognized
in earnings. The Company does not currently use derivatives to a significant
extent; however, as such instruments may be used in the future, it is
uncertain what, if any, impact the adoption of Statement No. 133 will have on
the earnings or the financial position of the Company. The Company anticipates
that it will adopt the statement effective January 1, 2001.
24
<PAGE>
CAUTIONARY STATEMENT
Statements in this report which are not purely historical facts,
including statements regarding the Company's anticipations, beliefs,
expectations, hopes, intentions or strategies for the future, may be forward
looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. All forward looking statements in this
report are based upon information available to the Company on the date of this
report. The Company undertakes no obligation to publicly update or revise any
forward looking statements, whether as a result of new information, future
events or otherwise. Any forward looking statements involve risks and
uncertainties that could cause actual events or results to differ materially
from the events or results described in the forward looking statements.
Readers are cautioned not to place undue reliance on these forward looking
statements.
Risks associated with the Company's forward looking statements in
this report include, but are not limited to: risks related to the Company's
relationships with American and US Airways and their affiliates, including
risks that they may terminate any of the agreements with the Company, or fail
or otherwise become unable to fulfill their principal obligations thereunder,
or determine not to renew certain of the agreements; risks associated with the
spin-off by AMR of its equity interest in the Company and the related $675
million dividend, including the increased debt service for indebtedness
incurred to effect that dividend; risks associated with competition, and
technological innovation by competitors, which could require the Company to
reduce prices, to change billing practices, to increase spending or marketing
or product development or otherwise to take actions that might adversely
affect its operations or earnings; risks related to the Company's technology,
such as a failure to continue to achieve Year 2000 or euro currency
compliance, a failure of third party suppliers to continue to be Year 2000
Compliant and the outcome of possible Year 2000 litigation involving the
Company; risks associated with online commerce and doing business through an
Internet Web site, such as security issues, liability for site content, and
uncertain protection of intellectual property; risks relating to the Company's
investment in technology, including the ability of the Company to timely
develop and achieve market acceptance of new products; risks associated with
industry consolidation, including strategic alliances, in the CRS industry;
risks related to seasonality of the travel industry and booking revenues;
risks of the Company's sensitivity to general economic conditions and events
that affect airline travel and the airlines, hotel operators and car rental
companies that participate in the SABRE system, including the increased price
of fuel; risks of a natural disaster, computer terrorism or other calamity
that may cause significant damage to the Company's data center facilities and
enterprise information systems; risks of interruption or deterioration of
third party services on which the Company relies to provide its services;
risks of deterioration or obsolescence of the Company's current systems and
infrastructures; risks associated with the Company's international operations,
such as currency fluctuations, governmental approvals, tariffs and trade
barriers, and political instability; risks of new or different legal and
regulatory requirements; and risks associated with the Company's growth
strategy, including investments in emerging markets and the ability to
successfully conclude alliances.
25
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
At December 31, 1999, the Company's exposure to interest rates relates
primarily to its investment portfolio. At December 31, 1998, the Company's
exposure to interest rates related primarily to its investment portfolio and
to its debenture payable to AMR. The Company does not currently use financial
derivative instruments to manage interest rate risk; however, it does closely
monitor the relationship between interest rate-sensitive assets and
liabilities.
The objectives of the Company's short-term investments are safety of
principal, liquidity maintenance, yield maximization and full investment of
all available funds. As such, the Company's investment portfolio consists
primarily of high credit quality certificates of deposit, bankers'
acceptances, commercial paper and corporate and government notes. If
short-term interest rates average 10% lower in 2000 than they were during
1999, the Company's interest income from short-term investments would decrease
by approximately $0.7 million. In comparison, at December 31, 1998, the
Company estimated that if short-term interest rates averaged 10% lower in 1999
than they were during 1998, the Company's interest income from short-term
investments would have decreased by approximately $0.9 million. These amounts
were determined by applying the hypothetical interest rate change to the
Company's short-term investments balances as of December 31, 1999 and 1998.
In addition, the Company had a floating rate debenture payable to AMR (the
"Debenture") with a principal balance of approximately $318 million at
December 31, 1998. This debenture was settled in June 1999; therefore, at
December 31, 1999, the Company had no interest rate exposure related to the
Debenture. In comparison, at December 31, 1998, the Company estimated that if
short-term interest rates averaged 10% higher in 1999 than they were during
1998, the Company's interest expenses would have increased by approximately
$2.0 million. This amount was determined by applying the hypothetical interest
rate change to the Company's Debenture balance as of December 31, 1998. If the
Company's mix of interest rate-sensitive assets and liabilities changes
significantly, the Company may enter into derivative transactions to manage
its net interest exposure.
FOREIGN CURRENCY RISK
The Company has various foreign operations, primarily in North America, South
America, Europe, and Asia. As a result of these business activities, the
Company is exposed to foreign currency risk. However, these exposures have
historically related to a small portion of the Company's overall operations as
a substantial majority of the Company's business is transacted in the United
States dollar. The Company had no open foreign currency derivative
transactions as of December 31, 1999; however, it may enter into such
derivative transactions from time to time as foreign currency exposures arise.
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors 28
Consolidated Balance Sheets 29
Consolidated Statements of Income 30
Consolidated Statements of Cash Flows 31
Consolidated Statements of Stockholders' Equity 32
Notes to Consolidated Financial Statements 33
</TABLE>
27
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Sabre Holdings Corporation
We have audited the accompanying consolidated balance sheets of Sabre
Holdings Corporation and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. Our
audits also included the financial statement schedule listed under Item 14(a).
These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. 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 Sabre Holdings Corporation and subsidiaries at December 31, 1999
and 1998, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Dallas, Texas
March 16, 2000
28
<PAGE>
<TABLE>
<CAPTION>
SABRE HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
December 31,
------------------------------------------
1999 1998
------------------- --------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 6,628 $ 8,008
Short-term investments 604,498 529,735
Accounts receivable, net 295,254 337,703
Receivable from affiliates, net 29,093 21,609
Prepaid expenses 22,899 21,559
Deferred income taxes 18,052 25,790
------------------- --------------------
Total current assets 976,424 944,404
PROPERTY AND EQUIPMENT
Buildings and leasehold improvements 337,409 329,497
Furniture, fixtures and equipment 46,485 40,286
Service contract equipment 546,200 550,951
Computer equipment 482,334 460,530
------------------- --------------------
1,412,428 1,381,264
Less accumulated depreciation and amortization (839,874) (737,488)
------------------- --------------------
Total property and equipment 572,554 643,776
Investments in joint ventures 156,158 148,683
Other assets, net 246,075 189,954
------------------- --------------------
TOTAL ASSETS $ 1,951,211 $ 1,926,817
=================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 121,091 $ 157,044
Accrued compensation and related benefits 89,424 93,708
Other accrued liabilities 314,598 150,058
------------------- --------------------
Total current liabilities 525,113 400,810
Deferred income taxes -- 13,068
Pensions and other postretirement benefits 119,687 104,574
Other liabilities 44,366 136,749
Debenture payable to AMR -- 317,873
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock: $0.01 par value; 20,000 shares authorized; no shares issued -- --
Common stock:
Class A: $0.01 par value; 250,000 shares authorized; 23,995 and 23,706
shares issued at December 31, 1999 and 1998, respectively 240 237
Class B: $0.01 par value; 107,374 shares authorized; 107,374 shares
issued and outstanding at December 31, 1999 and 1998, respectively 1,074 1,074
Additional paid-in capital 607,285 599,087
Retained earnings 727,050 395,800
Less treasury stock at cost; 1,573 shares and 1,240 shares at December 31,
1999 and 1998, respectively (73,604) (42,455)
------------------- --------------------
Total stockholders' equity 1,262,045 953,743
------------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,951,211 $ 1,926,817
=================== ====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
<TABLE>
<CAPTION>
SABRE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------------------
1999 1998 1997
-------------- --------------- ---------------
<S> <C> <C> <C>
REVENUES
Electronic Travel Distribution $ 1,481,200 $ 1,324,795 $ 1,205,192
Information Technology Solutions 953,419 981,592 583,271
-------------- --------------- ---------------
Total revenues 2,434,619 2,306,387 1,788,463
OPERATING EXPENSES
Cost of revenues
Electronic Travel Distribution 1,001,925 915,805 853,221
Information Technology Solutions 806,635 847,212 450,296
Selling, general and administrative 253,557 192,998 172,321
-------------- --------------- ---------------
Total operating expenses 2,062,117 1,956,015 1,475,838
-------------- --------------- ---------------
OPERATING INCOME 372,502 350,372 312,625
OTHER INCOME (EXPENSE)
Interest income 27,673 26,034 29,980
Interest expense (9,995) (19,493) (21,692)
Other, net 137,765 14,541 2,736
-------------- --------------- ---------------
Total other income (expense) 155,443 21,082 11,024
-------------- --------------- ---------------
INCOME BEFORE PROVISION FOR INCOME
TAXES 527,945 371,454 323,649
Provision for income taxes 196,038 139,513 123,796
-------------- --------------- ---------------
NET EARNINGS $ 331,907 $ 231,941 $ 199,853
============== =============== ===============
EARNINGS PER COMMON SHARE
Basic $ 2.56 $ 1.78 $ 1.53
============== =============== ===============
Diluted $ 2.54 $ 1.78 $ 1.53
============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
SABRE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 331,907 $ 231,941 $ 199,853
Adjustments to reconcile net earnings to cash
provided by operating activities
Depreciation and amortization 258,246 247,734 185,175
Deferred income taxes (8,088) (1,021) (2,945)
Gain on sale of investments (137,657) -- --
Other 1,544 1,940 6,378
Changes in operating assets and liabilities
Accounts receivable 48,827 (103,237) (42,611)
Prepaid expenses (9,810) (9,744) (6,781)
Other assets 3,586 (437) (514)
Accrued compensation and related
benefits (4,284) 24,014 14,147
Accounts payable and other accrued
liabilities (3,308) 53,288 40,259
Receivable from and payable to affiliates (7,491) (10,780) (38,096)
Pensions and other postretirement benefits 15,113 15,001 19,183
Other liabilities 6,797 2,104 (1,245)
----------------- ----------------- -----------------
Cash provided by operating activities 495,382 450,803 372,803
INVESTING ACTIVITIES
Additions to property and equipment (167,963) (320,031) (218,124)
Net decrease (increase) in short-term investments (75,129) 43,373 (144,716)
Loan to affiliates (300,000) -- --
Proceeds from sale of investments 137,657 -- --
Net investment in joint ventures 5,965 (134,759) (203)
Other investing activities, net (40,044) (41,691) (18,485)
Proceeds from sale of equipment 2,002 30,276 4,551
----------------- ----------------- -----------------
Cash used for investing activities (437,512) (422,832) (376,977)
FINANCING ACTIVITIES
Proceeds from issuance of common stock
pursuant to employee stock plans 20,645 10,997 1,432
Acquisition of treasury stock (60,454) (49,321) (1,964)
Other financing activities, net (1,568) 7,075 --
Payments on debenture payable to AMR (17,873) -- --
----------------- ----------------- -----------------
Cash used for financing activities (59,250) (31,249) (532)
----------------- ----------------- -----------------
Decrease in cash (1,380) (3,278) (4,706)
Cash at beginning of the period 8,008 11,286 15,992
----------------- ----------------- -----------------
CASH AT END OF THE PERIOD $ 6,628 $ 8,008 $ 11,286
================= ================= =================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments to affiliates for income taxes $ 173,907 $ 141,784 $ 121,456
================= ================= =================
Cash payments to affiliates for interest $ 14,699 $ 19,818 $ 24,628
================= ================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
SABRE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Class A Class B Additional Retained
Common Common Paid-in Earnings Treasury
Stock Stock Capital (Deficit) Stock Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 234 $ 1,074 $ 591,885 $ (23,552) $ -- $ 569,641
Net earnings -- -- -- 199,853 -- 199,853
Assumption of net pension
liability from AMR -- -- -- (12,395) -- (12,395)
Issuance of 83 shares of Class A
Common Stock pursuant to stock
option, stock purchase and
restricted stock incentive plans 1 -- 2,054 -- -- 2,055
Repurchase of Company stock -- -- -- -- (1,964) (1,964)
Unrealized gain on investments -- -- -- 98 -- 98
---------------------------------------------------------------------------------
Balance at December 31, 1997 235 1,074 593,939 164,004 (1,964) 757,288
Net earnings -- -- -- 231,941 -- 231,941
Repurchase of Company stock -- -- -- -- (49,321) (49,321)
Issuance of 486 shares of Class A
Common Stock pursuant to stock
option, restricted stock
incentive and stock purchase
plans 2 -- 2,278 -- 8,830 11,110
Tax benefit from exercise of
employee stock options -- -- 2,870 -- -- 2,870
Unrealized loss on investments -- -- -- (145) -- (145)
---------------------------------------------------------------------------------
Balance at December 31, 1998 237 1,074 599,087 395,800 (42,455) 953,743
Net earnings -- -- -- 331,907 -- 331,907
Repurchase of Company stock -- -- -- -- (60,454) (60,454)
Issuance of 289 shares of Class A
Common Stock pursuant to stock
option, restricted stock
incentive and stock purchase
plans 3 -- 1,276 -- 29,305 30,584
Tax benefit from exercise of
employee stock options -- -- 6,922 -- -- 6,922
Unrealized loss on investments -- -- -- (657) -- (657)
---------------------------------------------------------------------------------
Balance at December 31, 1999 $ 240 $ 1,074 $ 607,285 $ 727,050 $ (73,604) $ 1,262,045
=================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. GENERAL INFORMATION
Sabre Holdings Corporation is a holding company. Its sole direct
subsidiary is Sabre Inc., which, pursuant to the Reorganization (as
defined below), is the successor to the businesses of The Sabre Group
which were previously operated as subsidiaries or divisions of American
Airlines, Inc. ("American") or AMR Corporation ("AMR"). The Sabre Group
was formed by AMR to capitalize on synergies of combining AMR's
information technology businesses under common management. Unless
otherwise indicated, references herein to the "Company" include Sabre
Holdings Corporation and its consolidated subsidiaries and, for the
period prior to the Reorganization, the businesses of American and AMR
constituting The Sabre Group.
On July 2, 1996, AMR reorganized the businesses of The Sabre Group (the
"Reorganization"). As part of the Reorganization, the Company was
incorporated as a Delaware Corporation and a direct wholly-owned
subsidiary of 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.
In connection with the Reorganization on July 2, 1996, the Company issued
1,000 shares of common stock, par value $.01 per share, to American. These
shares were subsequently dividended to AMR. The Company completed its
initial public offering (the "Offering") of 23,230,000 shares of Class A
Common Stock, par value $.01 per share, on October 17, 1996, resulting in
net proceeds to the Company of approximately $589 million. The Company
used approximately $532 million of the net proceeds to repay a portion of
a debenture payable to AMR. See Note 5. Concurrently with the Offering,
the 1,000 shares of common stock held by AMR were reclassified into
107,374,000 shares of Class B Common Stock of the Company. See Note 9.
As of December 31, 1999, AMR owned all 107,374,000 shares of the Company's
Class B Common Stock, representing approximately 82.7% of the economic
interest and 98.0% of the combined voting power of all classes of voting
stock of the Company. On March 15, 2000, AMR exchanged all of its
107,374,000 shares of the Company's Class B Common Stock for an equal
number of shares of the Company's Class A Common Stock and distributed
such shares to AMR shareholders as a stock dividend. The distribution
consisted of AMR's entire ownership interest in the Company.
The Company is the world leader in the electronic distribution of travel
through its SABRE-Registered Trademark- computer reservations system ("the
SABRE system"). In addition, the Company is a leading provider of
information technology solutions to the travel and transportation
industries and fulfills substantially all of the data processing, network
and distributed systems needs of American and AMR's other subsidiaries,
Canadian Airlines International, Ltd., US Airways, Inc. ("US Airways")
and other customers. The Company also engages in consumer direct Internet
travel distribution through the Travelocity.com Web site.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of the Company after elimination of all significant intercompany
balances and transactions. The consolidated financial statements reflect
the results of operations, financial condition and cash flows of the
Company as a majority-owned subsidiary 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 5, incurred by AMR on behalf of the Company. Certain
reclassifications have been made to the 1998 and 1997 financial statements
to conform to the 1999 presentation.
33
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS - Short-term investments, without regard to
remaining maturity at acquisition, are not considered cash equivalents for
purposes of the statement of cash flows.
DEPRECIATION AND AMORTIZATION - The Company's depreciation and
amortization policies are as follows:
<TABLE>
Property and Equipment:
<S> <C>
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
Capitalized software 3 to 7 years
Other Assets:
Internally developed software 3 to 7 years
Intangible assets 3 to 20 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 the SABRE system. Depreciation of property and equipment totaled
approximately $226 million, $224 million and $178 million in 1999, 1998
and 1997, respectively. Amortization of other assets approximated $32
million in 1999, $24 million in 1998 and $8 million in 1997. Other assets
are amortized on the straight-line basis over the periods indicated.
Accumulated amortization of other assets approximated $80 million and $43
million at December 31, 1999 and 1998, respectively.
REVENUE RECOGNITION - The Company provides various electronic travel
distribution services using the SABRE system. As compensation for
electronic travel distribution services provided, fees are collected from
airline, car rental and hotel vendors and other providers of
travel-related products and services ("associates") for reservations
booked through the SABRE system. The fee per booking charged to
associates is dependent upon the level of functionality within the SABRE
system at which the associate participates. Revenue for airline travel
reservations is recognized at the time of the booking of the reservation,
net of estimated future cancellations. At December 31, 1999 and 1998, the
Company had recorded booking fee cancellation reserves of approximately
$20 million and $18 million, respectively. Revenue for car rental, hotel
bookings and other travel providers 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 the SABRE system, hardware, software, hardware maintenance and other
support services. Fees billed on service contracts are recognized as
revenue in the month earned.
The Company also receives commissions from travel suppliers for air
travel, hotel rooms, car rentals, vacation packages and cruises booked
through the Travelocity.com Web site and advertising revenues from the
delivery of advertising impressions on the Travelocity.com Web site.
Commissions from air travel providers are recognized upon confirmation of
pending payment of the commission. Commissions from other travel
providers are recognized upon receipt. Advertising revenues are
recognized in the period that advertising impressions are delivered.
Additionally, the Company provides information technology solutions to
companies in the travel industry and other industries worldwide. Revenue
from data processing services is recognized in the period earned. Revenue
from software license fees for standard software products is recognized
when the software is delivered, fees are fixed and determinable, no
undelivered elements are essential to the functionality of delivered
software and collection is probable. The Company recognizes revenue on
long-term software development and consulting contracts under the
percentage of completion method of accounting, based on hours completed in
comparison to total hours projected at completion. Losses, if any, on
long-term contracts are recognized when the current estimate of total
contract costs indicates a loss on a contract is probable. Fixed fees for
software maintenance are recognized ratably over the life of the contract.
As a result of contractual billing terms, at December 31, 1999 and 1998
the Company had recorded accounts receivable of approximately $10 million
and $74 million, respectively, that had not been billed to customers. In
addition, the Company had
34
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
deferred revenues of approximately $19 million at December 31, 1999,
including approximately $9 million of non-current deferred revenues, and
$26 million at December 31, 1998, related to advance payments from
customers.
ADVERTISING COSTS - The Company recognizes advertising costs in accordance
with Statement of Position 93-7, REPORTING ON ADVERTISING COSTS, generally
expensing such costs as incurred. Internet advertising expenses are
recognized based on the terms of individual agreements, but generally over
the greater of the ratio of the number of impressions delivered over the
total number of contracted impressions, or on a straight-line basis over
the term of the contract. Advertising costs expensed in 1999, 1998 and
1997, including amounts paid to American under the terms of the Marketing
Cooperation Agreement (see Note 5), totaled approximately $49 million, $37
million and $44 million, respectively.
INCOME TAXES - The entities comprising the Company are included in the
consolidated federal income tax return of AMR.
The Company and AMR entered into a tax sharing agreement effective July 1,
1996 (the "Tax Sharing Agreement"), which provides for the allocation of
tax liabilities during the tax periods the Company is included in the
consolidated federal, state and local income tax returns filed by AMR. 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.
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
arising from operations of subsidiaries of AMR other than the Company.
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 July 2, 1996.
The Tax Sharing Agreement also grants the Company certain limited
participation rights in any disputes with tax authorities.
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 extent to which, based on available
evidence, the future tax benefits more likely than not will be realized.
At December 31, 1999 and 1998, no valuation allowance was necessary.
SOFTWARE DEVELOPMENT COSTS - All costs in the software development process
which are classified as research and development costs 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. The Company defines technological
feasibility in accordance with Statement of Financial Accounting Standards
No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED,
OR OTHERWISE MARKETED. Technological feasibility is achieved upon
completion of all planning, designing, coding and testing activities that
are necessary to establish that a product can be produced according to its
design specifications. The Company amortizes capitalized development costs
using the straight-line method over the estimated economic life of the
software.
Effective January 1, 1999, the Company adopted the provisions of Statement
of Position 98-1, ACCOUNTING FOR COMPUTER SOFTWARE DEVELOPED OR OBTAINED
FOR INTERNAL USE. SOP 98-1 requires the capitalization of certain costs
incurred during an internal-use software development project, including
costs related to upgrades and enhancements to the Travelocity.com Web site
and other Company Web sites. Capitalizable costs consist of (a) certain
external direct costs of materials and services incurred in developing or
obtaining internal-use computer software, (b) payroll and payroll-related
costs for employees who are directly associated with and who devote time
to the project and (c) interest costs incurred. Costs that are considered
to be related to research and development activities, data conversion
activities, and training, maintenance and general and administrative or
35
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
overhead costs will continue to be expensed as incurred. Costs that cannot
be separated between maintenance of, and relatively minor upgrades and
enhancements to, the Travelocity.com Web site and other Company Web sites
are also expensed as incurred. The effect of the adoption of SOP 98-1 was
not significant.
Research and development costs incurred prior to establishment of
technological feasibility approximated $48 million for 1999, $39 million
for 1998 and $24 million for 1997. At December 31, 1999 and 1998,
unamortized computer software costs were approximately $24 million and $16
million, respectively.
CONCENTRATION OF CREDIT RISK - The Company's customers are primarily
located in the United States, Europe, Canada and Latin America, and are
concentrated in the travel industry. Approximately 24%, 25% and 29% of
revenues in 1999, 1998 and 1997, respectively, were related to American
and other subsidiaries of AMR. Approximately 13% and 16% of revenues in
1999 and 1998, respectively, were related to US Airways. The Company
generally does not require security or collateral from its customers as a
condition of sale. The Company maintained an allowance for losses of
approximately $12 million at December 31, 1999 and 1998, based upon the
amount of accounts receivable expected to prove uncollectible.
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.
SUBSCRIBER INCENTIVES - Certain service contracts with significant
subscribers contain booking fee productivity clauses and other provisions
which allow subscribers to receive cash payments, and/or various amounts
of additional equipment and other services from the Company at no cost.
The Company establishes liabilities for these commitments and recognizes
the related expense as the subscribers earn incentives based on 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 incentives provided. Accrued
subscriber incentives at December 31, 1999 and 1998 were approximately
$70 million and $38 million, respectively.
STOCK AWARDS AND OPTIONS - The Company accounts for stock awards and
options (including awards of AMR stock and stock options granted to
employees prior to July 2, 1996) 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 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.
COMPREHENSIVE INCOME - Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions and
other events and circumstances from non-owner sources. For the years ended
December 31, 1999, 1998 and 1997, the differences between net earnings and
total comprehensive income were not significant.
FINANCIAL INSTRUMENTS - The carrying value of the Company's financial
instruments (excluding the Equant depository certificates discussed
below), including cash, short-term investments, accounts receivable, and
the debenture payable to AMR approximate their respective fair values at
December 31, 1999 and 1998.
At December 31, 1999 and 1998, American owned depository certificates
representing beneficial ownership of common stock of Equant N.V.
("Equant"), a telecommunications company related to Societe Internationale
de Telecommunications Aeronautiques ("SITA"). Approximately 2.3 million
and 1.7 million of these depository certificates were held by American
for the economic benefit of the Company at December 31, 1999 and 1998,
respectively. Based upon the market value of Equant's publicly-traded
common stock, the estimated value of the depository certificates held on
behalf of the Company by American was approximately $258 million and $113
million at December 31, 1999 and 1998, respectively. The Company's
carrying value of these depository certificates was nominal at December
31, 1999 and 1998; certain restrictions limit the Company's ability to
freely dispose of the certificates.
36
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
RISK MANAGEMENT - To reduce its exposure to future foreign currency
exchange and interest rate fluctuations, the Company may enter into
certain derivative agreements from time to time. At December 31, 1999 and
1998 no such agreements were outstanding.
TREASURY STOCK - The Company accounts for the purchase of treasury stock
at cost. Upon reissuance of shares of treasury stock, the Company records
any difference between the weighted-average cost of such shares and any
proceeds received as an adjustment to additional paid-in capital.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1999, the Financial Accounting
Standards Board issued Statement No. 137, DEFERRAL OF EFFECTIVE DATE OF
FASB STATEMENT NO. 133. Statement No. 137 deferred the implementation date
of Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES, which is now required to be adopted in years beginning after
June 15, 2000. Statement No. 133 requires the recognition of all
derivatives on the balance sheet at fair value. Derivatives that are not
hedges must be adjusted to fair value through income. If the derivative is
a hedge, depending on the nature of the hedge, changes in fair value will
either be recognized in income, or in comprehensive income, until the
hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in
earnings. The Company does not currently use derivatives to a significant
extent; however, as such instruments may be used in the future, it is
uncertain what, if any, impact the adoption of Statement No. 133 will have
on the earnings or the financial position of the Company. The Company
anticipates that it will adopt the statement effective January 1, 2001.
3. SHORT-TERM INVESTMENTS
Short-term investments consist of (in thousands):
<TABLE>
December 31,
--------------------------------
<S> <C> <C>
1999 1998
-------------- --------------
Corporate notes $ 380,857 $ 265,230
Overnight investment and time deposits 149,072 53,541
Mortgages 23,081 66,094
Asset-backed securities 26,556 144,870
U.S. Government treasuries 24,932 --
-------------- --------------
Total $ 604,498 $ 529,735
============== ==============
The following table summarizes short-term investments by contractual maturity (in thousands):
December 31,
------------------------------
1999 1998
-------------- --------------
Due in one year or less $ 268,873 $ 146,205
Due after one year through three years 297,472 383,530
Due after three years 38,153 --
-------------- --------------
Total $ 604,498 $ 529,735
============== ==============
</TABLE>
Short-term investments, all of which are classified as available-for-sale
in accordance with Statement of Financial Accounting Standards No. 115,
ACCOUNTING FOR CERTAIN DEBT AND EQUITY SECURITIES, are stated at fair
value based on market quotes. Net unrealized gains and losses, net of
deferred taxes, have not been significant and are reflected as an
adjustment to stockholders' equity.
37
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
4. SIGNIFICANT TRANSACTIONS
US AIRWAYS AGREEMENT - In January 1998, the Company completed the
execution of a 25-year information technology services agreement with US
Airways. Under the terms of the agreement, the Company will provide
substantially all of US Airways' information technology services. In
connection with the agreement, the Company purchased substantially all of
US Airways' information technology assets for approximately $47 million,
hired more than 600 former employees of US Airways, and granted to US
Airways two tranches of stock options, each to acquire 3 million shares
of the Company's Class A Common Stock. The first tranche of options was
exercisable during the six-month period ending December 31, 1999, with an
exercise price of $27 per share. On December 14, 1999, US Airways
exercised the first tranche of stock options. Pursuant to the terms of
the exercised options, the Company settled the options in cash in lieu of
issuing stock and paid approximately $81 million to US Airways on January
5, 2000.
The second tranche of options is exercisable during the ten-year period
beginning on the fifth anniversary of the asset transfer date, has an
exercise price of $27 per share, and is subject to a cap on share price of
$127. During the six-month period ending December 31, 2000, US Airways may
select an alternative vehicle of substantially equivalent value in place
of receiving stock. The selection of an alternative vehicle, which must be
agreeable to the Company, may result in the payment of cash by the Company
to US Airways equal to the excess of the Company's stock price over the
option exercise price, multiplied by the 3 million options. If US Airways
makes this election, the second tranche of options will be terminated.
The Company has recorded a liability and related deferred costs equal to
the number of options outstanding, multiplied by the difference between
the exercise price of the options and the market price of the Company's
Class A Common Stock. The deferred costs and liability are adjusted for
changes in the market price of the Company's stock at each month-end
until such time as the options are settled or US Airways' ability to
select an alternative vehicle in place of receiving stock expires. At
December 31, 1999 and 1998, the Company had a liability relating to these
options of $154 and $105 million, respectively, and net deferred costs of
approximately $126 million and $95 million, respectively. During 1999 and
1998, the Company recorded amortization expense of approximately $18
million and $10 million, respectively, related to the options. The
deferred costs are being amortized over the eleven-year non-cancelable
portion of the agreement.
ABACUS JOINT VENTURE - In February 1998, the Company signed long-term
agreements with ABACUS International Holdings Ltd., which created a
Singapore-based joint venture company called ABACUS International Ltd.
("ABACUS") to manage travel distribution in the Asia/Pacific region. The
Company paid $139 million in cash and contributed its assets related to
the Company's ongoing travel distribution activities in Asia/Pacific and
other consideration. In exchange, the Company received 35 percent of the
shares of the joint venture company. The Company accounts for its
investment in the joint venture using the equity method of accounting.
The Company provides ABACUS with transaction processing on the SABRE
system. At December 31, 1999 and 1998, the Company's net investment in
ABACUS totaled approximately $144 million and $138 million, respectively.
The Company's initial investment in ABACUS differed from its proportional
share of the net equity in the underlying assets of ABACUS by
approximately $116 million. This amount is being amortized over 20 years.
TICKETNET JUDGMENT - In August 1998, the Company received a favorable
court judgment related to Ticketnet Corporation, an inactive subsidiary
of the Company. As a result, the Company recognized approximately $14
million of other income related to the judgment in 1998.
EQUANT DEPOSITORY CERTIFICATES - At December 31, 1998, American owned
approximately 3.1 million depository certificates representing beneficial
ownership of common stock of Equant, a telecommunications company
affiliated with SITA. Approximately 1.7 million of these depository
certificates were held by American for the economic benefit of the
Company. In connection with a secondary offering of Equant common stock,
in February 1999, American liquidated approximately 923,000 depository
certificates. Approximately 490,000 of these certificates were liquidated
for the Company's benefit. The Company received proceeds of approximately
$35 million from the transaction, resulting in a gain of approximately
$35 million.
38
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
In July 1999, Equant officially notified the Company and American of a
reallocation, which had been previously anticipated, of depository
certificates among SITA members. Due to the Company's significantly higher
usage of the SITA network over the last four years, the Company's
interests in Equant increased substantially. The reallocation was
effective as of June 30, 1999. Accordingly, as of that date, the number
of depository certificates held by American for the economic benefit of
the Company increased to approximately 3.5 million.
In December 1999, in connection with an additional secondary offering of
Equant common stock, approximately 1.2 million certificates were
liquidated for the Company's benefit. The Company received proceeds of
approximately $103 million from the transaction, resulting in an
additional gain of approximately $103 million. At December 31, 1999, the
number of depository certificates held by American for the economic
benefit of the Company was approximately 2.3 million, and the estimated
value of these certificates was approximately $258 million, based upon
the market value of Equant's publicly-traded common stock.
The Company's carrying value of these depository certificates was nominal
at December 31, 1999 and December 31, 1998. Any future disposal of such
depository certificates may result in additional gains to the Company.
5. CERTAIN RELATED PARTY TRANSACTIONS
AFFILIATE AGREEMENTS - The Company has certain agreements with AMR and its
affiliates (the "Affiliate Agreements"), which are discussed below.
INFORMATION TECHNOLOGY SERVICES AGREEMENT - The Company is party to the
Information Technology Services Agreement with American dated July 1, 1996
(the "Technology Services Agreement"), 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. For example, the Company will
provide: (i) Data Center services, application development and existing
application maintenance enhancement services until June 30, 2006; (ii)
services relating to existing client server operations until June 30,
2001; (iii) distributed systems services until June 30, 2002; and (iv)
data and voice network services until June 30, 2001.
The Technology Services Agreement provides for annual price adjustments.
For certain prices, adjustments are made according to formulas, which 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 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, net 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 another 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
39
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
termination fee. If American (i) is acquired by an unaffiliated third
party, (ii) merges with an unaffiliated third party and the persons who
were shareholders of American immediately prior to the merger own less
than 50% of the outstanding stock of American immediately after the
merger, or (iii) acquires another air carrier with more than $1 billion
in annual revenues, then American may terminate the Technology Services
Agreement without paying any termination fee; except that if American
terminates the agreement for convenience during the first four years of
the term of the Technology Services Agreement in accordance with clause
(iii) above, American would be required to pay the Company a termination
fee of $25 million plus wind-down costs. Additionally, if American were
to dispose of any portion of its businesses 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.
In connection with the spin-off of the Company from AMR, the Company and
American agreed to certain amendments to the Technology Services
Agreement. These amendments include the following: (i) the Company will
provide services relating to AMR's real time environment until June 30,
2008, (ii) the Company will provide services relating to AMR's client
server operations until June 30, 2002, (iii) American will have the right
to hire up to 25 of the Company's Operations Research personnel, (iv) the
Company's obligations to pay certain ongoing royalty payments to American
are terminated in exchange for a one time payment of $10 million, (v) the
intellectual property rights of the Company and American are modified to
provide American additional rights in certain software applications, and
(vi) American is granted access to the Company's commercial portfolio of
software on a license fee free basis. The Company and American have also
agreed to negotiate market-based pricing and market-based terms and
conditions during calendar year 2000.
In addition, Airline Management Services, Incorporated (AMS), a subsidiary
of AMR, and Canadian Airlines International, Ltd. ("Canadian") have
entered into an agreement pursuant to which AMR and American supply to
Canadian various services, including technology services. The Company is
a principal provider of data processing and network distributed systems
services to Canadian under the terms of the Canadian Technical Services
Subcontract with American which expires in 2006. The services contract
was signed in conjunction with AMR acquiring a significant ownership
stake in Canadian. On January 5, 2000, Canadian was acquired by Air
Canada, and AMR no longer owns an interest in the airline. It is
uncertain what impact this change in ownership may have on the services
provided to Canadian by the Company.
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 that American has historically provided to the
Company. American also manages the Company's cash balances under the terms
of the Management Services Agreement. Transactions with American are
settled through monthly billings, with payment due in 30 days. The
Management Services Agreement will expire on June 30, 2000, unless
terminated earlier if American and the Company are no longer under common
control or if the Technology Services Agreement is terminated early.
Amounts charged to the Company under this agreement approximate American's
cost of providing the services plus a margin.
In connection with the spin-off of the Company from AMR, the Company and
American agreed to the early termination of certain services, effective
March 2000, and the continuation of certain services with termination
dates through June 30, 2001. The Company and American also negotiated
certain new separate agreements for payroll-related services and workers'
compensation administration.
MARKETING COOPERATION AGREEMENT - The Company and American are parties to
the Marketing Cooperation Agreement dated July 1, 1996 (the "Marketing
Cooperation Agreement"), 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 the SABRE BUSINESS
TRAVEL SOLUTIONS-Registered Trademark- system ("SABRE BTS") and the
Travelocity.com Web site. 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.
40
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- -------------------------------------------------------------------------------
Under the Marketing Cooperation Agreement, American's marketing efforts
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. Under
the terms of the Marketing Cooperation Agreement, the Company pays American
a fee for its marketing support for professional Sabre products, the amount
of which may increase or decrease, depending on total SABRE system booking
volumes generated by certain subscribers in the U.S., the Caribbean and
elsewhere and on the Company's market share of travel agency bookings in
those areas. As payment for American's support of the Company's promotion
of SABRE BTS and the Travelocity.com Web site, the Company pays American a
marketing fee based upon booking volume. The total fee was approximately
$18 million, $17 million and $22 million in 1999, 1998 and 1997,
respectively. 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. As of December 31, 1998, the
Company had recorded a liability of approximately $7 million for this
guarantee. This liability was reversed during the fourth quarter of 1999
based on projections of cost savings in the fifth year of the Marketing
Cooperation Agreement. In connection with the spin-off of the Company from
AMR, the Company and American agreed to terminate the Company's obligation
to guarantee those cost savings.
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. 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 as a
result of an egregious breach thereof by the Company.
TRAVEL AGREEMENTS - The Company and American are parties to a Travel
Privileges Agreement dated July 1, 1996 (the "Travel Privileges
Agreement"), pursuant to which the Company is entitled to purchase personal
travel for its employees and retirees at reduced fares. The Travel
Privileges Agreement will expire on June 30, 2008. To pay for the provision
of flight privileges to certain of its future retired employees, the
Company makes a lump sum payment to American each year, beginning in 1997,
for each employee retiring in that year. The payment per retiree is based
on the number of years of service with the Company and AMR over the prior
ten years of service. Service years accrue for the Company beginning on
January 1, 1993. AMR will retain the obligation for the portion of benefits
attributable to service years prior to January 1, 1993. The cost of
providing this privilege is accrued over the estimated service lives of the
employees eligible for the privilege. See Note 6.
The Company and American were also parties to a Corporate Travel Agreement
dated July 1, 1996 and ending June 30, 1998 (the "Corporate Travel
Agreement"), pursuant to which the Company received discounts for certain
flights purchased on American. In exchange, the Company agreed to fly a
certain percentage of its travel on American as compared to all other air
carriers combined. If the Company failed to meet the applicable percentage
on an average basis over any calendar quarter, American had the right to
terminate the agreement upon 60 days' notice. In 1998, the Company and
American entered into a new corporate travel agreement (the "Revised
Corporate Travel Agreement"), commencing July 1, 1998 and ending June 30,
2001. The terms and conditions of the Revised Corporate Travel Agreement
are substantially the same as the Corporate Travel Agreement.
The Company and American agreed to certain amendments to the Travel
Privileges Agreement in connection with the spin-off of the Company from
AMR. These amendments allow American to provide certain employees with
additional limited travel privileges and require the Company to indemnify
American for costs related to the Company's continued use of the Travel
Privileges.
41
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- -------------------------------------------------------------------------------
CREDIT AGREEMENT - On July 1, 1996, the Company and American entered into a
Credit Agreement pursuant to which the Company is required to borrow from
American, and American is required to lend to the Company, 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. The maximum amount 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. Loans under the Credit Agreement are not
intended as long-term financing. If the Company's credit rating is better
than "B" on the Standard & Poor's Rating Service Scale (or an equivalent
thereof), or American has excess cash, as defined, to lend the Company, the
interest rate to be charged to the Company is the sum of (a) the higher of
(i) American's average rate of return on short-term investments for the
month in which the borrowing 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 Rating 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 is 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
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 line of credit will be required to be paid
by either party. The interest rate to be charged to American is the
Company's average portfolio rate for the months in which borrowing
occurred, plus an additional spread based upon American's credit risk. At
the end of each quarter, American must pay all amounts owing under the
Credit Agreement to the Company. No borrowings have occurred by either the
Company or American under this agreement. In connection with the spin-off
of the Company from AMR, American notified the Company that the Credit
Agreement would be terminated on April 14, 2000.
DEBENTURE PAYABLE TO AMR - On July 2, 1996, in connection with the
Reorganization, the Company issued to AMR a floating rate, subordinated
debenture due September 30, 2004 with a principal amount of $850 million
(the "Debenture"). In 1996, the Company used approximately $532 million of
the net proceeds from the Offering to repay a portion of the Debenture. The
principal balance was approximately $318 million at December 31, 1998.
During 1999, in connection with the Omnibus Financing Agreement discussed
below, the Company prepaid the remaining principal balance and all
outstanding accrued interest under the Debenture. The average interest rate
on the Debenture was 5.6%, 6.1% and 6.2% for 1999, 1998 and 1997,
respectively.
OMNIBUS FINANCING AGREEMENT - On March 17, 1999, the Company and American
entered into a short-term credit agreement pursuant to which American could
borrow from the Company up to a maximum of $300 million. During the first
half of 1999, American borrowed $300 million under the short-term credit
agreement. As part of this agreement, the original Credit Agreement between
the Company and American entered into on July 1, 1996 was modified to
terminate American's ability to borrow additional funds under that
agreement. Subsequently, in June 1999, the Company, AMR and American
entered into an Omnibus Financing Agreement pursuant to which (a) the $300
million outstanding from American under the short-term credit agreement was
applied against the $318 million remaining under the Debenture payable from
the Company to AMR; (b) the Company paid the remaining principal balance of
approximately $18 million and all outstanding accrued interest under the
Debenture; and (c) the Company and American renewed, extended and
reinstated American's ability to borrow funds under the original Credit
Agreement for an additional year to June 30, 2000. The Credit Agreement
allows the Company to borrow up to $300 million from American and American
to borrow up to $100 million from the Company to meet short-term working
capital requirements. In connection with the spin-off of the Company from
AMR, American notified the Company that the original Credit Agreement would
be terminated on April 14, 2000.
INDEMNIFICATION AGREEMENT - In July 1996, 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 against third party
claims asserted against American as a result of
42
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- -------------------------------------------------------------------------------
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 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 July 2, 1996 of any asset contributed
to the Company in July 1996 and for losses arising from or in connection
with American's lease of property from the Company.
In connection with the spin-off of the Company from AMR, the Company and
American agreed to terminate the Indemnification Agreement as of July 1,
2003.
AGREEMENT ON SPIN-OFF TAXES - Effective on March 15, 2000, the Company and
AMR entered into an indemnity agreement (the "Agreement on Spin-off Taxes")
pursuant to which the Company will be responsible for spin-off related
taxes, in certain circumstances, if the spin-off of the Company from AMR
(the "spin-off") is deemed to be taxable as a result of certain factual
representations and assumptions relating to the Company being inaccurate or
as a result of the Company's subsequent actions. The Internal Revenue
Service ("IRS") has issued a Tax Ruling to the effect that the spin-off
will be tax-free to the Company, AMR and AMR shareholders under Section 355
of the Internal Revenue Code of 1986, as amended (the "Code") (except to
the extent that cash is received in lieu of fractional shares). The Tax
Ruling is based upon factual representations and assumptions and upon
commitments on behalf of AMR and the Company with respect to future
operations made in the request for the Tax Ruling. If (i) the factual
representations and assumptions were materially incomplete or untrue, (ii)
the facts upon which the Tax Ruling is based are materially different from
the facts at the time of the spin-off, or (iii) AMR and the Company do not
meet certain commitments made, the IRS could modify or revoke the Tax
Ruling retroactively. If the spin-off failed to qualify under Section 355
of the Code, corporate tax would be payable by the consolidated group of
which AMR is the common parent based upon the difference between AMR's
proportional share (approximately 82%) of the aggregate fair market value
of the Company at the time of the spin-off and AMR's adjusted tax basis in
the shares of the stock of the Company it owned prior to the spin-off.
Under the terms of the Agreement on Spin-off Taxes, the Company has agreed
to indemnify AMR for the corporate level tax and other tax liabilities if
they result from certain actions taken by the Company, including (i) the
incompleteness or inaccuracy of factual representations made in the request
for the Tax Ruling or in the Agreement of Spin-off Taxes, (ii) issuance of
options (other than compensatory options), (iii) sale of all or
substantially all of the assets of the Company, (iv) merger of the Company
or Sabre Inc., (v) issuance of stock of the Company, and (vi)
discontinuance of the active business of the Company or Sabre Inc. Under
the terms of the Agreement on Spin-off Taxes, the Company has also agreed
to comply with certain restrictions on its future operations to assure that
the spin-off will be tax free, including restrictions with respect to a
third party's acquisition of shares of the Company's stock and the
Company's issuance of stock. If the Company fails to comply with these
restrictions and, as a result, the spin-off fails to qualify under Section
355 of the Code as a tax-free spin-off, the Company will be obligated to
indemnify AMR for any resulting tax liability.
REVENUES FROM AFFILIATES - Revenues from American and other subsidiaries of
AMR were $590 million, $574 million and $526 million in 1999, 1998 and
1997, respectively.
OPERATING EXPENSES - 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. The Company believes 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. If the Company were not affiliated with
American, the personal travel flight privilege would most likely not be
available to employees. The rates negotiated with American for 1999, 1998
and 1997 under the Corporate Travel Agreement approximate corporate travel
rates offered by American to similar companies. Expenses charged to the
Company by affiliates are as follows (in thousands):
43
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1999 1998 1997
------------ ------------ -------------
<S> <C> <C> <C>
Employee benefits $ 45,471 $ 41,348 $ 55,872
Facilities rental 2,814 2,706 3,526
Marketing cooperation 10,793 24,044 21,779
Management services 5,719 10,069 11,276
Other administrative costs 2,816 12,732 6,799
Travel services 45,190 45,433 47,638
------------ ------------ -------------
Total expenses $112,803 $136,332 $146,890
============ ============ =============
</TABLE>
6. EMPLOYEE BENEFIT PLANS
Effective January 1, 1997, the Company established The Sabre Group
Retirement Plan (the "SGRP"), a defined contribution plan qualified under
Section 401(k) of the Internal Revenue Code of 1986. The Company recorded
expenses related to the SGRP of approximately $20 million, $16 million and
$11 million in 1999, 1998 and 1997, respectively.
Additionally, effective January 1, 1997, the Company established The Sabre
Group Legacy Pension Plan (the "LPP"), a tax-qualified defined benefit plan
for employees meeting certain eligibility requirements. Prior to 1997,
substantially all employees of the Company were eligible to participate in
American's tax-qualified defined benefit pension plan (the "American
Plan"). Costs associated with employee participation in this plan were
determined based upon employee headcount and were allocated to the Company
by American.
In October 1997, the portion of the American Plan applicable to employees
of the Company was spun-off to the LPP. At the date of spin-off, the net
obligation attributable to the Company's employees participating in the
American Plan, a liability of approximately $20 million, was charged to
stockholders' equity, net of deferred taxes of approximately $8 million.
Substantially all employees of the Company may become eligible for certain
health care and life insurance benefits provided by American to retired
employees of the Company. The amount of health care benefits is limited to
lifetime maximums as outlined in the plan. Certain employee groups make
contributions towards funding a portion of their retiree health care
benefits during their working lives. The Company funds benefits as incurred
and also matches employee prefunding.
Officers and certain employees of the Company are eligible for additional
retirement benefits, to be paid by the Company, under the Supplemental
Executive Retirement Plan (the "SERP") as an operating expense. The SERP
provides pension benefits (calculated upon the basis of final average base
salary, incentive compensation payments and performance returns) to which
officers and certain employees of the Company would be entitled, but for
the limit of $130,000 on the maximum annual benefit payable under the
Employee Retirement Income Security Act of 1974 ("ERISA") and the Internal
Revenue Code of 1986, and the limit on the maximum amount of compensation
which may be taken into account under the Company's retirement program
($160,000 for 1999).
Pursuant to the Travel Privileges Agreement, the Company is entitled to
purchase personal travel for certain retirees. To pay for the provision of
flight privileges to certain of its future retired employees, the Company
makes a lump sum payment to American for each employee retiring in that
year. The payment per retiree is based on the number of years of service
with the Company and AMR over the prior ten years of service. Service years
accrue for the Company beginning on January 1, 1993. AMR retains the
obligation for the portion of benefits attributable to service years prior
to January 1, 1993. The cost of providing this privilege is accrued over
the estimated service lives of the employees eligible for the privilege.
The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets for the years ended December
31, 1999 and 1998, and a statement of funded status as of December 31, 1999
and 1998 (in thousands):
44
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------------------- -----------------------------
1999 1998 1999 1998
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at January 1 $ (211,445) $ (159,380) $ (57,333) $ (50,983)
Service cost (13,055) (11,257) (5,118) (5,261)
Interest cost (15,710) (12,370) (4,350) (4,065)
Actuarial gains (losses) 37,846 (28,496) 5,066 2,426
Plan amendments (557) --- --- ---
Benefits paid 971 58 400 550
-------------- -------------- ------------- -------------
Benefit obligation at December 31 $ (201,950) $ (211,445) $ (61,335) $ (57,333)
============== ============== ============= =============
Change in plan assets:
Fair value at January 1 $ 110,607 $ 92,318 $ 8,933 $ 6,637
Actual return on plan assets 2,025 7,637 (159) 742
Company contributions 11,903 7,915 2,226 2,104
Transfers from affiliates 2,735 2,795 --- ---
Benefits paid (971) (58) (400) (550)
-------------- -------------- ------------- -------------
Fair value at December 31 $ 126,299 $ 110,607 $ 10,600 $ 8,933
============== ============== ============== ==============
Funded status of the plan
(underfunded) $ (75,651) $ (100,838) $ (50,735) $ (48,400)
Unrecognized net loss (gain) 22,256 57,583 (15,044) (11,574)
Unrecognized prior service cost 751 220 (1,280) (1,430)
Unrecognized transition asset 16 (135) --- ---
-------------- -------------- ------------- -------------
Accrued benefit cost $ (52,628) $ (43,170) $ (67,059) $ (61,404)
============== ============== ============== =============
</TABLE>
The assumptions used in the measurement of the Company's benefit
obligations as of December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-------------------- --------------------
1999 1998 1999 1998
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Weighted-average assumptions:
Discount rate 8.00% 7.00% 8.00% 7.00%
Expected return on plan assets 9.50% 9.50% 9.50% 9.50%
Rate of compensation increase 5.25% 5.25% --- ---
</TABLE>
A 5% annual rate of increase in the per capita cost of covered health care
benefits was assumed for 2000, and the rate was assumed to remain at that
level thereafter.
The following table provides the components of net periodic benefit costs
for the three years ended December 31, 1999 (in thousands). Total costs for
other postretirement benefits are included in employee benefits in the
table in Note 5.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
----------------------------------- -----------------------------------
1999 1998 1997 1999 1998 1997
------------------------------------ ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 13,055 $ 11,257 $ 9,845 $ 5,118 $ 5,261 $ 3,891
Interest cost 15,710 12,370 10,056 4,350 4,065 3,592
Expected return on plan assets (10,294) (8,336) (7,337) (904) (684) (460)
Amortization of transition asset (151) (228) (228) --- --- ---
Amortization of prior service cost 22 22 22 (150) (150) (150)
Amortization of net loss (gain) 3,032 1,690 712 (533) (241) (313)
------------------------------------ ----------------------------------
Total net periodic benefit cost $ 21,374 $ 16,775 $ 13,070 $ 7,881 $ 8,251 $ 6,560
==================================== ==================================
</TABLE>
45
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
Assumed health care cost trend rates have a significant effect on the
amounts reported for the postretirement medical benefit plans. A one
percentage point decrease in the assumed health care cost trend rates would
decrease the total service and interest cost components of total net
periodic benefit cost for 1999 and the postretirement benefit obligations
at December 31, 1999 by approximately $1 million and $8 million,
respectively. A one percentage point increase in the assumed health care
cost trend rates would increase the total service and interest cost
components of total net periodic benefit cost for 1999 and the
postretirement benefit obligations at December 31, 1999 by approximately $1
million and $8 million, respectively.
Plan assets for the LPP and for the postretirement health care and life
insurance benefits consist primarily of mutual fund shares managed by a
subsidiary of AMR invested in debt and equity securities.
7. INCOME TAXES
The provision (benefit) for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Current portion:
Federal $ 185,409 $ 120,628 $ 126,805
State 11,788 7,976 3,661
Foreign 6,929 11,930 5,052
--------------- --------------- ---------------
Total current $ 204,126 $ 140,534 $ 135,518
Deferred portion:
Federal $ (18,280) $ (7,186) $ (23,141)
State 10,192 6,165 11,419
--------------- --------------- ---------------
Total deferred $ (8,088) $ (1,021) $ (11,722)
--------------- --------------- ---------------
Total provision for income taxes $ 196,038 $ 139,513 $ 123,796
=============== =============== ===============
</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,
--------------------------------------------------
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Statutory income tax provision $ 184,781 $ 130,009 $ 113,278
State income taxes, net of federal
benefit 14,287 9,192 9,802
Other, net (3,030) 312 716
--------------- --------------- ---------------
Total provision for income taxes $ 196,038 $ 139,513 $ 123,796
=============== =============== ===============
</TABLE>
46
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
The components of the Company's deferred tax assets and liabilities were as
follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Deferred tax assets:
Accrued expenses $ 35,248 $ 36,883
Employee benefits other than pensions 31,286 26,975
Deferred revenue 5,662 5,151
Pension obligations 18,395 14,956
State net operating loss carryforwards 416 564
Other --- 789
-------------- --------------
Total deferred tax assets $ 91,007 $ 85,318
Deferred tax liabilities:
Foreign operations $ (3,269) $ ---
Depreciation and amortization (44,310) (52,578)
Other (23,184) (20,018)
-------------- --------------
Total deferred tax liabilities $ (70,763) $ (72,596)
-------------- --------------
Net deferred tax asset $ 20,244 $ 12,722
============== ==============
Current deferred income tax asset $ 18,052 $ 25,790
Noncurrent deferred income tax asset (liability) 2,192 (13,068)
-------------- --------------
Net deferred tax asset $ 20,244 $ 12,722
============== ==============
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
On July 1, 1996, the Company entered into an operating lease agreement with
AMR for certain facilities and AMR assigned its rights and obligations
under certain leases to the Company. Also on July 1, 1996, the Company
entered into an operating lease agreement with a third party for the lease
of other facilities.
In 1999, the Company entered into a syndicated lease financing facility of
approximately $310 million for the use of land, an existing office building
and the construction of a new corporate headquarters facility in Southlake,
Texas, as well as the development of new data center facilities in Tulsa,
Oklahoma. The financing facility will be accounted for as an operating
lease. The initial term of the lease extends through September 2004, with
two optional one-year renewal periods thereafter. At the end of each
renewal period, the Company is required to either renew the lease, purchase
the property for its original cost, or arrange for the sale of the property
to a third party, with the Company guaranteeing to the lessor proceeds on
such sale of approximately 85% of the original fair value of the leased
facility, or approximately $264 million.
At December 31, 1999, the future minimum lease payments required under
these operating lease agreements, along with various other operating lease
agreements with terms in excess of one year for facilities, equipment and
software licenses were as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending December 31, Affiliates Third Parties
------------------------ ---------- -------------
<S> <C> <C>
2000 $ 720 $ 46,329
2001 113 34,674
2002 105 45,777
2003 15 44,102
2004 15 41,324
Thereafter 75 46,344
</TABLE>
47
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
Rental expense, excluding facilities rented from affiliates, was
approximately $56 million, $43 million and $36 million for the years ended
December 31, 1999, 1998 and 1997, respectively.
In October 1998, the Company sold data center mainframe equipment to an
unrelated party for approximately $34 million. The Company recognized a
deferred gain of approximately $1 million on the transaction. The Company
then entered into an agreement to lease back the equipment from the
unrelated party. The agreement has a term of seven years; however, the
Company has the option, at its discretion, to terminate the contract as of
December 31, 2001. Under the agreement, the Company may lease additional
equipment at rates specified in the agreement.
The Company is involved in certain disputes and other matters arising in
the normal course of business. Additionally, the Company is subject to
review and assessment by various taxing authorities. 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.
9. CAPITAL STOCK
The authorized capital stock of the Company consists of 250,000,000 shares
of Class A Common Stock, par value $.01 per share, 107,374,000 shares of
Class B Common Stock, par value $.01 per share, and 20,000,000 shares of
preferred stock, par value $.01 per share. As of December 31, 1999,
22,421,467 shares of Class A Common Stock, 107,374,000 shares of Class B
Common Stock and no shares of preferred stock were issued and outstanding.
Following AMR's distribution of its holdings of the Company's stock to its
shareholders on March 15, 2000, no shares of Class B Common Stock were
outstanding (see Note 14).
The holders of Class A Common Stock and Class B Common Stock generally have
identical rights, except that the 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
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 must be approved by the affirmative
vote of the holders of a majority of the common stock, voting together as a
single class.
If AMR ceases to be the beneficial owner of an aggregate of at least a
majority of the voting power of the Voting Stock (as defined) of the
Company then outstanding, 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.
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.
48
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
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.
In 1997, the Company's Board of Directors authorized, subject to certain
business and market conditions, the purchase of up to 1.5 million shares of
the Company's Class A Common Stock. On March 16, 1999, the Company's Board
of Directors authorized the repurchase of up to an additional 1 million
shares of the Company's Class A Common Stock. On September 15, 1999, the
Company's Board of Directors authorized the repurchase of up to an
additional $100 million of the Company's Class A Common Stock during the
next two years. The number of treasury shares purchased was 1,029,890,
1,428,200 and 71,800 in 1999, 1998 and 1997, respectively.
10. OPTIONS AND OTHER STOCK-BASED AWARDS
In 1996, certain officers and key employees of the Company exchanged shares
of deferred AMR common stock for 75,600 deferred shares of the Company's
Class A Common Shares ("Company Career Equity Shares"). The Company Career
Equity Shares are issued upon the individual's retirement from the Company.
During 1999, 65,806 Company Career Equity Shares were issued and 2,194 were
canceled. At December 31, 1999, 7,600 of the Company Career Equity Shares
were outstanding. At December 31, 1998 and 1997, 75,600 of the Company
Career Equity Shares were outstanding.
Under the Company's 1996 Long-Term Incentive Plan (the "1996 Plan")
officers and other key employees of the Company may be granted restricted
stock, deferred stock, stock options, stock appreciation rights, stock
purchase rights, other stock-based awards and/or performance-related
awards. The 1996 Plan will terminate no later than October 2006. 13 million
shares of Class A Common Stock were authorized to be issued under the 1996
Plan. In 1999, the Company amended the 1996 Plan (the "Amended Plan").
Under the Amended Plan, the Company expanded the employees eligible for
awards to include non-employee directors and managers of the Company in
addition to officers and key employees. The total number of shares of Class
A Common Stock authorized to be issued under the Amended Plan remains 13
million shares, provided that no more than 1 million shares of stock shall
be granted to any employee in a one-year period. At December 31, 1999,
approximately 6 million shares were available for future grants of
stock-based awards under the Amended Plan.
The total charge for stock compensation expense included in wages, salaries
and benefits expense was $15 million, $13 million and $6 million for 1999,
1998 and 1997, respectively. No compensation expense was recognized for
stock option grants under the 1996 Plan or the Amended Plan since the
exercise price of the Company's stock option grants was equal to the fair
market value of the underlying stock on the date of grant.
Shares of restricted stock are awarded at no cost to employees. Restricted
shares generally vest three years following the date of grant. Restricted
stock activity follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Outstanding at January 1 155,590 166,940 151,550
Granted 168,000 12,390 24,910
Issued (126,740) (10,280) ---
Canceled (4,440) (13,460) (9,520)
-------------- -------------- --------------
Outstanding at December 31 192,410 155,590 166,940
============== ============== ==============
</TABLE>
The weighted-average grant date fair values of restricted stock granted
during 1999, 1998 and 1997 were $50.08, $38.49 and $26.03, respectively.
The grant date fair values are based on the Company's stock price on the
date of grant.
49
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
Company Performance Shares are also awarded at no cost to officers and key
employees of the Company based on performance metrics of the Company. The
Company Performance Shares vest over a three-year performance period and
are settled in cash. The Company's Performance Share activity was as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Outstanding at January 1 504,873 612,100 433,860
Granted 197,326 206,970 205,370
Awards settled in cash (179,035) (263,040) ---
Canceled (44,095) (51,157) (27,130)
------------- ------------- -------------
Outstanding at December 31 479,069 504,873 612,100
============= ============= =============
</TABLE>
The weighted-average grant date fair values of Company Performance Shares
granted during 1999, 1998 and 1997 were $42.30, $36.42 and $26.02,
respectively. The grant date fair values are based on the Company's stock
price on the date of grant.
Stock options are granted at the market value of Class A Common Stock on
the date of grant, except as otherwise determined by a committee appointed
by the Board of Directors, generally vest over five years, and are not
exercisable more than ten years after the date of grant. Stock option
activity follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------
1999 1998 1997
-------------------------- ------------------------ --------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
-------------------------- ------------------------ --------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 3,395,390 $ 29.10 2,874,070 $ 25.43 2,384,670 $ 24.89
Granted 2,469,600 46.37 1,245,600 34.94 711,010 27.11
Exercised (697,130) 52.17 (433,270) 21.97 (34,540) 19.14
Canceled (494,890) 33.49 (291,010) 28.41 (187,070) 26.10
-------------- ------------- -------------
Outstanding at December 31 4,672,970 $ 38.20 3,395,390 $ 29.10 2,874,070 $ 25.43
============== ============= =============
Exercisable options outstanding
at December 31 826,430 $ 27.19 870,670 $ 24.82 808,110 $ 22.64
============== ============= =============
</TABLE>
The weighted-average grant date fair value of stock options granted during
1999, 1998 and 1997 were $18.75, $12.55 and $9.71, respectively. The grant
date fair values were estimated at the date of grant using the
Black-Scholes option-pricing model.
The following table summarizes information about the stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Number of Weighted-Average Number of
Range of Exercise Options Remaining Life Weighted-Average Options Weighted-Average
Prices Outstanding (years) Exercise Price Exercisable Exercise Price
----------------- ------------- ----------------- ------------------ ------------- ------------------
<S> <C> <C> <C> <C> <C>
$14.01 - $25.99 187,040 6.91 $ 20.58 151,690 $ 19.66
$26.00 - $35.49 1,365,170 7.07 27.23 549,030 27.12
$35.50 - $48.49 1,963,560 8.87 39.55 125,710 36.58
$48.50 - $69.40 1,157,200 9.84 51.69 --- ---
------------- -------------
Total 4,672,970 8.51 $ 38.20 826,430 $ 27.19
============= =============
</TABLE>
50
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
For other stock-based awards, a committee established by the Board of
Directors determines the eligible persons to whom awards will be made, the
times at which the awards will be made, the number of shares to be awarded,
the price, if any, to be paid by the recipient and all other terms and
conditions of the award.
Stock appreciation rights may be granted in conjunction with all or part of
any stock option granted. All appreciation rights will terminate upon
termination or exercise of the related option and will be exercisable only
during the time that the related option is exercisable. If an appreciation
right is exercised, the related stock option will be deemed to have been
exercised.
In connection with the payment of the $675 million dividend on February 18,
2000 (see Note 14), the Company adjusted the terms of its outstanding
employee stock option plans such that the exercise price per share of each
option was reduced, and the number of options held by each employee was
increased, such that the aggregate intrinsic value of each employee's
option holdings was the same before and after the effect of the payment of
the dividend on the Company's stock price. Because the adjustment to the
option terms was done in accordance with Emerging Issues Task Force
Consensus No. 90-9, CHANGES TO FIXED EMPLOYEE STOCK OPTION PLANS AS A
RESULT OF EQUITY RESTRUCTURING, no compensation expense will be recorded by
the Company.
The Company has a Directors' Stock Incentive Plan, which provides for an
annual award of options to purchase 3,000 shares of the Company's Class A
Common Stock to each non-employee director. The plan also provides 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 to the Board of Directors. The options have an exercise price
equal to the market price of the Class A Common Stock on the date of grant
and vest pro rata over a five-year period. Each option expires 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 due to 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. 350,000 shares of Class A Common Stock are reserved for
issuance under the Directors' Stock Incentive Plan. In 1997, 78,000 options
were granted to directors at a weighted-average exercise price of $26.88.
In 1998, 18,000 options were granted to directors at a weighted-average
exercise price of $36.16. No options were exercised during 1999, 1998 and
1997. At December 31, 1999, 254,000 shares were available for future grants
under the Directors' Stock Incentive Plan.
Beginning in 1999, stock options granted to non-employee directors are
granted under the Amended Plan. In 1999, 24,000 options were granted to
directors at a weighted-average exercise price of $62.59, and are included
in the previous stock options outstanding table. None of these options were
exercised during 1999.
Effective January 1, 1997, the Company established The Sabre Group
Holdings, Inc. Employee Stock Purchase Plan (the "ESPP"). The ESPP allows
eligible employees the right to purchase Class A Common Stock on a monthly
basis at the lower of 85% of the market price at the beginning or the end
of each monthly offering period. The ESPP allows each employee to acquire
Class A Common Stock with an aggregate maximum purchase price equal to
either 1% or 2% of that employee's annual base pay, subject to limitations
under the Internal Revenue Code of 1986. Upon establishment of the ESPP,
1,000,000 shares of Class A Common Stock were reserved for issuance under
the plan. Approximately 59,000, 54,000 and 34,000 shares were issued to the
plan during 1999, 1998 and 1997, respectively. Approximately 853,000 shares
remain available for future purchases under the ESPP at December 31, 1999.
As required by Statement of Financial Accounting Standards No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, pro forma information regarding
net income and earnings per share has been determined as if the Company had
accounted for its employee stock options and stock-based awards under the
fair value method set forth in Statement No. 123. The fair value for the
stock options granted by the Company to officers and key employees of the
Company after January 1, 1995 was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 6.20% to 6.70% for 1997, 5.45% to
5.67% for 1998 and 4.65% to 6.22% for 1999; a dividend yield of 0%; a
volatility factor of the expected market price of the Company's Class A
Common Stock of .29 for 1997, .32 for 1998 and .39 for 1999; and a
weighted-average expected life of the options granted of 4.5 years.
51
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options. In addition, because Statement
No. 123 is applicable only to options and stock-based awards granted
subsequent to December 31, 1994, the pro forma impact does not reflect the
pro forma effect of all previous stock-based awards to the Company's
employees.
For purposes of the pro forma disclosures, the estimated fair value of the
options and stock-based awards is amortized to expense over the vesting
period. The Company's pro forma information is as follows (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1999 1998 1997
--------------- -------------- ---------------
<S> <C> <C> <C>
Net earnings:
As reported $ 331,907 $ 231,941 $ 199,853
=============== ============== ===============
Pro forma $ 326,788 $ 228,672 $ 198,404
=============== ============== ===============
Earnings per common share, as reported:
Basic $ 2.56 $ 1.78 $ 1.53
=============== ============== ===============
Diluted $ 2.54 $ 1.78 $ 1.53
=============== ============== ===============
Earnings per common share, pro forma:
Basic $ 2.52 $ 1.76 $ 1.52
=============== ============== ===============
Diluted $ 2.50 $ 1.75 $ 1.51
=============== ============== ===============
</TABLE>
11. EARNINGS PER SHARE
Basic earnings per share excludes any dilutive effect of options, warrants
and convertible securities. The number of shares used in the diluted
earnings per share calculations includes the dilutive effect of employee
stock options, restricted and career equity shares and the options issued
to US Airways (see Note 4). The net earnings used in the diluted earnings
per share calculations have been adjusted, as necessary, to reflect the
amortization expense that would have been recognized had options issued to
US Airways qualified as equity instruments for accounting purposes during
the period.
52
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The following table sets forth the computation of basic and diluted
earnings per common share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1999 1998 1997
-------------- ------------- -------------
<S> <C> <C> <C>
Numerator:
Numerator for basic earnings per common share - net
earnings $ 331,907 $ 231,941 $ 199,853
Incremental amortization of deferred asset related
to options issued to US Airways -- (255) --
-------------- ------------- -------------
Numerator for diluted earnings per common share -
adjusted net earnings $ 331,907 $ 231,686 $ 199,853
============== ============= =============
Denominator:
Denominator for basic earnings per common share -
weighted-average shares 129,574 129,943 130,649
Dilutive effect of stock awards and options 1,081 578 339
-------------- ------------- -------------
Denominator for diluted earnings per common share -
adjusted weighted-average shares 130,655 130,521 130,988
============== ============= =============
Earnings per common share - basic $ 2.56 $ 1.78 $ 1.53
============== ============= =============
Earnings per common share - diluted $ 2.54 $ 1.78 $ 1.53
============== ============= =============
</TABLE>
For additional information regarding stock awards and options, see Note 10.
Options to purchase approximately 3,130,000, 2,470,000 and 544,000
weighted-average shares of common stock were outstanding during 1999, 1998
and 1997, respectively, but were excluded from the computation of diluted
earnings per share because the effect would be antidilutive. In addition,
options granted to US Airways to purchase 3,000,000 shares of common stock
were excluded from the computation of diluted earnings per share in 1999
and 1998 because the Company intended to settle those options with a cash
payment and did so on January 5, 2000 (see Note 4).
12. SEGMENT REPORTING
The Company has three reportable segments: electronic travel distribution,
Travelocity.com and information technology solutions. The electronic travel
distribution and Travelocity.com segments are aggregated and presented as
the electronic travel distribution segment below. The electronic travel
distribution segment distributes travel services to travel agencies,
corporate travel departments and individual consumers ("subscribers").
Through the Company's global distribution system, subscribers can access
information about and book reservations with airlines and other providers
of travel and travel-related products and services. The information
technology solutions segment provides information technology services,
including software development and consulting, transaction processing and
comprehensive information technology outsourcing to the travel and
transportation industries. The Company's reportable segments are strategic
business units that offer different products and services and are managed
separately because each business requires different market strategies.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based upon business segment operating income, which is defined
as income before interest and non-operating income and expenses. The
Company accounts for intersegment transactions as if the transactions were
to third parties, that is, at current market prices. Intersegment
transactions are recorded as expense offsets and are not included in
segment revenues.
Personnel and related costs for the Corporate Headquarters, certain legal
and professional fees and other corporate charges are allocated to the
segments through a management fee based primarily on usage. Depreciation
expense on the Corporate Headquarters buildings and related facilities
costs are allocated to the segments through a facility fee based on
headcount. The related assets are not allocated to the segments. Benefits
expense, including pension expense, postretirement benefits, medical
insurance and workers'
53
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
compensation, are allocated to the segments based on headcount. Unallocated
Corporate Headquarters operating income includes depreciation expense and
other costs associated with the Corporate Headquarters buildings, net of
facility fees allocated to the reportable segments and affiliated
companies, and certain other corporate charges maintained at the corporate
level. Other assets not allocated to the segments include cash and
short-term investments and deferred tax assets.
<TABLE>
<CAPTION>
Electronic Information
Travel Technology
Distribution Solutions Total
--------------- --------------- ---------------
(in thousands)
<S> <C> <C> <C>
December 31, 1999:
Revenues from external customers $ 1,463,163 $ 953,419 $ 2,416,582
Equity in net income of equity method
investees 18,037 -- 18,037
--------------- --------------- ---------------
Total revenues 1,481,200 953,419 2,434,619
Segment operating income 323,211 53,333 376,544
Intersegment expense transfers -- 413,671 413,671
Depreciation and amortization 131,119 103,574 234,693
Segment assets 558,977 434,273 993,250
Capital expenditures for segment assets 68,479 62,057 130,536
Investments in equity method investees 155,769 389 156,158
December 31, 1998:
Revenues from external customers $ 1,315,908 $ 981,592 $ 2,297,500
Equity in net income of equity method
investees 8,887 -- 8,887
--------------- --------------- ---------------
Total revenues 1,324,795 981,592 2,306,387
Segment operating income 283,359 64,133 347,492
Intersegment expense transfers 10,340 373,848 384,188
Depreciation and amortization 132,697 94,782 227,479
Segment assets 616,869 501,882 1,118,751
Capital expenditures for segment assets 99,339 186,475 285,814
Investments in equity method investees 148,084 599 148,683
December 31, 1997:
Revenues from external customers $ 1,200,276 $ 583,271 $ 1,783,547
Equity in net income of equity method
investees 4,916 -- 4,916
--------------- --------------- ---------------
Total revenues 1,205,192 583,271 1,788,463
Segment operating income 229,888 77,288 307,176
Intersegment expense transfers 22,281 393,633 415,914
Depreciation and amortization 117,151 50,253 167,404
Segment assets 409,250 258,225 667,475
Capital expenditures for segment assets 109,295 67,195 176,490
Investments in equity method investees 6,659 1,539 8,198
</TABLE>
54
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The reconciliation of the totals reported for the operating segments to the
applicable line items in the consolidated financial statements is as
follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1999 1998 1997
----------------- ---------------- -----------------
<S> <C> <C> <C>
Operating income:
Total operating income for reportable
segments $ 376,544 $ 347,492 $ 307,176
Net corporate allocations (4,042) 2,880 5,449
----------------- ---------------- -----------------
Total consolidated operating income $ 372,502 $ 350,372 $ 312,625
================= ================ =================
Assets:
Total assets for reportable segments $ 993,250 $ 1,118,751 $ 667,475
Unallocated amounts:
Cash and short-term investments 611,126 537,710 584,875
Corporate headquarters and other 346,835 270,356 251,608
----------------- ---------------- -----------------
Total consolidated assets $ 1,951,211 $ 1,926,817 $ 1,503,958
================= ================ =================
Other significant items:
Depreciation and amortization for
reportable segments $ 234,693 $ 227,479 $ 167,404
Other depreciation and amortization 23,553 20,255 17,771
----------------- ---------------- -----------------
Total depreciation and amortization $ 258,246 $ 247,734 $ 185,175
================= ================ =================
Capital expenditures for reportable
segments $ 130,536 $ 285,814 $ 176,490
Other capital expenditures 37,427 34,217 41,634
----------------- ---------------- -----------------
Total capital expenditures $ 167,963 $ 320,031 $ 218,124
================= ================ =================
The Company's revenues and long-lived assets by geographic region are
summarized below (in thousands). Revenues are attributed to countries based
on the location of the customer.
Year Ended December 31,
------------------------------------------------------
1999 1998 1997
----------------- ---------------- -----------------
Revenues by geographic region:
United States $ 1,793,818 $ 1,713,195 $ 1,295,606
Foreign 640,801 593,192 492,857
----------------- ---------------- -----------------
Total $ 2,434,619 $ 2,306,387 $ 1,788,463
================= ================ =================
Long-lived assets by geographic region:
United States $ 754,201 $ 758,224 $ 552,869
Singapore 145,586 143,496 --
Other foreign 75,000 80,693 73,487
----------------- ---------------- -----------------
Total $ 974,787 $ 982,413 $ 626,356
================= ================ =================
</TABLE>
55
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the unaudited quarterly financial
information for the years ended December 31, 1999 and 1998 (in thousands
except per share data):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
1999
----
Revenues $ 638,107 $ 638,819 $ 617,242 $ 540,451
Operating income 112,068 95,948 120,632 43,854
Net earnings 92,729 63,463 78,428 97,287
Earnings per common share:
Basic $ .71 $ .49 $ .61 $ .75
Diluted $ .71 $ .48 $ .55 $ .75
1998
----
Revenues $ 554,099 $ 576,574 $ 604,315 $ 571,399
Operating income 114,467 109,251 98,445 28,209
Net earnings 71,788 68,523 71,424 20,206
Earnings per common share:
Basic $ .55 $ .53 $ .55 $ .16
Diluted $ .55 $ .52 $ .55 $ .16
</TABLE>
The travel industry is seasonal in nature. Bookings, and thus booking fees
charged for the use of the SABRE system, decrease significantly each year
in the fourth quarter, primarily in December.
The Company recognized a gain of approximately $35 million during the
first quarter of 1999 and approximately $103 million during the fourth
quarter of 1999 related to the liquidation of Equant depository
certificates held by American for the economic benefit of the Company.
For additional information see Note 4.
During the third quarter of 1999, the Company recorded approximately $8
million in severance expenses related to the reduction in its work force
of approximately 330 employees.
During 1999, the Company recorded amortization expenses of approximately
$3 million in the first quarter, $22 million in the second quarter and $13
million in the fourth quarter of 1999, related to options granted to US
Airways under the information technology services agreement, due to
changes in the market price of the Company's stock (see Note 4). During
the third quarter of 1999, the Company recorded a reduction in
amortization expenses of approximately $19 million, related to the options
granted to US Airways.
As of December 31, 1998, the Company had recorded a liability of
approximately $7 million related to a cost savings guarantee in the fifth
year of the Marketing Cooperation Agreement with American. During the
fourth quarter of 1999, the Company reversed this liability based on
projected cost savings (see Note 5).
During the third quarter of 1998, the Company recorded income of
approximately $14 million, due to a one-time gain from a favorable court
judgment relating to Ticketnet Corporation, an inactive subsidiary of the
Company.
During the fourth quarter of 1998, the Company recorded amortization
expense of approximately $7 million, related to options granted to US
Airways under the information technology services agreement, due to
changes in the market price of the Company's stock. Additionally, a
reduction was recorded in a reserve for obsolete computer equipment at
travel agency locations of approximately $7 million.
56
<PAGE>
SABRE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
14. SUBSEQUENT EVENTS
In connection with the separation from AMR, on February 7, 2000, the
Company declared a one-time cash dividend on all outstanding shares of the
Company's Class A and Class B Common Stock. The aggregate amount of the
dividend was $675 million, or approximately $5.20 per share, and was paid
to the Company's shareholders on February 18, 2000. In connection with the
payment of the dividend, certain adjustments were made to the terms of
outstanding employee stock options (see Note 10).
On March 15, 2000, AMR exchanged all of its 107,374,000 shares of the
Company's Class B Common Stock for an equal number of shares of the
Company's Class A Common Stock and distributed such shares to AMR
shareholders as a stock dividend. The distribution consisted of AMR's
entire ownership interest in the Company. In connection with the
distribution, the Company and AMR amended the terms of certain of the
Affiliate Agreements (see Note 5).
On March 14, 2000, the Company's Board of Directors approved a broad-based
stock option plan (the "Option Plan") effective March 15, 2000. Seven
million shares are authorized under the Option Plan for grants of options
and stock appreciation rights to employees of the Company. On March 16,
2000, the Company granted approximately two million options under the
Option Plan.
On February 4, 2000, the Company entered into a $300 million, senior
unsecured, revolving credit agreement (the "Credit Facility"), which
expires on September 14, 2004. Additionally, on February 4, 2000, the
Company entered into a short-term $200 million, senior unsecured, term
loan agreement (the "Interim Loan"), which matures on August 4, 2000. The
proceeds from both the Credit Facility and Interim Loan will be used for
working capital, capital expenditures, acquisitions, dividends and other
corporate purposes. The Company utilized a portion of its available cash
balance and short-term investments and proceeds from both the Credit
Facility and Interim Loan to fund the $675 million dividend paid to
shareholders on February 18, 2000. As of February 29, 2000, borrowings
under the Credit Facility and Interim Loan amounted to approximately $149
million and $200 million, respectively.
On March 10, 2000, the Company filed a registration statement on Form S-3
with the Securities and Exchange Commission through which the Company
intends to sell certain securities from time to time after the effective
date of the registration statement. The Company intends to use the
proceeds from the sale of any securities for general corporate purposes,
including the retirement of debt, additions to working capital, capital
expenditures and for acquisitions.
On March 7, 2000, the Company completed the merger of Travelocity.com, an
operating unit of the Company ("Travelocity.com") and Preview Travel, Inc.
("Preview"), an independent publicly-traded company engaged in consumer
direct travel distribution over the Internet. Under the terms of the
merger agreement, shareholders of Preview received one share of
Travelocity.com Inc., a newly created subsidiary of the Company, for each
share of Preview held, and Preview was merged into Travelocity.com Inc.,
the surviving entity. Shares of Travelocity.com Inc. stock now trade
under the symbol "TVLY" on the Nasdaq National Market. In connection with
the merger, the Company contributed the existing assets and businesses of
Travelocity.com and approximately $100 million in cash to Travelocity.com
LP, a Delaware limited partnership (the "Partnership"). Immediately
following the merger, Travelocity.com Inc. contributed the assets and
businesses obtained from the acquisition of Preview to the Partnership.
As a result of the merger, the Company owns an economic interest of
approximately 70% in the combined businesses, composed of a 62% direct
interest in the Partnership and a 22% interest in Travelocity.com Inc.,
which holds a 38% interest in the Partnership. As a result of the merger,
the Company recorded goodwill and other intangibles of approximately $250
million based upon the ownership of Travelocity.com exchanged for the
ownership interest in Preview. The Company will amortize the goodwill and
intangibles over three years.
57
<PAGE>
On October 2, 1999, the Company entered into an agreement with America
Online, Inc. ("AOL") that became effective upon the consummation of the
merger of Travelocity.com with Preview. The agreement provides, among
other things, that the Travelocity.com Web site will be the exclusive
reservations engine for AOL's Internet properties. Travelocity.com, as
assignee of the agreement, will be obligated for carriage payments of up
to $200 million and AOL and Travelocity.com will share advertising
revenues and commissions over the five year term of the agreement. In
connection with the closing of the merger with Preview, Travelocity.com
paid $40 million to AOL under the terms of this agreement.
58
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
- -------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference is the information set forth under
the headings "Nominees for Election as Directors" and "Continuing Directors"
in the Company's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 17, 2000. Information concerning the executive
officers is set forth under the heading "Executive Officers of the Registrant"
in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference is the information set forth under
the heading "Executive Compensation" in the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held on May 17, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference is the information set forth under
the heading "Ownership of Securities" from the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held on May 17, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference is the information set forth under
the heading "Relationships with AMR Corporation and Affiliates" in the
Company's definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on May 17, 2000 and under Note 5 to the Consolidated Financial
Statements in Item 8 of this report.
PART IV
- -------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The financial statements listed in the accompanying index to
financial statements and the schedules are filed as part of this
report.
(2) The schedules listed in the accompanying index to financial
statements and schedules are filed as part of this report.
(3) Exhibits required to be filed by Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ----------------------
<S> <C>
3.1 Restated Certificate of Incorporation of Registrant. (1)
3.2 Restated Bylaws of Registrant. (1)
3.3 Certificate of Amendment of Certificate of Incorporation of The Sabre Group
Holdings, Inc. (8)
4.1 Registration Rights Agreement between Registrant and AMR Corporation. (1)
4.2 Specimen Certificate representing Class A Common Stock. (1)
10.1 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 Servicios Colombia, 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. (1) (4)
59
<PAGE>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ----------------------
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. (1) (4)
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. (1) (4)
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. (1) (4)
10.11 Corporate Travel Agreement, dated July 25, 1996, between The Sabre Group, Inc.
and American Airlines, Inc. (1) (4)
10.12 Software Marketing Agreement, dated September 10, 1996, among Registrant, The
Sabre Group, Inc. and AMR Corporation. (1) (4)
10.13 Canadian Technical Services Subcontract, dated as of July 1, 1996, between The
Sabre Group, Inc. and American Airlines, Inc. (1) (4)
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) (4)
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 as of 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. (2)
10.25 The Sabre Group Holdings, Inc. Long-Term Incentive Plan. (1)
10.26 The Sabre Group Holdings, Inc. Directors Stock Incentive Plan. (1)
10.27 Form of Executive Termination Benefits Agreement. (1)
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)
60
<PAGE>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ----------------------
10.32 Letter Agreement, dated July 15, 1996, between Registrant and Terrell B.
Jones. (1)
10.33 The Sabre Group Holdings, Inc. Employee Stock Purchase Plan. (3)
10.34 Option Issuance Agreement, dated January 1, 1998 between Registrant and US
Airways, Inc.(5)
10.35 The Sabre Group Holdings, Inc. Deferred Compensation Plan. (6)
10.36 Services Agreement, dated as of July 1, 1996, between The Sabre Group, Inc.
and AMR COMBS, Inc. (7)
10.37 Services Agreement, dated as of July 1, 1996, between The Sabre Group, Inc.
and TELESERVICE RESOURCES, Inc. (7)
10.38 Services Agreement, dated as of July 1, 1996, between The Sabre Group, Inc.
and AMR SERVICES CORPORATION. (7)
10.39 Information Technology Services Agreement, dated as of July 1, 1998, between
The Sabre Group, Inc. and TELESERVICE RESOURCES, Inc. (7)
10.40 Program Lease Agreement, dated September 30, 1998, between The Sabre Group,
Inc. and Comdisco, Inc. (7)
10.41 Corporate Travel Agreement, dated June 24, 1998, between The Sabre Group, Inc.
and American Airlines. (7)
10.42 The Sabre Group Holdings, Inc. Amended and Restated 1996 Long-Term Incentive
Plan, dated January 19, 1999. (8)
10.43 Promissory Note and Agreement, dated March 17, 1999 between American Airlines,
Inc. and The Sabre Group Holdings, Inc. (8)
10.44 Omnibus Financing Agreement, dated as of June 30, 1999, by and among American
Airlines, Inc. The Sabre Group, Inc. The Sabre Group Holdings, Inc. and AMR
Corporation. (8)
10.45 Letter Amendment, dated April 21, 1999, to the Management Services Agreement,
dated as of July 1, 1996, between The Sabre Group, Inc. and American Airlines,
Inc. (8)
10.46 Agreement and Plan of Merger dated as of October 3, 1999 by and among Sabre
Inc., Travelocity Holdings, Inc., Travelocity.com Inc. and Preview Travel,
Inc. (9)
10.47 Second Amended and Restated Information Technology Services Agreement dated as
of December 13, 1999 between Sabre Inc. and American Airlines, Inc. (7)
10.48 Amendment to Management Services Agreement dated as of March 15, 2000 between
Sabre Inc. and American Airlines, Inc. (7)
10.49 Services Agreement dated as of March 15, 2000 between Sabre Inc. and American
Airlines, Inc. (7)
10.50 Supplemental Agreement Regarding Workers' Compensation dated as of March 15,
2000 between Sabre Inc. and American Airlines, Inc. (7)
10.51 Amendment to Travel Privileges Agreement dated as of March 15, 2000 between
Sabre Inc. and American Airlines, Inc. (7)
10.52 Amendment to Marketing Cooperation Agreement dated as of March 15, 2000
between Sabre Inc. and American Airlines, Inc. (7)
10.53 Termination Agreement dated February 7, 2000 among Sabre Inc., American
Airlines, Inc., TSGL Holding, Inc., TSGL, Inc., Sabre International, Inc. and
Sabre Servicios Colombia Ltda.
10.54 Agreement on Spin-off Taxes dated March 15, 2000 between AMR Corporation and
Sabre Holdings Corporation. (7)
10.55 Sabre Holdings Corporation Non-Officer Supplemental Executive Retirement Plan,
as Amended, effective April 24, 1999.
10.56 Sabre Holdings Corporation Officer Supplemental Executive Retirement Plan, as
Amended, effective April 24, 1999.
21.1 Subsidiaries of Registrant.
23.1 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule as of December 31, 1999.
61
<PAGE>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ----------------------
99.1 Press release dated October 4, 1999 "Sabre's Travelocity to Merge with Preview
Travel, Establishing Clear Leader in Online Travel". (11)
99.2 Analyst Presentation entitled "Sabre's Travelocity and Preview Travel Combine
to Create the Clear Leader in Online Travel". (10)
(1) Incorporated by reference to exhibits 3.1 through 10.32 to the Company's Registration Statement on
Form S-1 (Registration No. 333-09747).
(2) Incorporated by reference to Exhibit 10(mmm) to AMR's report on Form 10-K for the year ended
December 31, 1994, (File No. 1-8400).
(3) Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8
(Registration No. 333-18851).
(4) Confidential treatment was granted as to a portion of this document.
(5) Incorporated by reference to Exhibit 10.34 to the Company's report on Form 10-K for the year ended
December 31, 1997, (File No. 1-12175).
(6) Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8
(Registration No. 333-51291).
(7) Confidential treatment has been requested as to a portion of this document.
(8) Incorporated by reference to Exhibits 10.42 through 10.45 to the Company's report on Form 10-Q
for the quarterly period ended June 30, 1999.
(9) Incorporated by reference to Exhibit 10.46 to the Company's report on Form 10-Q for the quarterly
period ended September 30, 1999.
(10) Incorporated by reference to Exhibits 99.1 and 99.2 to the Company's report on Form 8-K filed
October 6, 1999.
(11) Incorporated by reference to Exhibit 99.1 to the Company's report on Form 8-K filed October 4, 1999.
</TABLE>
(b) Reports on Form 8-K:
On October 4, 1999, the Company filed a current report on Form 8-K relative to
a press release to announce that on October 3, 1999, Sabre Inc., the operating
subsidiary of the Company, together with other wholly-owned subsidiaries,
entered into an Agreement and Plan of Merger with Preview Travel, Inc. Also,
the Company announced that Travelocity Holdings, Inc., a wholly-owned
subsidiary of Sabre Inc., entered into an Interactive Services and Exclusive
Channel Agreement with America Online, Inc.
On October 6, 1999, the Company filed a current report on Form 8-K to file as
an exhibit the Agreement and Plan of Merger dated as of October 3, 1999 by and
among Sabre Inc., Travelocity Holdings, Inc., Travelocity.com Inc. and Preview
Travel, Inc. Also filed as an exhibit with the Form 8-K was the Analyst
Presentation entitled "Sabre's Travelocity and Preview Travel Combine to
Create the Clear Leader in Online Travel".
On December 14, 1999, the Company filed a current report on Form 8-K relative
to a press release to announce that the Board of Directors of Sabre has named
William J. Hannigan, formerly President of SBC Global Markets, as President
and Chief Executive Officer of Sabre effective immediately. Hannigan was also
elected to the Board of Directors. Also, AMR Corporation announced its
intention to distribute its 83 percent ownership in Sabre by means of a
spin-off to AMR shareholders.
On December 20, 1999, the Company filed an amended current report on Form
8-K/A to file as an exhibit the Presentation to Investors dated as of December
14, 1999. The Company announced that on December 14, 1999, US Airways, Inc.
exercised one of its two options to acquire 3 million shares of the Company's
Class A Common Stock. Pursuant to the terms of the exercised option, the
Company has the right to issue cash in lieu of issuing Class A Common Stock
upon the exercise of the option. The Company exercised this right, and
accordingly, paid US Airways approximately $81 million in cancellation of the
option in January 2000.
62
<PAGE>
<TABLE>
<CAPTION>
SABRE HOLDINGS CORPORATION
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
COVERED BY REPORT OF INDEPENDENT AUDITORS
[ITEM 14(a)]
FINANCIAL STATEMENTS
Page
<S> <C>
Report of Independent Auditors 28
Consolidated Balance Sheets at December 31, 1999 and 1998 29
Consolidated Statements of Income for the Years Ended 30
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended 31
December 31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for the Years 32
Ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements 33
Schedule II - Valuation and Qualifying Accounts for the Years
Ended December 31, 1999, 1998 and 1997 64
</TABLE>
All other schedules are omitted because the required information is included
in the financial statements or notes thereto, or because the required
information is either not present or not present in sufficient amounts.
63
<PAGE>
CONSOLIDATED SCHEDULES FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
SABRE HOLDINGS CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- --------------------------------------- ------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
CLASSIFICATION YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR
- --------------------------------------- ------------ ---------- ---------- ---------- -----------
(1) (2)
YEAR ENDED DECEMBER 31, 1999
Allowance for uncollectible accounts $ 12,403 $ 12,913 $ -- $ (13,403) $ 11,913
Booking fee cancellation reserve 17,722 2,026 -- -- 19,748
Associate reserves 3,711 1,871 -- (3,878) 1,704
YEAR ENDED DECEMBER 31, 1998
Allowance for uncollectible accounts 8,905 12,199 -- (8,701) 12,403
Booking fee cancellation reserve 15,242 -- 2,480 -- 17,722
Associate reserves 4,686 3,629 -- (4,604) 3,711
YEAR ENDED DECEMBER 31, 1997
Allowance for uncollectible accounts 4,094 11,799 -- (6,988) 8,905
Booking fee cancellation reserve 14,342 -- 937 (37) 15,242
Associate reserves 6,884 2,090 -- (4,288) 4,686
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amounts charged against revenue.
(2) Includes write-offs for uncollectible accounts and payments to associates.
64
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SABRE HOLDINGS CORPORATION
/s/ William J. Hannigan
--------------------------------
William J. Hannigan
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Jeffery M. Jackson
--------------------------------
Jeffery M. Jackson
Executive Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)
Date: March 24, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates noted:
Directors:
/s/ Edward A. Brennan /s/ Glenn W. Marschel, Jr.
- ------------------------- --------------------------------
Edward A. Brennan Glenn W. Marschel, Jr.
/s/ Paul C. Ely, Jr. /s/ Bob L. Martin
- ------------------------- --------------------------------
Paul C. Ely, Jr. Bob L. Martin
/s/ Dee J. Kelly /s/ Richard L. Thomas
- ------------------------- --------------------------------
Dee J. Kelly Richard L. Thomas
Date: March 24, 2000
65
<PAGE>
[THIS AGREEMENT HAS CONFIDENTIAL PORTIONS OMITTED, WHICH PORTIONS
HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS AGREEMENT WITH
"[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]."
SECOND AMENDED AND RESTATED
INFORMATION TECHNOLOGY SERVICES AGREEMENT
BETWEEN
AMERICAN AIRLINES, INC.
AND
SABRE INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I -- DEFINITIONS AND INTERPRETATION..........................................................1
1.1 DEFINITIONS.....................................................................................1
1.2 EXHIBITS........................................................................................1
ARTICLE II -- TERM....................................................................................2
2.1 TERM OF AGREEMENT...............................................................................2
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
ARTICLE III -- SERVICES AND EXCLUSIVITY................................................................5
3.1 SERVICES IN GENERAL.............................................................................5
3.2 ACCESS TO AND USE OF FACILITIES.................................................................5
3.3 NEW/OUT-OF-SCOPE SERVICES.......................................................................7
3.4 TSG'S RIGHTS TO MANAGE ITS RESOURCES............................................................7
3.5 KEEPING PLATFORM TECHNOLOGY CURRENT.............................................................7
3.6 SHARED ENVIRONMENT UPGRADES.....................................................................8
3.7 EFFICIENCY AND COST EFFECTIVENESS...............................................................8
3.8 REFRESH FOR DEVICE SUPPORT......................................................................8
3.9 TSG SUPPORT FOR THIRD-PARTY PRODUCTS............................................................9
3.10 EXCLUSIVITY.....................................................................................9
3.11 NON-EXCLUSIVE SERVICES.........................................................................11
3.12 ENGAGING THIRD PARTIES FOR NON-EXCLUSIVE SERVICES..............................................12
3.13 EFFECT OF DIVESTITURES, MERGERS, AND ACQUISITIONS..............................................13
3.14 CHANGES IN DEMAND FOR TSG SERVICES.............................................................14
3.15 PREFERRED CUSTOMER FOR DEPLOYMENT OF SKILLED PERSONNEL.........................................14
3.16 SPECIAL PROVISIONS FOR RESERVATIONS 800 SERVICES...............................................14
3.17 SPECIAL PROVISIONS CONCERNING SITA AND SITA SERVICES...........................................15
3.18 SPECIAL PROVISIONS CONCERNING CUSTOM SOFTWARE..................................................16
3.19 ELECTRONIC TRAVEL DISTRIBUTION SYSTEM..........................................................16
3.20 SPECIAL PROVISIONS REGARDING CERTAIN SOFTWARE DEVELOPMENT......................................16
i
<PAGE>
ARTICLE IV -- LOCATIONS OF SERVICES..................................................................16
4.1 TSG'S CHANGES TO LOCATIONS.....................................................................16
4.2 AIRLINE GROUP'S REQUESTED CHANGES AT IT LOCATIONS..............................................17
ARTICLE V -- SERVICE LEVELS.........................................................................17
5.1 SERVICE LEVELS IN GENERAL......................................................................17
5.2 SLA REQUIREMENTS...............................................................................18
5.3 HISTORICAL SLA STANDARDS.......................................................................19
5.4 MONITORING.....................................................................................19
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
5.6 COSTS BORNE EXCLUSIVELY BY TSG.................................................................19
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
5.8 PERFORMANCE REVIEWS............................................................................20
5.9 CORRECTION OF PERFORMANCE......................................................................20
5.10 SLA STANDARDS, FORCE MAJEURE EVENT, AND TRANSITION ASSISTANCE..................................20
5.11 AUDITING CODE EFFICIENCY.......................................................................21
5.12 ANNUAL SURVEY..................................................................................21
ARTICLE VI -- SUBCONTRACTING.........................................................................21
6.1 NO SUBCONTRACTING PRIMARY RESPONSIBILITIES.....................................................21
6.2 PERMITTED SUBCONTRACTING.......................................................................21
ARTICLE VII -- FEES...................................................................................22
7.1 RATE AND RESET SCHEDULE........................................................................22
7.2 ESTABLISHING RATES FOR EVEN-NUMBERED YEARS.....................................................23
7.3 ESTABLISHING RATES FOR ODD-NUMBERED YEARS......................................................23
7.4 PROJECTED ANNUAL RESET FEES....................................................................24
7.5 BENCHMARKING...................................................................................25
7.6 PROJECTED ANNUAL NEGOTIATED FEES...............................................................26
7.7 LIMITED USE OF PROJECTED FEES..................................................................26
7.8 RECOURSE TO DISPUTE RESOLUTION.................................................................26
ii
<PAGE>
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
7.10 ADJUSTMENT TO PROVISIONS BASED ON COVERSION TO MARKET PRICING..................................27
7.11 PERFORMANCE ADJUSTMENT OF FEES.................................................................27
7.12 PAYMENT FOR RE-RUNS............................................................................28
7.13 FEE REDUCTIONS FOR DROPPING CERTAIN MAINTENANCE................................................28
7.14 MOST FAVORED CUSTOMER..........................................................................28
7.15 PAYMENTS FOR THIRD PARTY SOFTWARE UPON DISAFFILIATION..........................................29
7.16 FAIR ALLOCATION OF COSTS.......................................................................29
7.17 ALLOCATION OF COSTS UPON TERMINATION BY AN MFC CUSTOMER OF ALL OR PART OF ITS
AGREEMENT WITH TSG.............................................................................30
ARTICLE VIII -- INVOICES AND PAYMENT...................................................................30
8.1 INVOICES.......................................................................................30
8.2 DISPUTED INVOICES..............................................................................30
8.3 BILLING PROCEDURES.............................................................................31
8.4 NEW BILLING SYSTEM.............................................................................31
8.5 INTEREST ON OVERDUE AMOUNTS....................................................................32
ARTICLE IX -- TRANSFER AND PROPERTY TAXES............................................................32
9.1ALLOCATION OF RESPONSIBILITY FOR CERTAIN TAXES.......................................................32
9.2 CLAIM OF EXEMPTION.............................................................................32
9.3 PROPERTY TAXES.................................................................................32
9.4 CONTESTS OF TAX ASSESSMENTS....................................................................32
9.5 REFUNDS........................................................................................33
9.6 COOPERATION....................................................................................33
9.7 TAXES ON THIRD-PARTY PASS-THROUGH CHARGES......................................................34
9.8 ADDITIONAL TAX CONTESTS........................................................................35
9.9 NO OTHER TAX INDEMNITY.........................................................................35
9.10 TAXES AND DISPUTE RESOLUTION...................................................................35
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
iii
<PAGE>
ARTICLE X -- OWNERSHIP OF DATA......................................................................37
10.1 OWNERSHIP OF DATA..............................................................................37
10.2 USE OF DATA....................................................................................37
10.3 RISK OF DATA LOSS..............................................................................37
10.4 DATA SECURITY..................................................................................38
10.5 COPIES OF DATA FOR THE AIRLINE GROUP...........................................................38
10.6 MEDIA CONTAINING DATA..........................................................................38
ARTICLE XI -- SOFTWARE AND INTELLECTUAL PROPERTY.....................................................38
11.1 OWNERSHIP OF INVENTIONS AND PATENTS............................................................38
11.2 TRANSFERRED SOFTWARE...........................................................................38
11.3 JOINTLY OWNEDSOFTWARE OWNERSHIP................................................................38
11.4 OWNERSHIP OF IDSSOFTWARE.......................................................................39
11.5 NEW SOFTWARE OWNERSHIP.........................................................................39
11.6 RIGHTS OFAMERICAN IN STANDARD SOFTWARE.........................................................40
11.7 RIGHTS OF TSG INSTANDARD SOFTWARE..............................................................41
11.8 CLONED SOFTWARE AND CLONED SOFTWARE DERIVATIVE WORKS...........................................41
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
11.10 INTELLECTUAL PROPERTY..........................................................................43
11.11 CONVENANTS NOT TO SUE..........................................................................45
11.12 LICENSE AND ACCESS TO CERTAIN TSG PORTFOLIO SOFTWARE...........................................46
11.13 TSG'S MARKETING RIGHTS.........................................................................47
11.14 OFFSET OF FEES.................................................................................47
11.15 COPIES OF SOFTWAREFOR AMERICAN.................................................................48
11.16 JOINTLY USED ANDFUNDED SOFTWARE................................................................48
11.17 CERTAIN ADDITIONAL SOFTWARE LICENSES FROM AMERICAN.............................................48
ARTICLE XII -- MARKETING AND RELATED RIGHTS...........................................................48
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12.1 SERVICES PROVIDED BY THE AIRLINE GROUP TO ITS CUSTOMERS........................................48
12.2 THE AIRLINE GROUP'S PROVISION OF SERVICES TO AG CUSTOMERS......................................49
12.3 FORMER TSG PROSPECTS...........................................................................50
12.4 EXISTING ALLIANCES.............................................................................50
12.5 MARKETING RIGHTS AFTER EXPIRATION OR TERMINATION...............................................50
ARTICLE XIII -- NON-COMPETITION........................................................................51
13.1 SEPARATE NON-COMPETITION AGREEMENT.............................................................51
ARTICLE XIV -- CONFIDENTIAL INFORMATION...............................................................51
14.1 CONFIDENTIAL INFORMATION.......................................................................51
14.2 EXCLUDED INFORMATION...........................................................................52
14.3 USE OF CONFIDENTIAL INFORMATION................................................................53
14.4 STANDARD OF CARE...............................................................................53
14.5 PERMITTED DISCLOSURES..........................................................................53
14.6 REQUIRED DISCLOSURES...........................................................................53
14.7 TITLE TO INFORMATION...........................................................................54
14.8 CONFIDENTIALITY AND THIRD PARTIES..............................................................54
14.9 IRREPARABLE HARM...............................................................................55
14.10 GENERAL KNOWLEDGE..............................................................................55
14.11 CONFIDENTIALITY AND BENCHMARKING...............................................................55
ARTICLE XV -- SECURITY...............................................................................55
15.1 SECURITY IN GENERAL............................................................................55
ARTICLE XVI -- KEY EMPLOYEES AND RELATED PROVISIONS...................................................56
16.1 DESIGNATION OF KEY EMPLOYEES...................................................................56
16.2 RESTRICTIONS CONCERNING KEY EMPLOYEES..........................................................57
16.3 REMOVAL OF PERSONNEL...........................................................................57
ARTICLE XVII -- NON-SOLICITATION OF EMPLOYEES..........................................................58
17.1 NON-SOLICITATION OF EMPLOYEES..................................................................58
ARTICLE XVIII -- PARTIES'RELATIONSHIP...................................................................59
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18.1 INDEPENDENT PARTIES............................................................................59
18.2 ADVERTISING....................................................................................60
18.3 AUTHORITY OF ACCOUNT MANAGERS AND OTHERS.......................................................60
ARTICLE XIX -- WARRANTIES.............................................................................60
19.1 MUTUAL WARRANTIES..............................................................................60
19.2 TSG'S WARRANTIES...............................................................................61
19.3 AMERICAN'S WARRANTIES..........................................................................61
ARTICLE XX -- INDEMNIFICATION........................................................................61
20.1 INJURY AND PROPERTY INDEMNIFICATION BY TSG.....................................................61
20.2 CUSTOMER INDEMNIFICATION BY TSG................................................................61
20.3 INTELLECTUAL PROPERTY INDEMNIFICATION BY TSG...................................................61
20.4 INJURY AND PROPERTY INDEMNIFICATION BY AMERICAN................................................62
20.5 CUSTOMER INDEMNIFICATION BY AMERICAN...........................................................63
20.6 INTELLECTUAL PROPERTY INDEMNIFICATION BY AMERICAN..............................................63
20.7 AIRLINE INCIDENT INDEMNIFICATION...............................................................64
20.8 SITA INDEMNIFICATION...........................................................................64
20.9 EXPRESS NEGLIGENCE.............................................................................64
20.10 THIRD-PARTY CLAIMS.............................................................................64
20.11 NON-THIRD-PARTY CLAIMS.........................................................................65
20.12 THIRD PARTY SOFTWARE INDEMNIFICATION...........................................................65
ARTICLE XXI -- LIMITATIONS OF LIABILITY...............................................................66
21.1 INTENDED ALLOCATION OF RISKS...................................................................66
21.2 NEGLIGENCE AND ORDINARY MISTAKES...............................................................66
21.3 EXTRAORDINARY MISTAKES.........................................................................66
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
21.5 GROSS NEGLIGENCE AND WILLFUL MISCONDUCT........................................................67
21.6 LIMITATION ON AMOUNT OF ALL GENERAL DAMAGES....................................................67
21.7 TIME FOR CLAIMS................................................................................67
21.8 WARRANTIES.....................................................................................67
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21.9 OFFSET.........................................................................................68
21.10 EQUITABLE RELIEF...............................................................................68
21.11 EXCLUSIVE REMEDIES.............................................................................68
21.12 NONCUMULATIVE REMEDIES.........................................................................68
21.13 WAIVER OF REMEDIES.............................................................................68
21.14 WARRANTY DISCLAIMER............................................................................68
21.15 CLAIMS FOR TAXES...............................................................................69
ARTICLE XXII -- FORCE MAJEURE AND DISASTER RECOVERY....................................................69
22.1 FORCE MAJEURE..................................................................................69
22.2 DISASTER RECOVERY..............................................................................70
ARTICLE XXIII -- DISPUTE RESOLUTION.....................................................................71
23.1 DISPUTES IN GENERAL............................................................................71
23.2 INFORMATION FOR RESOLUTION.....................................................................71
23.3 PAYMENT DISPUTES...............................................................................71
23.4 CONTINUITY DURING DISPUTE......................................................................71
23.5 PARTIES'AGREEMENT..............................................................................71
ARTICLE XXIV -- TERMINATION............................................................................72
24.1 TERMINATION FOR BREACH.........................................................................72
24.2 TERMINATION FOR INADEQUATE PERFORMANCE.........................................................72
24.3 TERMINATION FOR A FORCE MAJUERE EVENT..........................................................72
24.4 TERMINATION FOR CONVENIENCE....................................................................73
24.5 TERMINATION UPON ACQUISITION OF AMERICAN.......................................................73
24.6 TERMINATION BECAUSE OF ACQUISITION OF TSG......................................................73
ARTICLE XXV -- TRANSITION ASSISTANCE; SURVIVAL........................................................73
25.1 TRANSITION ASSISTANCE BY TSG...................................................................73
25.2 SURVIVAL.......................................................................................75
ARTICLE XXVI -- INSURANCE..............................................................................75
26.1 TSG'S INSURANCE IN GENERAL.....................................................................75
26.2 AG BUSINESS INTERRUPTION INSURANCE.............................................................75
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ARTICLE XXVII -- AUDITING RIGHTS........................................................................76
27.1 OPERATIONAL AUDIT..............................................................................76
27.2 RECORD-KEEPING AUDITS OF CHARGES...............................................................76
27.3 TERM OF AUDITS.................................................................................77
ARTICLE XXVII -- NOTICES AND OTHER COMMUNICATIONS.......................................................77
28.1 FORM...........................................................................................77
28.2 ADDRESSES......................................................................................78
28.3 EFFECTIVENESS..................................................................................79
ARTICLE XXIX -- AMERICAN ASSISTANCE TO TSG FOR TSG TO PROVIDE SERVICES..................................79
29.1 AMERICAN SUPPORT TO TSG........................................................................79
ARTICLE XXX -- MISCELLANEOUS PROVISIONS...............................................................80
30.1 ASSIGNMENT.....................................................................................80
30.2 AMENDMENT AND WAIVER...........................................................................81
30.3 INTEGRATION....................................................................................81
30.4 SEVERABILITY...................................................................................81
30.5 SUCCESSORS.....................................................................................81
30.6 GOVERNING LAW..................................................................................81
30.7 REASONABLENESS.................................................................................81
30.8 COUNTERPARTS...................................................................................81
30.9 FURTHER ASSURANCES.............................................................................82
</TABLE>
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SECOND AMENDED AND RESTATED
INFORMATION TECHNOLOGY SERVICES AGREEMENT
This Second Amended and Restated Agreement, effective December 13, 1999
(the "Amendment Date"), is between AMERICAN AIRLINES, INC., a Delaware
corporation, acting for itself and the American Related Entities, and Sabre,
Inc., formerly known as THE SABRE GROUP, INC., a Delaware corporation.
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 AND KEY REFERENCE TITLE
<S> <C>
A Section 1.1 Definitions and Interpretation
B Section 3.5, Section 22.1, Exh. A TSG Services Description
C Section 6.2, Exh. A Rate and Reset Schedule
D Section 5.1, Exh. A Services Subject to SLA
E Section 3.4, Section 5.1, Exh. A Agreed SLAs
F [Reserved]
G Section 5.9 Response/Resolution Procedures
for SLA Problems
H Section 3.17, Exh. A SITA Relationship
I Section 27.1, Section 27.2, Exh. A Key Employees
J Section 14.8 Non-disclosure /Confidentiality Agreement
K Section 24.4, Exh. A Termination Liquidated Damages
Calculation
L Section 25.1 Transition Assistance Service Descriptions
M Section 14.9, Exh. A Dispute Resolution Appendix
N Section 14.8, Section 25.1 Non-disclosure/Non-competition Agreement
O Exh. A AG Self-performed Services
P Section 3.19 Electronic Travel Distribution System
</TABLE>
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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 [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
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[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
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[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
Article III -- Services and Exclusivity
3.1 SERVICES IN GENERAL. Pursuant to this Agreement, TSG shall perform the TSG
Services for the Airline Group.
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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. The Parties agree and
acknowledge that any such rights of access granted to TSG: (i) for any
airport locations, shall take into account Airport Regulations; and (ii) for
any Airline Group leased facilities, shall take into account any applicable
lease restrictions. Usage of the other Party's facility will be measured by
aggregating the usage of all of a Party's employees at the facility. Should a
Party believe that allocation measured by employee instead of by usage is not
accurately reflecting value, such Party may propose an alternative
measurement method and the Parties will discuss adopting such alternative on
either a broad or case-by-case basis.
A. If a TSG employee is occupying space in an Airline Group
facility at AMERICAN's request and primarily for the Airline Group's
convenience, then AMERICAN will not charge TSG for any facility rent or other
commercially reasonable expenses 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. Except that, if a TSG employee is occupying space at
AMERICAN's System Operations Control Center or at AMERICAN's Capacity Planning
Department, then AMERICAN 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.
B. If TSG is occupying space in an Airline Group facility and
provides TSG Services to TSG or to other TSG Customers from that space, TSG will
provide AMERICAN with a credit against Fees payable in an amount equal to TSG's
pro rata share of facility rent and other commercially reasonable expenses; to
be calculated by the amount that AMERICAN would otherwise have charged TSG for
TSG's use of such space multiplied by the ratio calculated as the amount of time
TSG uses such space to provide services to TSG or to other TSG Customers over
TSG's total use (time) of such space. AMERICAN will provide TSG its good faith
estimate of the facility rent and other expenses attributable to usage of such
space. This will be calculated by determining the square footage of the space
allocated to TSG multiplied by the rent per square foot for the facility in
which the space is located plus other commercially reasonable expenses
attributable to usage of such space. Additionally, 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 a TSG
facility at TSG's request and primarily for TSG's convenience, then TSG will
not charge AMERICAN for any facility rent or other commercially reasonable
expenses related to such Airline Group employee, but AMERICAN 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 the Airline Group is occupying space in a TSG facility
other than pursuant to Subsection C above, then TSG will charge AMERICAN for a
pro rata share of facility rent and other commercially reasonable expenses to be
calculated by the amount that TSG would
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otherwise have charged AMERICAN for the Airline Group's use of such space
multiplied by one (1) minus the ratio calculated as the amount of time the
Airline Group uses such space as set forth in Subsection C over the Airline
Group's total use (time) of such space. This will be calculated by
determining the square footage of the space allocated to the Airline Group
multiplied by the rent per square foot for the facility in which the space is
located. Additionally, AMERICAN 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. If TSG is occupying space in an Airline Group facility
other than pursuant to Subsection A above, then the Airline Group will charge
TSG for a pro rata share of facility rent and other commercially reasonable
expenses to be calculated by the amount that the Airline Group would
otherwise have charged TSG for TSG's use of such space multiplied by one (1)
minus the ratio calculated as the amount of time TSG uses such space as set
forth in Subsection A over TSG's total use (time) of such space. This will be
calculated by determining the square footage of the space allocated to TSG
multiplied by the rent per square foot for the facility in which the space is
located. Additionally, TSG will be responsible for all significant
out-of-pocket expenses of the Airline Group incurred because of the presence
of such TSG employee at an Airline Group facility, including Device Support
and Voice Network Services.
F. 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.
G. If a TSG employee is providing AMERICAN TSG Services at a
facility of a different TSG Customer, TSG will charge AMERICAN its pro rata
portion of the facility rent and other commercially reasonable expenses paid by
TSG for use of such facility. Such allocation will be calculated in a manner
similar to that set forth in Subsection B above. Such amount will be equal to
the amount TSG would have incurred if TSG occupied comparable space in a similar
Airline Group facility. Additionally, TSG shall be responsible for its pro rata
portion of all significant out-of-pocket expenses of TSG incurred because of the
presence of such TSG employee, including Device Support and Voice Network
Services.
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
3.3 NEW/OUT-OF-SCOPE SERVICES. When TSG and AMERICAN expressly agree in
writing, TSG shall perform a New/Out-of-scope Service. Subject to any special
or unique terms regarding such New/Out-of-scope Service agreed upon by the
Parties in writing, any New/Out-of-scope Services agreed upon by the Parties
shall be considered TSG Services for purposes of this Agreement.
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3.4 TSG'S RIGHTS TO MANAGE ITS RESOURCES. Subject to the other provisions of
this Agreement, including Article V - Service Levels, Article XVI -- Key
Employees and Related Provisions and Exhibit E, and consistent with 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 AMERICAN 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 an Airline Group member.
3.5 KEEPING PLATFORM TECHNOLOGY CURRENT.
A. TSG agrees to use reasonable efforts to keep the
Platform Technology that TSG uses to provide the TSG Services to the Airline
Group at a level current with the Platform Technology that TSG implements for
its general internal operations and on behalf of its Air Carrier customers
generally, and at a level at least comparable to the level of Platform
Technology generally adopted from time to time in the air transportation
industry for provision of similar services. In addition, TSG agrees to use
reasonable efforts, at its own expense, to keep knowledgeable about changes
and advancements over time in the technology necessary to provide the TSG
Services.
B. Except as provided in Section "3.6, SHARED ENVIRONMENT
UPGRADES" and Section "3.8, REFRESH FOR DEVICE SUPPORT," in the event that
Platform 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,
AMERICAN and TSG shall meet to discuss whether to implement such
improvements. At AMERICAN'S sole option, TSG will (i) implement such Platform
Technology improvements and charge the Airline Group increased Fees, or (ii)
not implement such Platform Technology improvements and continue to use TSG's
then-existing Platform Technology.
C. In the event that AMERICAN elects not to implement
Platform Technology improvements under Subsection B, affected SLAs, if any,
will be appropriately adjusted and Fees will be appropriately adjusted on a
cost plus margin basis as specified in Exhibit C: Rate and Reset Schedule,
consistent with the margin TSG received for the applicable TSG Service prior
to the choice not to implement such Platform Technology improvements to
reflect provision of such services using non-improved Platform Technology on
the Airline Group's behalf.
D. To the extent that improvements to the Platform
Technology result in the incorporation of new features or functionality that
were not requested by the Airline Group or previously provided by TSG, TSG
will not, without the Airline Group's consent, (i) charge the Airline Group
Fees for such new features or functionality, or (ii) implement such features
or functionality on behalf of the Airline Group if such implementation would
result in additional costs to the Airline Group.
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E. Nothing in this Section 3.5 shall be construed as
relieving TSG of its obligation to provide, at no additional Fees to the
Airline Group, installation, support, and upgrades to the most current
version of the software identified in the "TSG Commercial Software Product
List" in Exhibit B: TSG Services Description, so long as any such upgrades
are compatible with the then-current Platform Technology.
3.6 SHARED ENVIRONMENT UPGRADES. Except as otherwise expressly provided in this
Agreement, the Current Rates will not increase if TSG upgrades the Shared
Environment it uses to provide the TSG Services. AMERICAN shall pay an increase
in Fees that would otherwise result from an upgrade only to the extent that such
increase in AMERICAN's Fees is commensurate with the benefits of such upgrade to
the Airline Group attainable in the reasonably foreseeable future, as determined
by AMERICAN in its reasonable, good faith judgment.
3.7 EFFICIENCY AND COST EFFECTIVENESS. TSG shall use commercially reasonable
efforts, consistent with TSG's obligations under Article V - Service Levels, to
use efficiently those resources chargeable to AMERICAN, and in so doing will (i)
consider the Airline Group's needs, (ii) make schedule adjustments consistent
with the Airline Group's priorities, and (iii) consider the needs of TSG's other
contractual commitments. TSG may delay the performance of non-critical functions
within established limits.
3.8 REFRESH FOR DEVICE SUPPORT. The Airline Group shall receive, at AMERICAN's
expense, the benefits of upgrades to Off-the-shelf Software included within
Device Support as soon as reasonably practicable and on a schedule reasonably
contemporaneous with the deployment schedule for other MFC Customers, but in any
event within twelve (12) 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
AMERICAN, and the Parties shall mutually agree on the price of such work
described in this Section 3.8.
A. AMERICAN agrees to provide TSG with at least six (6) 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 Distributed Systems Services.
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, AMERICAN 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 certain third-party
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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 TSG will:
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 Notice to AMERICAN pursuant to Subsection A(1) of this
Section 3.9 or upon mutual agreement of the parties if prior to the first
anniversary of Notice.
B. TSG and the Airline Group shall use reasonable efforts to
minimize any costs required to transfer the Airline Group to a replacement
product. If the Airline Group adopts, implements or continues to use an
Unsupported Product, AMERICAN shall pay TSG the incremental costs incurred by
TSG to provide, support or maintain such Unsupported Product, whether by TSG or
through a third-party service provider retained by TSG.
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:
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
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[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
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[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
3.11 NON-EXCLUSIVE SERVICES. Services that are not Exclusive Services include
the following:
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
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[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
3.12 ENGAGING THIRD PARTIES FOR NON-EXCLUSIVE SERVICES.
A. If AMERICAN or any American Related Entity solicits offers
from any third party to provide Non-exclusive Services, AMERICAN or any
American Related Entity is not obligated to offer TSG the opportunity to
provide such Non-exclusive Services if such solicitation is made to only one
Person. If, however, any such solicitation for the provision of Non-exclusive
Services is made to more than one Person, then TSG shall have the opportunity
to Compete with third parties in any such bidding, except that AMERICAN or an
American Related Entity is not obligated to accept TSG's offer or grant TSG
any preferential treatment.
B. AMERICAN or an American Related Entity 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. In the event of the
creation of one or more Spin-off Companies or Affiliated Spin-off Entities,
then, as among the remaining Airline Group and all such Spin-off Companies, the
largest of such entities (as measured by reference to processing volumes) will
be subject to this Agreement. Each of the other entities will be permitted to
elect whether or not to remain subject to this Agreement or to execute a
substantially identical, separate agreement. For the purposes of determining
applicable unit pricing under such substantially identical, separate agreements
for such entities or for such entities that remain subject to the Agreement or
for any purposes under this Agreement where volumes are used, the volumes of all
such entities that remain subject to the agreement or to a substantially
identical, separate agreement will be aggregated. However, TSG will have the
right to levy additional reasonable Fees commensurate with actual, verifiable
costs associated with
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servicing these multiple entities. Any Wind-down Costs to TSG as the result
of the creation of a Spin-off Company or Affiliated Spin-off Entity shall be
borne and paid by AMERICAN or such of the entities as AMERICAN may designate.
Except as provided in the first sentence of this Section 3.13, any entity
which is spun off from AMERICAN may elect not to be subject to this
Agreement, or such entity may elect solely to utilize "lower-level"
applications rather than the full suite of TSG products. AMERICAN recognizes
that any such election may affect volume-based pricing for the other entity
or entities following the same principles set forth herein for internal
growth or shrinkage.
A. If AMERICAN or an American Related Entity acquires another
Air Carrier and merges its airline operations with such other Air Carrier, then
such Air Carrier's information technology operations shall, subject to the
specific restrictions herein, possess all the rights and benefits and be subject
to all of the obligations of AMERICAN or an American Related Entity 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.
B. If AMERICAN or an American Related Entity acquires another
Air Carrier and does not merge its airline operations with such other Air
Carrier, then, subject to the specific restrictions herein, such Air Carrier's
information technology operations shall become subject to this Agreement at
AMERICAN's sole discretion, subject to Subsection C below.
C. If AMERICAN or an American Related Entity acquires any
entity (including another Air Carrier) or otherwise undergoes an Acquisition,
AMERICAN may cause the information technology services of such entity to
become subject to this Agreement upon Notice to TSG; so long as 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; except 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; but only if TSG
has given AMERICAN Notice in advance of incurring such costs. Any entity
resulting from an Acquisition who elects to receive TSG Services using
Transferred Software and/or Jointly Owned Software, and TSG is the processor
of substantially all of the volume of services for those applications, will
not be assessed a license fee to use such Transferred Software and/or Jointly
Owned Software. For the purposes of the previous sentence, if the entities
constituting the Airline Group prior to such event continue to operate as a
stand-alone entity separate from any other affiliated airline, then the
"substantially all" test shall be applied independently to the Airline Group
and each other separate entity resulting from such Acquisition.
3.14 CHANGES IN DEMAND FOR TSG SERVICES. AMERICAN or any member of the Airline
Group (a) shall inform TSG within a reasonable time in advance of material
changes in the Airline Group's requirements for TSG Services to enable TSG to
adjust its resources and (b) acknowledges that its failure to so inform TSG may
temporarily impact service levels or necessitate revisions to SLAs. The Parties
acknowledge that changes in the Airline Group's
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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 for
services that TSG provides under this Agreement. If AMERICAN fails to give
Notice of relevant material changes in the Airline Group's requirements for
TSG's personnel, then TSG's obligation to comply with such change shall not
apply for a reasonable period of time until TSG can supply different or
additional 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; except that, 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, as appropriate.
D. If AMERICAN, after consultation with TSG, decides that any
member of 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 member 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.
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.
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
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
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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.
(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."
D. In accordance with the Stock Agreement, TSG has the right
to designate a representative on the SITA Board of Directors utilizing
AMERICAN's board seat. The Parties expect that TSG and AMERICAN will each obtain
a seat on the SITA Board of Directors and the Parties will jointly support the
efforts necessary to realize these rights. If TSG does not obtain on its own
behalf a seat on the SITA Board of Directors by September 1, 2000, immediately
thereafter AMERICAN shall reassume its right to designate a representative on
the SITA Board of Directors utilizing its Board seat, and the provisions of the
Stock Agreement that allow TSG to designate a representative to represent TSG on
the SITA Board of Directors are hereby deemed amended to reflect such change.
E. The Parties expect to enter into a Tripartite Agreement
(the "Tripartite Agreement") with SITA that will govern the relationship of the
Parties with respect to SITA
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matters. Upon execution of the Tripartite Agreement the Tripartite Agreement
will govern in the event that a conflict arises between the terms of this
Section 3.17, Section "20.8 SITA INDEMNIFICATION" and the Tripartite
Agreement.
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 Exhibit P: Electronic Travel
Distribution System.
3.20 SPECIAL PROVISIONS REGARDING CERTAIN SOFTWARE DEVELOPMENT.
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
Article IV -- Locations of Services
4.1 TSG'S CHANGES TO LOCATIONS. Consistent with TSG's rights under Section "3.4,
TSG's RIGHTS TO MANAGE ITS RESOURCES," 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
AMERICAN's Consent.
4.2 AIRLINE GROUP'S REQUESTED CHANGES AT ITS LOCATIONS. If an Airline Group
member wishes TSG to change, consolidate, eliminate or add any function that
would be performed at the Airline Group member's location, it shall so Notify
TSG. TSG shall promptly provide AMERICAN with a good faith estimate of the cost,
if any, that will be borne by AMERICAN consistent with the expense allocations
set forth in Section "3.2, ACCESS TO AND USE OF FACILITIES," 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.
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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. The Parties may agree at any time after the Effective Date
to add/delete SLAs to/from the Agreement; upon the Parties' Consent, an SLA
established after the Effective Date shall be deemed incorporated into Exhibit
E: Agreed SLAs for all purposes. Any new SLA may result in additional Fees for
the development, implementation or monitoring of the SLA.
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, as contemplated in the SLAs.
D. In general TSG shall strive to improve continually its
actual performance and, subject to Subsections D(1) and D(2) below, shall not
knowingly act in a manner that will reduce its level of performance.
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
(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 TSG shall cooperate to enable TSG to take
advantage of such cost-saving opportunities, except that TSG may not reduce
its levels of performance below the SLA Standards.
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.
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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. [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED], the
Parties will establish for each SLA, 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. If the
Parties cannot establish the Performance Increases and Performance Decreases
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED], for any SLA, they will [TEXT
OMITTED - CONFIDENTIAL TREATMENT REQUESTED] to resolve the remaining disputed
issues in accordance with this Agreement [TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED] in accordance with the "DISPUTE RESOLUTION" provisions set forth in
Article XXIII. 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 a Critical TSG Service or High
Risk TSG Service, each SLA may specify Performance Increases for Exceptional
Performance and Performance Decreases for Inadequate Performance; except 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.
F. If an MFC Customer adopts a different SLA, TSG shall
make such SLA available to AMERICAN and AMERICAN shall have the option to
adopt such SLA in accordance with the terms and conditions hereof, including
payment of any additional, incremental Fees, if any, for the development,
implementation or monitoring of an SLA.
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.
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.
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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.
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
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.
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
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 (10) days in advance
of such meeting, with such performance reports as have been reasonably
requested by AMERICAN.
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5.9 CORRECTION OF PERFORMANCE. TSG is obligated to cure or correct errors,
mistakes, and deficiencies in service; and credit or repay AMERICAN 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, [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
(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 thirty (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. AMERICAN waives any associated Performance Decreases; and
B. AMERICAN 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 any member of the Airline Group.
AMERICAN may require that TSG make reasonable changes to such software to
improve its efficiency and TSG may charge AMERICAN at Current Rates for making
such changes. If TSG fails to make such changes, AMERICAN 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
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satisfaction in those areas where satisfaction has fallen below such levels.
TSG shall present the plan to AMERICAN within six (6) weeks following
compilation of the survey results.
Article VI -- Subcontracting
6.1 NO SUBCONTRACTING PRIMARY RESPONSIBILITIES. TSG may not subcontract any
of the TSG 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 that are subcontracted as of the
Effective Date. TSG may subcontract TSG Services other than the TSG Primary
Responsibilities, except that to subcontract any service that TSG performs at
that time for the Airline Group and for which the total Fees typically charged
to AMERICAN are in excess of Ten Million Dollars ($10,000,000) 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 by TSG to third parties. 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.
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. Such provisions shall include, without
limitation, the assignment of any Intellectual Property Rights to the extent
that such rights are to be assigned to AMERICAN pursuant to the terms of this
Agreement or the assignment or license (with rights to sublicense) of any
Intellectual Property Rights to the extent necessary to grant AMERICAN the
rights it is granted in Article 11.
F. Subject to Exhibit C, TSG shall reimburse AMERICAN 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 any member of the
Airline Group due to TSG's subcontracting one or more TSG Services.
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Article VII -- Fees
7.1 RATE AND RESET SCHEDULE. The Fees charged by TSG to AMERICAN, and payable by
AMERICAN 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; except 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 Section "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 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
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(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.
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 1999 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 1998).
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,
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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 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 and, to the
extent TSG obtains synergies by combining "like volumes" for benchmarked
products (Sabre will not unreasonably refuse to provide services in a way which
obtains such synergies), MFC Customers' collective size as recipients of data
processing services, the SLA Standards required of TSG, the geographic factors
involved in providing the TSG Services to the Airline Group, and the exclusivity
commitments made by AMERICAN for services, and the Retained Rights.
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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:
(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) Typically, the Benchmarking Process wil be conducted as
a joint effort between all MFC Customers and TSG, and each of the Parties
shall pay a proportionate share of the fees and expenses (if any) of each
Benchmark Provider. The proportionate share of such fees and expenses for
each MFC Customer shall be calculated by determining the number of MFC
Customers participating in such process and dividing the total fees and
expenses of such Benchmark Provider by the number of participating MFC
Customers plus TSG. AMERICAN and any subsequent MFC Customer shall not be
charged for any such expenses or fees attributable to a Benchmarking Process
occurring prior to AMERICAN's or such MFC Customer's participation in such
process. However, nothing in this Section 7.5 precludes AMERICAN from
performing an independent or additional Benchmarking Process exclusively with
TSG, each Party bearing one half of the Benchmark Providers' related fees and
expenses. Neither party can share the independent Benchmark Results of such
Benchmarking Process without the other party's consent.
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
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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 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 AMERICAN
any excess Fees received since January 1 or AMERICAN shall pay TSG any
additional Fees due to TSG since January 1.
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
7.10 ADJUSTMENT TO PROVISIONS BASED ON CONVERSION TO MARKET PRICING.
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
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7.11 PERFORMANCE ADJUSTMENT OF FEES. The Fees shall increase in the event
of Exceptional Performance and decrease in the event of Inadequate Performance.
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
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.
7.12 PAYMENT FOR RE-RUNS [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
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7.13 FEE REDUCTIONS FOR DROPPING CERTAIN MAINTENANCE. Upon Notice to TSG,
AMERICAN may elect to terminate for such devices as may be specified in such
Notice, 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.
7.14 MOST FAVORED CUSTOMER.
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
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[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
7.15 PAYMENTS FOR THIRD PARTY SOFTWARE UPON DISAFFILIATION. On the
Disaffiliation Date, TSG shall pay such license fees, and any applicable or
related Taxes that result from the disaffiliation of TSG from American, for the
Transferred Third-party Software and the Other Third-party Software as are
required to enable the Airline Group to continue to receive the TSG Services.
7.16 FAIR ALLOCATION OF COSTS. Fees that are based on costs incurred after
the Effective Date shall be subject to the principle of "fair allocation of
cost"; i.e., that such Fees shall reflect TSG's cost of providing service to
AMERICAN in the context of TSG's total volumes provided to all TSG Customers
and TSG's own use of the applicable systems. If AMERICAN and TSG do not agree
that a "fair allocation of cost" is being made for any specific item or
items, at AMERICAN's request, the Parties shall (after management level
discussions and attempts to resolve differences in accordance with the
dispute resolution provisions set forth in ARTICLE XXIII - Dispute
Resolution) engage the services of an independent accounting firm mutually
acceptable to both Parties. The accounting firm's fees shall be paid in equal
proportions by the Parties. Such accounting firm shall conduct a review,
using costing principles based on activity by TSG on behalf of AMERICAN and
all TSG Customers and TSG's own use of the applicable systems, of the
allocations in question and the judgment of such firm shall be considered
binding on both Parties for determining "fair allocation of cost." Nothing in
this Section 7.16 eliminates AMERICAN'S rights under ARTICLE XXVII - Auditing
Rights.
7.17 ALLOCATION OF COSTS UPON TERMINATION BY AN MFC CUSTOMER OF ALL OR PART OF
ITS AGREEMENT WITH TSG. [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
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Article VIII -- Invoices and Payment
8.1 INVOICES. AMERICAN is required to pay only 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 AMERICAN for the prior month's Fees on or before
the eighth (8th) Business Day of every month. Such invoice is due and payable
and AMERICAN shall pay such invoice within thirty days after AMERICAN'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, AMERICAN 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, AMERICAN shall pay TSG all undisputed
amounts[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]; except that AMERICAN
may withhold the payment of taxes on disputed amounts without regard to the
limitation 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, AMERICAN shall pay TSG all undisputed
amounts[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]: therefore, in such
event and irrespective of the amount in dispute, AMERICAN may not, in respect
to the Disputed Invoice, withhold payment of any amount in excess of
[TEXT OMITTED -CONFIDENTIAL TREATMENT REQUESTED] of the Disputed Invoice;
except that AMERICAN may withhold the payment of taxes on disputed amounts
without regard to the limitation 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 AMERICAN shall be in accord
with this Section 8.3.
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 (as
determined by AMERICAN in its good faith, reasonable judgment) written
information to substantiate the Fees, including supporting documentation of
resource usage, information concerning TSG Software Income for agreements
executed prior to the Disaffiliation Date, or executed after the Disaffiliation
Date and signed by the Parties' Account Managers, which include payment by Sabre
of royalties to AMERICAN on software license fees earned by Sabre, and
information concerning any offset in Fees pursuant to Section "11.14, OFFSET OF
FEES." TSG shall also concurrently provide information concerning the
prospective annual increase or reduction in Fees pursuant to Section "7.11,
PERFORMANCE ADJUSTMENT OF FEES."
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C. TSG shall promptly provide AMERICAN 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. Upon Notice to AMERICAN and with AMERICAN's Consent, TSG
may change the procedures for producing invoices, the billing allocation
methodology for any TSG Service, or the form or format of invoices or
substantiating information that is routinely provided to AMERICAN; except that
any such change shall not affect the amount of any Fees charged AMERICAN nor
shall it limit the Airline Group's ability to conduct the audits described in
Article XXVII - Auditing Rights.
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. [TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED]
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 provision of services or transfer of
property by TSG to an Airline Group member pursuant to this Agreement; except
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.
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9.2 CLAIM OF EXEMPTION. AMERICAN shall pay any Taxes for which it is responsible
which are invoiced by TSG to a member of the Airline Group under Article VIII --
Invoices and Payment unless AMERICAN promptly provides TSG with an exemption
certificate, resale certificate or letter explaining why AMERICAN believes the
Tax is not applicable. Such certificate or letter does not relieve a member of
the Airline Group 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 a member of the Airline Group 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 a member of the Airline Group to
deliver a letter of advice from outside counsel, selected by a member of the
Airline Group and reasonably acceptable to TSG, that a member of the Airline
Group's position is reasonable under the tax law. The cost of such letter shall
be split equally between the Parties. If such a letter is not delivered within
thirty (30) days of the request, a member of the Airline Group 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 to 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; except 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 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
(5) 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 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,
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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; except 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 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;
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; in particular, this Agreement may be amended to permit one or more
American Related Entities to acquire TSG Services at specified locations for
purposes of enhancing and modifying the TSG Services for subsequent resale and
delivery to the Airline Group at specified locations.
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;
G. AMERICAN or an Airline Group member entering into
agreements for third party services directly with the third parties, or AMERICAN
entering into agency arrangements
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whereby TSG acts as AMERICAN's or the Airline Group member's agent in
securing third party services, all subject to AMERICAN reaching reasonable
terms with such third party; and
H. Amending this Agreement;
except 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 data, as reasonably necessary
for tax purposes (and in any event for at least six (6) years from the date of
the transactions to which such data relate); making such data available to the
other Party (or permitting the other Party to copy, at its expense, such data);
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 AMERICAN for) such additional Taxes, it being the intent of the
Parties that AMERICAN'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 AMERICAN 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;
except 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,
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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 (5) 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 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 resolved by any appropriate
administrative or legal procedure available to a Party or the Parties under
this Agreement apart from the Dispute Resolution Procedure.
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
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[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
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 member 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.
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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, hypothecate, and/or in any other way transfer
the AG Data or the AG Customer Data. All such attempts by TSG 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. [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
B. Where re-creation or restoration of such data is at
AMERICAN's expense, TSG shall obtain AMERICAN's Consent before performing such
re-creation or restoration that will incur Fees greater than Five Thousand
Dollars ($5,000).
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 AMERICAN's
expense. TSG shall never refuse for any reason, including AMERICAN's material
breach of this Agreement, to provide any Airline Group member with copies of the
AG Data and AG Customer Data in accordance with this Section 10.5. TSG hereby
expressly agrees that AMERICAN 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 AMERICAN and TSG, the Airline Group
member is the exclusive owner of all AG Data and all AG Customer Data recorded
on any media irrespective of which Party owns the media.
Article XI -- Software and Intellectual Property
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11.1 OWNERSHIP OF INVENTIONS AND PATENTS. Except as set forth in Sections 11.4
and 11.5C of this Agreement, each of TSG and each member of the Airline Group
will retain all of its respective rights in inventions made solely or jointly by
its employees and all patent rights therein and will retain ownership of any
patents otherwise owned by it as of the Disaffiliation Date .
11.2 TRANSFERRED SOFTWARE. TSG shall continue to own the Transferred
Software subject to the Retained Rights of AMERICAN.
11.3 . JOINTLY OWNED SOFTWARE OWNERSHIP. TSG and AMERICAN agree that, except as
provided in Section 11.4 of this Agreement, each of them has and will retain an
undivided, one-half ownership interest in all Jointly Owned Software and, except
as provided in Section 11.1 for inventions embodied in such software and patent
rights to such inventions, in all Intellectual Property Rights in and to such
Jointly Owned Software. Except as expressly provided in Section 11.8C(1)
regarding Cloned Software and Article XII, TSG and AMERICAN further agree that
no Party to this Agreement will have any obligation to pay to any other Party
any royalty, fee, or other compensation for exercising rights with respect to
the Jointly Owned Software or to account to or share with any other Party for
any revenue received as a result of exploiting the Jointly Owned Software.
11.4 OWNERSHIP OF IDS SOFTWARE.[TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
11.5 NEW SOFTWARE OWNERSHIP. Ownership of and rights to the New Software
shall depend on whether the New Software was developed on the basis that it
was Standard Development, Joint Venture or Strategic Development. The parties
shall determine at the commencement of a development project whether the
software to be developed is going to be on a Standard Development basis,
Joint Venture basis or a Strategic Development basis.
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]. In the event that
development work is conducted and the parties have not agreed in writing on
what basis such development was conducted, the resulting New Software shall
be deemed to have been created on a Standard Development
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basis. If the Parties determine that New Software is to be developed on a basis
other than a Standard Development basis, AMERICAN's Account Manager and TSG's
Account Manager will sign a separate document to that effect. The parties
respective rights in New Software shall be as follows:
A. For New Software developed on a Standard Development basis, TSG and the
member of the Airline Group requesting the development work ("Requesting Party")
each shall own an undivided one-half interest in such New Software and, except
as provided in Section 11.1 for inventions embodied in such New Software and
patent rights to such inventions, in all Intellectual Property Rights in and to
such New Software. Except as provided in Article XII, TSG and Requesting Party
further agree that no Party to this Agreement will have any obligation to pay to
any other Party any royalty, fee, or other compensation for exercising rights
with respect to such New Software or to account to or share with any other Party
for any revenue received as a result of exploiting such New Software.
B. For New Software developed on a Joint Venture Basis, TSG and the Requesting
Party shall negotiate allocation of the ownership of the New Software and of the
Intellectual Property Rights to be held by both parties, [TEXT OMITTED -
CONFIDENTIAL TREATMENT REQUESTED] and the other relevant terms covering the
Development.
C. For New Software developed on a Strategic Development basis, rights to such
New Software shall be determined on a case by case basis and will be set forth
in a written document signed by AMERICAN's Account Manager and TSG's Account
Manager. However, if TSG and the Requesting Party agree that New Software will
be developed on a Strategic Development basis but do not specify how rights to
such New Software shall be owned, then the Requesting Party shall own all
rights, title and interest to such New Software, including without limitation
(i) all Intellectual Property Rights to such New Software and (ii) any rights to
patent any invention created during the course of developing such New Software
on a Strategic Development basis. For each instance where TSG develops New
Software that is developed on a Strategic Development basis, the Requesting
Party will determine whether TSG will have any rights to market such New
Software. [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]. In the event
ownership of such New Software is allocated to the Requesting Party, TSG hereby
assigns and agrees to assign all of its rights as necessary to achieve the
foregoing ownership position.
11.6 RIGHTS OF AMERICAN IN STANDARD SOFTWARE. . [TEXT OMITTED -
CONFIDENTIAL TREATMENT REQUESTED]
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[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
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11.7 RIGHTS OF TSG IN STANDARD SOFTWARE. . The rights of TSG in and to
Standard Software are limited only by the rights of the Airline Group as
specified in Section 11.6 [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
11.8 CLONED SOFTWARE AND CLONED SOFTWARE DERIVATIVE WORKS. .
A. [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
B. [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
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[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
11.10 INTELLECTUAL PROPERTY. . TSG and each member of the Airline Group
agree as follows:
A. A Party that solely owns an invention, an original work of
authorship such as software or documentation, know-how or trade secrets
subject to this Agreement will have sole control and authority over
obtaining, maintaining and enforcing Intellectual Property Rights therein,
provided,
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however, that where another Party, pursuant to this Agreement or another
agreement between the Parties, uses the solely-owned invention, original work,
know-how or trade secret in its business, the owning Party may not abandon or
otherwise dedicate to the public Intellectual Property Rights therein without
first offering such Intellectual Property Rights to the other Party at no cost
except those costs incurred to continue obtaining, maintaining and enforcing
such Intellectual Property Rights.
B. Parties that jointly own an invention, an original work of
authorship such as software or documentation, know-how or trade secrets
subject to this Agreement will cooperate in obtaining, maintaining and
enforcing Intellectual Property Rights therein.
(1) TSG will control and bear the cost of obtaining and maintaining
patents on inventions made jointly by employees of TSG and a member of the
Airline Group. TSG will keep the other Party having an interest in such
invention fully informed of the status of any such patents, and, in the event
TSG elects to abandon such patent or an effort to obtain it, TSG will offer
it to the other Party at no cost except those incurred to subsequently obtain
or maintain the patent. The Parties rights to the invention and patent
thereon will not be affected by whether a patent is obtained and by whom.
(2) Where appropriate, TSG will obtain copyright registration for
Standard Software jointly in the name of TSG and the applicable member of the
Airline Group. Members of the Airline Group will cooperate.
(3) Each of the Parties jointly owning know-how or trade secrets will
take the same precautions to preserve the proprietary nature thereof as it
takes to preserve the proprietary nature of know-how or trade secrets solely
owned by it.
(4) Each Party jointly owning an Intellectual Property Right will
cooperate with the other joint owners in enforcement of such Right. If one
joint owner notifies the other joint owners of an intent to enforce a jointly
owned Intellectual Property Right against an identified third party, each
other joint owner will provide, at the reasonable expense of the one joint
owner, full cooperation and assistance in such enforcement and will not take
any action that would inhibit or deprive the one joint owner from obtaining
the remedies sought by such enforcement.
(5) To the extent necessary under applicable law, each of the Parties
jointly owning an Intellectual Property Right subject to this Agreement
hereby authorizes the other joint owners to exploit that Intellectual
Property Right to the extent permitted by the terms of this Agreement and any
other written agreement between the Parties.
C. If any Party shall become aware of any infringement or
misappropriation by any third party of the Standard Software or Transferred
Software, it shall promptly give Notice to the other Parties of such
infringement or misappropriation.
(1) TSG, may, at its own expense, institute suit against such third
party and the members of 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
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purpose. The Parties intend that TSG bear eighty percent (80%) of all
expenses connected with such suit and that AMERICAN bear twenty percent (20%)
of such expenses; except that if AMERICAN desires to retain its own counsel,
it shall do so at its own cost and expense, and that either Party may, in its
sole discretion, upon Notice to the other Party, choose not to bear any
further expense of such suit.
(2) If TSG does not institute suit against such third party or otherwise
abate such infringement or misappropriation before the earlier of one hundred
twenty (120) days after receiving Notice from a member of the Airline Group
of such infringement or misappropriation or thirty (30) days prior to the
expiration of the statute of limitations, then the member of the Airline
Group may, at its expense, institute suit against such third party, and TSG
shall fully cooperate with the Airline Group to enjoin such infringement or
misappropriation and if reasonably necessary, shall, if requested, join with
the member of the Airline Group as a party to any action brought thereby for
such purpose. The member of the Airline Group shall bear all expenses
connected with such suit, except that if TSG desires to retain its own
counsel, it shall do so at its own cost and expense.
(3) Any recovery as a result of any suit pursuant to this Section 11.8 C
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.
11.11 CONVENANTS NOT TO SUE.
A. General Covenants Not to Sue
(1) It is the intention of the Parties that each Party will be free to
exploit the rights that Party receives pursuant to this Agreement without regard
to the other Party's Intellectual Property Rights, provided that such
exploitation is not in violation of the terms of this Agreement.
(2) Each member of the Airline Group irrevocably and perpetually covenants not
to sue TSG under any Intellectual Property Right owned by such member with
respect to the making, having made, using, selling, distributing, modifying,
copying, importing or otherwise commercializing or exploiting, throughout the
world, (i) any Transferred Software or Standard Software and (ii) any concepts,
inventions or other technology embodied in the Transferred Software or the
Standard Software, except to the extent that any of the foregoing activities are
expressly restricted in, or would otherwise constitute a violation of, a
provision of this Agreement or any separate written agreement between the
Parties. The foregoing covenant is extended to any third party, including
without limitation TSG's customers, to the extent such third party acquires
rights as permitted under this Agreement with respect to Transferred Software or
Standard Software from TSG or its agents or distributors.
(3) TSG irrevocably and perpetually covenants not to sue any member of the
Airline Group under any Intellectual Property Right owned by TSG with respect to
the making, having made, using, selling, distributing, modifying, copying,
importing or otherwise commercializing or exploiting, throughout the world, (i)
any Transferred Software or Standard Software and (ii) any concepts,
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inventions or other technology embodied in the Transferred Software or the
Standard Software, except to the extent that any of the foregoing activities
are expressly restricted in, or would otherwise constitute a violation of, a
provision of this Agreement or any separate written agreement between the
Parties. The foregoing covenant is extended to any third party, including
without limitation Airline Group's customers, to the extent such third party
acquires rights as permitted under this Agreement with respect to Transferred
Software or Standard Software from Airline Group or its agents or distributors.
(4) The covenant not to sue granted by TSG in Section 11.11A(3)(i) in respect of
Transferred Software shall only extend to the Retained Rights.
(5) In relation to any Intellectual Property Rights that are the subject of the
covenants not to sue in this Agreement, TSG and each member of the Airline Group
agrees that the covenants not to
sue granted by it in this Agreement shall extend to any transferee of any of
such Intellectual Property Rights, and TSG and each member of the Airline
Group shall obtain a written agreement to abide by such covenant not to sue
from any such transferee of such Intellectual Property Right.
11.12 LICENSE AND ACCESS TO CERTAIN TSG PORTFOLIO SOFTWARE. The
following shall apply in relation to all TSG Portfolio Software (which does not
include Standard Software or Transferred Software):
A. TSG grants to AMERICAN and the American Related Entities, as of the
Amendment Date, a worldwide, non-exclusive, non-transferable, license to use,
in object code form only, all existing and future versions of such TSG
Portfolio Software that AMERICAN or an American Related Entity elects to
license prior to the earlier of termination of this Agreement or the end of
the Term, [TEXT OMITTED -CONFIDENTIAL TREATMENT REQUESTED]. For each item of
TSG Portfolio Software, the license granted herein to such item of TSG
Portfolio Software will only terminate after the earlier of expiration of the
Term or termination of this Agreement at any time that AMERICAN or an
American Related Entity ceases to obtain maintenance from TSG pursuant to
Section 11.12E for such item of TSG Portfolio Software.
B. To the extent that a particular instance of the TSG Portfolio
Software incorporates Third Party Software and sublicensing of such Third
Party Software is restricted by the terms of TSG's agreement with the third
party, then the rights of the Airline Group and its Affiliates to that
particular instance of TSG Portfolio Software shall be subject to obtaining
any necessary consents of the applicable third-party. The Airline Group and
its Affiliates' use of any Third Party Software incorporated into the TSG
Portfolio Software shall be subject to all the terms and conditions of the
applicable license agreement between TSG and such Third-Party licensor which
are notified to AMERICAN by TSG.
C. AMERICAN shall make no modifications, alterations, or Derivative
Works of the TSG Portfolio Software. AMERICAN shall not reverse engineer,
disassemble, reverse compile or decompile the TSG Portfolio Software.
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D. AMERICAN shall not transfer or sublicense the TSG Portfolio Software
or any components thereof, to any Person or entity, whether by operation of
law or otherwise, without the prior written consent of TSG.
E. TSG has the exclusive right to maintain, enhance and operate the TSG
Portfolio Software. [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
F. At AMERICAN's request, TSG shall place a source code copy of any
such TSG Portfolio Software in escrow, [TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED], with an escrow agent and at a location chosen by AMERICAN and TSG
shall provide regular updates to such TSG Portfolio Software source code.
Prior to placing any source code with an escrow agent the Parties will enter
into a source code escrow agreement that will define, among other things, the
events that will allow AMERICAN to have access to the source code (which
events shall include without limitation, events related to maintenance of the
applicable software and TSG's bankruptcy) and AMERICAN's permitted usage of
the source code (which shall include, without limitation, a license to
maintain and operate the applicable software).
11.13 TSG'S MARKETING RIGHTS. Effective as of the Disaffiliation Date, TSG
has perpetual rights to market all Standard Software and Transferred Software
(including Standard Software and Transferred Software currently under
development and or currently market-restricted), and any modifications to
such Software [TEXT OMITTED CONFIDENTIAL TREATMENT REQUESTED]; provided,
however, that TSG shall have no rights to market the IDS Software or Cloned
Software Derivative Works.
11.14 OFFSET OF FEES.
A. In exchange for a one time payment [TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED] from TSG to AMERICAN, TSG shall retain all license fees and other
compensation that TSG receives arising out of the Jointly Owned Software;
B. If TSG and/or a TSG Customer chooses to participate in an AMERICAN
Development/Enhancement effort (including multihost customers(s), other than
AMERICAN), TSG shall offset the Fees by an amount [TEXT OMITTED CONFIDENTIAL
TREATMENT REQUESTED]
C. If TSG does not offset the Fees charged to AMERICAN by the amount [TEXT
OMITTED - CONFIDENTIAL TREATMENT REQUESTED]described in Subsection B of this
Section 11.14, then AMERICAN may
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[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
Code Out such other customer and such customer may not use such
Enhancement/Development. If the Airline Group chooses not to Code Out such
customer and if TSG has received incremental revenue for such customer's use of
an Enhancement/Development then TSG shall offset the Fees otherwise payable by
AMERICAN to TSG by an amount equal to such incremental revenue up to [TEXT
OMITTED - CONFIDENTIAL TREATMENT REQUESTED] that would have been due under
Subsection B of this Section 11.14.
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 Enhancement/Development for customers for which TSG has
not offset the Fees charged to AMERICAN by the amount [TEXT OMITTED -
CONFIDENTIAL TREATMENT REQUESTED] described in Subsection B above, TSG shall
refund the Fees incurred by AMERICAN to Code Out and TSG shall offset the Fees
in accordance with Subsection B of this Section 11.14
D. The parties acknowledge that nothing in these Sections 11.14B, 11.14C, and
11.14D is intended to contradict current practice in the area of joint
development/joint funding. Should such a conflict occur, current practice shall
prevail. Additionally, the Parties acknowledge that they intend to eliminate
these sections and address these business terms in section 3.20 which will
address joint development/joint funding, as soon as is reasonably practical.
11.15 COPIES OF SOFTWARE FOR AMERICAN. . Upon written request to TSG from
AMERICAN's Chief Information Officer, and as many times as AMERICAN may
reasonably request, TSG shall provide a copy of all or a portion of all
Transferred Software, Standard Software, New Software and Documentation, in
object code and source code formats, 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 11.15. TSG hereby expressly agrees
that AMERICAN may obtain injunctive relief (in accordance with the Dispute
Resolution Procedure) to enforce the provisions of this Section 11.15.
11.16 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 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.
11.17 CERTAIN ADDITIONAL SOFTWARE LICENSES FROM AMERICAN.
A. For purposes of TSG's agreement with US Airways, Inc. ("US Airways") and
without limiting any other license rights granted under this Agreement, AMERICAN
hereby grants TSG a [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED], with a
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] right of sublicense to US
Airways, to AMERICAN-owned customizations to the SAP software required to
integrate the SAP software with the TSG System, as of December 15, 1997.
AMERICAN and TSG agree
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to negotiate in good faith an appropriate one-time license fee payable by TSG
to AMERICAN for the foregoing right to sublicense to US Airways.
B. Should the agreement with US Airways or any other applicable MFC Customer
terminate for any reason prior to US Airways' or such other MFC Customer's
exercise of any of the license rights set forth in Subsection A, then the
applicable one-time license fees will be forgiven, or if already paid by TSG to
AMERICAN, refunded.
Article XII -- Marketing and Related Rights
12.1 SERVICES PROVIDED BY THE AIRLINE GROUP TO ITS CUSTOMERS. In accordance with
this Article, AMERICAN 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 AMERICAN 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. [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
D. The Airline Group may provide Other Mixed Services to AG
Customers in accordance with the following:
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
a. If TSG and AMERICAN do not
agree within ten (10) Business Days of commencing such negotiations, TSG and
AMERICAN shall each state in writing its position concerning the AG Other Mixed
Services Costs and proceed in accordance with Article
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XXIII -- Dispute Resolution; so long as the sole question for the arbitrator(s)
to determine is which Party's position concerning the AG Other Mixed Services
Costs to accept.
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
E. Notwithstanding Subsection D, 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 [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] of the AG Other
Mixed Services Fees for such services; and
(2) The AG Other Mixed Services Fees are reasonably anticipated
as not exceeding [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] 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 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 any Airline
Group member may have in effect on the Effective Date.
12.5 MARKETING RIGHTS AFTER EXPIRATION OR TERMINATION. After the
Termination Date or the Expiration Date, 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 [TEXT
OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
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.
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B. For four (4) years after the Termination Date or
Expiration Date, the provisions of Section "12.3, FORMER TSG PROSPECTS" shall
remain in effect, except if AMERICAN terminates the Agreement for cause
pursuant to Section "24.1, TERMINATION FOR BREACH," or Section "24.2,
TERMINATION FOR INADEQUATE PERFORMANCE,"
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
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
[TEXT OMITTED -CONFIDENTIAL TREATMENT REQUESTED]
(1) If this Agreement expired in
accordance with its term or terminated pursuant to Section "24.3, TERMINATION
FOR A FORCE MAJEURE EVENT," or "24.6, TERMINATION BECAUSE OF ACQUISITION OF
TSG[TEXT OMITTED- CONFIDENTIAL TREATMENT REQUESTED].
(2) In the event of Termination For
Cause by AMERICAN, and if a Fair License Fee is [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED] of the AG Other Mixed Services Fees or more, AMERICAN shall
pay TSG a [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
(3) [TEXT OMITTED-CONFIDENTIAL
TREATMENT REQUESTED], if this Agreement was terminated pursuant to Section
"24.4, TERMINATION FOR CONVENIENCE," AMERICAN and TSG shall mutually agree to
[TEXT OMITTED- CONFIDENTIAL TREATMENT REQUESTED].
(4) [TEXT OMITTED-CONFIDENTIAL
TREATMENT REQUESTED], if this Agreement was terminated pursuant to Section
"24.4, TERMINATION FOR CONVENIENCE," AMERICAN shall pay TSG [TEXT
OMITTED-CONFIDENTIAL TREATMENT REQUESTED].
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 [TEXT
OMITTED-CONFIDENTIAL TREATMENT REQUESTED] incremental use in excess of the
Retained Rights for providing such services to AG Customers.
E. AMERICAN may enter into an agreement with an AG
Customer pursuant to this Section 12.5 prior to the determination of a [TEXT
OMITTED-CONFIDENTIAL TREATMENT REQUESTED].
Article XIII -- Non-Competition
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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.
Article XIV -- Confidential Information
14.1 CONFIDENTIAL INFORMATION. Except as otherwise provided in this
Agreement, information gathered or compiled by TSG for the Airline Group 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 operation 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 (which does
not include IDS Software, Cloned Software Derivative Works and New Software,
other than that developed on a Standard Development basis); and
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, New Software and the Transferred Software, the Airline Group consents
to TSG's disclosure and use of such Jointly Owned Software, New Software and
Transferred Software (other than New Softwaredeveloped on a Joint Venture or
Strategic Development basis), subject to any such protections or assurances
against disclosure for the benefit of TSG as TSG may use or effect for
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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. Information is not considered 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 of any
other duty of a Party;
B. Is independently developed without reference to
the Confidential Information of the other Party; or
C. Is or becomes available to that Party from a source
that is lawfully in possession of the information and that is not subject to
a duty of confidentiality, whether to the other Party or another Person.
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 and disclosed 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. Except for (1)
Section "14.2, EXCLUDED INFORMATION" and (2) the provision of the (a) source
code of the Cloned Software to third party service providers during and after
the Term (except as restricted in Section 11.8C(3)) and (b) source code of the
Transferred Software, Standard Software and New Software (other than that
developed on a Standard Development basis) to service providers after the Term,
all in accordance with the terms of this Agreement the Airline Group shall not
disclose TSG Highly Confidential Information to any third party without the
prior written Consent of TSG on a case by case basis.
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, tax
advisors, agents and contractors, 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, which in the case of agents and contractors shall mean the signing
of a non-disclosure agreement.
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;
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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.
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 (2) years, then TSG's Consent shall be at its sole discretion.
B. TSG may not unreasonably withhold its Consent,
however in the following circumstances:
(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 an Airline Group member 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.
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C. Third parties, including Successor Providers, to
which Confidential Information is to be disclosed or to which access is given to
TSG's Confidential Information, including TSG Highly Confidential Information,
shall first execute a non-disclosure/confidentiality agreement substantially in
the form of Exhibit J: Non-disclosure/Confidentiality Agreement.
D. Third parties, including Successor Providers, to
which TSG Highly Confidential Information is to be disclosed or to which access
is given 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.
E. No Consent is necessary, and Subsections A, B and
D of this Section 14.8 shall not apply when AMERICAN provides the (a) source
code of the Cloned Software to third party service providers during the Term
(except as restricted in Section 11.8C(3)) and (b) source code of the
Transferred Software, Standard Software and New Software (other than that
developed on a Standard Development basis) to service providers after the Term,
all in accordance with the terms of this 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; except 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 an Airline Group member from disclosing (subject to an appropriate
nondisclosure agreement) its 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 any code or detailed descriptions of functionality of any TSG
Operated Software or descriptions of the service level performance of TSG under
this Agreement.
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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
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] of the total number of TSG
employees and TSG contractors assigned to provide services to the Airline
Group. The parties anticipate that the maximum number of Key Employees will
be approximately [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] upon the
Effective Date.
B. At the commencement of each New/Out-of-scope Services,
Development, or significant Enhancement project to be performed by TSG, TSG
and AMERICAN shall agree as to the personnel who are to be designated as Key
Employees for the duration of such projects or phases of such projects,
[TEXT OMITTED CONFIDENTIAL TREATMENT REQUESTED], as prescribed in Section
16.1G.
C. A TSG employee performing Maintenance may be mutually
designated as a Key Employee [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
. 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
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED], 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 shall determine the Key Employees for the
maintenance of each application. Of the pool of Key Employees set forth in
Subsection A, no more than [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
of the employees providing Maintenance for such application may be designated
as Key Employees, except when fewer than ten (10) employees are providing
maintenance for such application; in which case there may be up to
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] 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. TSG cannot unreasonably deny
AMERICAN's request for TSG Key Employees. If the Parties disagree regarding
Key Employee status for an individual, TSG may propose an alternative
personnel allocation or designation of a different employee for Key Employee
designation. Should the Parties not agree upon an alternative personnel
allocation or designation, the Parties shall follow the Dispute Resolutions
Procedure.
F. In addition to AMERICAN's other rights to designate
certain TSG employees as Key Employees, as set forth in this Article XVI,
AMERICAN shall have the right to identify as
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Key Employees TSG personnel who provide services to both AMERICAN and other
MFC Customers, except that the restriction set forth in Section 16.2 (A) as to
such Key Employee would be applied to the combination of the TSG employee's
billable time spent working for AMERICAN and such other MFC Customer(s).
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED].
G. TSG may request that an employee be removed from the
Key Employee List prior to the end of the [TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED]
(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 G.
H. If TSG removes a Key Employee pursuant to Subsection G
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.
I. TSG shall use reasonable efforts to promptly replace a
Key Employee who ceases 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 designated under Subsection A of Section
"16.1, DESIGNATION OF KEY EMPLOYEES" must dedicate a minimum of
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] 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 or application 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
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to the performance of TSG Services is adversely affecting the interests of
AMERICAN, then AMERICAN'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
period consistent with TSG's human resources policies for a period of four
(4) months for the Account Manager and three (3) 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
[TEXT OMITTED -CONFIDENTIAL TREATMENT REQUESTED], 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 ever 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;
so long as AMERICAN first gives TSG
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]Notice when AMERICAN intends
to hire a TSG employee designated as a Level 5 employee or below and
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] 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; so long as that TSG first
gives AMERICAN [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] Notice when
TSG intends to hire an AMERICAN employee designated as a Level 5 employee or
below and [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] 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;
except that if TSG does not consent to the hiring of such employee or
Independent Contractor, the cost for such person shall be
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED].
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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 [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
after the date of termination of such employee's employment or such
Independent Contractor's engagement.
F. Notwithstanding the other provisions of this Section
17.1, and subject to the following restrictions,
[TEXT OMITTED -CONFIDENTIAL TREATMENT REQUESTED] following the Disaffiliation
Date, AMERICAN may recruit, in good faith, a sufficient number of TSG
personnel [TEXT OMITTED -CONFIDENTIAL TREATMENT REQUESTED] TSG personnel
employed by TSG's Research group or TSG's Airline Solutions group, or TSG
personnel who were employed by TSG's sales or marketing groups prior to the
Disaffiliation Date and who ever performed operations research or similar
services for AMERICAN (the "Operations Research Employees") who AMERICAN may
not otherwise recruit and/or hire as a result of this Section 17.1:
(1) AMERICAN may not hire more than
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] each from the following TSG
operating groups within the Airline Solutions Group: Flight Planning; Crew
Planning; and Yield Management, as well as TSG's Research Group;
(2) [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED].
[TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED] TSG Operations Research Employees can decline AMERICAN's offer. [TEXT
OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
(4) [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED] TSG retains the right to manage the careers of its
employees as it normally would in the ordinary course of business.
(5) Prior to commencing
solicitation, TSG and AMERICAN will agree on a process to minimize disruption
to employees and TSG operations.
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
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Agreement does not create or evidence a partnership, joint venture or any
other fiduciary relationship 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 the exclusive
right to advertise both as the "preferred provider" of information technology
services to AMERICAN and as possessing a "strategic relationship" with
AMERICAN; so long as the TSG Services are more than
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] of all the services
AMERICAN receives that are similar to the TSG Services. The Airline Group
members 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; except 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. AMERICAN's CIO has the following authority:
(1) AMERICAN'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; and
(2) AMERICAN's CIO shall submit a
list of AMERICAN employees that may bind AMERICAN to an agreement with TSG to
perform any TSG Services. All New/Out-of-scope Services and pricing for such
services must be approved in writing by any Level 7 or higher in AMERICAN's
Information Technology Services department. TSG shall contact AMERICAN's CIO
for any clarification or interpretation of the list.
Article XIX -- Warranties
19.1 MUTUAL WARRANTIES. Each Party warrants and represents to the other
Party as follows:
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 material 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. 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. None of the intellectual property that TSG has
developed or develops to provide the TSG Services willfully infringes or will
willfully infringe the patents or copyrights, or misappropriate the trade
secrets, of another;
C. 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."
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, agent or
subcontractor of TSG in connection with this Agreement that constitutes
negligence, gross negligence, or willful misconduct of TSG or its employees,
agents or subcontractors.
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
copyright, misappropriates a trade secret, or knowingly infringes a patent.
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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 or where TSG knew
that such combination would be used by such Airline Group Indemnitee and did
not object,
(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 specific information,
direction, specification, or materials provided by such Airline Group
Indemnitee or any third party.
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 Indemnitees to continue using such item,
(2) Replace such item with a
non-infringing equivalent item,
(3) Modify such item or have such
item modified to make it non-infringing, or
(4) If none of the previous three
(3) options is available on commercially reasonable terms, as determined by
TSG in its good faith business judgment, 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, except that the foregoing shall not apply if such item is
integral to providing the Airline Group a Critical TSG Service, in which case
TSG may do so only if no reasonable workaround from the blocking intellectual
property rights is practicable.
C. The rights and remedies stated in this Section 20.3
and 20.12 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, agent or
subcontractor of the Airline Group (excluding TSG or its subcontractors) in
connection with this Agreement that constitutes
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negligence, gross negligence, or willful misconduct of any member of the
Airline Group or its employees, agents or subcontractors (excluding TSG or
its subcontractors).
20.5 CUSTOMER INDEMNIFICATION BY AMERICAN. Subject to Section "20.3,
INTELLECTUAL PROPERTY INDEMNIFICATION BY TSG," 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 copyright, misappropriates a trade secret, or
knowingly infringes a 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,
(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 or where the Airline Group member
knew that such combinations would be used by the TSG Indemnitee and did not
object,
(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 specific 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
Indemnitees to continue using such item,
(2) Replace such item with a
non-infringing equivalent item,
(3) Modify such item or have such
item modified to make it non-infringing, or
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(4) If none of the previous three
(3) options is available on commercially reasonable terms, as determined by
AMERICAN in its good faith business judgment, the Parties will discuss
alternative means by which TSG may perform the affected TSG Services and any
resulting effect upon affected SLA Standards.
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, of interest for late
payment or nonpayment), indemnification obligations, and obligations
resulting from the failure to meet the financial minimums under the SITA's
Agreements.
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 (2) OR MORE INDEMNITEES SHALL
NOT PRECLUDE SUCH INDEMNITEE OR SUCH INDEMNITEES 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.
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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.
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.
20.12 THIRD PARTY SOFTWARE INDEMNIFICATION. A Party supplying to another
Party pursuant to this Agreement any software owned by a third party (whether
as a stand alone product or as part of another product or service) shall
indemnify, defend and hold harmless the other Party from and against
Indemnifiable Losses resulting from, arising out of, or relating to a failure
by the supplying Party (a) to advise the other Party of restrictions, that,
in the reasonable judgement of the supplying Party, would reasonably deprive
the other Party of such other Party's use of the third party's software as
contemplated by this Agreement, or (b) to obtain from such third party rights
reasonably necessary to permit the other Party to use and exploit the third
party's software as contemplated by this Agreement. The supplying Party may,
at its option and
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expense, (a) obtain from the third party a right for the other Party to use
the third party's software, or (b) unless the third party software is integral
to providing the Airline Group a Critical TSG Service, (1) replace the third
party's software with an equivalent not subject to the third party's control or
(2) accept return of the third party's software and refund to the other Party
the fees paid for such third party software, less a reasonable amount for the
other Party's use thereof.
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, to be 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, [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
For the avoidance of doubt, nothing in this Section 21.2 affects any
liability of a Party to indemnify the other Party's Indemnitees 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," "7.11, PERFORMANCE ADJUSTMENT OF FEES" (if an SLA Standard is
applicable), and "10.3, RISK OF DATA LOSS."
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]. 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, 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 Airline Group Indemnitees against Tort Damages or Indemnifiable
Losses under Article XX - Indemnification, nor does it affect AMERICAN's
ability to terminate this Agreement for cause under Section "24.1,
TERMINATION FOR BREACH."
21.4 [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
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<PAGE>
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:
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
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 [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] in any calendar year. [TEXT
OMITTED - CONFIDENTIAL TREATMENT REQUESTED].
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 (3)
years after the breach or other event constituting the basis for that claim
occurred, even if not discovered until after that three-year 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 for the benefit of any of the American Related
Entities must be made by AMERICAN.
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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 that is:
A. Not subject to an SLA Standard, AMERICAN 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, [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
B. Subject to an SLA Standard, AMERICAN 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, [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
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. NOTWITHSTANDING ANY WARRANTY TO THE CONTRARY
IN THIS AGREEMENT, TSG DOES NOT WARRANT (I) THE ACCURACY OF ANY DATA IN ITS
UNALTERED FORM AS PROVIDED TO TSG BY THE AIRLINE GROUP OR ANY THIRD PARTY OR
(II) THE TIMELINESS OR DEPENDABILITY OF SUPPLIERS SELECTED AND MANAGED BY THE
AIRLINE GROUP. EXCEPT FOR THE
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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; except 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 (5) 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, the Airline Group is
prevented from conducting a significant portion of the Airline Group normal
business operations, then TSG, with the cooperation and assistance of the
Airline Group, shall resume performance of such operational obligations or
arrange for the Airline Group 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 TSG were providing the equivalent TSG Services without the
prevention, hindrance or delay of performance of TSG's operational obligations
under this Agreement.
A. Whenever a Force Majeure Event causes TSG to
allocate limited resources among TSG's customers at the affected service
locations, the Airline Group shall receive [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]. Unless otherwise agreed by AMERICAN's CIO, in such events
TSG shall restore the following systems in the following order: [TEXT OMITTED -
CONFIDENTIAL TREATMENT REQUESTED]
B. If a Force Majeure Event, other than one intentionally
caused by the Airline Group, 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
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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 [TEXT
OMITTED - CONFIDENTIAL TREATMENT REQUESTED] after Force Majeure Event
Commencement or if the applicable TSG Service is not restored, in accordance
with its SLA Standard, within [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
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 [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
after Force Majeure Event Commencement or if CargoSABRE is not restored, in
accordance with its SLA Standard, within [TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED] after Force Majeure Event Commencement.
(3) When a Force Majeure Event has caused more than
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] 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 [TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED] after Force Majeure Event Commencement or if such TSG Service is not
restored, in accordance with its SLA Standard, within [TEXT OMITTED -
CONFIDENTIAL TREATMENT REQUESTED] after Force Majeure Event Commencement.
(4) When a Force Majeure Event has caused more than
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] but fewer than or equal to
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] 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 [TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED] after Force Majeure Event Commencement or if such TSG Services are
not restored, in accordance with their SLA Standards, within fourteen [TEXT
OMITTED - CONFIDENTIAL TREATMENT REQUESTED] after Force Majeure Event
Commencement.
(5) When a Force Majeure Event has caused any, but
fewer than [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] 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 [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED] after Force Majeure Event Commencement or if the applicable
TSG Services are not restored, in accordance with their SLA Standards, within
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] after Force Majeure Event
Commencement.
22.2 DISASTER RECOVERY. TSG Services shall include implementation of a
disaster recovery plan [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]. 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. TSG will not knowingly implement disaster recovery
procedures that discriminate against the Airline
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Group in favor of TSG or another TSG Customer. In the event that activation
of disaster recovery procedures becomes necessary, TSG will promptly inform
AMERICAN of the steps that TSG is taking. AMERICAN acknowledges that any
disaster recovery procedures cannot ensure identical treatment among
customers and that performance of such disaster recovery procedures might
produce temporarily disparate results for TSG's Customers.
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.
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 (10)
Business Days in Sections B.l(b), B.l(c), and B.l(d) of the Dispute Resolution
Appendix shall be deemed to be seven (7) 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 as performed prior to the Dispute Resolution Procedure being invoked.
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; so long as
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AMERICAN gives TSG Notice of its intent to terminate within
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] after the date such breach
occurred or, in the case of a continuing breach, commenced.
A. Upon TSG's Egregious Breach of this Agreement,
AMERICAN may terminate this Agreement, so long as AMERICAN gives TSG [TEXT
OMITTED - CONFIDENTIAL TREATMENT REQUESTED] Notice of its intent to terminate
and TSG fails to cure the breach within such [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]; except that such cure period will be extended an
additional [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] if TSG delivers to
AMERICAN a written plan to cure the breach. In both instances, unless TSG cures
the Egregious 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
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] after receipt of TSG's Notice;
except that in the case of the first such Notice delivered hereunder, if
AMERICAN fails to pay within such [TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED], then TSG shall give a second such Notice to AMERICAN, and TSG may
not terminate this Agreement unless, AMERICAN fails to pay within [TEXT
OMITTED - CONFIDENTIAL TREATMENT REQUESTED] after receipt of such second Notice.
(2) If TSG has, on [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED] previous occasions, given Notice to AMERICAN of AMERICAN's
material breach of its obligation to pay TSG in accordance with this Agreement,
and AMERICAN thereafter materially breaches its obligation to pay TSG in
accordance with this Agreement, TSG may terminate this Agreement upon Notice to
AMERICAN.
(3) For the avoidance of doubt, AMERICAN's [TEXT
OMITTED - CONFIDENTIAL TREATMENT REQUESTED] 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 [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] 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 MAJUERE 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 [TEXT OMITTED -
CONFIDENTIAL TREATMENT REQUESTED], and for any reason whatsoever, AMERICAN may
terminate this Agreement upon [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
Notice to TSG and upon payment of all amounts due.
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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 also 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 Upon Acquisition of American. AMERICAN may deliver to TSG
a Notice of termination for convenience (i) within [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED] after AMERICAN is acquired by an unaffiliated third party,
or (ii) within [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] after an
unaffiliated third party merges with AMERICAN if the Persons who were
shareholders of AMERICAN immediately prior to the merger own less than [TEXT
OMITTED - CONFIDENTIAL TREATMENT REQUESTED] of the outstanding stock of AMERICAN
immediately after the merger, or (iii) within [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED] after AMERICAN acquires another Air Carrier with annual
revenues exceeding [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] For
purposes of clause (ii) above, in the event the merger referred to in such
clause is the second step in a two-step transaction, the "unaffiliated" status
of the third party and the initial stock ownership of AMERICAN's shareholders
will be determined immediately prior to the first step in such two-step
transaction. If AMERICAN terminates the agreement for convenience during the
first [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] of the term of this
Agreement in accordance with clause (iii) above, AMERICAN shall pay TSG [TEXT
OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
24.6 TERMINATION BECAUSE OF ACQUISITION OF TSG. If any entity with annual
airline transportation revenue of [TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED] acquires control (the power to direct the management or affairs) of
TSG, then AMERICAN may, at its sole option, terminate this Agreement upon [TEXT
OMITTED - CONFIDENTIAL TREATMENT REQUESTED] Notice; provided AMERICAN gives
Notice within [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] of the date on
which such entity acquired TSG.
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 Wind-down 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.
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(1) The assistance to be provided to the Airline
Group by TSG shall include the services listed on Exhibit L: Transition
Assistance Services Description.
(2) TSG Services provided during the Wind-down
Period are at [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] until [TEXT
OMITTED - CONFIDENTIAL TREATMENT REQUESTED] after the Expiration Date or the
Termination Date, as applicable, and are at [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED] thereafter, except as expressly set forth in Subsection B.
B. 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 shall provide the Transition Assistance after
the Expiration Date or the Termination Date, as the case may be, at market
rates. In the instance of termination pursuant to Subsection A of Section "24.1,
TERMINATION FOR BREACH," or pursuant to Section "24.2, TERMINATION FOR
INADEQUATE PERFORMANCE," TSG shall provide the Transition Assistance throughout
the Wind-down Period at [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]. 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 [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] If the
Agreement was terminated pursuant to Subsection B of Section "24.1, TERMINATION
FOR BREACH," then TSG's obligations to perform Transition Assistance shall be
conditioned upon monthly receipt of payment from AMERICAN in advance of
estimated monthly amounts due for such services.
C. Upon termination or Expiration of this Agreement, or,
with respect to any particular AG Data or AG Customer Data, at such earlier time
as the same shall no longer be required by TSG in order to render services
hereunder, AG Data and AG Customer Data shall be, at AMERICAN's election and
expense, (i) erased from the data files maintained by TSG, and/or (ii) returned
to AMERICAN by TSG in a form reasonably requested by AMERICAN, and/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 Confidential Information, including 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 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 [TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED] after expiration of the Wind-down Period, to be charged by TSG at
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] 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.
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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. Article XI - Software and Intellectual Property.
C. Section "12.5, MARKETING RIGHTS AFTER EXPIRATION
OR TERMINATION."
D. Article XIII -- Non-competition.
E. The confidentiality provisions of Article XIV --
Confidential Information.
F. Article XVII -- Non-solicitation of Employees.
G. Article XX -- Indemnification.
H. Article XXI -- Limitations of Liability.
I. Article XXIII -- Dispute Resolution.
J. Article XXV -- Transition Assistance; Survival.
K. Article XXVII - Auditing Rights.
L. Article XXVII -- Notices and Other Communications.
M. Article XXX -- Miscellaneous Provisions.
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 coverage 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 any member of the Airline Group,
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 AMERICAN as the named insured.
Article XXVII -- Auditing Rights
27.1 OPERATIONAL AUDIT. An Airline Group member and its representatives, at
the Airline Group member'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
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requested by the Airline Group member 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 member and its representatives (subject to the
execution by any third-party representative of an agreement substantially in
the form of Exhibit J: Non-disclosure/Confidentiality Agreement) 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 member, except that
the Airline Group member 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. The Airline Group may, at its
discretion, provide to TSG a copy of the final 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 the Airline Group against TSG. In conducting each operational
audit, Airline Group members 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.
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 Fees
to Airline Group members. TSG shall retain such records for
[TEXT OMITTED -CONFIDENTIAL TREATMENT REQUESTED] 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 (subject to the
execution by any third-party representative of an agreement substantially in
the form of Exhibit J: Non-disclosure/Confidentiality Agreement) 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 member (i) on an annual
basis and (ii) more frequently as reasonably requested by the Airline Group
member if and to the extent that such audit will not unreasonably disrupt the
operations of TSG. TSG need not provide the Airline Group member 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
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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 member the full amount of all overcharges revealed by such
audit. The Airline Group member shall promptly pay TSG the full amount of all
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 member'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 (5%), TSG shall
pay or reimburse the Airline Group member 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. An Airline Group member, 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.
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
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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
C. If to TSG: SABRE, 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:
SABRE, Inc.
4255 Amon Carter Boulevard
Mail Drop 4319
Fort Worth, Texas 76155
Telecopier: (817) 967-4044
Attention: President
28.3 EFFECTIVENESS. Each communication transmitted, delivered, or sent:
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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 -- AMERICAN Assistance to TSG for TSG to Provide Services
29.1 AMERICAN SUPPORT TO TSG.
A. Should TSG request support for its outsourcing deals, including
training assistance, from AMERICAN, for TSG to perform its obligations to Air
Carriers, with AMERICAN's support obligations effective until
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED], AMERICAN will use all
reasonable efforts to provide such support upon reasonable advance Notice
from TSG, subject to AMERICAN's resource constraints. TSG will credit
AMERICAN [TEXT OMITTED -CONFIDENTIAL TREATMENT REQUESTED] for the support
work performed by AMERICAN personnel on TSG's behalf pursuant to this Section
29.1. For AMERICAN employees that do not have established billable hour rates
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] the Parties will negotiate
in good faith appropriate hourly billable rates to be used in determining the
applicable credit to AMERICAN for performance of support services on behalf
of TSG. [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]. Unless otherwise
agreed to, all travel time as it relates to this Section 29.1 is billable to
TSG. In addition, TSG will reimburse AMERICAN for any reasonable and
necessary travel and incidental expenses incurred by such AMERICAN personnel
in performance of the support work for TSG. TSG further agrees to provide
AMERICAN personnel performing such support work travel arrangements similar
to those TSG uses for its own employees should such AMERICAN personnel be
required to travel in order to provide such support. TSG also agrees to
provide and to pay for office space and other commercially reasonable
expenses, including Device Support and
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Voice Network Services, incurred by any member of the Airline Group as a
result of providing support to TSG.
B. TSG will reimburse AMERICAN for all reasonable costs that
AMERICAN incurs in providing the support services (including necessary
"start-up" and "wind-down" costs) even if the resources for which those costs
were incurred were subsequently determined to be unnecessary, provided
AMERICAN advises TSG of such costs and TSG approves such costs prior to the
costs being incurred. AMERICAN may refuse to provide such support from time
to time if (i) AMERICAN believes in good faith that it cannot offer such
support without causing a material adverse effect, including, but not limited
to, anti-trust and competitive advantage issues, on AMERICAN operations (ii)
AMERICAN's managing director of security does not reasonably approve the
safety of the locations in which AMERICAN employees will work, or (iii) TSG
fails to provide AMERICAN prior approval to reimburse AMERICAN's reasonable
costs. Notwithstanding the foregoing, AMERICAN shall not be obligated to
provide TSG its key personnel to provide the support services
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
C. Nothing in this Section 29.1 is meant to replace or eliminate
the services that have been historically performed by AMERICAN for TSG in
support of FOS Multihost.
Article XXX -- Miscellaneous Provisions
30.1 ASSIGNMENT. Except as provided in Subsection D of Section "9.6,
COOPERATION," Section "3.13, EFFECT OF DIVESTITURES, MERGERS AND
ACQUISITIONS," or in the next two (2) 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 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 30.1 shall be void and without
effect. Nothing in this Section 30.1, 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.
30.2 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.
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30.3 INTEGRATION. This Agreement supersedes:
A. The Services Agreement between the Air Transportation
Group and TSG 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 30.3)
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).
30.4 SEVERABILITY. If any provision, or portion thereof, of this Agreement
is for any reason found to be unenforceable, such provision or portion
thereof shall automatically be deemed modified to the minimum extent
necessary to permit it to be found to be enforceable, or, if such
modification is impracticable, such provision or portion thereof shall be
deemed severed from this Agreement. In either such event, all other portions
of this Agreement shall nevertheless remain enforceable.
30.5 SUCCESSORS. This Agreement binds and inures to the benefit of the
Parties and their respective legal representatives, successors, and permitted
assigns.
30.6 GOVERNING LAW. This Agreement must be interpreted or construed, and its
validity determined and performance enforced, under Texas law.
30.7 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.
30.8 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.
30.9 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.
SIGNATURES
AMERICAN AIRLINES, INC.
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BY:
-----------------------------------
TITLE:
--------------------------------
Sabre Inc., formerly known as THE SABRE
GROUP, INC.
BY:
-----------------------------------
TITLE:
--------------------------------
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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.
"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 esignated
in writing by AMERICAN from time to time.
"ACQUISITION": A merger, consolidation, exchange of shares, transfer or
acquisition of stock or assets or other corporate transaction or series of
transactions that results in two or more Persons becoming Affiliates or a single
Person.
"ADJUSTMENT AMOUNT": [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
"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
(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.
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"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 Jointly Owned 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.
"AG SELF-PERFORMED SERVICES": Those services described in Exhibit O, 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.
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"AIRLINE ALLIANCE": A strategic marketing alliance comprised of multiple
airlines which, pursuant to a written agreement, jointly participate in a
substantial co-marketing arrangement which AMERICAN publicly promotes as an
alliance relationship (but not simply a Code Share Arrangement).
"AIRLINE ALLIANCE PARTNER": Any airline who is an official member of any Airline
Alliance, when and to the extent such airline is acting in furtherance of the
Airline Alliance goals or purposes.
"AIRLINE GROUP": AMERICAN and American Related Entities collectively.
"AMERICAN'S CIO": The Chief Information Officer of AMERICAN as identified in
writing by AMERICAN from time to time. AMERICAN 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 or any AG
Customer's airline operations.
"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 on the Airline Group under any applicable
lease or by AMERICAN on its own employees or agents, 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, and
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. Airport
Regulations shall also include 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.
"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,
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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, online 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.
"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": [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
"BENCHMARK": To subject TSG Services to the Benchmarking Process.
("Benchmarked" has the correlative meaning.)
"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.
"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.
"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.
"BILLABLE LABOR RATE": Hourly labor rates as established in Exhibit C.
"BUSINESS DAY": A day other than Saturday, Sunday, national holidays in the
United States, December 30 through January 3, and AMR holidays.
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"CAPPED ADJUSTMENT": The Unrealized Aggregate Adjustment, subject to a limit or
cap of the greater of [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED].
"CLIENT SERVER DEVELOPMENT": Development services for client server
applications.
"CLIENT SERVER SERVICES": Client Server Services defined Exhibit B: TSG
Services Description.
"CLONED SOFTWARE": a copy of the then current version of RM/CP Software,
including any embedded third party software, on the date that AMERICAN requests
such RM/CP Software from TSG.
"CLONED SOFTWARE DERIVATIVE WORKS": all Derivative Works of Cloned Software
created by or on behalf of a member of the Airline Group.
"CODE OUT": TSG's making such software changes as are necessary to exclude
TSG's Customers other than the Airline Group from using certain software.
"CODE SHARE ARRANGEMENT": shall mean an arrangement whereby an airline or
AMERICAN operates any of its airline flight segments under the airline code
issued to AMERICAN or another airline by the International Air Transport
Association (e.g. where AMERICAN and another airline establish reservation and
departure control links to support the marketing of each other's flights).
"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.)
"COMPETING AIRLINE": A commercial passenger airline that is headquartered in
Canada or the United States, or a commercial passenger airline that is
headquartered in the United Kingdom or Germany and that, at the time TSG enters
into an agreement with such commercial passenger
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airline, offers one or more routes for a city-pair with one terminus in the
United States that the Airline Group also offers.
"CONFIDENTIAL INFORMATION": The information described in Section 14.1.
"CONNECTIVITY SYSTEMS": VAX Services and Host Communications Complex (HCC)
described in Exhibit B: TSG Services Description.
"CONSENT": Prior, express, and written consent (which, except as otherwise
expressly provided in the Agreement, 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 (50%) of the voting power attributable to the equity interests in an
entity. ("Controlling" and "Controlled" have correlative meanings.)
"CORPORATE INBOUND": Inbound voice communication services as defined in Exhibit
B: TSG Services Description.
"CRITICAL TSG SERVICE": A TSG Service or system expressly designated as
"Critical" in an SLA.
"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;
b. VAX2 described in Exhibit B: TSG Services
Description;
c. VAX5 described in Exhibit B: TSG Services
Description.
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(4) Host Communications Complex (HCC) as described in Exhibit
B: TSG Services Description.
(5) Mail Distribution services described in Exhibit B: TSG
Services Description.
"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 any other services that 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, abridgment, 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.
"DISAFFILIATION DATE": The date on which AMERICAN and TSG cease to be
affiliated.
"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 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.
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"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 SERVICE": 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)Information Display Systems Support described in Exhibit
B: TSG Services Description;
(7) Internet Access Services described in Exhibit B: TSG
Services Description; and
(8) 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.
"DOMESTIC RESERVATIONS INBOUND": Inbound voice communication services as defined
in Exhibit B: TSG Services Description.
"DOMESTIC RESERVATION SUPPORT SERVICES": Services that are defined in Exhibit B:
TSG Services Description.
"EFFECTIVE DATE": July 1, 1996.
"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.
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"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 between the TSG Operated Software and 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.
"[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
"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.
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"EXISTING APPLICATIONS": All software applications or portions thereof written
by TSG or its predecessors and funded by the Airline Group.
"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
Wind-down 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.
"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.
"FEES": The amounts charged by TSG to the Airline Group for the TSG Services.
"FORCE MAJEURE EVENT": Any circumstance beyond the reasonable control of a Party
or its employees or agents resulting in a delay, 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 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.
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"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 direct 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.
"GREEN TOLERANCE LEVEL": An acceptable level of performance for a TSG Service
that is specified in Exhibit E: Agreed SLAs.
"HIGH RISK TSG SERVICE": A TSG Service or system designated as "High Risk" in an
SLA.
"HISTORICAL SLA STANDARD": [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
"HOST COMMUNICATIONS COMPLEX": Host Communications Complex (HCC) defined in
Exhibit B: TSG Services Description.
"HOURLY LABOR RATE": The hourly rates charged by SDT and SCS for applicable
development, maintenance, enhancement, and consulting services.
"IDS SOFTWARE": The Integrated Data Server software under development by TSG for
AMERICAN as of the Disaffiliation Date funded by AMERICAN's Capacity Planning
Group.
"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 incurred by a Person.
"Indemnifiable Losses" consists only of the direct 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) awarded 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.
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"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 [TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED] 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 Article 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.
"INTEGRATION SERVICES": Integration testing and consulting services as defined
in Exhibit B: TSG Services Description.
"INTELLECTUAL PROPERTY RIGHTS": collectively, patents, copyrights, trade
secrets, trademarks, design rights and similar rights.
"JOINTLY OWNED SOFTWARE": Is all software (and work in progress software)
developed by means of TSG Services or New/Out-of-scope Services performed by TSG
after the Effective Date but prior to the Disaffiliation Date.
"JOINT VENTURE": has the meaning set forth in Section 11.5 of this 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.
"LAN": Local area network linking computers at a site or series of sites.
"LESS FAVORABLE TO TSG": [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
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"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.
"LEVEL 7": A Party's employee-pay-grade Level 7 as of the Effective Date or,
after the Effective Date, an employee level having substantially the same level
of authority or responsibility.
"LOW RISK TSG SERVICE": A TSG Service or system designated as "Low Risk" in an
SLA.
"MAIL DISTRIBUTION SERVICES": Mail Distribution Services defined in Exhibit B:
TSG Services Description.
"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 or normal operations.
"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.
"MEDIUM RISK TSG SERVICE": A TSG Service or system designated as "Medium Risk"
in an SLA.
"MESSAGE": A processor instruction in a Real Time Application.
"MCDUI": Moves, changes, deinstalls, upgrades, and installs of Airline Group
owned equipment as defined in Exhibit B: TSG Services Description.
"MFC CUSTOMER": Any most-favored customer of TSG, other than the Airline Group,
for services similar to the TSG Services. For purposes hereof, an Air Carrier
customer is "most favored" if in its agreement with TSG for TSG to provide such
customer TSG Services, the
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customer obtains a clause similar to that set forth in Section "7.13, MOST
FAVORED CUSTOMER."
"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.
(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.
"NEW SOFTWARE": all software developed by means of the TSG Services or the New/
Out-of-scope Services performed by TSG after the Disaffiliation Date.
"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, including 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
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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 TSG Transferred Third-party Software.
"OUTAGE": When a TSG Service is unavailable for the Airline Group's productive
use, excluding any unavailability due to scheduled downtime. For avoidance of
doubt, a TSG Service that entails the running of batch processes shall not be
considered unavailable for the Airline Group's productive use solely by reason
of the faulty or unsuccessful execution of one or more batch processes so long
as the TSG Service remains generally capable of successful execution of such
batch processes.
"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.
"PLATFORM TECHNOLOGY": Computer and communications hardware, and operating
system software for the software TSG designates as "commercial software," but
not applications or other operating system software or end-user terminal devices
(such as personal computers).
"PROJECTED ANNUAL NEGOTIATED FEES": The Fees projected to apply to the TSG
Services for the next Even-numbered Year, calculated using the Projected
Negotiated Rates, as described in Section "7.6, PROJECTED ANNUAL NEGOTIATED
FEES."
"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.
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"PROJECTED NEGOTIATED RATES": The Rates anticipated to apply to the TSG Services
for the next Even-numbered Year, consisting of:
(1) Rates negotiated and agreed upon by the Parties for the
next Even-numbered Year for TSG Services that are Benchmarked in an Odd-numbered
Year; and
(2) Rates reset for the next Even-numbered Year by application
of the Reset Formulas for TSG Services that are not so Benchmarked.
"PSS/FPC": The Real Time Services consisting of Passenger Services System (PSS),
including QCP and Fare Pricing Complex (FPC), 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;
(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.
"REAL TIME SERVICES": Real Time Application Services as 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.
"REQUESTING PARTY": has the meaning in Section 11.5A.
"RE-RUN": TSG Services used in the re-performing and/or correcting of previously
performed TSG 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.
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"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.
"RM/CP SOFTWARE": Jointly Owned Software or Transferred Software (1) that is not
a Real Time Application and (2) that is used, as of the Disaffiliation Date, in
AMERICAN's Revenue Management or Capacity Planning departments.
"SCS": SABRE Computer Services, a division of TSG.
"SDT": SABRE Decision Technologies, a division of TSG.
"SHARED ENVIRONMENT": Hardware, software and telecommunications networks
operated by TSG that TSG uses to provide services under this Agreement and that
TSG also uses for its internal business operations or in its electronic travel
distribution business (e.g., SABRE PSS).
"SIGNIFICANT SERVICES": Design, programming, and related services for
customization and systems integration greater than twenty-five percent (25%) 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.
"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.
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"SLA STANDARD": For a specific service, the Green Tolerance Level on a monthly
basis for such service specified in the applicable SLA.
"SLA TERMINATION EVENT": The occurrence of one or more of the following events:
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
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"SPIN-OFF COMPANY": An entity that was a member of the Airline Group, but was
divested to the extent that less than [TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED] 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 [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] of
the voting power attributable to the equity interests in such entity is owned by
the Airline Group or its Affiliates.
"STANDARD DEVELOPMENT": has the meaning set forth in Section 11.5 of this
Agreement.
"STRATEGIC DEVELOPMENT": has the meaning set forth in Section 11.5 of this
Agreement.
"STANDARD SOFTWARE": is all Jointly Owned Software and all New Software
developed on a Standard Development basis or otherwise solely or jointly owned
by TSG pursuant to a separate agreement between the Parties.
"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.
"TERMINATION DATE": The date on which termination of this Agreement is
effective without regard to the duration of the Wind-down 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;
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(4) 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
(5) 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 customers. 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.
"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.
"THIRD-PARTY SOFTWARE": Software owned by a third party and licensed to TSG or
AMERICAN and used in performing a TSG Service.
"THIRD-PARTY SYSTEM": Software, computers, networks or other devices licensed or
purchased by the Airline Group for use in connection with TSG 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 XXV -- Transition
Assistance; Survival, to enable the Airline Group to obtain services to replace
the TSG Services.
"TSG": Sabre, Inc., formerly known as 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.
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"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, Jointly Owned Software, New
Software, Transferred Third Party Software and Other Third Party Software.
"TSG OWNED SOFTWARE": All software owned by TSG and used by TSG to provide the
TSG Services, other than Transferred Software, Jointly Owned Software and New
Software.
"TSG PORTFOLIO SOFTWARE": All software that is (A) made available to U.S.
Airways [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
"TSG 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;
C. Commercial Services;
D. Real Time Services; and
E. Integration Services as defined in Exhibit B: TSG Services
Description.
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"TSG SERVICES": Services consisting of the Data Processing Services, the
Enhanced Data Processing Services, and the other services as 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.
"TSG SYSTEM": The TSG Operated Software and all TSG owned or operated hardware
and voice and data networks used to provide the TSG Services.
"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.
"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;
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(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.
"VAX SERVICES": VAX Services defined in Exhibit B: TSG Services Description.
"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;
(5) Voice Mail described in Exhibit B: TSG Services
Description; and
(6) Video Conferencing described in Exhibit B: TSG Services
Description.
"WIND-DOWN COSTS": [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
"WIND-DOWN PERIOD": [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] following
any Expiration or termination of the Agreement.
"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.
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"X.400": Corporate Standard E-mail interface service as defined in Exhibit B:
TSG Services Description.
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;
(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.
Page 24
<PAGE>
THIS AGREEMENT HAS CONFIDENTIAL PORTIONS OMITTED, WHICH PORTIONS HAVE BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS
ARE INDICATED IN THIS AGREEMENT WITH "[TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED]."
AMENDMENT
THIS AMENDMENT is entered into by and between American Airlines, Inc. ("AA") and
Sabre Inc. (formerly known as The SABRE Group, Inc.; herein "Sabre" or "SG") on
March 15, 2000 with respect to the "Management Services Agreement" entered into
by and between American and Sabre and dated as of July 1, 1996. Capitalized
terms used herein but not defined have the same meaning given in the Management
Services Agreement.
BACKGROUND
1. The Management Services Agreement (hereafter, "MSA") establishes the
terms and conditions under which AA would provide a range of
administrative and support services for varying terms;
2. Sabre has been operating as an independent company for over three years
since the Effective Date of the MSA, and, as a result of certain
separate transactions expected to occur on or about March 15, 2000,
Sabre and its parent company, Sabre Holdings Corporation, will no
longer be affiliates under common control with AA; and
3. Rather than terminate all of the Services as provided in the MSA, AA is
willing to assist Sabre in continuing to transition to independent
capabilities in respect of the Services by extending their terms beyond
the date of disaffiliation of AA and Sabre under the terms and
conditions of the MSA as modified by this Amendment.
CLAUSES
NOW THEREFORE, AA and Sabre agree as follows:
1. SERVICES TERM (SECTION 2.1); SERVICES SCHEDULES APPENDIX. AA and Sabre
have already agreed to terminate some Services before the effective
date of this Agreement. Other Services are terminated effective the
same date of this Agreement or at different times after the date of
this Agreement. The last of any Services provided under the MSA will
terminate effective June 30, 2001. Certain Services (principally
payroll related) will likely continue beyond that date, but will be
incorporated into separate contracts before that time. Therefore, the
MSA will Expire as of 11:59 p.m. CST, June 30, 2001. The December 1,
1999 "Appendix to the Management Services Agreement" containing
Services Schedules for the year 2000 is replaced in its entirety by the
attached March 15, 2000 Appendix to the Management Services Agreement
(the "Services Appendix"). For the avoidance of doubt, the Parties may
mutually agree to terminate any individual Service before the
termination date given in the Services Appendix. In such case, Sabre
may request, and AA will provide transition assistance in accordance
with SECTION 2.3 of the MSA up until the date the Service was
to have terminated, but not beyond that date. AA will not be ---
obligated to provide transition assistance after the termination dates
for any Service as specified in the Services Appendix, nor after the
date of final Expiration or termination of the MSA as a whole, under
SECTIONS 2.3, 5 or 13.3 or otherwise under the MSA. However,
for up to ninety (90) days after the termination dates for any
Services as specified in the Services
<PAGE>
Appendix, AA will comply with Sabre's reasonable requests for
assistance in data migration, and obtaining records and other
information relating to the Services rendered by AA preceding that
termination, provided that Sabre reimburses and pays AA's reasonable
expenses incurred in connection with the foregoing assistance against
invoices submitted to Sabre by AA.
2. INDEMNIFICATION FOR THIRD-PARTY CLAIMS (SECTIONS 14.4(a) AND (d)). The
following additional text is inserted after SECTION 14.4(a)(III):
FOR THE AVOIDANCE OF DOUBT, AA'S INDEMNITY OBLIGATIONS UNDER THIS
SECTION 14.4(a) FOR ANY THIRD-PARTY CLAIMS AGAINST SG ARE SUBJECT TO
THE EXCLUSION OF 14.2(a) AND THE LIMITATIONS OF SECTION 14.4(b)
REGARDING AGGREGATE AMOUNTS PAID TO AA FOR THE SPECIFIC SERVICE IN
RESPECT OF WHICH THE CLAIM AROSE.
The following new SECTION 14.4(d) is added after SECTION 14.4(c), and
existing paragraphs (d), (e) and (f) are reordered as (e), (f) and (g)
respectively:
(II SG SHALL INDEMNIFY AA AGAINST ALL DAMAGES IN RESPECT OF ANY
THIRD-PARTY CLAIM(S) ASSERTED AGAINST AA ARISING OUT OF ANY
SERVICE PERFORMED BY AA OR ITS SUBCONTRACTORS UNDER THIS
AGREEMENT TO THE EXTENT SUCH DAMAGES EXCEED THE AGGREGATE
PRICE ACTUALLY PAID TO AA (EXCLUDING MERE PASS-THROUGH
EXPENSES) IN THE CALENDAR YEAR IN WHICH THE THIRD PARTY
CLAIM(S) AROSE.
The references to "Sections 14.4(a), 14.4(b) and 14.4(c)" in existing
SECTION 14.4(d) shall be deemed to include the new Section 14.4(d)
above.
3. LABOR LIABILITIES FOR SECONDED EMPLOYEES (SECTION 14.4(c)). The
following new SECTION 14.4(c)(ii) is added and the existing SECTIONS
14.4(c)(ii), (iii) and (iv) are reordered as 14.4(c)(iii), (iv) and
(v), respectively.
(ii) [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
IN WITNESS WHEREOF, the parties have caused this AMENDMENT to be executed in two
or more identical counterparts by their duly authorized representatives.
AMERICAN AIRLINES, INC. SABRE INC.
By: By:
------------------------ -------------------------
Title: Title:
---------------------- -------------------------
-2-
<PAGE>
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
APPENDIX TO
THE MANAGEMENT SERVICES AGREEMENT
1
<PAGE>
<TABLE>
<CAPTION>
AA MANAGEMENT SERVICES AGREEMENT SCHEDULE OF SERVICES
- --------------------------------------------------------------------------------
<S> <C>
TABLE OF CONTENTS
Tax Administration Service (Mandatory).........................................3
Human Resources Government Reporting Service (Mandatory).......................5
[TEXT OMITTED -CONFIDENTIAL TREATMENT REQUESTED]
Payroll Production Service.....................................................8
Payroll Tax Accounting Service.................................................9
Payroll: Accounting and Reconciliation.......................................10
Human Resources Administration................................................13
Medical Services..............................................................15
Tax Administration Services (Optional)........................................17
Sabre Supply Management Service (updated).....................................19
Corporate Security Service....................................................20
Safety Administration Service.................................................21
Business Insurance Administration Service.....................................22
MCLA Division Services........................................................23
AMR China Service.............................................................24
Audit Service.................................................................25
Corporate Communications Service..............................................26
Other Airline (OA) Personal Travel Administration Service.....................27
Other Airline (OA) Business Travel Administration Service.....................28
International Division Services...............................................29
General Services Department...................................................31
General Services' Pass-Through Expenses Service...............................32
Printing Services.............................................................34
Facilities Maintenance--CPIV..................................................35
Facilities Maintenance Pass-Through Expense Service...........................36
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
AA Corporate Apartment Service................................................38
AASSET Card...................................................................39
</TABLE>
2
<PAGE>
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) US 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) US federal and state income tax accounting and reporting
i) income tax account analysis
ii) tax provision accounting
C) US 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
TOTAL ESTIMATED COST FOR 2000: $58,788
FIXED AMOUNT FOR 2000: $17,988
HOURLY RATES DURING 2000:
Level 8 $115
Level 7 89
Level 6 77
Level 5 67
Level 4 57
Level 3 46
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 Sabre. 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
3
<PAGE>
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.
TERMINATION: This Service will terminate effective March 15, 2000, by mutual
agreement. AA will invoice Sabre hourly rates and pass-through subcontracting
costs for Services rendered through that date, plus a prorated portion of the
Fixed Amount for year 2000 based on 2-1/2 months of Services rendered.
4
<PAGE>
SCHEDULE II.
HUMAN RESOURCES GOVERNMENT REPORTING SERVICE (MANDATORY)
DESCRIPTION OF SERVICE: Tasks performed to ensure that Sabre is in compliance
with US Federal human-resources-related reporting statutes. The Tasks to be
performed will consist of:
A) Summary Plan Descriptions
S) Legal and regulatory compliance for all AMR pension (defined benefit
and defined contribution) annual reporting and disclosure, audits,
maintaining ERISA administration requirements, plan documentation,
research and analysis.
FIXED PRICE FOR 2000: $89,368
MONTHLY INVOICED AMOUNT: $ 7,447
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 VP
Human Resources (equaling $2,364 for 2000), and will not vary with changes in
the Service Level of this Service.
TERMINATION: This Service will terminate effective December 31, 2000 by mutual
agreement.
5
<PAGE>
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
6
<PAGE>
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
7
<PAGE>
SCHEDULE VII.
PAYROLL PRODUCTION SERVICE
DESCRIPTION OF SERVICE: Responsible for the calculation and distribution of
payroll checks and incentive compensation checks via SHARP. The Tasks to be
performed consist of:
A) Regular Checks--Processing of regular paychecks on a weekly, bi-weekly,
and semi-monthly basis for Domestic employees.
B) Off-Cycle Checks--Processing of off-cycle or supplemental paychecks for
adjustments.
C) Gross Pay Adjustments to be completed during the next
regular pay period.
D) Stop Payments for lost or stolen paychecks.
E) Bonuses and Special Payments--Processing of special payments that
require development changes.
F) Employee Receivables - The administration and collection of balances
from active employees for advances, uniforms, salary overpayments and
support.
G) Payroll Customer Service
H) Infrastructure maintenance and support
I) Oversight of the employment and salary verification process performed
by Frick, Inc. - Completion of the wage and employment information
requested by lending institutions.
J) Special Projects performed by Payroll Customer Service and/or Payroll
Production that fall outside the normal scope of activities performed
for Sabre.
K) Special Projects performed by Payroll Infrastructure Team that fall
outside the normal scope of activities performed for Sabre.
ESTIMATED COST FOR 2000: [TEXT OMITTED-CONFIDENTIAL TREATMENT
REQUESTED]
FIXED TOTAL AMOUNT FOR 2000: TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED]
RATES DURING 2000:
Payroll Production (including SHARP): [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
Special Projects (Services J and K): [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
TERMINATION: These Services will be terminated under this Agreement effective
March 15, 2000, by mutual agreement, and incorporated into a separate services
contract effective on the same date. The same pricing will be integrated into
the new contract.
8
<PAGE>
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) Replying to all subpoenas and payroll related inquiries from legal and
law enforcement agencies.
C) Payroll Tax Reporting--Charges for reporting for Federal and State
withholding and unemployment taxes. The costs are driven by the number
of states worked.
D) Unemployment taxes--Frick, Inc. is currently responsible for processing
all claims for unemployment compensation claims, the monitoring the
charges to Sabre unemployment accounts in each state, and the rates
assigned by the States.
E) 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.
F) 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 employees.
ESTIMATED COST FOR 2000: [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
FIXED AMOUNT FOR 2000: [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
RATES DURING 2000:
A) Payroll Tax Reporting [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
B) Unemployment Tax [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
C) Payroll Tax Year End [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
BASIS FOR PRICE: The Tasks to be performed are use-based. The annual cost to
provide the service is the estimated usage at the rates specified above.
TERMINATION: This Service will be terminated under the Agreement effective March
15, 2000, by mutual agreement, and incorporated into a separate contract
effective the same date. The same pricing will be integrated into the new
contract.
9
<PAGE>
SCHEDULE IX.
PAYROLL: ACCOUNTING AND RECONCILIATION
DESCRIPTION OF SERVICE: The Tasks to be performed by the AA Payroll Department
for Accounting and Reconciliation will consist of:
A) General accounting, reconciliation and research of payroll account
transactions including 401(k) and PAC contributions.
1) Reconciling the SG related intercompany account (184206) within
thirty days of the month end and providing a copy of the
reconciliation to SG.
2) AA Payroll reserves the right to charge SG for reconciling an out
of balance in the SG FICO where such out of balance is not the result
of error on the part of AA Payroll.
B) Processing, reconciliation, and the generation of checks for payroll
related disbursements.
C) Domestic bank reconciliation of the payroll cash account, reporting,
and clearing of prepaid items for payroll, and payroll related
disbursements.
D) Relocation--Exchange of employee information with Cendant, recording
and payment of tax liability based on information provided by Cendant,
memo and expense document handling and interface application
maintenance.
E) Employee Receivables--The administration and collection of balances
from active employees for advances, uniforms, salary overpayments, and
check distribution special handling.
F) Garnishments - The deduction from the paychecks and the remittance to
the various authorities for garnishments imposed on SG employees.
G) Special projects that fall outside the normal scope of activities
performed for SG.
ESTIMATED COST FOR 2000: [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
FIXED AMOUNT FOR 2000: [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
RATES DURING 2000:
A) Relocation [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
B) Employee Receivables/Special Handling [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
C) Garnishments [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
D) Project Management/Special Projects [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
BASIS FOR PRICE: The Tasks to be performed are use-based. The annual cost to
provide the Service is the estimated usage at the hourly rate.
TERMINATION: These Services will be terminated under the Agreement effective
March 15, 2000, by mutual agreement, and incorporated into a separate contract
effective the same date.
10
<PAGE>
SCHEDULE XI.
HUMAN RESOURCES ADMINISTRATION
DESCRIPTION OF SERVICES: AA Human Resources Department is responsible for
performing the following Services (and not merely Tasks) for Sabre. Certain
Services will be concluded during the year. The effective cancellation dates
are annotated and the stated Prices are only for the given period of time the
Service will be performed.
<TABLE>
<CAPTION>
SERVICE DESCRIPTION FIXED PRICE
- ------- ----------- -----------
<S> <C> <C>
A) Managing Health and Welfare Benefits $332,345
B) Administering Retirement Benefits 241,239
C) SHARP incl. in Schedule VII.
D) Managing Workers Compensation and First Report 145,736
E) Supporting International Locations (Benefit Plan Renewal Administration) 32,599
F) Admin. Travel Policy (The billing for this service will be incorporated into [TEXT OMITTED -
the Travel Privileges Agreement effective March 15, 2000.) CONFIDENTIAL TREATMENT REQUESTED]*
G) Employee Resource Center 264,696
TOTAL FIXED PRICE FOR 2000: $1,016,615
MONTHLY INVOICED AMOUNT: $84,718
</TABLE>
* not included in price, terminates in this agreement effective March 15, 2000
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 installments
during the calendar year.
TERMINATION: Services A, B, E, and G above will terminate effective December
31, 2000. With respect to Services A and B, AA will invoice Sabre hourly fees
for transition assistance and ad hoc services that may be required by Sabre.
For Service B, Sabre will pay AA's reasonable fees and costs (e.g.
governmental registration) associated with AA becoming a third party or
unaffiliated Service provider. Service C listed above will be terminated
under this Agreement effective March 15, 2000, by mutual agreement and
incorporated into a separate contract effective the same date. Service D
listed above will be effective until July 31, 2000 or the date Sabre
terminates its relationship with Specialty Risk Services, whichever first
occurs, but the Supplemental Agreement Regarding Workers' Compensation
(attached as Exhibit XI-A to this Schedule) will remain in effect, with
respect to the accounting and liability for certain workers' compensation
contingencies during the term these Services have been provided.
11
<PAGE>
Service F listed above will be terminated under
this Agreement effective March 15, 2000, by mutual agreement and incorporated
into the Travel Privileges Agreement.
12
<PAGE>
SCHEDULE XIV.
MEDICAL SERVICES
DESCRIPTION OF SERVICE: AA Medical Department is responsible for
performing the following Tasks for Sabre.
<TABLE>
<CAPTION>
BASIC TASKS 2000 RATE
- ----------- ---------
<S> <C>
A) Employee Assistance Program Services (as required by the Federal
Drug-free Workplace Act)
B) Full Sabre Employee Access to all AMR Preventive Healthcare Programs
C) Family Medical Leave Act Application Processing and Program
Administration $ 1.21 per month per
D) Ergonomics Support Including Workstation Design and Other OSHA-Required TSG employee for all
Ergonomics Services basic tasks
E) ADA-Related Ergonomic Accommodations Work
F) Occupational Healthcare Litigation Support
G) Full Access to all AMR Travel Medicine Databases, and Applicable
Occupational Healthcare Record Keeping (but not OSHA Log Record
keeping).
</TABLE>
<TABLE>
<CAPTION>
TASKS 2000 RATE
- ----- ---------
<S> <C>
A) New Hire Physicals--Non-Safety Sensitive $39
B) Clinic - Employee Visit 39
C) Employee Drug and Alcohol Testing 38
D) Other Services will be provided to TSG on a by-request basis (varies per Service)
</TABLE>
<TABLE>
<S> <C>
ESTIMATED ANNUAL PRICING FOR 2000: $378,483
FIXED AMOUNT FOR 2000: $23,483
</TABLE>
BASIS FOR PRICE: The Tasks to be performed are use-based. The cost for basic
Services will be $1.21 per month per Sabre employee, with employee count to
be based on Sabre's physical employee headcount on January 1, 1999 (for
January - June 2000 charges) and July 1, 1999 (for July - December 2000
charges). 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 (equaling $23,483 for 2000)
representing the oversight responsibility of the Sr. VP Human Resources. 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. The
estimate is based on an average of 1999 actual charges.
13
<PAGE>
TERMINATION: This Service will terminate effective March 15, 2000 by mutual
agreement, and will be incorporated into a separate contract effective on the
same date.
14
<PAGE>
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:
A) Sales/use, excise, property and other transaction taxes
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
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
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>
<S> <C>
TOTAL ESTIMATED COST FOR 2000: $182,300
FIXED AMOUNT FOR 2000: $16,760
</TABLE>
<TABLE>
<S> <C>
HOURLY RATES DURING 2000:
Level 8 $115
Level 7 89
Level 6 77
Level 5 67
Level 4 57
Level 3 46
</TABLE>
15
<PAGE>
TAX ADMINISTRATION SERVICES (CONTINUED)
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. The Tax
Department may Subcontract when necessary. All costs of Subcontracting will
be "passed-through" at AA cost to Sabre. 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 Services are dropped. The annual cost to provide each
of the Services is the sum of the Fixed Amount and the usage at the hourly
rate.
TERMINATION: These Services will terminate effective March 15, 2000, by
mutual agreement.
16
<PAGE>
SCHEDULE XIX.
SABRE SUPPLY MANAGEMENT SERVICE (UPDATED)
DESCRIPTION OF SERVICE: The Sabre Supply Management Services that will
continue are as follows:
<TABLE>
SERVICE PRICE
------- -----
<S> <C>
C) National Contract Purchasing $39,916
</TABLE>
<TABLE>
<S> <C>
FIXED PRICE FOR 2000: $96,417
FIXED AMOUNT FOR 2000: $56,501
MONTHLY INVOICED AMOUNT: $ 8,035
</TABLE>
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
installments in the above amounts 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 VP Purchasing
(equaling $56,501 for 2000), and will not vary with changes in the Service Level
of this Service.
TERMINATION: This Service has terminated effective March 1, 2000, by mutual
agreement. AA will invoice Sabre for a pro-rated amount of the fees listed above
based on 2 months of Services being performed in the year 2000.
17
<PAGE>
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
<TABLE>
<S> <C>
FIXED PRICE FOR 2000: $404,103
MONTHLY INVOICED AMOUNT: $ 33,675
</TABLE>
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. VP Corporate Services (equaling $20,035
for 2000), and will not vary with changes in the Service Level of this
Service.
TERMINATION: This Service will terminate effective March 15, 2000, by mutual
agreement. AA will invoice Sabre for a pro-rated amount of the Fixed Price
for year 2000 based on 2-1/2 months of Services rendered.
18
<PAGE>
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
<TABLE>
<S> <C>
FIXED PRICE FOR 2000: $55,308
MONTHLY INVOICED AMOUNT: $4,609
</TABLE>
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.
TERMINATION: This Service will terminate effective March 15, 2000, by mutual
agreement. AA will invoice Sabre for a pro-rated amount of the Fixed Price
for year 2000 based on 2-1/2 months of Services rendered.
19
<PAGE>
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 Sabre
Sabre 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 elects
(by agreement with AA or AMR) to so participate, Sabre shall pay a portion of
the premiums for the insurance policies in which it participates based on an
allocation methodology agreed upon by the Parties for those policies.
<TABLE>
<S> <C>
FIXED PRICE FOR 2000: $83,581
MONTHLY INVOICED AMOUNT: $6,965
</TABLE>
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 VP Corporate
Development & Treasury (equaling $2,579 for 2000), and will not vary with
changes in the Service Level of this Service.
TERMINATION: This Service will terminate effective March 15, 2000, by mutual
agreement. AA will invoice Sabre for a pro-rated amount of the fees listed
above based on 2-1/2 months of Services being performed in year 2000.
20
<PAGE>
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 2000 PRICE
- ------- ----------
<S> <C> <C>
B) Accounting Functions performed for Sabre Inc. including its direct and
indirect subsidiaries, Sabre International, in the Caribbean and Latin
America (except in Ecuador and Nicaragua) served as of the Effective
Date of this contract which consists of: $54,000
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 Attorney-in-Fact on
Powers of Attorney in the following countries: Pass-Through Expense
i) Costa Rica, Jamaica, Panama, Trinidad & Tobago, Barbados,
Grenada, Belize and Bermuda
</TABLE>
<TABLE>
<S> <C>
FIXED PRICE FOR SERVICE B DURING 2000: $54,000
MONTHLY INVOICED AMOUNT FOR SERVICE B: $ 4,500
</TABLE>
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 Sabre
(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.
TERMINATION: AA and Sabre will terminate the Services listed above as soon
as practical, but in no event no later than September 1, 2000. The period
from March 15, 2000, through September 1, 2000, shall, in any event, be
considered a Transition Period during which AA will provide transition
assistance, including the full performance of the Services. However, the
Service will not be provided, nor will transition assistance be provided,
beyond September 1, 2000.
21
<PAGE>
SCHEDULE XXVII.
AMR CHINA SERVICE
DESCRIPTION OF SERVICE: Tasks consist of supporting Sabre companies' business
development in the Peoples Republic of China from both the AA HDQ office and the
Beijing office.
<TABLE>
<S> <C>
ESTIMATED COST FOR 2000: [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
MONTHLY INVOICED AMOUNT: [TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED]
ANNUAL FIXED AMOUNT FOR 2000: [TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED]
</TABLE>
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
TERMINATION: This Service has terminated effective March 1, 2000, by mutual
agreement. AA will invoice Sabre commissions earned through that date and
only two monthly installments toward the Annual Fixed Amount for the year
2000.
22
<PAGE>
SCHEDULE XXIX.
AUDIT SERVICE
DESCRIPTION OF SERVICE: Conducting internal audits and coordinating external
audit functions.
<TABLE>
<S> <C>
ESTIMATED COST FOR 2000: $0
HOURLY RATES DURING 2000:
IT Audits $100
Corporate Audits 73
</TABLE>
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 Sabre.
TERMINATION: This Service has terminated effective March 1, 2000, by mutual
agreement.
23
<PAGE>
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
<TABLE>
<S> <C>
ESTIMATED COST FOR 2000: $0
HOURLY RATES DURING 2000:
Management (level 6 and above) $97
Account Executive (level 3 - 5) 63
Jr. Account Executive (level 1 -2) 45
Support Staff 38
</TABLE>
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.
TERMINATION: This Service has terminated effective March 1, 2000, by mutual
agreement.
24
<PAGE>
SCHEDULE XXXII.
OTHER AIRLINE (OA) PERSONAL TRAVEL ADMINISTRATION SERVICE
DESCRIPTION OF SERVICE: AA International Affairs will provide
Administrative support for Sabre'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 Sabre
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 OA's
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
<TABLE>
<S> <C>
FIXED PRICE FOR 2000: [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
MONTHLY INVOICED AMOUNT: [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
</TABLE>
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. [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
TERMINATION: These Services will terminate effective March 15, 2000, by
mutual agreement. AA will invoice Sabre a pro-rated amount of the Fixed Price
for year 2000 based on 2-1/2 months of Services rendered.
25
<PAGE>
SCHEDULE XXXIII.
OTHER AIRLINE (OA) BUSINESS TRAVEL ADMINISTRATION SERVICE
DESCRIPTION OF SERVICE: AA International Affairs will provide Administrative
support for Sabre'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 pass requests
ii) Process OA business travel requests
C) Administrative Support
i) Provides updates to Sabre reference material
ii) Respond to employee inquires
iii) Prepare PNRs for ticketing
FIXED PRICE FOR 2000: [TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED]
INTERLINE TRAVEL EXPENSE FOR 2000: [TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED]
MONTHLY INVOICED AMOUNT: [TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED]
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 VP International Affairs[TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED], and will not vary with changes in the Service Level of
this Service. [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
TERMINATION: These Services will terminate effective March 15, 2000, by mutual
agreement. AA will invoice Sabre for pass-through expenses incurred through that
date and a prorated amount of the Fixed Price for year 2000 based on 2-1/2
months of Services rendered.
26
<PAGE>
SCHEDULE XXXIV.
INTERNATIONAL DIVISION SERVICES
DESCRIPTION OF SERVICE: The Services will be performed by AA International
Division from the London, UK office. The Services will consist of the following
for the existing geographical areas served as of the Effective Date of the
Management Services Agreement (not including Madrid, Paris, Frankfurt, and
Stockholm). Personnel Services will only be conducted in Japan.
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 (only for TYO)
i) Employee Relations
ii) Recruitment
iii) Career Development
iv) Compensation Standards
v) Benefits Administration
vi) Health and Safety Issues
C) EC Affairs
D) Purchasing
E) Pacific Sales
i) Interline Requests
ii) STIN Marketing
iii) STIN Related Issues with OALS
FIXED PRICE FOR 2000 $186,645
MONTHLY INVOICED AMOUNT: $ 15,554
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.
TERMINATION: AA and Sabre will terminate these Services as soon as
practical, but in no event no later than September 1, 2000. The period from
March 15, 2000, through September 1, 2000, shall, in any event, be
considered a Transition Period during which AA will provide transition
assistance, including the full performance of the Services. However, the
Service will not be provided, nor will transition assistance be provided,
beyond September 1, 2000.
27
<PAGE>
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 ANNUAL PRICING
- -------- --------------
D) Mail Services Includes mailings by USPS below 1,000 pieces, excludes
boardmail.
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 List
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 at the
following locations: CPI, CPII, CPIV, CPV, Learning Center, Trinity Building
(STIN), SRO, and Flight Academy/SOC
FIXED PRICE FOR 2000: $335,920
MONTHLY INVOICED AMOUNT: $ 27,993
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. 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. Annual Pricing may escalate on January 1 of each year.
The percentage of escalation of the Annual Pricing may not exceed 4%.
TERMINATION: Services D, E, & G will terminate effective June 30, 2001, by
mutual agreement, except for boardmail which terminates effective March 15,
2000. Service F will terminate effective March 15, 2000. AA will invoice Sabre a
prorated amount of the Fixed Price for Year 2001 based on 6 months of Services
rendered for these services. Notwithstanding the foregoing termination date and
the procedures of Section 5.1 of the Agreement, Sabre may, at any time upon no
less than 180 days advance notice to AA, or 30 days with mutual consent,
exercise early termination of all of the above Services, subject to Sections
5.2, 5.3, 5.4, and 5.5 of the Agreement.
28
<PAGE>
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 Sabre. Tasks (B) and (C) will only be conducted for
Sabre's employees located in CP5 and CP2.
<TABLE>
<CAPTION>
SERVICES CURRENTLY SUBCONTRACTED TO: ANNUAL PRICING
<S> <C> <C>
A) Employee Shuttle Service DFW/HDQ/DFW Renzenberger, Inc.
B) Sabre Employees in CP2/5 Paper Supply Tri-Plex Industries, Inc.
C) Sabre Employees in CP2/5 Copiers Xerox Business Services Division
D) Mailing Services Pitney Bowes Management Services, Inc. [TEXT
OMITTED -
CONFIDENTIAL
TREATMENT
REQUESTED]
</TABLE>
Price for each Service is a pass-through of expenses of Sabre for that Service.
BUILDINGS SERVED: American Airlines is offering General Services, Tasks (A) and
(D) to Sabre at the following locations : CPI, CPII, CPIV, CPV, Learning Center,
Trinity Building (STIN), SRO, Flight Academy/SOC. For Tasks (B) and (C),
American Airlines will only provide Service to Sabre employees at CPII and CPV
and charges will be passed-through based on Sabre's percentage of occupancy in
the properties.
TOTAL PASS-THROUGH EXPENSES FOR 2000: [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
BASIS FOR PRICE: Sabre's portion of expenses incurred by AA for General Services
related subcontracted Services. Service D is considered a Fixed Price Services
for the purposes of the Agreement. The Annual Pricing provided in Service D may
escalate on January 1 of each year. The percentage of escalation of the Annual
Pricing may not exceed 4%. Similar to Services B and C, AA will pay Sabre
Sabre's pro-rated cost of paper and copier maintenance as long as AA employees
occupy CP4 and Sabre owns the building.
TERMINATION: Service A listed above will terminate effective March 15, 2000, the
date of the disaffiliation. Services B and C listed above will be terminated
under this Agreement effective no later than September 15, 2000, by mutual
agreement, and incorporated into a separate contract effective the same date.
The same pricing and payment for Services B and C will be integrated into the
new contract. The new contract will terminate when Sabre employees no longer
occupy CP2 and CP5 and AA employees no longer occupy CP4 and Sabre owns the
building. Service D listed above will terminate effective June 30, 2001 by
mutual agreement. However, Service D, and
29
<PAGE>
the costs associated with this Service, may be revised by mutual agreement no
later than March 15, 2000. Notwithstanding the foregoing termination date and
the procedures of Section 5.1 of the Agreement, Sabre may, at any time upon no
less than 180 days advance Notice to AA, or 30 days with mutual consent,
exercise early termination of Service D listed above subject to Sections 5.2,
5.3, 5.4, and 5.5 of the Agreement. For each of the foregoing Services, AA will
invoice Sabre the Pass-Through Expenses incurred through the effective date of
termination.
30
<PAGE>
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 2000: [TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED]
ESTIMATED COST FOR 2000: [TEXT OMITTED - CONFIDENTIAL TREATMENT
[REQUESTED]
BASIS FOR PRICE: The Services 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. The Annual Pricing for providing these Services may
escalate on January 1 of each year. The percentage of escalation of the Annual
Pricing may not exceed 4%.
TERMINATION: This Service will terminate effective June 30, 2001, upon mutual
agreement. Notwithstanding the foregoing termination date and the procedures of
Section 5.1 of the Agreement, Sabre may, at any time upon no less than 180 days
advance Notice to AA, or 30 days with mutual consent, exercise early termination
of this Optional Service, subject to Sections 5.2. 5.3, 5.4, and 5.5 of the
Agreement.
31
<PAGE>
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)
ESTIMATED TOTAL FOR 2000: [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
ESTIMATED MONTHLY INVOICED AMOUNT: [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
BASIS FOR PRICE: The Price is based on AA Facilities Maintenance Department's
fully-allocated costs. The Price will be invoiced in accordance with the
Easement Agreement.
TERMINATION: This Service will be terminated under this Agreement effective
March 15, 2000, by mutual agreement, and will be incorporated into a separate
contract effective on the same date.
32
<PAGE>
SCHEDULE XLI.
FACILITIES MAINTENANCE PASS-THROUGH EXPENSE SERVICE
DESCRIPTION OF SERVICE: 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
Sabre.
<TABLE>
<CAPTION>
SERVICE CURRENTLY SUBCONTRACTED TO: ANNUAL PRICING
<S> <C> <C>
A) Hazardous Waste Removal Various Contractors [TEXT OMITTED -
CONFIDENTIAL
TREATMENT
REQUESTED]
O) Security Services Barton Security [TEXT OMITTED -
CONFIDENTIAL
TREATMENT
REQUESTED]
TOTAL PASS-THROUGH EXPENSES FOR 2000: [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
MONTHLY INVOICED AMOUNT: [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
</TABLE>
BASIS FOR PRICE: Sabre's portion of expenses incurred by AA for General Services
related Subcontracted Services. The total Pass-Through Expense will be invoiced
in 12 equal installments. The Annual Pricing for Service O may escalate on
January 1 of each year. The percentage of escalation of the Annual Pricing may
not exceed 4%.
TERMINATION: Service A listed above will terminate effective March 15, 2000, by
mutual agreement. Service O listed above will terminate effective June 30, 2001,
by mutual agreement. Notwithstanding the foregoing termination date and the
procedures of Section 5.1 of the Agreement, Sabre may, at any time upon no less
than 180 days advance Notice to AA, terminate Service O as an Optional Service,
subject to Sections 5.2, 5.3, 5.4, and 5.5 of the Agreement. For each such
termination AA will invoice Sabre Pass-Through Expenses on a pro-rated basis or
as actually incurred through the effective date of termination, in accordance
with the method by which AA is invoiced by the respective Subcontractor.
33
<PAGE>
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
34
<PAGE>
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 2000: $34,023
MONTHLY INVOICED AMOUNT: $ 2,835
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. Sabre'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.
TERMINATION: This Service will terminate effective March 15, 2000, by mutual
agreement. AA will invoice Sabre a pro-rated amount of the Fixed Price for year
2000 based on 2-1/2 months of Services rendered.
35
<PAGE>
SCHEDULE XLVI.
ASSET CARD
DESCRIPTION OF SERVICE: The tasks to be performed by the AA Credit Card
Services Department will consist of:
A) Process all new applications, coordinate cancellations and activations
B) Enter new cardholder numbers into the AACCTS database
C) Work directly with GE Capital and employees in resolving collection
problems, including payroll deduction if necessary
D) Provide monthly AASSET card reports, and statistics in exactly the same
format as American
E) Coordinate with ATC to make requested report
changes that do not require programming dollars unless funded
by Sabre
F) Coordinate with programmers any changes that Sabre requests
G) Work with GE Capital to maintain the "good" working relationship
including tracking company credit limits, collections and customer
Service
AA Credit Card Services will NOT do the following:
A) Pay for ANY programming changes
B) Continue to administer program if Sabre requested changes result in
significant deviation from AA policies and procedures
FIXED PRICE FOR 2000: $33,456
MONTHLY INVOICED AMOUNT: $ 2,788
BASIS FOR PRICE: The Tasks described above will be performed on a fixed-Price
basis. The Price is based on AA Credit Card Service's marginal costs, primarily
salary and benefits. The fixed Price will be prorated and invoiced in equal
monthly installments (see above) during the calendar year.
TERMINATION: This Service will terminate effective March 15, 2000, by mutual
agreement. AA will invoice Sabre a pro-rated amount of the Fixed Price for year
2000 based on 2-1/2 months of Services rendered.
36
<PAGE>
THIS AGREEMENT HAS CONFIDENTIAL PORTIONS OMITTED, WHICH PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE
INDICATED IN THIS AGREEMENT WITH "[TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED]."
SERVICES AGREEMENT
This Services Agreement ("Agreement") is entered into effective as of March
15, 2000 and between American Airlines, Inc. ("AA"), a Delaware corporation
with principal offices located in Fort Worth, Texas, and Sabre Inc.
("Sabre"), a Delaware corporation with principal offices located in Fort
Worth, Texas.
BACKGROUND
1. Since July 1, 1996, Sabre has been operating as an independent company
from AA, and AA has been performing a variety of payroll and other
services for Sabre under the terms of a Management Services Agreement
(MSA) entered into by and between AA and Sabre.
2. As a result of certain separate transactions expected to occur on or
about March 15, 2000, Sabre, its parent company, Sabre Holdings
Corporation and their Affiliates, will no longer be Affiliates under
common control with AA.
3. The majority of the services rendered under the MSA will be wound down
and terminated by June 30, 2001. AA and Sabre intend that the MSA will
expire on June 30, 2001.
4. The parties contemplate that AA may continue providing payroll and
related services to Sabre beyond June 30, 2001, and therefore wish to
enter into a separate agreement governing the terms and conditions
under which these services will be performed, and this Agreement shall
supersede and replace the MSA with respect to the Services as of the
effective date of this Agreement.
CLAUSES
NOW, THEREFORE, in consideration of the mutual promises set forth below, AA
and Sabre agree as follows:
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
incorporated herein as an integral part of this Agreement.
2. Services, Payments and Taxes.
<PAGE>
2.1 SERVICES TO BE RENDERED; CHANGES. AA will provide payroll and
certain related services (the "Services") to Sabre as more
fully described on Schedule A and the related Service Level
Agreement dated January 1, 2000, both of which are attached to
and form part of this Agreement. The Services are rendered
solely to, or for the direct benefit of, Sabre and the Sabre
Affiliates identified on Schedule A and may not be transferred
or assigned to any other Person. Sabre will make available
access to all information, systems, data, facilities and
personnel support reasonably required by AA to effectively
perform the Services as provided in the Service Level
Agreement.
Sabre may from time to time submit a written request for a
change or addition to the Services. AA will not unreasonably
withhold its approval of such change or addition and will
provide Sabre with a written response to the change request
identifying (i) any additional charge as a result of the
change or addition, (ii) an estimate of the time for
implementation of the requested change or addition, and (iii)
any additional terms or conditions that would apply to the
change or addition. Sabre may, in its discretion, accept or
reject AA's proposal. Each Party shall use all reasonable
efforts to respond as expeditiously as possible to any change
requests or proposals.
2.2 STANDARD OF CARE. AA will use the same care in rendering the
Services to Sabre as it uses in rendering substantially
similar services for itself and its Affiliates, but in no
event less than reasonable care. However, AA has full
discretion as to how to render the Services, and is not
obligated to render the Services in the same manner (e.g.,
using the same personnel) or in the same place as it has
previously rendered, or may render in the future, such
Services for itself or for Sabre.
2.3. PRICE AND PAYMENT. Sabre will make all payments owed to AA
hereunder, without set-off or reduction for any amounts owed
or claimed from AA by Sabre and exclusively in United States
Dollars, by means of wire transfer to an account or accounts
designated by AA. AA will invoice Sabre for amounts accrued
under SCHEDULE A for each month during the term of this
Agreement. Payment must be made within thirty (30) days after
receipt of an invoice from AA. 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. Invoices will be in a format
and contain reasonable detail as mutually agreed in writing by
AA and Sabre.
2
<PAGE>
AA will not back bill Sabre for any Services that were
rendered in 1998 and 1999 under the MSA.
2.4 EXPENSES. Unless otherwise provided in Schedule A or
specifically agreed by the Parties, each Party will bear its
own costs and/or expenses in connection with the performance
of this Agreement and the exercise of its rights and remedies
under this Agreement.
2.5 TAXES. Sabre and AA are responsible for taxes relating to this
Agreement as follows:
a) Each Party is responsible for its income and
franchise taxes, and for all other taxes (however
described) based on its own income and earnings.
b) Sabre is responsible for all sales, excise, use and
similar taxes (however described) of any
jurisidiction which are applicable to, or in respect
of, the Services and the payments made under this
Agreement. Accordingly, all payments by Sabre to AA
under this Agreement are to be net of any such taxes,
and/or grossed-up to the extent necessary for AA to
receive the intended net amount. If Sabre claims an
exemption or exclusion from taxes of this kind, it
shall deliver to AA a certificate or letter stating
Sabre's good-faith belief that a Service is not, in
whole or in part, subject to those taxes.
c) Each of Sabre and AA is responsible for all
employment-related taxes (however described)
regarding its own employees.
d) ASSESSMENTS, REFUNDS AND DISPUTES.
(i) If AA receives an assessment from a taxing
authority covering taxes for which Sabre is
responsible under this Section, AA shall
notify Sabre of the assessment and, at
Sabre's request, timely contest the
assessment. If payment to the taxing
authority is required by law as a condition
to protest, Sabre shall timely furnish AA
the required amount for that payment.
(ii) If Sabre believes it has overpaid taxes to
AA for any of the Services (in whole or in
part), Sabre may require AA to file a
3
<PAGE>
claim for a refund at Sabre's expense. If
permitted by law, AA may assign any right to
a refund directly to Sabre instead of filing
a refund claim. Any refund of taxes
(including any interest) received by AA
under this Section shall be promptly
forwarded to Sabre.
(iii) Before AA is required to pursue any action
requested by Sabre under this Section, AA
may at any time require Sabre to deliver a
letter of advice from outside counsel
(selected by Sabre) stating that Sabre's tax
position is reasonable.
(iv) Except as stated in the next sentence, any
dispute between the parties regarding the
application of any taxes related to the
Services provided under this Agreement shall
be resolved by the Dispute Resolution
Procedure. Any dispute as to the amount of
tax 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
under this Agreement apart from the Dispute
Resolution Procedure.
3. TERM AND TERMINATION.
The term of this Agreement will commence on March 15, 2000 and
remain in effect until December 31, 2001, unless extended or earlier
terminated as follows:
3.1 RENEWAL; THREE-MONTH EXTENSION ON EXPIRATION. At least one
hundred eighty (180) days before the expiration of the initial
term or any renewal term, Sabre may request an extension of
the term of this Agreement of one year or more. If, after good
faith negotiation, the Parties do not agree in writing on the
terms and conditions of the extension by the one-hundred
twentieth (120th) day before the expiration of the initial or
any renewal term, this Agreement will expire, UNLESS Sabre, on
or before that 120th day, notifies AA in writing that it
wishes the Services to be continued, and the term to be
extended, for a period of three calendar months after the
expiration date.
3.2 TERMINATION FOR CAUSE. This Agreement may be terminated by a
Party, immediately upon Notice to the other Party, if:
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1) the other Party makes a general assignment of all or
substantially all of its assets for the benefit of
its creditors;
2) the 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;
3) the other Party files, or consents to or acquiesces
in, a petition seeking relief or reorganization under
any bankruptcy or insolvency laws;
4) a petition seeking relief or reorganization under any
bankruptcy or insolvency laws is filed against the
other Party and is not dismissed within ninety (90)
days after it was filed;
5) the other Party's material breach of this Agreement
continues uncured or uncorrected for thirty (30) days
following receipt of Notice from the non-defaulting
Party specifying the nature of that breach.
3.3 TERMINATION FOR CONVENIENCE. Upon not less than one hundred
twenty (120) days Notice, Sabre shall have the right to
terminate this Agreement, without cause. Any such termination
may take effect only on a month end after December 31, 2000.
If Sabre requests the termination be effective at the end of
any month other than a calendar quarter (i.e., March 31, June
30, September 30 or December 31), Sabre will reimburse AA for
all incremental costs incurred by AA in winding up the
Services, plus an additional five percent (5%) of such
incremental costs as an administrative charge.
3.4 PARTY'S OWN CONDUCT; REMEDIES NON-EXCLUSIVE. A Party may not
terminate this Agreement if an event or circumstance described
in SECTION 3.2, upon which that Party would rely in so
terminating, was caused by that Party's breach of this
Agreement. The termination rights under this SECTION 3 are not
exclusive of any other right or remedy of a non-breaching
Party granted in this Agreement, unless otherwise specifically
provided.
3.5 TRANSITION ASSISTANCE. For up to one-hundred eighty (180) days
after the date of expiration of this Agreement or termination
by Sabre under this SECTION 3, AA will comply with Sabre's
reasonable requests for assistance in data migration, and
obtaining records and other information relating to the
Services rendered by AA preceding that expiration or
termination. In connection with the expiration or termination
of this Agreement and the Parties mutual interest in Sabre's
efficient
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and orderly transition to a new system and/or service
provider, if Sabre requires assistance from AA, Sabre
will deliver to AA: (i) detailed functional requirements of AA
for the transition no less than ninety (90) days before the
actual cessation of Services under this Agreement, and (ii)
detailed functional specifications for data transfer from AA
no less than sixty (60) days before the actual cessation of
Services. Sabre will reimburse and pay AA's reasonable
expenses incurred in connection with the foregoing assistance
against invoices submitted to Sabre by AA in accordance with
SECTION 2 above. AA will supply reasonable supporting
documentation or other records and reports in connection with
such reimbursable expenses.
4. CONFIDENTIALITY/OWNERSHIP
4.1 CONFIDENTIAL INFORMATION. AA agrees that any information AA
and its employees receive or review concerning Sabre's
employees and business in the course of rendering the Services
may be confidential and/or proprietary to Sabre. AA
acknowledges that the following items are confidential
information of Sabre (whether or not so marked): individual
Sabre employee payroll data and other related information,
Sabre's general accounting ledger and Sabre SAP data. Sabre
will use reasonable efforts not to reveal any such information
to AA or its employees to the extent it is not required to
perform the Services, and, if it is, to clearly mark or
otherwise identify such information as confidential. AA will
maintain any information so identified as confidential and
will not disclose it to any third party (unless required to do
so by applicable laws) or use it directly or indirectly for
any purpose except the performance of Services under this
Agreement. AA agrees to return all such information and all
compilations or summaries or synopses thereof (and all copies
of all of the foregoing) in AA's possession to Sabre upon the
termination of this Agreement, except to the extent it is
impractical to desegregate or delete any such information
stored electronically, or AA would retain such information for
itself for the purposes of future auditing or reporting
requirements. In any event, AA's confidentiality obligation
above will survive the expiration or termination of this
Agreement for a period of five (5) years.
4.2 SYSTEM OWNERSHIP. Sabre acknowledges that it does not have and
will not acquire any proprietary rights in SHARP. However,
Sabre may, at any time, request AA to enter into good faith
negotiations to acquire ownership of or a license to use and
modify SHARP for its own benefit, subject to the terms of AA's
license for the core SAP system and the proprietary rights
therein. [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] In
the event Sabre elects to acquire a license to SHARP, AA
agrees to use reasonable efforts to acquire or obtain rights
from SAP necessary for SABRE to utilize SHARP.
5. LIMITED WARRANTY; REMEDY.
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OTHER THAN THE STATEMENT AS TO STANDARD OF CARE IN SECTION 2.2, ALL
SERVICES ARE PROVIDED BY AA "AS IS," WITHOUT ANY WARRANTY WHATSOEVER.
SABRE RECOGNIZES THAT THE "AS IS" CLAUSE OF THIS AGREEMENT IS AN
IMPORTANT PART OF THE BASIS OF THIS AGREEMENT, WITHOUT WHICH AA WOULD
NOT HAVE AGREED TO ENTER INTO THIS AGREEMENT. AA DISCLAIMS ALL OTHER
WARRANTIES, EXPRESS, IMPLIED, OR STATUTORY, REGARDING THE SERVICES,
INCLUDING ANY WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. NO REPRESENTATION OR OTHER AFFIRMATION OF FACT
REGARDING THE SERVICES SHALL BE DEEMED A WARRANTY FOR ANY PURPOSE OR
GIVE RISE TO ANY LIABILITY OF AA WHATSOEVER. SABRE ACKNOWLEDGES THAT IT
HAS RELIED ON NO WARRANTIES OTHER THAN THE EXPRESS WARRANTY IN THIS
AGREEMENT.
In the event of any inaccuracies or deficiencies in the Services caused
by AA's improper or negligent performance of the Services, AA will, as
soon as reasonably possible following identification of such
inaccuracies or deficiencies by Sabre, perform the Services again or
take such other reasonable corrective measures as will remedy the
inaccuracy or deficiency, all without additional expense to Sabre.
Sabre's remedy under this limited warranty is exclusive of, and not
cumulative with, any other remedy against AA for such breach of
warranty, including termination for breach and any claim for Damages,
but without prejudice to Sabre's rights to indemnification under
SECTION 7.1.
6. LIMITATION OF LIABILITY.
SABRE WAIVES ALL LIABILITY OF AA FROM ORDINARY NEGLIGENCE, WHETHER
CONTRIBUTORY, SOLE OR JOINT. AA IS NOT LIABLE TO SABRE FOR ANY
INCIDENTAL, INDIRECT, EXEMPLARY, SPECIAL OR CONSEQUENTIAL DAMAGES UNDER
ANY CIRCUMSTANCES, INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, REVENUE
OR SAVINGS, OR THE LOSS OF USE OF ANY DATA, EVEN IF AA HAD BEEN ADVISED
OF, KNEW, OR SHOULD HAVE KNOWN, OF THE POSSIBILITY THEREOF. UNDER NO
CIRCUMSTANCES MAY AA'S AGGREGATE CUMULATIVE LIABILITY HEREUNDER,
WHETHER IN CONTRACT (INCLUDING THE INDEMNITY OBLIGATIONS OF SECTION 7
BELOW), TORT, OR OTHERWISE, EXCEED THE TOTAL AMOUNT OF SERVICES FEES
ACTUALLY PAID TO AA UNDER THIS AGREEMENT. SABRE ACKNOWLEDGES THAT THE
FEES PAID BY IT REFLECT THE ALLOCATION OF RISK SET FORTH IN THIS
AGREEMENT AND THAT AA WOULD NOT ENTER INTO THIS AGREEMENT WITHOUT THESE
LIMITATIONS ON ITS LIABILITY.
7. INDEMNIFICATION.
7.1 BY AA. Subject to the limitation of SECTION 6, AA will
indemnify and hold harmless (i) Sabre and the Sabre
Indemnified Parties, from and against any Damages (including
reasonable attorneys' fees and litigation expenses) caused by
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the willful misconduct or gross negligence of AA's employees
involved in the performance of Services, and (ii) Sabre and
its Affiliates from and against any fines, penalties or other
civil liability assessed by any governmental authority for a
failure to remit payroll taxes comply timely and correctly
with other payroll-related reporting requirements to the
extent such failure is caused by AA's improper performance of
or negligence in performing the Services. The latter indemnity
is subject to the procedures for Third Party Claims set forth
in SECTION 7.4.
7.2 BY SABRE. Sabre will indemnify and hold harmless AA and
the AA Indemnified. Parties from any Damages (including
reasonable attorneys' fees and litigation expenses) caused by
a Third Party Claim arising out of AA's performance of the
Services.
7.3 EFFECT OF INDEMNIFIED PERSON'S CONDUCT. The indemnification
obligations in SECTIONS 7.1 AND 7.2 will 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
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.
7.4 PROCEDURES FOR 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 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.
(b) The Indemnifying Party shall be entitled to defend
the Third-Party Claim, with its chosen counsel and at
its own expense, if (i) the Third-Party Claim seeks
only monetary relief, and not an injunction or other
equitable relief, against the Indemnified Party, and
(ii) 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.
(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
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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 shall pay for separate counsel for the
Indemnified Party.
(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 on 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.
(f) The Indemnifying Party and the Indemnified Party
shall cooperate with all reasonable requests of the
other in defending any Third-Party Claim.
7.5 TIME FOR CLAIMS. A Party may make an Indemnification Claim
(a) not based on a Third-Party Claim, only within two (2)
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.
7.6 SURVIVAL. The rights, remedies, and obligations under this
SECTION 7 shall continue on and after the expiration or
termination of this Agreement.
8. INDEPENDENT CONTRACTOR.
Sabre and AA acknowledge and agree that AA, and its employees rendering
Services under this Agreement, are acting solely as independent
contractor, and not as employees, with respect to Sabre. Neither Party
has any authority to make offers or representations on the other
Party's behalf or otherwise to bind or incur liability on behalf of the
other Party, and may not hold itself out as having any such authority.
9. RIGHT TO AUDIT.
AA will keep complete records and accounts related to the performance
of the Services and payments made under this Agreement. Such records
and accounts will be open for inspection, examination, audit and
copying by Sabre or its designated representatives at all reasonable
times. AA will keep and preserve all such records and accounts
throughout the term of this Agreement, and for a period of at least six
(6) months after the expiration or termination of this Agreement.
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10. NOTICES.
All Notices or other communications under this Agreement must be in
writing and will be deemed effectively received (i) when delivered
personally by hand to the recipient or when transmitted by facsimile to
the recipient (with telephonic confirmation by the sender to the
recipient), or (ii) one (1) business day after mailing by overnight
courier to the Parties at the following addresses (or at such other
addresses as may be specified by Notice in accordance with this
section):
IF TO AA: IF TO SABRE:
American Airlines, Inc. Sabre Inc.
4333 Amon Carter Boulevard 4255 Amon Carter Boulevard
Mail Drop 5501 Mail Drop 4204
Fort Worth, Texas 76155 Fort Worth, Texas 76155
Facsimile: 817-967-1184 Facsimile: 817-963-3051
Attention: Managing Director Attention: Sr. Vice President,
- Financial Planning Human Resources
WITH A COPY TO:
Sabre Inc.
4255 Amon Carter Boulevard
Mail Drop 4204
Fort Worth, Texas 76155
Facsimile: 817-931-7502
Attention: General Counsel
11. ASSIGNMENT AND DELEGATION.
AA has subcontracted for the performance of certain of the Services and
may subcontract for the performance of any part or all of the Services
in its discretion, without affecting the Price to be paid for the
Services under SCHEDULE A or AA's responsibility for their performance
hereunder. AA will notify Sabre in advance of any new subcontracting or
change in subcontractors under this Agreement. Otherwise, neither Party
may assign this Agreement, in whole or in part, nor delegate any of its
duties without the Consent of the other Party. Any assignment attempted
in violation of this provision is null and void. No third party
beneficiaries are created by this Agreement.
12. GOVERNING LAW.
The validity, interpretation and performance of this Agreement are
governed by the laws of the State of Texas applicable to contracts
wholly performed within the State of Texas.
13. DISPUTE RESOLUTION MATTERS.
Except as otherwise stated in this Agreement, the Parties will resolve
all Disputes in accordance with the Dispute Resolution Procedure.
Nevertheless, if any Person other than the Parties or their Affiliates
(a) has initiated a lawsuit or other Proceedings against or
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involving either or both of the Parties in which a Dispute will be
resolved, or (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(h) 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 will apply if necessary.
14. FORCE MAJEURE.
Either Party is excused from performing its obligations under this
Agreement (except for the obligation to make payments) to the extent
that it is prevented from performing as a result of any act or event
which occurs and is beyond its reasonable control, including, without
limitation, acts of God, strikes or other labor disturbances, utilities
or communications failures, riots, insurrections, sabotage or
vandalism. If a Party anticipates any excusable delay or failure
pursuant to this section, it will 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. MISCELLANEOUS.
This Agreement constitutes the entire agreement between the parties
relating to its subject matter and supersedes any prior agreements and
understandings (including, but not limited to, the MSA as of the
effective date of this Agreement) whether oral or written, between the
Parties. No modification, amendment or change is effective or binding
on any Party unless set forth in a writing, duly executed by the
Parties. The waiver by either Party of any requirement or obligation
will not operate or be construed as a subsequent waiver. This Agreement
is binding on and inures to the benefit of the Parties, their legal
representatives, and permitted successors and assigns. This Agreement
may be executed in one or more identical counterparts, each of which is
an original, but all of which constitute one instrument. If any
provision contained in this Agreement is held invalid, illegal or
unenforceable in any respect, such invalidity, illegality or
unenforceability will not invalidate this entire Agreement. Such
provision will be deemed to be modified to the extent necessary to
render it valid and enforceable, and if no such modification renders it
valid or enforceable, then this Agreement may be construed as if not
containing such provision.
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IN WITNESS WHEREOF, the duly authorized representatives of the Parties have
executed this Agreement as of the date first written above.
AMERICAN AIRLINES, INC. SABRE INC.
By: ________________________ By: _____________________
Doug. G Herring Name:
Title: Vice President and Controller Title:
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DEFINITIONAL APPENDIX TO SERVICES AGREEMENT
1. DEFINED TERMS. In the Agreement, the following terms have the
corresponding meanings:
AA means American Airlines, Inc., a Delaware corporation.
AFFILIATE means a Person that directly or indirectly through one or
more intermediaries Controls, is Controlled by, or is under common
Control with another Person.
AGREEMENT means the Services Agreement between AA and Sabre (including
the Definitional Appendix, the Dispute Resolution Appendix, Schedule,
and the Service Level Agreement), as may be amended or supplemented
from time to time in accordance with its terms.
ARBITRATION RULES means 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.
CONTROL means 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 means the prior written consent of a Party (in any capacity) in
its sole discretion.
DAMAGES means the 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;
1. excludes (except as provided in the last sentence of this
definition) any lost profits, lost income, or lost savings and
any punitive, exemplary,
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consequential, indirect, special, or incidental damages
(however described), even if the possibility of those losses
or damages was known; and
2. includes (except as may be reduced in accordance with the next
sentence) all fines, penalties, and interest paid or payable
to any Governmental Authority.
For the avoidance of doubt, the Damages of a Person 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.
DEFINITIONAL APPENDIX means this Definitional Appendix to the Services
Agreement, containing definitions and interpretive matters for, as an
integral part of, the Agreement.
DISPUTE means 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.
DISPUTE RESOLUTION APPENDIX means the Dispute Resolution Appendix to
Services Agreement, containing the Dispute Resolution Procedure for, as
an integral part of, the Agreement.
DISPUTE RESOLUTION PROCEDURE means 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.
FIXED-PRICE SERVICE means a Service the Price for which is a fixed or
nonvariable amount other than a fixed rate
GOVERNMENTAL AUTHORITY means 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.
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INDEMNIFICATION CLAIM means 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 7.
INDEMNIFICATION CLAIM NOTICE means 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 means the twenty (20) 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 means collectively, the officers, directors,
employees, and agents of a Party and its Affiliates.
INDEMNIFIED PARTY means a Party entitled to or seeking indemnification,
on its own behalf or on behalf of one or more of its Indemnified
Agents, under SECTION 7.
INDEMNIFYING PARTY means a Party that has or is alleged to have an
obligation to indemnify the other Party in response to an
Indemnification Claim.
NOTICE means a written communication complying with SECTION 10. (Notify
has the correlative meaning.)
PARTIES means collectively, AA and Sabre. (Party means either AA or
Sabre.)
PERSON means an individual; a corporation, partnership, trust,
association, or entity of any kind or nature; or a Governmental
Authority.
PRICE means the amount or rate, in either case whether fixed or
variable and however measured, charged to Sabre for a Service, as
agreed by the Parties.
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PROCEEDINGS means any action, suit, claim, investigation, demand,
audit, or other proceedings by or before any Governmental Authority or
any arbitration proceedings.
REASONABLE CONSENT means the prior written consent of a Party (in any
capacity), which may not be unreasonably withheld or conditioned.
REPRESENTATIVE means the individual agent or representative designated
by either Party to be it's formal liaison with or representative to the
other Party for matters relating to the Agreement, having the
(non-exclusive) authority and responsibility described in the
Agreement.
SABRE means Sabre Inc., a Delaware corporation.
SERVICE LEVEL AGREEMENT means the document of the same name dated
January 1, 2000 and attached to this Agreement.
SERVICES means the services to be rendered by AA and described on
SCHEDULE A to this Agreement. Further details with respect to the
nature of the Services and the manner and procedures for their
performance are provided in the Service Level Agreement.
SHARP means the modules of the SAP brand software system for business
management, licensed by AA, which are designed to maintain certain
human resources data bases and perform payroll and other related
functions. As used in this Agreement, SHARP means a version customized
and adapted specifically for AA's and its Affiliates environment and
requirements.
THIRD-PARTY CLAIM means a claim of liability asserted against either
Party by a Person other than the other Party.
USE-BASED SERVICE means 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
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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. $ 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;
3. Section refers to a Section of the Agreement, unless otherwise
stated in the Agreement;
6. 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
7. 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
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 Services Agreement. In addition, the following terms used
only in this Dispute Resolution Appendix have the corresponding
meanings:
COMPLEX DISPUTE LIST means 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 means a committee
consisting of the Managing Director of Financial Planning of
AA, the Vice President and Controller of Sabre, and the
Managing Director of Corporate Development of AMR.
SECOND EXECUTIVE REVIEW COMMITTEE means a committee consisting
of the Vice President and Controller of AA and the Senior Vice
President and Chief Financial Officer of Sabre.
QUALIFICATIONS means an 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:
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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 (10) 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 (10) 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 (10) 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 Presidents,
who may submit the Dispute to non-binding mediation
in accordance with SECTION B.2 of this Dispute
Resolution Appendix.
5) 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(b), B.1(c), AND B.1(d) of this Dispute Resolution
Appendix shall be made by 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 means the mediation of an unresolved Dispute shall be
conducted in this manner:
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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 (10) 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.
6) 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 twenty (20) days after
the mediator is appointed.
c) 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.
d) 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.
e) The mediation shall be subject to Chapter 154 of
Title 7 of the Texas Civil Practice and Remedies
Code.
7) 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.
20
<PAGE>
3. Arbitration means 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).
6) If the Parties are unable to agree upon any or all of
the arbitrators within ten (10) 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.
b) 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.
7) 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.
8) 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
21
<PAGE>
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.
c) 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.
d) 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.
9) 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.
e) The arbitration hearing shall be held within
thirty (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.
10) The panel's final decision or award shall be made
within thirty (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
22
<PAGE>
Texas law; the panel may not act according
to equity and conscience or as an amicable
compounder or apply the law merchant.
11) 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.
f) 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.
g) 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 reasonable
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:
12) enforce the Dispute Resolution Procedure,
including the agreement to arbitrate in this
Dispute Resolution Appendix;
13) seek provisional or temporary injunctive
relief, in response to an actual or
impending breach 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
h) challenge or vacate any final arbitration
decision or award that does not comport with
SECTION B.3 of this Dispute Resolution
Appendix.
23
<PAGE>
5. "Submission to Jurisdiction" means 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" means 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.
24
<PAGE>
SCHEDULE "A"
SERVICES
COVERAGE: U.S.-based employees of Sabre Inc. and Sabre International, Inc.,
including expatriates on overseas assignments but retained on U.S. payroll,
and Puerto Rico based employees in the case of Sabre International, Inc.
DESCRIPTION OF SERVICES
1. SHARP HR
a) Maintain human resources database for current and former Sabre
employees
b) Means to track employee events, such as job transfers and pay
increases during the term of employment
c) supports governmental industry and company reporting of
employee demographics and statistics
2. PAYROLL PRODUCTION SERVICE FOR SABRE EMPLOYEES. Calculation and
distribution of payroll checks and incentive compensation checks via
SHARP. Includes the following tasks:
a) Regular Checks - Processing of regular paychecks on a weekly,
bi-weekly, and semi-monthly basis for Domestic employees.
b) Off-Cycle Checks - Processing of off-cycle or supplemental
paychecks for adjustments.
c) Gross Pay Adjustments to be completed during the next regular
pay period.
d) Stop Payments for lost or stolen paychecks.
e) Bonuses and Special Payments - Processing of special payments
that require development changes.
25
<PAGE>
f) Employee Receivables - The administration and collection of
balances from active employees for advances, uniforms, salary
overpayments and support.
g) Payroll Customer Service
h) Infrastructure maintenance and support
i) Oversight of the employment and salary verification process
performed by Frick, Inc. - Completion of the wage and
employment information requested by lending institutions.
j) Deferred Compensation/Management Leave - Processing of
deferred compensation/management leave payments made the 15th
day of each month.
k) Payroll Transaction Requests (PTR) - Processing, including
audit of the PTR forms and data entry into the Master Data
module of the SHARP system.
l) Time Collection - Employee time collection through Auto TA and
timecards.
m) Time Data Evaluation - Processing an employee's payroll
profile, along with time collection data and calculating an
employee's gross pay.
n) Payroll Stuffers - Paycheck stuffers containing employee
information are placed in the envelope with the payment advice
or actual check to be received by the employee.
o) Special Projects performed by Payroll Customer Service and/or
Payroll Production that fall outside the normal scope of
activities performed for SABRE.
p) Special Projects performed by Payroll Infrastructure Team that
fall outside the normal scope of activities performed for
SABRE.
26
<PAGE>
3. PAYROLL TAX ACCOUNTING SERVICE. Includes the following tasks to be
performed by the AA Payroll Tax Accounting Department:
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) Replying to all subpoenas and payroll related inquiries from
legal and law enforcement agencies.
c) Payroll Tax Reporting - Charges for reporting for Federal and
State withholding and unemployment taxes. The costs are driven
by the number of states worked.
d) Unemployment taxes - Frick, Inc. is currently responsible for
processing all claims for unemployment compensation claims,
the monitoring of the charges to Sabre unemployment accounts
in each state, and the rates assigned by the States.
e) 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.
f) 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
employees.
4. ACCOUNTING AND RECONCILIATION. Includes the following tasks to be
performed by the AA Payroll Department:
a) General accounting, reconciliation and research of payroll
account transactions including 401(k) and PAC contributions.
1) Reconciling the SG related intercompany account
(184206) within thirty days of the month end and
providing a copy of the reconciliation to SG.
27
<PAGE>
2) AA Payroll reserves the right to charge SG for
reconciling an out of balance in the SG FICO where
such out of balance is not the result of error on the
part of AA Payroll
b) Processing, reconciliation, and the generation of checks for
payroll related disbursements.
c) Domestic bank reconciliation of the payroll cash account,
reporting, and clearing of prepaid items for payroll, and
payroll related disbursements.
d) Relocation - Exchange of employee information with Cendent,
recording and payment of tax liability based on information
provided by Cendant, memo and expense document handling and
interface apllication maintenance.
e) Employee Receivables - the administration and collection of
balances from active employees for advances, uniforms, salary
overpayments, and check distribution special handling.
f) Garnishments - The deduction from the paychecks and the
remittance to the various authorities for garnishments imposed
on SG employees.
g) Special projects that fall outside the normal scope of
activities performed for SG.
5. PAYROLL CUSTOMER SERVICES
a) Working with Sabre employees to resolve Payroll related issues
with the individual employees pay
Further details as to the above Services and how they will be performed are
contained in the Service Level Agreement.
PRICE AND PAYMENT:
PRINCIPAL SERVICES RATE
- ----------------- ----
SHARP HR
Payroll Production [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
Payroll Tax Accounting
28
<PAGE>
Payroll Accounting and Reconciliation
Payroll Customer Service
MISCELLANEOUS SERVICE CHARGES:
RATES DURING 2000:
- ------------------
A) Payroll Tax Reporting Year [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
B) Unemployment Tax [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
C) Payroll Tax Year End [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
D) Relocation [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
E) Employee Receivables/Special Handling [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
F) Garnishments [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
G) Project Management/Special Projects [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED]
OTHER EXPENSES:
FUTURE CAPITAL EXPENDITURES: AA's costs associated with modifications or
upgrades to SHARP system that would occur irrespective of Sabre will be borne
solely by AA. However, any reasonable direct incremental costs caused solely
by the presence of Sabre's data in SHARP and/or ongoing performance of the
Services will be borne by Sabre and invoiced separately by AA. AA will use
reasonable efforts to notify Sabre in advance of when it is anticipated that
such incremental costs may need to be incurred and to estimate the amount of
the costs.
SYSTEM MODIFICATIONS: The costs of modifying SHARP as may be requested by
Sabre will be borne entirely by Sabre and invoiced separately by AA. Again,
any reasonable, direct and incremental ongoing costs caused solely by the
modification of SHARP requested by Sabre will be borne by Sabre and invoiced
separately by AA. AA will notify Sabre in advance of when it is anticipated
that such incremental costs may need to be incurred and to estimate the
amount of the costs.
TRANSITION SERVICES. AA will provide transitional assistance necessary for
Sabre to migrate to another payroll /HR provider and will charge Sabre
separately. AA will provide Sabre with HR/payroll data pertaining to current
and past Sabre employees. Any costs to provide this data will be passed
through to Sabre, as transition expenses, consistent with SECTION 3.4 of the
Agreement.
29
<PAGE>
SERVICE LEVEL AGREEMENT DATED JANUARY 1, 2000
<PAGE>
AMR PAYROLL SERVICE BUREAU
PROPOSED SERVICE LEVEL AGREEMENT - SABRE
EFFECTIVE JANUARY 1, 2000
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
1
<PAGE>
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
2
<PAGE>
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
3
<PAGE>
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
4
<PAGE>
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
5
<PAGE>
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
6
<PAGE>
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
7
<PAGE>
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
8
<PAGE>
AMR PAYROLL SERVICE BUREAU
APPENDIX A
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
AMR PAYROLL SERVICE BUREAU
Appendix B
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
AMR PAYROLL SERVICE BUREAU
APPENDIX C
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
AMR Payroll Service Bureau
APPENDIX D
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
AMR PAYROLL SERVICE BUREAU
APPENDIX E
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
THIS AGREEMENT HAS CONFIDENTIAL PORTIONS OMITTED, WHICH PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE
INDICATED IN THIS AGREEMENT WITH "[TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED]."
SUPPLEMENTAL AGREEMENT REGARDING WORKERS' COMPENSATION
This SUPPLEMENTAL AGREEMENT REGARDING WORKERS' COMPENSATION ("Supplemental
Agreement") is entered into as of March 15, 2000 by and between Sabre Inc. for
itself and on behalf of its wholly-owned subsidiaries ("Sabre"), and American
Airlines, Inc. ("AA").
BACKGROUND
A. AA and Sabre entered into a Management Services Agreement ("MSA") dated
July 1, 1996, under which AA provides a range of services to Sabre
including administration of workers' compensation claims in respect of
Sabre's employees.
B. The parent company of AA, AMR Corporation, is distributing a stock
dividend on March 15, 2000 which will effect a divestiture of all the
stock of Sabre owned by AMR. As a result of this spin-off of AMR's
remaining ownership of Sabre, AA and Sabre are modifying certain of the
contracts between them, including the MSA. The MSA Amendment now
provides that the workers' compensation services of AA (described in
Schedule XI of the MSA) will terminate effective July 31, 2000.
C. AA and Sabre wish to clarify the treatment of the administration and
payment of workers' compensation claims that may have been incurred
before the closing of the spin-off of Sabre referred to above and
certain other understandings in respect of the workers' compensation
administration services to be terminated.
CLAUSES
NOW, THEREFORE, AA and Sabre agree as follows:
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
-2-
<PAGE>
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
-3-
<PAGE>
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
5. ACCESS TO INFORMATION. Sabre will provide AA with access to any information
that AA may reasonably require with regard to the performance of its
obligations under the MSA and this Supplemental Agreement Regarding
Workers' Compensation.
6. TERM; GOVERNING LAW. This Supplemental Agreement will remain in effect for
a term of two years from its effective date. The validity, interpretation
and performance of this Supplemental Agreement are governed by the laws of
the State of Texas.
7. MISCELLANEOUS TERMS AND CONDITIONS. To the extent that AA will be invoicing
Sabre for amounts owed under this Supplemental Agreement and to the extent
any obligation of either party under this agreement could be characterized
as a service rendered to the other party, the parties hereby incorporate by
reference the terms and conditions of the Management Services Agreement
between AA and Sabre, as amended effective March 15, 2000.
IN WITNESS WHEREOF, the parties have caused this Supplemental Agreement to be
executed in two or more identical counterparts by their duly authorized
representatives.
AMERICAN AIRLINES, INC. SABRE INC.
By: By:
------------------------ ------------------------
Name: Name:
--------------------- ---------------------
Title: Title:
---------------------- ----------------------
-4-
<PAGE>
THIS AGREEMENT HAS CONFIDENTIAL PORTIONS OMITTED, WHICH PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE
INDICATED IN THIS AGREEMENT WITH "[TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED]."
AMENDMENT TO TRAVEL PRIVILEGES AGREEMENT
This Amendment to Travel Privileges Agreement (the "Amendment") is
made and entered into as of the 15th day of March, by and between American
Airlines, Inc., a Delaware corporation ("American") and Sabre Inc. (formerly
known as The SABRE Group, Inc.), a Delaware corporation ("Sabre").
RECITALS
WHEREAS, American and Sabre entered into that certain Travel
Privileges Agreement (the "Agreement"), dated as of July 1, 1996; and
WHEREAS, as part of Sabre's disaffiliation from American, the
Parties desire to amend the Agreement in certain respects;
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings set forth herein, the Parties agree as follows:
1. Capitalized terms not defined herein shall have the meanings
given to them in the Agreement.
2. The Agreement is amended as follows:
2.1 All references to "The SABRE Group" are hereby changed to
"Sabre."
2.2 The following is hereby added to the end of Section 9 of the
Agreement:
"Notwithstanding anything to the contrary set forth herein, it
is understood and agreed that American shall be permitted to
do any or all of the following: (i) give its employees
occasional special travel incentives (such as award
certificates) that entitle American's employees to reduced
service charge or service charge waived travel at the D1
classification, provided the number of such special travel
certificates awarded in any calendar year may not exceed the
number of American's employees who were eligible for
non-revenue travel at the D2 classification at the time such
incentives are given, and (ii) make changes to Pass Category
designations or the assignment of Travel Privileges within
Pass Categories, so long as the total number of American's
employees affected by such changes, considered in the
aggregate, does not amount to more than one-half of one
percent (0.5%) of American's then-current total employee
workforce at the time such change is made (taking into account
the number of employees previously affected by changes made
pursuant to this subsection (ii)). For the avoidance of doubt,
<PAGE>
it is understood and agreed that an increase, for any reason,
in the number of employees at a certain management level (e.g.
an increase in Level 8 employees at American), shall not be
considered a change to a Pass Category designation or a change
to the assignment of Travel Privileges within a Pass Category.
2.3 The following is hereby added as Section 12.5 to the
Agreement:
"12.5 ALLOCATION OF ADMINISTRATIVE COSTS American shall charge
Sabre a fixed price (the "Price"), which Price will represent
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]. It is
understood and agreed that (i) the base Price for year 2000
will be [TEXT OMITTED-CONFIDENTIAL TREATMENT REQUESTED] (the
"Base Price"); (ii) the Base Price will be adjusted annually
in the same manner in which the costs for Administration of
Travel Policy (i.e., "Service F") were adjusted under that
certain Management Services Agreement between the Parties,
effective as of July 1, 1996 [TEXT OMITTED - CONFIDENTIAL
TREATMENT REQUESTED] (iii) the Base Price for the year 2000
will be pro-rated based upon 9.5 months of costs allocated to
Sabre under this Agreement; (iv) the Price for the year in
which this Agreement terminates will be prorated based upon
the actual number of months that will have elapsed by the
relevant termination date; and (v) the Price for each year
during the Term of this Agreement shall be payable by Sabre in
twelve equal installments, which will be invoiced by American
monthly, and which will be payable by Sabre within thirty (30)
days of Sabre's receipt of such invoice.
2.4 The following is hereby added as Section 21 to the
Agreement:
<PAGE>
"21 INDEMNITY Sabre shall indemnify American against (i) any
documented and reasonable incremental costs incurred by
American in continuing to offer non-revenue travel privileges
to Eligible Employees and Eligible Retirees, (ii) lost
revenues and costs, as documented by American and billed
directly to Sabre, as
<PAGE>
a consequence of the travel abuse or fraud by current or
former Eligible Employees, or by current or former Eligible
Retirees, of by other Sabre employees, or by Sabre's
individual contractors, or by any third party that asserts
rights derived from such persons, (iii) Claims asserted
against American that result from the conduct of current or
former Eligible Employees, or current or former Eligible
Retirees, or any other person who travels on American using
the travel privileges of current or former Eligible Employees
or current or former Eligible Retirees, in each case, while
such person is traveling as a non-revenue passenger under this
Agreement, (iv) any Claims asserted against American by
current or former Eligible Employees, or by current or former
Eligible Retirees, or by other Sabre employees, or by Sabre's
individual contractors, or by any third party that asserts
rights derived from such persons and which Claims relate in
any way to (a) any amendments or modifications of this
Agreement (including any amendments or modifications in
connection with Sabre's disaffiliation from American), (b) the
expiration of this Agreement, or (c) American's termination of
this Agreement pursuant to its terms, and (v) any documented
and reasonable incremental administrative costs incurred by
American as a consequence of Sabre's participation in
American's non-revenue travel program after Sabre's
disaffiliation from American. The provisions of this Section
21 shall survive any termination or expiration of this
Agreement."
2.5 The following is hereby added as Section 22 to the
Agreement:
"22 ADMINISTRATION
22.1 Sabre will participate in either American's SHAARP
system, or some other system or group of systems that are
functionally and fully compatible with the required systems
of American. All system migration costs will be paid by
Sabre.
22.2 American will retain control over the design of
and the rules and policies relating to its non-revenue
travel program. In addition, American will retain control
over all administrative functions relating to its
non-revenue travel program, with the exception of those
administrative functions specifically given to Sabre in
Section 22.3.
22.3 Sabre will control certain administrative
functions that relate to its participation in American's
non-revenue travel program, including Eligible Employee and
Eligible Retiree enrollment, discipline, and
communications, the determination of eligibility for
<PAGE>
participation in American's non-revenue travel program, and
such other administrative functions upon which the Parties
may agree from time to time.
22.4 Within six (6) months following the date on which
Sabre is disaffiliated from American, representatives from
the Human Resource departments of both Parties will confer
to address administrative matters relating to Sabre's
post-disaffiliation participation in American's non-revenue
travel program. Such issues shall include the Parties'
respective administrative responsibilities, costs, system
compatibility, and such other matters as either of the
Parties may deem appropriate."
3. Except as expressly set forth herein, all pricing, terms, and
conditions of the Agreement will remain in effect and without change.
4. This Amendment 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.
IN WITNESS WHEREOF, the undersigned duly authorized representatives
of the Parties have executed this Amendment as of the day and year first
written above.
AMERICAN AIRLINES, INC.
- ----------------------------
By:
Its:
SABRE INC.
- ----------------------------
By:
Its:
<PAGE>
THIS AGREEMENT HAS CONFIDENTIAL PORTIONS OMITTED, WHICH PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE
INDICATED IN THIS AGREEMENT WITH "[TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED]."
AMENDMENT
THIS AMENDMENT is entered into by and between American Airlines, Inc. ("AA") and
Sabre Inc. (formerly known as The SABRE Group, Inc.; herein "Sabre") effective
as of March 15, 2000 with respect to the "Marketing Cooperation Agreement"
entered into by and between American and Sabre and dated as of July 1, 1996.
Capitalized terms used herein but not defined have the same meaning given in the
Marketing Cooperation Agreement.
BACKGROUND
1. The Marketing Cooperation Agreement establishes the terms and
conditions under which AA would provide different kinds of marketing
support to Sabre for terms of five or ten years;
2. Sabre has been operating as an independent company for over three years
since the Effective Date of the Marketing Cooperation Agreement, and,
as a result of certain separate transactions expected to occur on or
about March 15, 2000, Sabre and its parent company, Sabre Holdings
Corporation, will no longer be affiliates under common control with AA;
and
3. In view of the operating history and change in circumstances of Sabre,
and in consideration of certain changes to certain other agreements
between AA and Sabre, the parties desire to amend the Marketing
Cooperation Agreement as set forth in this Amendment.
CLAUSES
NOW THEREFORE, AA and Sabre agree as follows:
[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
2. A new section 5.3.1 is added after section 5.3 (MARKETING AND LICENSING
AGENT) which will read as follows:
"5.3.1 AA and Sabre will negotiate in good faith and execute an
amendment to the BTS License Agreement concerning the terms
and conditions under which AA will be able to use BTS to
develop a business travel product for use in conjunction with
access to AA's publicly accessible internet site, AA.com."
3. [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this AMENDMENT to be
executed in two or more identical counterparts by their duly authorized
representatives.
AMERICAN AIRLINES, INC. SABRE INC.
By: By:
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Craig S Kreeger
Title: Vice President and General Title:
Sales Manager --------------------
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TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT is entered into on February 7, 2000 by and among
American Airlines, Inc. ("American"), Sabre Holdings Corporation (formerly
known as TSG CORPORATION), Sabre Inc. (formerly known as The SABRE Group,
Inc.), TSGL Holding, inc., TSGL, Inc., SABRE International, Inc. and SABRE
Servicios Colombia, Ltda., (the foregoing companies collectively referred to
as "Sabre" herein)
BACKGROUND
A. Each of the parties listed above entered into an "INTERCOMPANY
AGREEMENT" dated as of July 2, 1996.
B. The parties agree that within about seven years after the effective
date of the INTERCOMPANY AGREEMENT there will no longer be any
significant benefit or need for the confidentiality and indemnification
obligations established in the INTERCOMPANY AGREEMENT and wish to
terminate it by common consent.
NOW THEREFORE, American and Sabre agree as follows:
1. The INTERCOMPANY AGREEMENT will terminate automatically effective July
1, 2003. This termination will not affect the obligations any party may
have in respect of any "Indemnifiable Losses" (as defined in the
INTERCOMPANY AGREEMENT) which may be claimed before the termination
date.
IN WITNESS WHEREOF, the parties have caused this TERMINATION AGREEMENT to be
executed in two or more identical counterparts by their duly authorized
representatives.
[signature blocks are on next page]
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AMERICAN AIRLINES, INC. SABRE HOLDINGS CORPORATION
By: By:
---------------------- ----------------------
Charles D. MarLett
Title: CORPORATE SECRETARY Title:
---------------------- ----------------------
SABRE INC. TSGL HOLDING, INC.
By: By:
---------------------- ----------------------
Title: Title:
---------------------- ----------------------
TSGL, INC. SABRE INTERNATIONAL, INC.
By: By:
---------------------- ----------------------
Title: Title:
---------------------- ----------------------
SABRE SERVICIOS COLOMBIA, LTDA
By:
----------------------
Title:
----------------------
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THIS AGREEMENT HAS CONFIDENTIAL PORTIONS OMITTED, WHICH PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE
INDICATED IN THIS AGREEMENT WITH "[TEXT OMITTED - CONFIDENTIAL TREATMENT
REQUESTED]."
AGREEMENT ON SPINOFF TAXES
This Agreement on Spinoff Taxes, dated as of March 15, 2000 is being
entered into by and between AMR Corporation, a Delaware corporation ("AMR"), and
Sabre Holdings Corporation, a Delaware corporation ("Sabre").
In consideration of the mutual agreements and covenants contained
herein, AMR, on behalf of itself and each AMR Affiliate (as hereinafter
defined), and Sabre, on behalf of itself and each Sabre Affiliate (as
hereinafter defined) are entering into this Agreement to provide for the
allocation of all responsibilities, liabilities, and benefits relating to
Spinoff Restructuring Taxes (as hereinafter defined) paid or payable by either
AMR and any AMR Affiliate or Sabre and any Sabre Affiliate.
I. DEFINITIONS
As used in this agreement, the following terms shall have the
following meanings (such meanings to be equally applicable to the singular and
plural forms of the terms defined):
"Affiliate" shall mean any corporation or other entity in which the
named corporation owns directly or indirectly more than fifty percent of the
total combined voting power; provided, however, that for purposes of this
Agreement (a) (i) Travelocity Holdings, Inc., a Delaware corporation, and any of
its Affiliated, (ii) Travelocity.com LP, a Delaware limited partnership, and any
of its Affiliates, and (iii) Travelocity.com Inc., a Delaware corporation, and
any of its Affiliates, shall not be considered Affiliates of Sabre and (b) Sabre
and Affiliates of Sabre shall not be considered Affiliates of AMR.
"After Tax Basis" shall mean payment of an amount which, after
reduction for all Income Taxes payable by a recipient on the receipt thereof,
shall be equal to the amount payable to the recipient under the terms of this
Agreement. The amount of Income Taxes payable by a recipient shall be
redetermined from time to time as necessary to reflect the use or creation of
carryovers and other relevant items.
"Agreement" shall mean this Agreement on Spinoff Taxes.
"Application for Ruling" shall mean the request for the ruling, dated
October 8, 1999, submitted to the Service by AMR, together with the appendices
and exhibits thereto and any supplemental filings or other materials
subsequently submitted to the Service in connection with the Spinoff (and any
related transactions) or any similar filings submitted to any other Tax
Authority in connection with the Spinoff (and any related transactions).
"Code" shall mean the Internal Revenue Code of 1986, as amended, or an
successor thereto.
"Compensatory Option" shall mean an option within the meaning of
Section 1.355-6(c)(vi)(B) of the Proposed Treasury Regulations.
"Effective Date" shall mean the date on which the Spinoff occurs.
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"Income Tax" shall mean (a) any Tax based upon, measured by, or
calculated with respect to (1) net income or profits (including, without
limitation, any capital gains Tax, minimum Tax and any Tax on items of Tax
preference, but not including sales, use, real or personal property, gross or
net receipts, transfer or similar Taxes) or (2) multiple bases if one or more of
the bases upon which such Tax may be based, measured by, or calculated with
respect to, is described in clause (1) above, or (b) any United States state or
local franchise Tax.
"Indemnitee" shall mean a party entitled to indemnification from
another party under this Agreement.
"Indemnitor" shall mean a party obligated to indemnify another party
under this Agreement.
"Losses" shall mean any and all damages, losses, deficiencies,
liabilities, obligations, penalties, judgments, settlements, claims, payments,
fines, interest, costs and expenses (including, without limitation, the costs
and expenses of any and all actions and demands, assessments, judgments,
settlements and compromises relating thereto and the costs and expenses of
attorneys', accountants', consultants' and other professionals' fees and
expenses incurred in the investigation or defense thereof or the enforcement of
rights hereunder).
"Ruling" shall mean the initial private letter ruling, if any, issued
by the Service in connection with the Spinoff (and any related transactions),
any ruling supplementing or modifying such ruling, or any similar ruling issued
by a Tax Authority other than the Service in connection with the Spinoff (and
any related transactions).
"Sabre Representation Letter" shall mean the Representation Letter,
executed by Sabre on March 15, 2000, attached hereto as Exhibit A.
"Service" shall mean the Internal Revenue Service or any successor
agency or authority.
"Spinoff" shall mean the distribution by AMR, with respect to its
stock, of all the stock of Sabre owned by AMR in a transaction intended to
qualify under Section 355 of the Code.
"Spinoff Restructuring Taxes" shall mean any Taxes imposed upon AMR or
any AMR Affiliate or Sabre or any Sabre Affiliate that are attributable to, or
result from (i) the failure of the Spinoff to qualify as a tax-free transaction
in its entirety and as to all parties thereto, including without limitation
because of the application of Sections 355(d) or 355(e) of the Code or similar
provisions of state law, or (ii) the failure of any Spinoff Restructuring
Transaction to qualify as a tax-free transaction.
"Spinoff Restructuring Transaction" shall mean any transaction
identified on Exhibit C as being undertaken in connection with the Spinoff.
"Supplemental Ruling" shall mean (1) any private letter ruling (other
than the Ruling) issued by the Service in connection with the Spinoff (and any
related transactions) or (2)
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any similar ruling issued by any Tax Authority other than the Service in
connection with the Spinoff (and any related transactions).
"Tax" shall mean any charges, fees, levies, imposts, duties, or other
assessments of a similar nature, including income, alternative or add-on
minimum, gross receipts, profits, lease, service, service use, wage, wage
withholding, employment, workers compensation, business occupation, occupation,
premiums, environmental, estimated, excise, employment, sales, use, transfer,
license, payroll, franchise, severance, stamp, occupation, windfall profits,
withholding, social security, unemployment, disability, ad valorem, highway use,
commercial rent, capital stock, paid up capital, recording, registration,
property, real property gains, value added, business license, custom duties, or
other tax or governmental fee of any kind whatsoever, imposed or required to be
withheld by any Tax Authority including any interest, additions to tax, or
penalties applicable or related thereto.
"Tax Authority" shall mean any governmental authority or any
subdivision, agency, commission or authority thereof or any quasi-governmental
or private body having jurisdiction over the assessment, determination,
collection or imposition of any Tax (including, without limitation, the
Service).
"Tax Benefit" shall mean any refund, credit or reduction in otherwise
required Tax payments.
"Tax Return" shall mean any report of Taxes due, any claims for refund
of Taxes paid, any information return with respect to Taxes, or any other
similar report, statement, declaration, or document required to be filed under
the Code or other Tax law, including any attachments, exhibits, or other
materials submitted with any of the foregoing, and including any amendments or
supplements to any of the foregoing.
"Tax Sharing Agreement" shall mean the Tax Sharing Agreement entered
into by and between AMR and Sabre, dated July 2, 1996, attached hereto as
Exhibit B.
II. RULINGS AND SUPPLEMENTAL RULINGS
2.01. THE RULINGS. AMR shall provide Sabre (and its
representatives) an opportunity to review and comment upon any materials
submitted to a Tax Authority in connection with the Ruling. Sabre shall be
entitled to participate in any meetings, in person or telephonic, with a Tax
Authority to discuss the status of the Ruling or any issue that may arise in
connection therewith. Sabre shall cooperate with AMR and take any and all
action reasonably requested by AMR in connection with obtaining the Ruling
(including, without limitation, by making any representations or covenants or
providing any materials or information requested by any Tax Authority). AMR
shall use its reasonable best efforts to obtain the Ruling.
2.02. RIGHT OF AMR AND SABRE TO SEEK SUPPLEMENTAL RULINGS. Each
of AMR and Sabre shall have the right to seek a Supplemental Ruling or other
guidance from a Tax Authority (the party seeking the Supplemental Ruling or
guidance, the "Requesting Party") for the purpose of confirming (i) the
continuing validity of (A) the Ruling or (B) any Supplemental Ruling issued
previously, and (ii) compliance on the part of the Requesting Party or its
Affiliates with its obligations under this Agreement. If AMR or Sabre
determines to seek a Supplemental
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Ruling, the non-Requesting Party shall cooperate with the Requesting Party and
use its reasonable best efforts to assist the Requesting Party to obtain the
Supplemental Ruling (including, without limitation, by making any
representations or covenants or providing any materials or information requested
by the Tax Authority). The Requesting Party shall provide the non-Requesting
Party an opportunity to review and comment upon any materials to be submitted to
the Service or other Tax Authority in connection with the seeking of the
Supplemental Ruling.
2.03. LIABILITY FOR BREACH OF REPRESENTATIONS. Sabre represents
that (i) it has read or will read the Application for Ruling and any application
for a Supplemental Ruling (a "Supplemental Application") prior to the date
submitted, (ii) all information contained in such Application for Ruling, any
Supplemental Application, and the Sabre Representation Letter supplied to AMR in
writing by Sabre or any Sabre Affiliate is or will be true, correct and complete
in all material respects at the time such information was supplied, (iii) except
to the extent that Sabre shall have notified AMR in writing to the contrary,
with reasonable specificity and as promptly as possible, prior to the Spinoff,
all such information supplied to AMR in writing by Sabre or any Sabre Affiliate
will be true, correct and complete in all material respects as of the date of
the Spinoff. If any Tax Authority withdraws all or any portion of a Ruling or
Supplemental Ruling issued to AMR in connection with the Spinoff because of a
breach by Sabre or a Sabre Affiliate of a representation made in this Agreement
(other than a breach of representations 10, 11 or 14 of the Sabre Representation
Letter and information supplied in writing to AMR by Sabre or any Sabre
Affiliate related to such representations, for which Sabre and each Sabre
Affiliate shall be responsible for fifty percent (50%) of any Spinoff
Restructuring Taxes), Sabre and each Sabre Affiliate shall be responsible for
one hundred percent (100%) of any Spinoff Restructuring Taxes resulting from
such breach and shall jointly and severally indemnify, on an After Tax Basis,
AMR, each AMR Affiliate and their directors, officers and employees and hold
them harmless from and against such Spinoff Restructuring Taxes.
III. CERTAIN POST-SPINOFF ACTIONS
3.01 RESTRICTIONS ON CERTAIN POST-SPINOFF ACTIONS. Sabre agrees that
it will not take or fail to take, or permit any Affiliate to take or fail to
take, any action where such action or failure to act would be inconsistent with
any material, information, covenant or representation in the Sabre
Representation Letter, unless Sabre obtains a Supplemental Ruling (reasonably
acceptable to AMR) that such action will not affect the treatment of the Spinoff
as tax-free under Section 355 of the Code.
3.02 LIABILITY FOR UNDERTAKING CERTAIN ACTIONS. Sabre and each Sabre
Affiliate shall be responsible for one hundred percent (100%) of any Spinoff
Restructuring Taxes that are attributable to, or result from, any act or failure
to act as described in Section 3.01 (other than acts or failures to act
inconsistent with representations 10, 11 or 14 of the Sabre Representation
Letter and information supplied in writing to AMR by Sabre or any Sabre
Affiliate related to such representations, with respect to which Sabre shall be
responsible for fifty percent (50%) of the resulting Spinoff Restructuring
Taxes). Sabre and each Sabre Affiliate shall jointly and severally indemnify,
on an After Tax Basis, AMR, each AMR Affiliate and their directors,
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officers and employees and hold them harmless from and against any such Spinoff
Restructuring Taxes.
IV. CERTAIN POST-SPINOFF TRANSACTIONS
4.01. RESTRICTIONS ON CERTAIN POST-SPINOFF TRANSACTIONS. Sabre
agrees that, during the two year period following the Spinoff, prior to entering
into any agreement to (i) issue any option other than a Compensatory Option;
(ii) sell all or substantially all of the assets of Sabre or Sabre, Inc., (iii)
merge Sabre or Sabre, Inc. with another entity (without regard to which party is
the surviving entity), except for mergers of direct or indirect subsidiaries of
Sabre or Sabre, Inc. in which Sabre or Sabre, Inc. is the surviving corporation,
(iv) issue stock of Sabre or Sabre, Inc. in an acquisition or public or private
offering (other than in connection with employee stock options or other
employment related arrangements), or (v) discontinue the active conduct of the
business of Sabre or Sabre, Inc., it will either (a) obtain a Supplemental
Ruling (reasonably acceptable to AMR) that such agreement will not affect the
treatment of the Spinoff as tax-free under Section 355 of the Code and other
relevant provisions; or (b) obtain an opinion (reasonably acceptable to AMR) of
nationally recognized tax counsel that such agreement will not affect the
treatment of the Spinoff as tax-free under Section 355 of the Code and other
relevant provisions. Any such opinion shall be entitled to make reasonable
assumptions as to the facts and rely without independent inquiry on
representations by Sabre, AMR and their Affiliates, and shall explain tax
counsel's legal reasoning in reaching its conclusion. Notwithstanding anything
in Section 4.01 to the contrary, Sabre shall not be required to obtain either a
Supplemental Ruling or an opinion prior to entering into any agreement to issue
stock (or options or other rights to acquire its stock), to the extent the
cumulative effect of all relevant transactions does not result, for purposes of
Section 355(e) of the Code, in one or more persons acquiring, during the four
year period beginning two years prior to the Effective Date, directly or
indirectly Sabre stock possessing at least 35 percent of the total combined
voting power or all classes of stock entitled to vote or at least 35 percent of
the total value of shares of all classes of stock, taking account of past
transactions.
4.02. LIABILITY FOR CERTAIN POST-SPINOFF TRANSACTIONS. Sabre and
each Sabre Affiliate shall be responsible for one hundred percent (100%) of any
Spinoff Restructuring Taxes that are attributable to, or result from, (1) any
act or failure to act by Sabre, any Sabre Affiliate or Travelocity Holdings,
Inc. as described in clauses (i)-(v) of Section 4.01 whether occurring before or
after the second anniversary of the Spinoff and whether or not the Supplemental
Ruling or opinion described in Section 4.01 has been obtained; or (2) after the
Effective Date, any acquisition of stock of Sabre, any Sabre Affiliate or
Travelocity Holdings, Inc. by any person or persons or any acquisition of assets
of Sabre, any Sabre Affiliate, or Travelocity Holdings, Inc. by any person or
persons, whether or not with the consent of or against the wishes of Sabre or
otherwise. Sabre and each Sabre Affiliate shall jointly and severally
indemnify, on an After Tax Basis, AMR, each AMR Affiliate and their directors,
officers and employees and hold them harmless from and against any such Spinoff
Restructuring Taxes.
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V. INDEMNIFICATION AND CONTROL OF LITIGATION
5.01. INDEMNIFICATION. Sabre and each Sabre Affiliate shall
jointly and severally indemnify, on an After Tax Basis, AMR, each AMR Affiliate
and their respective directors, officers and employees and hold them harmless
from and against any such Spinoff Restructuring Taxes and related Losses to the
extent provided in Articles II, III, and IV of this Agreement. AMR and each AMR
Affiliate shall jointly and severally indemnify, on an After Tax Basis, Sabre
and each Sabre Affiliate and their respective directors, officers and employees
and hold them harmless from Spinoff Restructuring Taxes and related Losses to
the extent not assumed or indemnified by Sabre under this Agreement.
5.02. TREATMENT OF PAYMENTS; TAX GROSS UP. To the extent
permitted by applicable law, the parties agree that any payment made pursuant to
this Agreement shall be treated as a capital contribution or dividend
distribution, as the case may be, immediately prior to the Effective Date, for
all Tax purposes, and accordingly, as not includible in the taxable income of
the recipient. If notwithstanding the manner in which such payments were
reported, there is an adjustment to the Tax liability of any Indemnitee as a
result of its receipt of a payment pursuant to this Agreement, such payment
shall be made on an After Tax Basis. Sabre or AMR will pay any amount due and
payable pursuant to this Agreement on or before the 15th day following the
earlier of written agreement or final determination that such amount is due and
payable. All payments shall be made by wire transfer to the bank account
designated by the Indemnitee for such purposes, and on the date of such wire
transfer the Indemnitor shall give the Indemnitee notice of the transfer.
5.03. CONTROL OF LITIGATION. Following the Effective Date, AMR
shall, in its sole discretion, control and direct the conduct of any audit or
inquiry or any administrative or judicial appeal or other proceeding regarding
Spinoff Restructuring Taxes. Further, AMR shall have exclusive authority and
control over the investigation, prosecution, defense, and appeal of all Tax
litigation relating to or arising in connection with the Spinoff, and may settle
or compromise, or consent to the entry of any judgment with respect to any such
litigation, without the consent of Sabre. However, AMR and Sabre shall jointly
control and direct the conduct of any audit or inquiry or any administrative or
judicial appeal or other proceeding related to or arising out of representations
10, 11 or 14 of the Sabre Representation Letter, and neither AMR nor Sabre shall
settle or compromise, or consent to the entry of any judgment with respect to
any such litigation without the prior written consent of the other.
Notwithstanding the foregoing provisions of this Section 5.03: (i) AMR shall
promptly notify Sabre of any action or threatened action by any Tax Authority
which could give rise to liability or indemnification by Sabre under this
agreement; (ii) AMR shall allow a representative of Sabre to participate in any
meetings with such Tax Authority and shall allow Sabre reasonable opportunity to
review and comment on any submission by AMR to such Tax Authority; and (iii) in
the event that a Tax Authority raises a position which, if sustained, would
result in a Tax for which Sabre would bear one hundred percent (100%) of the
liability (as Indemnitor or otherwise) for such issue, and Sabre acknowledges in
writing its agreement that it would be liable for such Tax and provides evidence
(reasonably satisfactory to AMR) demonstrating its ability to pay such Tax, AMR
shall afford Sabre the opportunity to control the contest of such assertion of
Tax, at its own expense, in such manner as Sabre shall reasonably direct, and
Sabre shall provide AMR the opportunity to reviw
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and comment upon any materials produced by Sabre pursuant to such contest prior
to their submission and shall permit AMR to participate in any meetings with any
Tax Authority in connection therewith.
5.04. REPORTING OF SPINOFF. (a) The Tax treatment reported on
any Tax Return of Tax items relating to the Spinoff shall be consistent with the
treatment of such item in the Ruling. To the extent there is a Tax item
relating to the Spinoff which is not covered by the Ruling, the parties shall
agree on the Tax treatment of any such Tax item reported on any Tax Return. Any
dispute regarding the proper Tax treatment of any such item shall be resolved as
determined by AMR, provided that AMR obtains an opinion (reasonably acceptable
to Sabre) of nationally recognized tax counsel in support of such treatment.
(b) AMR shall provide each shareholder that receives stock of Sabre
pursuant to the Spinoff with the information necessary for such shareholder to
comply with the requirements of Section 355 of the Code and the Treasury
Regulations thereunder with respect to statements that such shareholders must
file with their Tax Returns demonstrating the applicability of Section 355 of
the Code to the Spinoff.
VI. TAX BENEFITS
6.01. If AMR (or an AMR Affiliate) or Sabre (or a Sabre Affiliate)
receives any Tax Benefit (e.g., under Section 336 of the Code) with respect to
any Taxes for which the other party is liable hereunder, the party receiving
such Tax Benefit shall make a payment to the party who is liable for such Taxes
hereunder within 30 days following receipt of the Tax Benefit in an amount equal
to the Tax Benefit (including any Tax Benefit realized as a result of the
payment).
VII. MISCELLANEOUS
7.01. EFFECTIVENESS. This Agreement shall become effective upon
execution by both parties hereto.
7.02. NOTICES. All notices, requests, demands and other
communications under this Agreement shall be in writing and, unless otherwise
provided herein, shall be deemed to have been duly given (i) on the date of
service if served personally on the party to whom notice is given, (ii) on the
day of transmission if sent via facsimile transmission to the facsimile number
given below; provided, telephonic confirmation of receipt is obtained promptly
after completion of transmission, (iii) on the business day after delivery to an
overnight courier service or the Express mail service maintained by the United
States Postal Service; provided, receipt of delivery is confirmed, if mailed to
the party to whom notice is to be given, by first class mail, registered or
certified, postage prepaid, properly addressed and return-receipt requested to
the party as follows:
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If to AMR or any AMR Affiliate, to:
Chief Tax Official
AMR Corporation
4333 Amon Carter Boulevard, MD 5656
Fort Worth, Texas 76155
facsimile: (817) 963-7144
If to Sabre or any Sabre Affiliate, to:
Vice President Tax
Sabre Holdings Corporation
4255 Amon Carter Boulevard, MD 4241
Fort Worth, Texas 76155
facsimile: (817) 931-9261
Any party may change its address or fax number by giving the other party written
notice of its new address or fax number in the manner set forth above.
7.03. CHANGES IN LAW. Any reference to a provision of the Code or
a law of another jurisdiction shall include a reference to any applicable
successor provision or law.
7.04. SUCCESSORS AND ASSIGNS. 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 either party without the prior written consent of the other party.
7.05. AUTHORIZATION, ETC.. Each of the parties hereto hereby
represents and warrants that it has the power and authority to execute, deliver
and perform this Agreement, that this Agreement has been duly authorized by all
necessary corporate action on the part of such party, that this Agreement
constitutes a legal, valid and binding obligation of each such party and that
the execution, delivery and performance of this Agreement by such party does not
contravene or conflict with any provision of law or of its charter of bylaws or
any agreement, instrument or order binding on such a party.
7.06. COMPLETE AGREEMENT. This Agreement shall constitute the
entire agreement between AMR or any AMR Affiliate and Sabre or any Sabre
Affiliate with respect to the subject matter hereof and shall supercede all
previous negotiations, commitments and writings with respect to such subject
matter. Without limiting the preceding sentence, this Agreement shall control,
and the Tax Sharing Agreement shall not control, any matter within the scope of
this Agreement.
7.07. INTERPRETATION. The Section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement. Whenever any words are used herein in the masculine gender,
they shall be construed as though they were also used in the feminine gender in
all cases where they would so apply.
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7.08. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute on and the same instrument.
7.09. LEGAL ENFORCEABILITY. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
7.10. NO THIRD PARTY BENEFICIARIES. This Agreement is solely for
the benefit of AMR, the AMR Affiliates, Sabre and the Sabre Affiliates, and is
not intended to confer upon any other person any rights or remedies hereunder.
7.11. AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented only by written agreement of the parties.
7.12. LATE PAYMENTS. Any amount owed by one party to another
party under this Agreement which is not paid when due shall bear interest at the
applicable underpayment rate prescribed by Section 6621 of the Code, as in
effect from time to time. To the extent one party makes a payment of interest
to another party under this Section 7.12, the interest payment shall be treated
as interest expense to the Indemnitor (deductible to the extent provided by law)
and as interest income by the Indemnitee (includible in income to the extent
provided by law). The amount of the payment shall not be adjusted under Section
5.02 to take into account any associated Tax Benefit to the Indemnitor or
increase in Tax to the Indemnitee.
7.13. NO DOUBLE RECOVERY; SUBROGATION. No Provision of this
Agreement shall be construed to provide an indemnity or other recovery for any
Losses for which the damaged party has been fully compensated under any other
provision of this Agreement or under any other agreement or action at law or
equity. Subject to any limitations provided in this Agreement, the indemnifying
party shall be subrogated to all rights of the indemnified party for recovery
from any third party.
7.14. EXPENSES. Except as otherwise provided in this Agreement,
each party and its Affiliates shall bear their own expenses incurred in
connection with preparation of Tax Returns, Tax Contests, and other matters
related to Taxes under the provisions of this Agreement.
7.15. RETENTION OF TAX RECORDS. Each party shall preserve and keep
all Tax records (e.g., Tax Returns, workpapers, and documents related to any Tax
Proceeding) relating to the Spinoff and Spinoff Restructuring Transactions, for
so long as the contents thereof may become material in the administration of any
matter under the Code or other applicable Tax law, but in any event until the
later of (i) the expiration of any applicable statutes of limitation, and (ii)
seven years after the Effective Date. If, prior to the expiration of the
applicable statute of limitation and such seven-year period, a party reasonably
determines that any Tax records which it is required to preserve and keep under
this Section 7.15 are no longer material in the administration of any matter
under the Code or other applicable Tax law, such party may dispose
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of such records upon 90 days prior notice to the other party. Such notice shall
include a list of the records to be disposed of describing in reasonable detail
each file, book, or other record accumulation being disposed. The notified party
shall have the opportunity, at their cost and expense, to copy or remove, within
such 90-day period, all or any part of such Tax records.
7.16. ACCESS TO TAX RECORDS. The parties and their respective
Affiliates shall make available to each other for inspection and copying during
normal business hours upon reasonable notice all Tax records in their possession
to the extent reasonably required by the other party in connection with the
preparation of Tax Returns, audits, litigation, or the resolution of items under
this Agreement.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by a duly authorized officer as of the date first above
written.
AMR Corporation
on behalf of itself and its affiliates
By _________________________
Tom Horton
Senior Vice President,
Chief Financial Officer
Sabre Holdings Corporation
on behalf of itself and its affiliates
By _________________________
Jeffery M. Jackson
Executive Vice President,
Chief Financial Officer
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Exhibit A
March 15, 2000
AMR Corporation
4333 Amon Carter Boulevard
Fort Worth, Texas 76155
Re: Agreement on Spinoff Taxes between AMR Corporation and Sabre
Holdings Corporation dated as of March 15, 2000 (the
"Agreement on Spinoff Taxes")
Ladies and Gentlemen:
This representation letter is furnished to you in connection with the
Application for Ruling Under Section 355 filed by AMR Corporation, dated October
8, 1999 (the "Application for Ruling"), and the Agreement on Spinoff Taxes. All
capitalized terms not otherwise defined herein have the meanings ascribed to
them in the Application for Ruling and the Agreement on Spinoff Taxes. The
following representations are being made available to you for the purposes of
the Application for Ruling and the Agreement on Spinoff Taxes, and we understand
that you will be relying on such representations. As of the date hereof, the
undersigned, a duly authorized officer of Sabre and acting as such, hereby
certifies that the facts set forth below are true, correct and complete:
1. The indebtedness, if any, owed by Sabre Holdco to AMR after the
Distribution will not constitute stock or securities.
2. Immediately after the Distribution, at least 90% of the fair market value
of the gross assets of Sabre Holdco will consist of the stock and
securities of controlled corporations that are directly or indirectly
engaged in the active conduct of a trade or business as defined in Section
355(b)(2).
3. The five years of financial information submitted on behalf of Sabre Opco
are representative of its present operation, and there has been no
substantial operational change (other than Sabre Opco's anticipated
transaction with Preview Travel) since the date of the last financial
statement submitted with the Application for Rulings.
4. Following the Distribution, Sabre Opco will continue the active conduct of
its business, independently and with its separate employees.
5. Immediately after the Distribution, the gross assets of Sabre Opco used in
the conduct of its business will have a fair market value equal to or
greater than 5% of the total fair market value of the gross assets of Sabre
Opco.
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6. The distribution of Sabre Holdco stock is motivated, from Sabre Holdco's
perspective, by the corporate business purpose of eliminating the
disincentives of other airlines to engage Sabre to perform information
technology services.
7. The management of Sabre, to its best knowledge, is not aware of any plan or
intention on the part of any particular shareholder or security holder of
AMR or Sabre Holdco to sell, exchange, transfer by gift, or otherwise
dispose of any stock in, or securities of, Sabre Holdco after the
Distribution.
8. There is no plan or intention by Sabre Holdco, directly or through any
subsidiary corporation, to purchase any of its outstanding stock after the
Distribution, other than through stock purchases meeting the requirements
of Section 4.05(1)(b) of Rev. Proc. 96-30.
9. There is no plan or intention to liquidate Sabre Holdco or merge Sabre
Holdco with any other corporation, or sell or otherwise dispose of the
assets of Sabre Holdco after the Distribution, except in the ordinary
course of business.
10. Except for accounts payable that arise in connection with continuing
services between the AMR Group and Sabre, no intercorporate debt will exist
between the AMR Group and Sabre at the time of, or subsequent to, the
Distribution of the Sabre Holdco stock.
11. Payments made in connection with all continuing transactions between the
AMR Group and Sabre will be for fair market value based on terms and
conditions arrived at by the parties bargaining at arm's length.
12. Sabre is not an investment company as defined in Section 368(a)(2)(F)(iii)
and (iv).
13. The Distribution is not part of a Sabre plan or series of related
transactions (within the meaning of section 355(e)) pursuant to which one
or more persons will acquire directly or indirectly stock possessing 50% or
more of the total combined voting power of all classes of stock of Sabre
Holdco or stock possessing 50% or more of the total value of all classes of
stock of Sabre Holdco.
14. For federal income tax purposes, the cash dividend in the approximate
amount of [$650]$675 million which will be paid by Sabre to AMR in
connection with the Spinoff (the "Cash Dividend") will qualify as an
intercompany distribution within the meaning of Section 1.1502-13(f) of the
Treasury Regulations.
All of the foregoing certifications are true, correct and complete on
the date hereof.
Very truly yours,
Sabre Holdings Corporation
By:_________________
Name: Jeffery M. Jackson
Executive Vice President,
Chief Financial Officer
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EXHIBIT B
TAX SHARING AGREEMENT
This Tax Sharing Agreement, dated as of July 2, 1996, is being entered
into by and between AMR Corporation, a Delaware Corporation ("AMR"), and TSG
Corporation, a Delaware corporation ("SABRE").
In consideration of the mutual agreements and covenants contained
herein, AMR, on behalf of the AMR Companies (as hereinafter defined), and SABRE,
on behalf of the SABRE Companies (as hereinafter defined), are entering into
this Agreement to provide for the allocation among the AMR Companies and the
SABRE Companies of all responsibilities, liabilities, and benefits relating to
(i) Taxes (as hereinafter defined) paid or payable by either the AMR Companies
or the SABRE Companies for all taxable periods or portions thereof beginning on
or after the Effective Date (as hereinafter defined) and any Tax Return (as
hereinafter defined) to be filed by them for such taxable periods or such
portions, and (ii) Taxes paid or payable to AMR and its present and former
subsidiaries including the SABRE Companies for all taxable periods or portions
ending before the Effective Date.
I. DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings
(such meanings to be equally applicable to the singular and the plural forms of
the terms defined:
"American" means American Airlines, Inc.
"AMR Affiliated Group" means any affiliated group of corporations
(within the meaning of Section 1504(a) of the Code (or any successor provision
thereto) or, as the context may require, any similar provision of state, local
or Foreign law) of which AMR is the common parent.
"AMR Companies" means, for each taxable period or portion thereof,
the affiliated group of corporations, with in the meaning of Code section
1504(a) (or any successor provision thereto) or, as the context may require, any
similar provision of state, local, or Foreign law, of which AMR is the common
parent, but excluding the SABRE Companies.
"AMR Consolidated Return" means the Consolidated Return for federal
income taxes of the AMR Affiliated Group.
"AMR Separate Return" means any Tax Return required to be filed by an
AMR Company that does not include any Tax Item of a SABRE Company.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
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"Consolidated Return" means any consolidated, combined , or unitary
Tax Return including Tax Items of at least one AMR Company and at least one
SABRE Company.
"Deconsolidation Date" means the date upon which the SABRE Pro Forms
Affiliated Group ceases to be included in the AMR affiliated Group.
"Effective Date" means July 1,1996.
"Final Determination" means the final resolution of liability for any
Tax (i) by IRS Form 870-AD (or any successor form thereto), on the date of
acceptance by or on behalf of the IRS, or by a comparable agreement form under
any state, local or Foreign law, except that a form 870-AD or comparable form
that reserves the right of the taxpayer to file a claim for refund and/or the
right of the taxing authority to assert a further deficiency shall not
constitute a Final Determination with respect to the item or items so reserved;
(ii) by a decision, judgment, decree, or other order by a court of competent
jurisdiction, which has become final and unappealable; (iii) by a closing
agreement or offer in compromise under Section 7121 or 7122 of the Code, or
comparable agreements under the any state, local or Foreign law; (iv) by any
allowance of a refund or credit in respect of an overpayment of Tax, including
any related interest or penalties, but only after the expiration of all periods
during which such refund may be recovered (including the way of offset) by the
jurisdiction imposing the Tax; (v) by any other final disposition including by
reason of the expiration of the applicable statute of limitations or pursuant to
Code sections 1311 through 1313, or comparable provision of state, local or
Foreign law, or (vi) by the occurrence of any event which the parties agree in
writing is a Final Determination.
"Foreign" means with, respect to any Tax or Tax Return, any Tax
payable or Tax Return required to be filed under the laws of any government or
taxing authority other than the United States, any state or any political
subdivision of any state and shall include, without limitation, Taxes payable or
Tax Returns required to be filed by the laws of the Commonwealth of Puerto Rico.
"IRS " means the Internal Revenue Service.
"Post-Consolidation Period" means any taxable period or portion
thereof beginning on or after the Deconsolidation Date.
"Post-Effective Date Period" means any taxable period or portion
thereof beginning on or after the Effective Date.
"Pre-Effective Date Period" means any taxable period or portion
thereof ending before the Effective Date.
"SABRE Companies" means (i) for any taxable period or portion thereof
ending before the Effective Date, The SABRE Group, Inc. and the corporations,
other entities and any of the divisions of American listed on Schedule A and
(ii) for any taxable period or portion
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thereof beginning on or after the Effective date, SABRE and the corporations and
other entities listed on Schedule B and their successors and assigns, and any
other corporation, if any one or more SABRE Companies acquire stock of such
corporation which meets the requirements of section 1504(a)(2)of the Code (or
any successor provision thereto) or, as the context may require, any similar
provision of state, local, or Foreign law with respect to taxable periods or
portions thereof beginning on or after the date of such acquisition.
"SABRE Debenture" means that certain subordinated debenture issued by
SABRE, as maker, in the original principal amount of $850,000,000 and dated July
2, 1996.
"SABRE Excess Tax Attributes" means any net operating loss, net
capital loss, or unused tax credit (including, without limitation, any unused
general business credit, foreign tax credit, or alternative minimum tax credit)
actually available to be carried forward to the first Post-Consolidation Period
of the SABRE Companies to the extent that the amount of such losses and unused
credits exceeds the amount of net operating losses, net capital losses, and
unused Tax Credits that would have been available for carryover to the first
Post-Consolidation Period of the SABRE Companies if (i) the SABRE Pro Forma
Affiliated Group actually had been deconsolidated from the AMR Affiliated Group
as of the Effective Date and had filed the SABRE Pro Forma Consolidated Returns
for all Post-Effective Date Periods, and (ii) the assumptions set forth in
Section 3.01 of this Agreement (other than clauses (vi) and (vii) thereof) and
any elections made by SABRE pursuant to clause (v) hereof actually applied.
"SABRE" Pro Forma Affiliated Group" means a separate group of
corporations, which but for an AMR Company's ownership of SABRE would be an
affiliated group of corporations (within the meaning of Section 1504(a) of the
Code (or any successor provision thereto) or, as the context may require, any
similar provision of state, local or Foreign law) consisting of SABRE, as the
common parent thereof, and the eligible SABRE Companies.
"SABRE Pro Forma Affiliated Group" means a separate group of
corporations, which but for an AMR Company's ownership of SABRE would be an
affiliated group of corporations (within the meaning of Section 1504(a) of the
Code (or any successor provision thereto) or, as the context may require, any
similar provision of state, local or Foreign law) consisting of SABRE, as the
common parent thereof, and the eligible SABRE Companies.
"SABRE Pro Forma Consolidated Return" means the pro forma consolidated
return for federal income taxes of the SABRE Pro Forma Consolidated Group.
"SABRE Pro Forma R&E Tax Credit Carryover" has the meaning set forth
in Section 3.01.
"SABRE Separate Return" means any Tax Return required to be filed by a
SABRE Company that does not include any Tax Item of an AMR Company.
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"Spin-off Transaction" means all of the transactions carried out to
effect (i) the transfer to and the assumption by the SABRE companies of the
properties and assets and certain of the liabilities of the former SABRE
divisions of American, (ii) the issuance of the SABRE Debenture by SABRE to
American, (iii) the transfer of the SABRE Debenture by American to AMR in
exchange for a portion of the debenture, dated September 26, 1994, and (iv) the
distribution by American of SABRE stock to AMR.
"Tax Benefit" means any item of loss, deduction, or tax credit or any
similar item which generally reduces taxable income or taxes payable.
"Tax Detriment" means any item of income, gain, recapture of credits
or any similar item which generally increases taxable income or taxes payable.
"Tax Item" mans any item of income, gain, loss, deduction or tax
credit.
"Tax Return" means any return, filing, questionnaire or other document
required to be filed for any period with any taxing authority (whether domestic
or Foreign) in connection with any Taxes (whether or not a payment is required
to made with respect to such filing).
"Taxes" means all forms of taxation, whenever created or imposed, and
whether of the United States or elsewhere, and whether imposed by a local,
municipal, governmental, state, federation or other body, and without limiting
the generality of the foregoing, shall include income, sales, use, ad valorem,
gross receipts, value added, franchise, transfer, recording, withholding,
payroll, employment, excise, occupation, premium or property taxes, together
with any related interest, penalties and additions to tax, or additional amounts
imposed by any taxing authority (domestic or Foreign) upon the SABRE Companies,
the AMR Companies, or any of their respective divisions or branches.
II. RESPONSIBILITY FOR PREPARATION AND FILING OF TAX RETURNS
2.01 CONSOLIDATED RETURNS AMR shall prepare and file all
Consolidated Returns
which are required or, if AMR so chooses, permitted to be filed for all periods.
AMR will advise SABRE in a timely manner of the SABRE Companies which will be
included in a Consolidated Return to be filed by AMR pursuant to this Section
2.01, and (if applicable) the states or localities in which such returns will be
filed. AMR will pay all Taxes shown as due on all Consolidated Returns. AMR
shall, at its sole discretion, make all decisions relating to the preparation
and filing of Consolidated Returns. Each eligible SABRE Company whose Tax items
are includable any Consolidated Return shall execute its consent to be included
in such Consolidated Return on any form as may be prescribed for such consent if
such consent is requested. Each SABRE Company acknowledges that AMR, as the
common parent of the AMR Affiliated Group, may under Treas. Reg. Section
1,1502-77(a) or similar provision of state,
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local, or Foreign law act as the agent for the SABRE Companies for all
taxable periods in which in which they are members of the AMR Affiliated
Group. AMR shall indemnity and hold harmless the SABRE Companies for any
liability (including but not limited to liability under Treas. Reg. Section
1.502-6 (or similar provision of state, local or Foreign law)) for any and
all Taxes reported or required to be reported (whether or not actually
reported) on a Consolidated Return.
2.02 SEPARATE RETURNS SABRE shall have sole responsibility for the
preparation
and filing of SABRE Separate Returns. SABRE shall, at its sole discretion,
make all decisions relating to the preparation and filing of SABRE Separate
Returns; PROVIDED, HOWEVER, that any such return shall be prepared on a basis
consistent with prior taxable periods unless otherwise consented to by AMR.
SABRE shall pay all Taxes shown to be due on SABRE Separate Returns. SABRE
shall indemnify and hold harmless AMR for all Taxes of the SABRE Companies not
required to be reported on a Consolidated Return (whether or not actually
reported on a SABRE Separate Return), including any reasonable expenses incurred
by an AMR Company in connection therewith. AMR shall have sole responsibility
for the preparation and filing of AMR Separate Returns. AMR shall, at its sole
discretion, make all decisions relating to the preparation and filing of AMR
Separate Returns. AMR shall pay all Taxes shown to be due on AMR Separate
Returns. AMR shall indemnify and hold harmless SABRE for all Tax liabilities of
the AMR Companies not required to be shown on a Consolidated Return (whether or
not actually reported on an AMR Separate Return), including any reasonable
expenses incurred by a SABRE Company in connection therewith.
III. PAYMENTS IN RESPECT OF FEDERAL INCOME TAXES
3.01 SABRE PRO FORMA CONSOLIDATED RETURN. For each Post-Effective
Date
Period for which an AMR Consolidated Return is filed, SABRE shall prepare a
SABRE Pro Forma Consolidated Return. SABRE shall submit the SABRE Pro Forma
Consolidated Return to AMR within 60 days of the close of the applicable taxable
period (or such later time as AMR specifies). The SABRE Pro Forma Consolidated
Return shall be prepared as if the SABRE Companies were deconsolidated from the
AMR Affiliated Group as of the beginning of the Effective Date and began filing
a consolidated federal income tax return as a separate affiliated group
consisting of SABRE, as the common parent thereof, and the eligible SABRE
Companies (the "SABRE Pro Forma Affiliated Group") for all Post-Effective Date
Periods and assuming that neither AMR nor any AMR Company owns any stock of
SABRE, except that (i) the members of the SABRE Pro Forma Affiliated Group shall
not be permitted or required to carryback any Tax Items to any taxable period or
portion thereof ending before the Effective date;
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(ii) no portion of (a) the consolidated minimum tax credit or (b) the
consolidated net operating loss carryovers of the AMR Affiliated Group or any
other Tax Benefit of an AMR Company or a SABRE Company as of the Effective Date
shall be treated as allocable to any SABRE Company as of the Effective Date;
(iii) the amount of any consolidated credit for increasing research activities
(the "R&E Tax Credit") attributable to the activities of any SABRE Company for
the period from January 1, 1985 to December 31, 1995 shall be treated as an R&E
Tax Credit carryover of the SABRE Pro Forma Affiliated Group (the "SABRE Pro
Forma R&E Tax Credit Carryovers") which may be utilized for any post-Effective
Date Period occurring on or after a Final Determination that such R&D Tax Credit
is available to the AMR Affiliated Group; (iv) the based period research
expenses and gross receipts of the SABRE business units owned by American prior
to the Effective Date shall be treated as incurred or realized by members of the
SABRE Pro Forma Affiliated Group, as provided in section 41(f)(3)(A) of the Code
and applicable Treasury Regulations, for purposes of determining the amount of
R&E Tax Credit attributable to the SABRE Pro Forma Affiliated Group for any
Post-Effective Date Period, (v) unless SABRE shall have received the express
written consent of AMR to the contrary, the SABRE Pro Forma Consolidated Return
shall be prepared using such methods, conventions and principles of taxation and
making such elections as are consistent with the methods, conventions,
principles, and elections previously used by AMR in preparing the AMR
Consolidated Returns for any Pre-Effective Date period (provided, however, that
this provision shall not limit SABRE's discretion in making any Post-Effective
Date Tax elections that are permitted to be made under applicable laws or
regulations on an annual basis without the consent of any taxing authority);
(vi) any Tax Items of (a) any SABRE Company or (b) any AMR Company that
transferred a business or assets to a SABRE Company pursuant to the Spin-off
Transaction (but only to the extent that such Tax Items are attributable to the
ownership of such business or assets) that would be required to be recognized as
a result of the deconsolidation of the SABRE Companies from the AMR Affiliated
Group (including, for example, gains or losses deferred under Treas. Reg.
Section 1.1502-13 or -14) shall not be recognized as of the Effective Date but
shall be included in the SABRE Pro Forma Consolidated Return when and as such
Tax Items are required to be included in the AMR Consolidated Return; and (vii)
Tax Items attributable to transactions occurring between any SABRE Company, on
the one hand, and any AMR Company, on the other, during any Post-Effective Date
Period (that is not a Post-Consolidation Period) shall be treated as if such
transactions occurred between members of the same consolidated group and shall
only be included in the SABRE Pro Forma Consolidated Return when and as they are
required in be included in the AMR Consolidated Return. SABRE shall bear all
costs and
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expenses of preparation and submission of the SABRE Pro Forma Consolidated
Return, including, without limitation, accountants' and attorneys' fees.
3.02 SABRE PAYMENTS. For each taxable period for which a SABRE Pro
Forma Consolidated Return is required to be prepared under Section 3.01, on or
before each date for payment of an installment of estimated federal income taxes
(as determined under Section 6655 of the Code or successor provision then in
effect), SABRE shall pay to AMR an amount equal to the estimated federal income
tax payment that the SABRE Pro Forma Affiliated Group would have been required
to make if it actually were filing the SABRE Pro Forma Consolidated Return for
such taxable period. On or before March 15 of the year following the year in
respect of which a SABRE Pro Forma Consolidated Return is prepared, SABRE shall
pay to AMR an amount equal to the excess, if any, of (i) all federal income
taxes shown as due on the SABRE Pro Forma Consolidated Return (plus the amount,
if any, of any interest or penalties that would have been payable by the SABRE
Pro Forma Affiliated Group in respect of underpayments of estimated taxes if it
actually were filing the SABRE Pro Forma Consolidated Return for such taxable
period and made estimated tax payments equal to the payments SABRE made to AMR
in respect of estimated federal income taxes for such taxable period pursuant to
this Section 3.02) federal income taxes for such taxable period pursuant to this
Section 3.02), over (ii) the total of such estimated tax payments. If, pursuant
to Section 3.01, AMR permits SABRE to submit the SABRE Pro Forma Consolidated
Return after such date, a reasonable estimate of such amount shall be paid on or
before such date and the balance, if any, due on the SABRE Pro Forma
Consolidated Return shall be paid on the date that the SABRE Pro Forma
Consolidated Return is required to be submitted. If (A) the total amount of all
payments of federal income taxes by SABRE to AMR pursuant to this Section 3.02
for the taxable period exceeds (B) the taxes shown as due on the SABRE Pro Forma
Consolidated Return prepared with respect to such taxable period, the amount of
such excess shall (1) be credited to the account of SABRE and shall reduce the
amount of any future payments otherwise payable by SABRE and shall reduce the
amount of any future payments otherwise payable by SABRE to AMR pursuant to
Section 3.02, or (2) if requested in writing by SABRE, be repaid by AMR to SABRE
either (X) within 15 days after the filing of the AMR Consolidated Return for
the tax period with respect to which such excess was paid or (Y) if, and to the
extent that, the AMR Consolidated Return for such tax period reflects an
overpayment of estimated federal income taxes by the AMR Affiliated Group,
within 15 days after AMR's receipt of a refund of such over-payment.
3.03 REFUNDS IN RESPECT OF CARRYBACKS. if, for any Post-Effective
Date Period, (i) a SABRE Pro Forma Consolidated Return reflects a consolidated
net operating loss, consolidated net capital loss, or consolidated unused tax
credit and (ii) under the Code and
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regulations promulgated thereunder such consolidated loss or unused credit could
have been carried back to a prior Post-Effective Date Period of the SABRE Pro
Forma Affiliated Group, SABRE shall prepare and submit to AMR an amended SABRE
Pro Forma Consolidated Return, prepared as provided in Section 3.01 of this
Agreement, for each Post-Effective Date Period to which such carryback would be
permitted. If the amount by which the aggregate amounts paid by SABRE to AMR
under Section 3.02 of this Agreement in respect of the federal income tax
liability of the SABRE Pro Forma Affiliated Group for such Post-Effective Date
Period exceeds the amount of such liability as reflected on the amended SABRE
Pro Forma Consolidated Return, the amount of such excess shall be (1) credited
to the account of SABRE and shall reduce the amount of any future payments
otherwise payable by SABRA to AMR pursuant to section 3.02, or (2) if requested
in writing by SABRE, refunded to SABRA by AMR with 45 days after its receipt of
the amended SABRE Pro Forma Consolidated Return. All calculations of deemed
refunds pursuant to this Section 3.03 shall include interest computed as if
SABRE had filed a claim for refund or an application for a tentative carryback
adjustment pursuant to Code Section 6411(a) on the date on which it provides AMR
with the amended SABRE Pro Forma Consolidated Return. Determinations under this
under this Section 3.03 shall be made as if the SABRE Pro Forma Affiliated Group
were not permitted to carryback any consolidated loss or unused credit from a
Post-Effective Date Period to a taxable period or portion thereof ending before
the Effective Date. AMR shall be entitled to retain, or receive immediate
payment from any SABRE Company of any refund or credit with respect to federal
income tax liability that actually results from such a carryback.
3.04 LIABILITY FOR PRE-EFFECTIVE DATE PERIODS AND SPIN-OFF
TRANSACTION.
ARM shall be liable for, and shall indemnify and hold harmless the SABRE
Companies for, (1) any federal Income Taxes imposed on or incurred by any SABRE
Company for any Pre-Effective Date Period, and (2) any federal Income Taxes that
are attributable to the Spin-off Transaction.
3.05. PAYMENTS IN THE EVENT OF DECONSOLIDATION.
(a) STATEMENT OF SABRE EXCESS TAX ATTRIBUTES. As soon as practical
following the filing by the AMR Affiliated Group of its consolidated federal
income tax return for the year which includes the Deconsolidation Date, AMR will
provide to SABRE its estimate of the amount of any SABRE Excess Tax Attributes.
No warranty as to the existence or availability of such attributes will be given
or implied. AMR will inform SABRE promptly of an adjustment to such attributes
that it determines to be appropriate in connection with the filing of the AMR
Consolidated Group's Tax Returns or which may result from any audit or other
proceeding.
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(b) SABRE PAYMENTS. SABRE shall make payments to AMR under this
Section 3.05(b) if, for any Post-Consolidation Period, (i) the actual federal
income tax liability of the SABRE Companies is reduced below the federal income
tax liability that would have been imposed on the SABRE Companies if (A) the
SABRE Pro Forma Affiliated Group actually had been deconsolidated from the AMR
Affiliated Group as of the Effective Date and had filed the SABRE Pro Forma
Consolidated Returns for all Post-Effective Date Periods (other than a
Post-Consolidation Period), and (B) the assumptions set forth in Section 3.01 of
this Agreement (other than clauses (vi) and (vii) thereof) actually applied, or
(ii) the federal income tax liability of the AMR Affiliated Group is increased
because any SABRE Excess Tax Attribute is not available for use by the AMR
Affiliated Group in that period. The amount of any payment by SABRE under this
Section 3.05(b) shall equal the excess of (X) the sum of (i) the amount of such
reduction or increase, as the case may be, in federal income tax liability plus
(ii) the amount of all prior reductions or increases taken into account pursuant
to this Section 3.05, over (Y) the amount of any payments previously made by
SABRE under this Section 3.05(b) in respect of any SABRE Excess Tax Attribute,
PROVIDED, HOWEVER, that the aggregate amount paid by SABRE to AMR pursuant to
this Section 3.05(b) shall not exceed the product of (l) the estimated amount of
SABRE Excess Tax Attributes provided by AMR to SABRE pursuant to Section 3.05(a)
above (as adjusted from time to time pursuant to such section), times (m) the
maximum federal income tax rate applicable to corporations as in effect from
time to time as each payment has been made pursuant to this Section 3.05(b).
SABRE shall make any payment required to be made under this Section 3.05(b)
within 15 days of, as the case may be, the filing of the applicable return or
amended return, or the receipt of the applicable Final Determination, for the
Post-Consolidation Period by SABRE or AMR (or, in the case of an increase in
liability of the AMR Affiliated Group, any later date on which SABRE receives
written notice from AMR).
(c) AMR PAYMENTS. AMR shall make a payment to SABRE under this
Section 3.05(c) if, for any Post-Consolidation Period, the actual federal income
tax liability of the SABRE Companies is increased above the federal income tax
liability that would have been imposed on the SABRE Companies if (i) the SABRE
Pro Forma Affiliated Group actually had been deconsolidated from the AMR
Affiliated Group as of the Effective Date and had filed the SABRE Pro Forma
Consolidated Returns for all Post-Effective Date Periods (other than a
Post-Consolidation Period), and (ii) the assumptions set forth in Section 3.01
of this Agreement (other than clauses (vi) and (vii) thereof) actually applied.
The amount of any payment by AMR under this Section 3.05(c) shall equal the
amount of such increase. In addition, AMR shall make a payment to SABRE under
this Section 3.05(c) equal to the amount of any unused SABRE Pro Forma R&E Tax
Credit Carryovers that are not available for use by the SABRE
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Pro Forma Affiliated Group in a Post-Consolidation Period. AMR shall make any
payment required to be made under this Section 3.05(c) within 15 days of, as the
case may be, the filing of the applicable return or amended return, or the
receipt of the applicable Final Determination, for the Post-Consolidation Period
by SABRE (or any later date on which AMR receives written notice from SABRE).
IV. PAYMENTS IN RESPECT OF OTHER TAXES
4.01. STATE OR LOCAL INCOME TAXES REPORTED ON A CONSOLIDATED RETURN.
(a) PRE-EFFECTIVE DATE PERIODS. AMR shall be liable for, and shall
indemnify and hold harmless the SABRE Companies for, (i) any state or local
Taxes on, or measured by, net income that are incurred by, imposed on or
attributable to any SABRE Company for any Pre-Effective Date Period (other than
such Taxes reported or required to be reported (whether or not actually
reported) in a Separate Return filed exclusively for such SABRE Company) and
(ii) any state or local income Taxes on, or measured by, net income that are
attributable to the Spin-off Transaction.
(b) POST-EFFECTIVE DATE PERIODS. In the case of any state or local
Taxes on, or measured by, net income that are reported on a Consolidated Return
for any Post-Effective Date Period pursuant to Section 2.01 of this Agreement,
the sharing of Tax liability shall be determined under rules equivalent to the
provisions of Article III (including, without limitation, equivalent rules as to
the preparation of pro forma state or local tax returns for the applicable SABRE
Pro Forma Affiliated Group, the making of payments by SABRE with respect to
liability reported thereon, refunds in respect of carrybacks, and adjustments in
the event of Deconsolidation), whether or not for federal income tax purposes
the applicable SABRE Pro Forma Affiliated Group is included in the AMR
Consolidated Return.
4.02. FOREIGN TAXES. AMR shall be liable for, and shall indemnify
and hold harmless the SABRE Companies for, (i) any Foreign Taxes which are
creditable under the Code (other than deemed paid Taxes under Code section 902
that have not been taken into account prior to the Spin-off Transaction)
incurred by, imposed on or attributable to any SABRE Company for any
Pre-Effective Date Periods, (ii) any such Foreign Taxes for any Post-Effective
Date Period that are attributable to the Spin-off Transaction, and (iii) all
other Foreign Taxes incurred by, imposed on or attributable to any SABRE Company
for any Pre-Effective Date Periods to the extent such liabilities do not exceed
the amount of any AMR reserves set aside therefor as of the Effective Date.
SABRE shall be liable for, and shall indemnify and hold harmless the AMR
Companies for, all other Foreign Taxes incurred by, imposed on or attributable
to any SABRE Company to the extent such liabilities exceed the amount of any AMR
reserves set aside therefor as of the Effective Date.
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4.03. OTHER TAXES. Except as otherwise expressly provided in this
Agreement, SABRE shall be liable for all other Taxes incurred by, imposed on or
attributable to (i) any SABRE Company or (ii) any AMR Company with respect to
any business or assets transferred by an AMR Company to any SABRE Company
pursuant to the Spin-off Transaction (including, without limitation, any sales,
use, value-added or other similar transfer Taxes attributable to the transfer of
properties and assets by any AMR Company to any SABRE Company pursuant to the
Spin-off Transaction) and shall indemnify and hold harmless the AMR Companies
for any such liabilities imposed on them to the extent such liabilities exceed
the amount of any AMR reserves set aside therefor as of the Effective Date;
PROVIDED, HOWEVER, that AMR shall be liable for the Taxes described in this
Section 4.03 to the extent of its reserves set aside therefor.
4.04. ENVIRONMENTAL TAX; NEW TAXES. In the case of the Tax imposed
under section 59A of the Code and any other federal, state, local, or Foreign
tax reported on a Consolidated Return for any Post-Effective Date Period
pursuant to Section 2.01 of this Agreement, the sharing of Tax liability shall
be determined under rules equivalent to the rules of Article III (including,
without limitation, equivalent rules as to the preparation of Pro forma returns
for the applicable SABRE Pro Forma Consolidated Group, the making of payments by
SABRE with respect to liability reported thereon, refunds in respect of
carrybacks and adjustments in the event of Deconsolidation), whether or not for
federal income tax purposes the applicable SABRE Pro Forma Affiliated Group is
included in the AMR Consolidated Return.
4.05. CAP AND ALLOCATION OF CERTAIN LIABILITIES. The liability of
SABRE or AMR to make indemnity payments under Section 4.02 or 4.03 shall be
modified as follows: (i) with respect to any Tax liabilities (other than any
sales, use, value-added or other similar transfer Taxes attributable to the
transfer of properties and assets by any AMR Company to any SABRE Company
pursuant to the Spin-off Transaction (the "Spin-off Transfer Taxes")) of SABRE
or any SABRE Company for any Pre-Effective Date Period, SABRE's indemnity
obligation to AMR shall be limited to an aggregate amount of $4,000,000 and AMR
shall indemnify and hold harmless the SABRE Companies for any such liability
imposed directly on them by a taxing authority to the extent that the sum of
such liability plus SABRE's previous indemnity payments to AMR exceeds
$4,000,000, and (ii) with respect to Spin-off Transfer Taxes, SABRE's indemnity
obligation to AMR shall be limited to an aggregate amount of $2,000,000 and AMR
shall indemnify and hold harmless the SABRE Companies to the extent such
liabilities exceed $2,000,000 in the aggregate.
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V. SUBSEQUENT ADJUSTMENTS OF TAX LIABILITY
5.01. POST-EFFECTIVE DATE TAX PERIODS. If any Final Determination
results in an adjustment to any Tax Item of any SABRE Company for any
Post-Effective Date Period or any Tax Item of any AMR Company for any
Post-Consolidation Period, the liability of SABRE to make payments to AMR under
Section 3.02, 3.05, 4.01, or 4.04, or the liability of AMR to make payments to
SABRE under Section 3.03, 3.05, 4.01, or 4.04, for all Post-Effective Date
Periods shall be redetermined to reflect such adjustment. SABRE shall pay to
AMR (i) any excess of the aggregate amount of SABRE's net liability to AMR under
such Sections, as calculated pursuant to such redetermination, over the net
amount previously paid by SABRE in respect of such liability under such
Sections, plus (a) interest with respect to the amount determined in clause (i),
plus (b) the amount of any penalties, additions to tax, or expenses which are
paid by any AMR Company with respect to such adjustment (including, without
limitation, any reasonable out-of-pocket costs incurred by the AMR Companies in
connection with the assessment or collection thereof), reduced by (ii) any
amount paid directly by a SABRE Company to any government or taxing authority to
satisfy the increased tax liability taken into account in computing such
payment. AMR shall pay to SABRE (A) any excess of the net amount previously
paid by SABRE to AMR in respect of SABRE's liability under such Sections over
the aggregate amount of SABRE's net liability under such Sections, calculated
pursuant to such redetermination, plus (B) the amount of any interest received
by an AMR Company from any government or taxing authority with respect to such
adjustment, reduced by (C) the amount of any refund of Tax received directly
from any government or taxing authority by any SABRE Company with respect to
such adjustment. Any amount payable pursuant to this Section 5.01 shall be paid
within 15 days after the date of the Final Determination giving rise to such
payment.
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5.02. PRE-EFFECTIVE DATE ADJUSTMENTS.
(a) PAYMENT FOR INCREASE IN TAX LIABILITIES. If, for any
Pre-Effective Date Period, any Final Determination results in an adjustment to
any Tax Item (i) of any SABRE Company or (ii) relating to any business or assets
transferred by an AMR Company to any SABRE Company pursuant to the Spin-off
Transaction, causing an increase in any Tax for which SABRE is liable pursuant
to Section 2.02, 4.02 or 4.03 hereof, subject to all limitations on such
liability (including, without limitation, Section 4.05), SABRE shall pay to AMR
an amount equal to (A) such increase in Tax liability plus (B) any expenses
which are paid by any AMR Company with respect to such adjustment (including,
without limitation, any reasonable out-of-pocket costs incurred by the AMR
Companies in connection with the assessment or collection thereof), reduced by
(C) any amount paid directly by a SABRE Company to any government or taxing
authority to satisfy such increased Tax liability. SABRE shall make any such
payment within 15 days of AMR's payment of the increase in liability. AMR shall
pay to SABRE an amount equal to any refund of Taxes (including any interest with
respect thereto) for the AMR Affiliated Group or any AMR Company for any
Pre-Effective Date Period or portion thereof that SABRE is responsible for under
the terms of this Agreement and that is received by any AMR Company on or after
the Effective Date and that is attributable to an adjustment of any Tax Item
(i) of any SABRE Company or (ii) relating to any business or assets transferred
by an AMR Company to any SABRE Company pursuant to the Spin-off Transaction.
AMR shall make any such payment within 15 days of the receipt of the refund by
AMR or another AMR Company.
(b) PAYMENT FOR CERTAIN TAX BENEFITS. If the income Tax liability
of any AMR Company, or any SABRE Company with respect to any such income Taxes
AMR is responsible for under the terms of this Agreement, is increased for any
Pre-Effective Date Period and the particular item that produced such increase
results, directly or indirectly, in a Tax Benefit of any SABRE Company for any
Post-Effective Date Period, SABRE shall pay AMR the amount of any actual
reduction in Taxes resulting from such Tax Benefit within 15 days after the
later of (i) the due date (without regard to waivers or extensions) of the Tax
Return for the taxable period during which the Tax Benefit was utilized or
(ii) the date notice is given by AMR to SABRE with respect to such payment.
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5.03. CARRYBACKS OF POST-CONSOLIDATION PERIOD TAX BENEFITS.
(a) If a SABRE Company incurs a Tax Benefit during any
Post-Consolidation Period which either (i) is required under applicable law to
be carried back to any taxable period ending on or before the Deconsolidation
Date or (ii) SABRE properly elects to carry back to such earlier taxable period,
then AMR will pay to SABRE the amount of any actual reduction in tax liability
resulting from the carryback of such Tax Benefit (to the extent that SABRE or
any SABRE Company does not receive such amount directly from the appropriate
taxing authority). The amount of such reduction shall be equal to the excess of
(A) the amount of any Taxes that would have been payable by the AMR Affiliated
Group in the absence of such carryback, over (B) the amount of such Taxes
actually payable by the AMR Affiliated Group including such carryback. Such
payment shall be made within thirty (30) days of the receipt by AMR or any AMR
Company of the Tax Benefit of any such reduction. At SABRE's request and
expense, AMR shall undertake those actions reasonably necessary to enable SABRE
to carry back a Tax Benefit incurred in a Post-Consolidation Period.
(b) If, subsequent to the payment by AMR to SABRE of any amount
referred to in Section 5.03(a) above, there shall be (i) a Final Determination
under applicable law of a Tax deficiency of the AMR Affiliated Group as a result
of which the AMR Affiliated Group does not get the benefit of the carryback, or
(ii) a Final Determination resulting from an audit of SABRE or any SABRE Company
(or any successor thereto) which results in a reduction of any Tax Benefit so
carried back, SABRE shall repay AMR, within thirty (30) days of such Final
Determination, the amount which would not have been payable to SABRE pursuant to
Section 5.03(a) above had the amount of the payment been determined by taking to
account such event.
VI. ADMINISTRATIVE PROVISIONS
6.01. CONTESTS.
(a) NOTICE. SABRE shall provide AMR written notice of any claim,
or of the commencement of any audit or proceeding, together with copies of all
correspondence, notices or other documents relating thereto, which may result in
a Final Determination which would adjust any Tax Item of a SABRE Company
reportable on any Consolidated Return. Whenever as a result of examination or
audit by a governmental authority AMR becomes aware of the existence of a
material issue involving a Tax Item of any SABRE Company which may result in a
Final Determination with respect to a Consolidated Return, AMR shall promptly
give notice to SABRE of the existence of such issue.
(b) CONTROL OF CONSOLIDATED RETURN CONTROVERSIES. AMR shall, in
its sole discretion, control and direct the conduct of any audit or inquiry or
any administrative or
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judicial appeal or other proceeding regarding any Consolidated Return or the
payment of any Tax by the AMR Affiliated Group or any entity not required to be
reported on a SABRE Separate Return. Each SABRE Company shall provide AMR with
powers of attorney or other appropriate documents which will enable AMR to
conduct any such proceeding. AMR may, in its sole discretion, agree to pay,
settle, compromise, or concede any such claim or issue arising with respect to
any proceeding which it controls pursuant to this Section 6.01(b); PROVIDED,
HOWEVER, that SABRE may prevent a proposed settlement or compromise of any Tax
Item of a SABRE Company arising in a Consolidated Return if (i) it provides AMR
with an opinion of tax counsel reasonably acceptable to AMR that SABRE's
position is more likely than not to prevail in litigation and (ii) it agrees to
indemnify AMR for any costs associated with contesting such issue.
(c) EXPENSES RELATED TO CONSOLIDATED RETURN CONTROVERSIES. SABRE
shall promptly reimburse AMR for all expenses (including, without limitation,
legal and accounting fees) incurred by AMR in the course of proceedings
described in Section 6.01(b) of this Agreement to the extent such expenses are
reasonably attributable to Tax Items of any SABRE Company.
6.02. COOPERATION AND EXCHANGE OF INFORMATION.
(a) IN GENERAL. AMR and SABRE will provide, and will cause their
affiliates to provide, one another with such cooperation and information as
either of them reasonably may request of the other in filing any Tax Return,
amended return, or claim for refund; determining a liability for Taxes or a
right to a refund of Taxes; or in conducting any audit or other proceeding in
respect of Taxes. Such cooperation and information shall include AMR's or
SABRE's, as the case may be, (i) providing to the other party copies of all
relevant Tax Returns, together with accompanying schedules and related work
papers, documents relating to rulings or other determinations by taxing
authorities, and records concerning the ownership and tax basis of property; and
(ii) making its employees available to the other party on a mutually convenient
basis to provide reasonable technical support (including, without limitation,
the provision of interpretation, analyses, and testimony). Any information
obtained under this Section shall be kept confidential, except as may be
otherwise necessary in connection with the filing of returns or claims for
refund or in conducting any audit or other proceeding.
(b) PREPARATION OF TAX PACKAGE BY SABRE. So as to enable AMR to
prepare the Consolidated Returns accurately and completely, to forecast and plan
with respect to Taxes effectively, and to provide for accurate financial
reporting in respect of Taxes, for each Post-Effective Date Tax Period, SABRE
shall prepare and submit to AMR (i) a tax return package for Consolidated
Returns, (ii) an estimated tax package for Consolidated Returns,
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(iii) a tax provision package, and (iv) a tax projection package (collectively,
the "Tax Package"). SABRE shall prepare and submit to AMR the Tax Package at
such times and in such form, manner, and medium as AMR shall request. To the
extent that AMR requests, the Tax Package will include work papers and other
supporting documentation. Unless otherwise expressly consented to by AMR in
writing, the Tax Package shall be prepared, with respect to Tax Items includable
in a Consolidated Return, using the methods, elections, and positions that AMR
previously used in preparing Consolidated Returns or consolidated financial
statements. SABRE shall bear all costs and expenses of preparation and
submission of the Tax Package, including, without limitation, accountants' and
attorneys' fees.
(c) RECORD RETENTION. Each party will retain all Tax Returns,
SABRE Pro Forma Consolidated Returns, schedules and work papers, and all
material records or other documents relating thereto, until the expiration of
the statute of limitations (including extensions) of the taxable periods to
which such Tax Returns and other documents relate and, unless such Tax Returns
and other documents are offered to the other party, until the Final
Determination of any payments which may be required in respect of such years
under this Agreement. Before any tax records or documents are destroyed, the
party holding such records shall notify the other party of its intent to destroy
them and shall offer any such records to the other party. If the other party
wishes to receive such records, it shall notify the party holding the records or
documents within 45 days of receipt of notice of the other party's intent to
destroy, and will be liable for any costs related to the transfer of such
records.
(d) FAILURE TO PROVIDE INFORMATION. If any AMR Company or SABRE
Company, as the case may be, fails to provide any information requested pursuant
to this Agreement by (i) the dates established for such information in this
Agreement or (ii) with respect to information for which a date is not specified
in this Agreement, within a reasonable period, as determined in good faith by
the party requesting information, the requesting party shall have the right to
engage a public accountant of its choice to gather such information. AMR and
SABRE, as the case may be, agree that upon 10 days' notice, in the case of a
failure to provide information on the dates established therefor by this
Agreement, and otherwise upon 30 days' notice after the expiration of such
reasonable period, to permit (for the sole purpose of gathering such
information) any such public accountant full access to all appropriate records
or other information in the possession of any member of any AMR Company or any
SABRE Company, as the case may be, during reasonable business hours, and to
reimburse or pay directly all reasonable costs and expenses in connection with
the engagement of such public accountant.
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VII. MISCELLANEOUS PROVISIONS
7.01. INTEREST. Interest required to be paid by or to SABRE pursuant
to this Agreement shall, unless otherwise specified, be computed at the rate and
in the manner provided in the Code (or comparable state, local, or Foreign law)
for interest on underpayments and overpayments, respectively, of federal, state,
local or Foreign tax (as the case may be) for the relevant period. Any payments
required pursuant to this Agreement which are not made within the time period
specified in this Agreement shall bear interest at the rate specified above for
underpayments of federal income tax plus 3 percent.
7.02. RESOLUTION OF DISPUTES. Any disputes between the parties
concerning the calculation of amounts, allocation or attribution of costs or of
any Tax or Tax Item, or similar accounting matters shall be resolved in
accordance with AMR's interpretation of this Agreement, unless SABRE shall
provide AMR with an opinion of a nationally recognized public accounting firm
that such interpretation is unreasonable.
7.03. APPLICATION TO PRESENT AND FUTURE SUBSIDIARIES.
(a) AMR agrees that it shall have liability for all Tax
liabilities and indemnity obligations of the AMR Companies as provided for in
this Agreement. Any reference to AMR in this Agreement shall subject AMR to
full, direct and primary liability for any sum owing by AMR or any other AMR
Company. AMR agrees that it shall cause each AMR Company to comply fully with
the terms of this Agreement.
(b) SABRE agrees that it shall have liability for all tax
liabilities and indemnity obligations of the SABRE Companies as provided for in
this Agreement. Any reference to SABRE in this Agreement shall subject SABRE to
full, direct and primary liability for any sum owing by SABRE or any other SABRE
Company. SABRE agrees that it shall cause each SABRE Company to comply fully
with the terms of this Agreement.
(c) AMR and SABRE shall, upon the written request of the other,
cause any of their respective group members formally to execute this Agreement.
From and after the time that any such group member formally executes the
Agreement, it shall constitute a direct obligation of such corporation, which
shall become jointly and severally liable for all amounts payable by AMR or
SABRE (as the case may be) hereunder. AMR and SABRE hereby guarantee the
performance of all actions, agreements and obligations provided under this
Agreement of each AMR Company or each SABRE Company, respectively. This
Agreement shall be binding upon, and shall inure to the benefit of, the
successors, assigns and persons controlling any of the corporations bound
hereby.
7.04. EXPENSES. Unless otherwise expressly provided in this
Agreement, each party shall bear any and all expenses that arise from their
respective obligations under this Agreement.
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7.05. NOTICES. All notices, requests, demands and other
communications to any party hereunder shall be in writing and shall be deemed
given if delivered by hand or sent by telecopy or mailed (registered or
certified mail, postage prepaid, return receipt requested), addressed to the
parties as follows:
If to AMR:
American Airlines, Inc.
4333 Amon Carter Boulevard
Fort Worth, Texas 76155
Attention: Managing Director - Tax
If to SABRE:
The SABRE Group, Inc.
4200 American Boulevard
Fort Worth, Texas 76155
Attention: Chief Financial Officer
7.06. ENTIRE AGREEMENT; TITLES AND HEADINGS. This Agreement
constitutes the entire agreement of the parties concerning the subject matter
hereof and supersedes all other agreements, whether or not written, in respect
of any Tax between or among any of the AMR Companies and any of the SABRE
Companies. In the event of a conflict between this Agreement and a provision in
any other agreement between or among members (or former members) of the AMR
Affiliated Group concerning the allocation or sharing of Taxes on or measured by
net income, this Agreement shall control unless the provision in the other
agreement specifically provides that it shall control; PROVIDED, HOWEVER, that
this Agreement shall not override any provision regarding Taxes contained in
that certain Stock Rights and Transfer Agreement dated July 1, 1996, by and
between American and the SABRE Group, Inc. In the event of a conflict between
this Agreement and a provision in any other agreement between or among members
(or former members) of the AMR Affiliated Group concerning the allocation or
sharing of Taxes (other than taxes on or measured by net income), the provision
in such other agreement shall control. This Agreement may not be amended except
by an agreement in writing, signed by the parties hereto. Titles and headings
to sections herein are inserted for the convenience of reference only and are
not intended to be a part or to affect the meaning or interpretation of this
Agreement.
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7.07. TERM. This Agreement shall commence on the Effective Date and
shall continue in effect until otherwise agreed to in writing by AMR and SABRE,
or their successors.
7.08. GOVERNING LAW. This Agreement shall be governed by the laws of
the State of Texas, without regard to the principles of conflicts of law
thereof.
7.09. SEVERABILITY. If any term, provision or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions and restrictions shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated. It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions and
restrictions without including any of such term, provision or restriction which
may be hereafter declared invalid, void and unenforceable.
7.10 COUNTERPARTS. This Agreement may be executed by the parties in
separate counterparts, each of which when so executed and delivered shall be an
original, but such counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
AMR CORPORATION
By: ________________________________
Jeffery M. Jackson, Treasurer
TSG CORPORATION
By: ________________________________
Michael J. Durham, President
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TAX SHARING AGREEMENT
SCHEDULE A
Divisions of American Airlines, Inc.:
- - SABRE Travel Information Net (STIN)
- - SABRE Computer Services (SCS)
- - SABRE Development Services (SDS)
- - SABRE Interactive (SI)
- - SABRE Staff Group
Subsidiaries of American Airlines, Inc.:
- - SABRE International, Inc.
- - SABRE Associates, Inc.
- - SABRE International Holdings, Inc.
- - SST Holdings, Inc.
- - SST Finance, Inc.
- - SCS, Inc.
- - SDS, Inc.
- - STIN, Inc.
- - SABRE Computer Services, Inc.
- - SABRE Development Services, Inc.
- - SABRE Travel Information Network, Inc.
- - SABRE Belgium
- - SABRE Computer-Reservierungssystem GmbH
- - SABRE Danmark APS
- - SABRE Deutschland Marketing GmbH
- - SABRE Deutschland Services GmbH
- - SABRE Espana Marketing, S.A.
- - SABRE Europe Management Services, Ltd.
- - SABRE France SARL
- - SABRE Hellas SA
- - SABRE Ireland Ltd.
- - SABRE Italia S.r.I.
- - SABRE Marketing Nederland BV
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- - SABRESABRE Norge AS
- - SABRE SABRE Portugal Servicios Colombia LTDA
- - SABRE Suomi Oy
- - SABRE Sverige AB
- - SABRE UK Marketing Ltd.
- - STIN Luxembourg SA
Subsidiaries of The SABRE Group, Inc.:
- - Encompass Holding, Inc.
- - SABRE Decision Technologies International, Inc.
- - SABRE Decision Technologies Licensing, Inc.
- - TSGL, Inc.
- - TSGL Holding, Inc.
- - TSGL-SCS, Inc.
- - SABRE Decision Technologies, Inc.
- - SABRE Decision Technologies (Australia) Pty. Ltd.
- - Ticketnet Corporation
- - 148548 Canada, Inc.
The SABRE Group Holdings, Inc. (f/k/a TSG Corporation)
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TAX SHARING AGREEMENT
SCHEDULE B
Subsidiaries of The SABRE Group, Inc.:
- - SABRE Enterprises, Inc.
- - Encompass Holding, Inc.
- - SABRE Decision Technologies International, Inc.
- - SABRE Decision Technologies Licensing, Inc.
- - TSGL, Inc.
- - TSGL Holding, Inc.
- - TSGL-SCS, Inc.
- - SABRE International, Inc.
- - SABRE International Holdings, Inc.
- - SST Holdings, Inc.
- - SST Finance, Inc.
- - SCS, Inc.
- - SDS, Inc.
- - STIN, Inc.
- - SABRE Computer Services, Inc.
- - SABRE Development Services, Inc.
- - SABRE Travel Information Network, Inc.
- - SABRE Decision Technologies, Inc.
- - SABRE Belgium
- - SABRE Computer-Reservierungssystem GmbH
- - SABRE Danmark ApS
- - SABRE Deutschland Marketing GmbH
- - SABRE Deutschland Services GmbH
- - SABRE Espana Marketing, S.A.
- - SABRE Europe Management Services, Ltd.
- - SABRE France SARL
- - SABRE Hellas SA
- - SABRE Ireland Ltd.
- - SABRE Italia S.r.I.
- - SABRE Marketing Nederland BV
- - SABRE SABRE SABRE Norge AS
- - SABRE SABRE SABRE Portugal Servicios Colombia LTDA
- - SABRE Suomi Oy
- - SABRE Sverige AB
- - SABRE UK Marketing Ltd.
- - STIN Luxembourg SA
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Exhibit C
Spinoff Restructuring Transactions
1. Sabre Opco will supply funds to Sabre Holdco through repayment of
intercompany indebtedness (from excess cash or third party borrowings) owing to
Sabre Holdco in the amount of [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]
and perhaps dividend distributions and/or loans to Sabre Holdco. Sabre Opco
will fund payments to Sabre Holdco from excess cash and/or third party
borrowings.
2. Any remaining intercompany obligation from Sabre Opco to Sabre Holdco will
be converted to a security with a term of 10 years.
3. Sabre Holdco will pay a cash dividend pro rata to all its shareholders in
the aggregate amount of $675 million.
4. AMR will merge AMR Services Holding Corporation into AMR in a transaction
intended to be tax-free under Section 368(a) of the Code).
5. Debt owed by AMR Leasing Corporation to AMR and Eagle Holding will be
converted to securities with a term of 10 years.
6. AMR will transfer its security in AMR Leasing to Eagle Holding.
7. Eagle Holding will transfer both the stock and securities in AMR Leasing to
Eagle Holding's wholly owned subsidiary, AEA.
8. Eagle Holding will transfer the stock of Business Express Airlines, Inc.
(another wholly-owned subsidiary of Eagle Holding) to AEA.
9. AMR's Class B shares in Sabre Holdco will be converted to Class A shares.
10. AMR will distribute all of its Sabre Holdco Class A shares pro rata to
AMR's stockholders. No fractional shares of Sabre Holdco Class A common stock
will be issued to the holders of AMR stock pursuant to this distribution. In
lieu thereof, each stockholder of AMR who would otherwise be entitled to receive
a fractional share of Sabre Holdco Class A common stock will receive cash. As
soon as practicable after the distribution, the dividend agent will aggregate
and sell all fractional shares of Sabre Holdco Class A common stock in the open
market at then prevailing market prices, and will distribute the aggregate
proceeds (net of fees) pro rata to stockholders entitled to them.
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SABRE HOLDINGS CORPORATION.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN, AS AMENDED
EFFECTIVE APRIL 24, 1999
(NON-OFFICER)
<PAGE>
SABRE HOLDINGS CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(NON-OFFICER)
ARTICLE ONE
PREAMBLE
The purpose of this Plan is to provide specified benefits to key
employees who contribute materially to the growth, development and business
success of Sabre Holdings Corporation. The Plan is intended to be an "excess
benefit plan", as defined in section 3 of the Employee Retirement Income
Security Act of 1974, as amended (defined in Section 2.1 as the "Act"), that
is exempt from the provisions of the Act by reason of section 4(b)(5) of the
Act. The plan provides benefits only to a select group of highly compensated
or managerial employees and is thus also intended to be a "top hat plan"
within the meaning of sections 201(2), 301(a)(3), and 401(a)(2) of the Act.
Accordingly, this Supplemental Plan shall not constitute a "qualified plan"
that is subject to the limitations of section 401(a) of the Code, nor shall
it constitute a "funded plan" for purposes of such requirements or of the
requirements of the Act.
ARTICLE TWO
DEFINITIONS AND CONSTRUCTION
2.1 DEFINITIONS. For purposes hereof, unless otherwise clearly
apparent from the context, the following phrases or terms shall have the
following indicated
(a) "AA Prior Plan"- The Retirement Benefit Plan of
American Airlines, Inc. for Officer, Management and Specialist, and
Non-Management Salaried Personnel.
(b) "Act"- The Employee Retirement Income Security Act of
1974, as amended from time to time.
(c) "Affiliated Company"- An "Affiliated Company", as
defined in SGRP.
(d) "Base Plans" - The Legacy Plan and SGRP. Each of the
Base Plans may be individually referred to hereunder as a "Base Plan".
(e) "Beneficiary" - The beneficiary or beneficiaries of the
Participant, as identified under the terms of each respective Base Plan.
(f) "Board of Directors" - The Board of Directors of the
Company.
(g) "Code" - The Internal Revenue Code of 1986, as amended
from time to time.
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(h) "Code Limits" -
(i) the restrictions of section 401(a)(17) of the
Code, which limit the amount of "Compensation" (as defined in SGRP)
that may be considered for purposes of SGRP, and limit the amount of
"Basic Compensation" (as defined in the Legacy Plan) that may be
considered for purposes of the Legacy Plan; as of the effective date of
this Supplemental Plan, such limits are generally set forth and
described in Section 2.1(h) of the Legacy Plan and Article 2.11 of
SGRP;
(ii) the restrictions of section 415 of the Code,
which limit the amount of allocations permissible under SGRP and the
amount of benefits that may be accrued and paid under the Legacy Plan;
as of the effective date of this Supplemental Plan, such limits are
generally set forth and described in Article VII of SGRP and Section
6.5 of the Legacy Plan.
(i) "Committee" - The administrative committee appointed to
manage and administer the Supplemental Plan by the Board of Directors.
(j) "Company" - Sabre Holdings Corporation, a Delaware
corporation, or any successor thereto.
(k) "Employee" - An employee of the Company or an
Affiliated Company who is eligible to participate in the Legacy Plan and/or
SGRP, in accordance with the applicable terms and provisions of such Base
Plans.
(l) "Legacy Plan" - The SABRE Group, Inc. Legacy Pension
Plan, as it may be amended from time to time. The term "Legacy Plan" shall
include benefits transferred from the AA Prior Plan.
(m) "Legacy Plan Supplemental Benefit" - The benefit, if
any, that is calculated or paid by reason of Article Four.
(n) "Participant" - An Employee entitled to a benefit under
this Supplemental Plan.
(o) "SGRP" - The Sabre Group Retirement Plan, as it may be
amended from time to time. The term "SGRP" shall include amounts transferred
from the $uper $aver Plan.
(p) "SGRP Supplemental Benefit" - The benefit, if any, that
is calculated or paid by reason of Article Five.
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(q) "Supplemental Plan" - The employee benefit program set
forth in this document, entitled The Sabre Holdings Corporation Supplemental
Executive Retirement Plan (Non-Officer), and as it may be amended hereafter.
2.2 CONSTRUCTION. Terms that appear initially capitalized in the
text of this Supplemental Plan that are not defined in Section 2.1 shall have
the definitions assigned to them in the Base Plans. The Base Plans are
functionally and operationally related to this Supplemental Plan. This
Supplemental Plan shall be interpreted in a manner consistent with the Base
Plans to provide the benefits contemplated hereunder in a comprehensive
manner. If any provision of this Supplemental Plan is determined to be for
any reason invalid or unenforceable, the remaining provisions of this
Supplemental Plan shall continue in full force and effect. All of the
provisions of this Supplemental Plan shall be construed and enforced in
accordance with the laws of the State of Texas, except as otherwise required
by the Act, the Code or other applicable federal law. Headings and
subheadings are for the purpose of reference only and are not to be
considered in the construction of this Plan.
ARTICLE THREE
PARTICIPATION AND VESTING
3.1 ELIGIBILITY. Employees of the Company or an Affiliated Company
who are not elected officers of the Company whose benefits under either or
both of the Base Plans are limited by operation of the Code Limit specified
in subsection 2.1(h)(i) shall be eligible to participate in this Supplemental
Plan.
3.2 PARTICIPATION. The Committee may select from among the Employees
who are not elected officers but who are eligible to participate in this
Supplemental Plan those Employees who shall also be Participants. Each
Employee who is selected for participation in this Supplemental Plan shall be
notified of his participation by the Company or the Committee. Such selection
is entirely in the discretion of the Committee. Until a Participant has
received payment of all benefits credited to or accrued by the Participant
hereunder, his participation in the Supplemental Plan shall continue.
3.3 VESTING. If a Participant separates from service prior to
becoming vested in the Employer Contribution benefit under SGRP, the
Participant forfeits the correspondingly unvested portion of the supplemental
benefits accrued hereunder by reason of the Code Limits applicable to SGRP.
Conversely, if the Participant has a vested interest in the Employer
Contribution benefit under SGRP, the Participant has a vested interest in the
benefits under this Supplemental Plan. If a Participant terminates employment
prior to becoming vested in any benefits under the Legacy Plan, the
Participant forfeits the supplemental benefits accrued hereunder by reason of
the Code Limits applicable to the Legacy Plan. Conversely, if the Participant
has a vested interest in benefits under the Legacy Plan, the Participant has
a vested interest in the corresponding benefits under this Supplemental Plan.
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ARTICLE FOUR
LEGACY PLAN SUPPLEMENTAL BENEFIT
4.1 CALCULATION OF BENEFIT. If the benefits payable under the Legacy
Plan to a Participant, or to a Participant's Eligible Spouse, other
Beneficiary or Alternate Payee (as such terms are defined in the Legacy Plan)
are limited due to the operation of the Code Limits, such person will be
entitled to a benefit under this Supplemental Plan. The benefit to which such
person shall be entitled pursuant to this Section 4.1 shall be equal to the
benefits to which the person would have been entitled under the Legacy Plan
had the Code Limits not been in effect, so that such benefits would be
determined as though the Code Limits were not applicable to benefits accrued
under the Legacy Plan, less the accrued benefit to such person under the
terms and provisions of the Legacy Plan.
4.2 PAYMENT OF LEGACY PLAN SUPPLEMENTAL BENEFIT. Subject to Sections
6.1 and 4.4 the benefit determined pursuant to Section 4.1 shall be paid to
the person entitled thereto as though it were a part of the benefit being
paid to such person under the Legacy Plan, so that it is payable at the same
time, and in the same form, and subject to the same limits and restrictions
(other than the Code Limits), as such person's benefits under the Legacy Plan
(including consent of spouse, if applicable). If the benefits under the
Legacy Plan are payable in the form of a direct rollover pursuant to Section
7.4(e) of the Legacy Plan, the benefits payable under this Supplemental Plan
shall be payable as though the benefits under the Legacy Plan were payable in
the normal form of benefit applicable to such person under Section 7.2 of the
Legacy Plan (or Section 5.9 thereof, if applicable).
4.3 LUMP-SUM PAYMENT OPTION.
(a) ELECTION OF THE LUMP-SUM OPTION. In lieu of the payment
options specified in the Legacy Plan, a Participant may elect to claim a
lump-sum, one-time payment equal to the present value of the benefit
determined under Section 4.1. To be eligible to receive the lump-sum payment,
the Participant must submit an election to receive the benefit that is: (i)
in writing; (ii) in the form prescribed by the Company; (iii) addressed to
the Secretary of the Company; (iv) made by the Participant, and received by
the Company, at least one year (or such lesser period as the Board of
Directors or its designee shall permit) before he commences payments or one
year before age 65, whichever is the first to occur.
(b) CONDITIONS ON ELECTION OF THE LUMP-SUM OPTION. To elect
the lump-sum option, the Participant must execute a general release; submit
to a physical examination to provide medical evidence of normal life
expectancy satisfactory to the Company; and provide spousal consent if the
Participant has an Eligible Spouse as defined in the Legacy Plan.
(c) CALCULATION OF THE LUMP-SUM OPTION. In calculating the
lump-sum payment, the interest rate shall be equal to the annual interest
rate on 30-year Treasury securities (GATT rate) for the third month preceding
the Participant's retirement dates. The mortality assumption used shall be
the mortality assumption chosen by the Committee.
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(d) PAYMENT OF THE LUMP-SUM OPTION. The lump-sum payment
will be paid to the Participant within 30 days of the Participant's first
receipt of benefits under the Legacy Plan.
4.4 LUMP-SUM PAYMENT OF SMALL BENEFITS. Notwithstanding the
provisions of Section 4.2, if, upon termination of employment, the value of
the Participant's vested Legacy Plan Supplemental Benefit (calculated
according to the terms of Section 4.3(c)) is less than or equal to $25,000,
the Participant's vested Legacy Plan Supplemental Benefit will be paid to the
Participant in the form of a lump-sum as soon as is administratively feasible
following termination of employment.
ARTICLE FIVE
SGRP SUPPLEMENTAL BENEFIT
5.1 CALCULATION OF BENEFIT.
(a) RESTORATION OF THE SGRP 2.75% EMPLOYER CONTRIBUTIONS If
allocations to a Participant's Employer Contribution Account (as defined in
SGRP) are limited by operation of the Code Limits, a supplemental benefit
shall be payable by operation of this Section 5.1. The amount of the benefit
will be determined by crediting to an account established pursuant to this
Supplemental Plan the amount of Employer Contribution that would have been
allocated to the Participant's Employer Contributions Account without the
Code Limits minus the amounts contributed to the SGRP.
(b) RESTORATION OF THE SGRP 3% EMPLOYER MATCHING
CONTRIBUTIONS. If allocations to a Participant's Employer Matching
Contribution Account (as defined in SGRP) are limited by operation of the
Code Limits, a supplemental benefit shall be payable by operation of this
Section 5.1. The amount of the benefit will be determined by crediting to an
account established pursuant to this Supplemental Plan the amount of Employer
Matching Contribution that could have been allocated to the Participant's
Employer Contributions Account without the Code Limits and without the
requirement that the Participant make Employee Before-Tax Deferrals (as
defined in SGRP) minus the amounts that would have been contributed to the
SGRP had the Participant received the full match in the SGRP.
(c) TIMING OF CONTRIBUTIONS. Contributions to a
Participant's Supplemental account shall occur at the time that the
contributions would have been credited to the Participant's Account under
SGRP absent the Code Limits.
(d) ADJUSTMENTS TO ACCOUNTS TO REFLECT EARNINGS. Accounts
under this Supplemental Plan shall be adjusted as though they were invested
pursuant to the Participant's direction under rules established by the
Committee among the investment funds chosen by the Committee.
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5.2 PAYMENT OF SGRP SUPPLEMENTAL BENEFIT. Subject to Section 6.1, at
the time benefits become payable to the Participant, the Participant's
Eligible Spouse or other Beneficiary under SGRP, the benefit described in
Section 5.1 shall be payable to such person, payable in the same manner as
benefits are payable to such person pursuant to SGRP. Notwithstanding
anything in this Section 5.2 to the contrary, however, no benefit under this
Supplemental Plan may be paid in a non-lump sum form unless such method of
payment has been irrevocably elected by the Participant at least one (1) year
before the earlier of (a) the date such benefits became payable pursuant to
this Article Five, or (b) the date of the event creating a right to
distribution on account of employment separation for any reason under SGRP.
If no such election is made in accordance with procedures promulgated by the
Committee or its designee, then payment (subject to Section 6.1) shall be
made in a single lump sum within sixty (60) days after benefits first became
payable to such person under Section 10.2 of SGRP.
5.3 LUMP-SUM PAYMENT OF SMALL BENEFITS. Notwithstanding the
provisions of Section 5.2, if, upon termination of employment, the value of
the Participant's vested SGRP Supplemental Benefit is less than or equal to
$25,000, the Participant's vested SGRP Supplemental Benefit will be paid to
the Participant in the form of a lump-sum as soon as is administratively
feasible following termination of employment.
ARTICLE SIX
PAYMENT LIMITATIONS
6.1 RESTRICTIONS. No benefits accrued under this Supplemental Plan
may be withdrawn by, or distributed to, a Participant while the Participant
remains employed by the Company or an Affiliated Company. No loans may be
made to any Participant with respect to benefits accrued under this
Supplemental Plan. Benefits payable under this Supplemental Plan may not be
rolled over or transferred to an individual retirement account or to any
other employee benefit plan. If payment of benefits under the Legacy Plan is
suspended, payment of corresponding benefits under this Supplemental Plan
will be similarly suspended.
6.2 SPOUSAL CLAIMS. Any claim against benefits under this
Supplemental Plan for child support, spousal maintenance, alimony, property
division or other matrimonial or dependent obligations shall be treated
hereunder in the same manner as would a claim for corresponding benefits
under the Base Plans. Such a claim under this Plan shall be subject to all
claims procedures, plan provisions and restrictions of the Base Plans.
6.3 DISABILITY. If a person entitled to any payment under this
Supplemental Plan shall, in the sole judgment of the Committee or its
designee, be under a legal disability, or shall otherwise be unable to apply
such payment to his own interest and advantage, the Committee or its
designee, in the exercise of its discretion, may direct the Company or
provider or payor of the benefit to make any such payment in any one (1) or
more of the following ways: (a) directly to such person, (b) to
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his legal guardian or conservator or (c) to his spouse or to any person
charged with the legal duty of his support, to be expended for his benefit
and/or that of his dependents. The decision of the Committee or its designee
shall in each case be final and binding upon all persons in interest, unless
the Committee or its designee shall reverse its decision due to changed
circumstances.
6.4 ASSIGNMENT. Except as provided in Section 6.2, no Participant,
Alternate Payee, Eligible Spouse or other Beneficiary of a Participant shall
have any right to assign, pledge, hypothecate, anticipate or any way create a
lien on any amounts payable hereunder. No amounts payable hereunder shall be
subject to assignment or transfer or otherwise be alienable, either by
voluntary or an involuntary act, or by operation of law, or subject to
attachment, execution, garnishment, sequestration or other seizure under any
legal, equitable or other process, or be liable in any way for the debts or
defaults of Participants, Beneficiaries, Eligible Spouses or Alternate Payees.
6.5 WITHHOLDING. Any taxes required to be withheld from payments to
payees hereunder shall be deducted and withheld by the Company, benefit
provider or funding agent.
6.6 OVERPAYMENT AND UNDERPAYMENT OF BENEFITS. The Committee may
adopt, in its sole discretion, whatever rules, procedures and accounting
practices are appropriate in providing for the collection of any overpayment
of benefits.
ARTICLE SEVEN
FUNDING
7.1 FUNDING. Benefits under this Supplemental Plan shall be funded
solely by the Company. Benefits hereunder shall constitute an unfunded
general obligation of the Company, but the Company may create reserves, funds
and/or provide for amounts to be held in trust on the Company's behalf,
whether or not in connection with, in anticipation of, or following, an
actual or anticipated Change in Control as defined in the SABRE Group
Holdings, Inc. 1996 Long-Term Incentive Plan, as amended from time to time.
Payment of benefits may be made by the Company, such a trust, or through a
service or benefit provider to the Company or such a trust. Accounts under
this Supplemental Plan are notational, or fictional, unless actually funded
pursuant to Section 7.2.
7.2 SPRINGING RABBI TRUST UPON CHANGE IN CONTROL. If there is a
Change in Control as defined in the SABRE Group Holdings, Inc. 1996 Long-Term
Incentive Plan, as amended from time to time, the Company will fund the
benefits provided in this Supplemental Plan in a so-called "Rabbi Trust." The
trust so established shall be (i) with a nationally recognized banking
institution with experience in serving as trustee for such matters, (ii)
pursuant to such documentation as recommended by outside counsel to the
Company, and (iii) funded so as to enable the trust to pay the accrued
benefits contemplated under the Supplemental Plan as may be determined by the
Company's independent financial consultant. In addition, the Company's Board
of Directors, its
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General Counsel or its Corporate Secretary, may take those additional actions
deemed reasonably necessary to accomplish the stated purpose of this Section
7.2.
7.3 CREDITOR STATUS. A Participant, Eligible Spouse, Alternate Payee
or other Beneficiary shall be a general creditor of the Company with respect
to the payment of any benefit under this Supplemental Plan, unless such
benefits are provided under a contract of insurance or an annuity contract
that has been delivered to the Participant, in which case the Participant,
Eligible Spouse, Alternate Payee or other Beneficiary, shall look to the
insurance carrier or annuity provider for payment, and not to the Company.
The Company's obligation for such benefit shall be discharged by the purchase
and delivery of such annuity or insurance contract.
ARTICLE EIGHT
ADMINISTRATION
8.1 PLAN ADMINISTRATION. The Committee is the administrator of this
Plan. If the Board of Directors does not name the Committee, the executives
in charge of the finance, human resources, and the legal departments of the
Company or their designees are the administrators of the Plan and shall have
all of the powers and duties of the Committee. The Committee may designate
one or more individuals, committees or other entities to carry out any of its
responsibilities under this Supplemental Plan, other than as described in
Section 8.2(b). The Committee may be removed by the Board of Directors or its
representative, with or without cause, and the Board of Directors, or its
representative, shall have the power to fill any vacancy which may occur.
8.2 GENERAL POWERS AND RESPONSIBILITIES OF THE COMMITTEE.
(a) To administer this Supplemental Plan, including but not
limited to, the power to resolve any and all disputes which may arise. The
Committee shall have the exclusive discretionary authority to interpret and
construe the terms of the Supplemental Plan and the exclusive discretionary
authority to determine eligibility for all benefits hereunder, as well as the
amount and method of payment of such benefits. Any such determination or
interpretation of the Supplemental Plan adopted by the Committee shall be
final and conclusive and shall bind all parties.
(b) Subject to the provisions of Article Ten, to amend or
restate the Supplemental Plan in such manner deemed necessary to comply with
applicable laws and to further the objectives of the Supplemental Plan;
provided however, that no such amendment may modify the powers and
responsibilities of the Committee without the consent of the Board of
Directors.
(c) The Committee shall have such other powers as the
Administrator may have under the SGRP.
The Committee may prescribe rules and procedures for allocation of fiduciary
responsibilities among any agents appointed by the Committee. Directions from
the Committee to fiduciaries, agents and service and/or benefit providers
shall be in writing.
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8.3 CLAIMS FOR BENEFITS. Claims under this Supplemental Plan shall
be made pursuant to the claims procedures in the Base Plans.
8.4 INDEMNIFICATION OF EMPLOYEES. The Company hereby indemnifies the
Committee and each employee who is delegated responsibilities under the
Supplemental Plan against any and all liabilities and expenses, including
attorney's fees, actually and reasonably incurred by then in connection with
any threatened, pending or completed legal action or judicial or
administrative proceeding to which they may be a party, or may be threatened
to be made a party, by reason of membership on such committee or due to a
delegation of responsibilities, except with regard to any matters as to which
they shall be adjudged in such action to not have acted in good faith and in
a manner which they believed to be in or not opposed to the best interests of
the Plan and, with respect to any criminal action, suit or proceeding, had no
reasonable cause to believe their conduct was unlawful. In addition, the
Company may provide appropriate insurance coverage for any employee or member
of any committee appointed by the Committee or each such other individual
indemnified pursuant to this Section 8.5 who is not otherwise appropriately
insured.
8.5 ACTION TAKEN IN GOOD FAITH. To the extent permitted by the Act,
any employee, officer or director of the Company or an Affiliated Company, or
any member of a committee appointed by the Committee, who are fiduciaries
with respect to the Supplemental Plan shall be entitled to rely upon, and be
fully protected, with respect to any action taken or suffered by them in good
faith.
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ARTICLE NINE
OTHER BENEFITS PLANS OF THE COMPANY
9.1 OTHER PLANS. Nothing contained in this Supplemental Plan shall
prevent a Participant prior to his death, or Eligible Spouse or other
Beneficiary after his death, from receiving, in addition to any payments
provided for under this Supplemental Plan, any payments provided for under
the Base Plans, or which would otherwise be payable or distributable to him,
his Eligible Spouse, Alternate Payee or other Beneficiary under any plan or
policy of the Company or an Affiliated Company or otherwise. Nothing in this
Supplemental Plan shall be construed as preventing the Company or any of its
Affiliated Companies from establishing any other or different plans providing
for current or deferred compensation for employees. Benefits provided under
this Supplemental Plan shall not constitute earnings or compensation for
purposes of determining contributions or benefits under any plan of the
Company intended to "qualify" under section 401(a) of the Code.
9.2 NON-DUPLICATION OF BENEFITS. The amount of any benefit payable
or determined in accordance with the provisions of this Supplemental Plan
shall be reduced by an amount which is the actuarial equivalent of any
benefit which a Participant is entitled to receive by any such other related
plan of the Company or an Affiliated Company if the benefits provided by the
related plan duplicate the benefits of this Supplemental Plan.
ARTICLE TEN
AMENDMENT AND TERMINATION OF THE PLAN
10.1 AMENDMENT. The Board of Directors, or its designee, may amend
this Supplemental Plan at any time and from time to time, in whole or in
part; provided, however, that (i) the benefit accrued under this Supplemental
Plan as of the date of such amendment may not be reduced, (ii) the Board of
Directors may not amend this Supplemental Plan so as to terminate it or cease
the accrual of benefits thereunder, and (iii) Section 7.2 of the Supplemental
Plan may not be amended following a Change in Control.
10.2 TERMINATION. The Board of Directors may suspend or terminate
this Supplemental Plan, in whole or in part, at any time, provided that no
such termination or suspension shall deprive a Participant, or person
claiming benefits under this Supplemental Plan through a Participant, of any
benefit accrued under this Supplemental Plan up to the date of suspension or
termination.
10.3 CONTINUATION. The Company intends to continue this Supplemental
Plan indefinitely, but nevertheless assumes no contractual obligation beyond
the promise to pay the benefits described in this Supplemental Plan.
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ARTICLE ELEVEN
MISCELLANEOUS
11.1 NO REDUCTION OF EMPLOYER RIGHTS. Nothing contained in this
Supplemental Plan shall be construed as a contract of employment between the
Company and any person or as granting a right to any person to be continued
in the employment of the Company or an Affiliated Company, or as a limitation
of the right of the Company or an Affiliated Company to discharge any of its
employees, with or without cause.
11.2 PROVISION BINDING. All of the provisions of this Supplemental
Plan shall be binding upon all persons who shall be entitled to any benefit
hereunder, their heirs and personal representatives.
11.3 ADOPTION BY AFFILIATED COMPANIES. With the consent of the Board
of Directors or Committee, an Affiliated Company may become a participating
employer under this Supplemental Plan.
IN WITNESS WHEREOF, the Company has executed this Supplemental
Plan this 22 day of February, 2000 to be effective as of April 24, 1999.
SABRE HOLDINGS CORPORATION
By:
----------------------
Its:
----------------------
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SABRE HOLDINGS CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN, AS AMENDED
EFFECTIVE APRIL 24, 1999
(OFFICER)
<PAGE>
SABRE HOLDINGS CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(OFFICER)
ARTICLE ONE
PREAMBLE
The purpose of this Plan is to provide specified benefits to key
employees who contribute materially to the growth, development and business
success of Sabre Holdings Corporation. The Plan is intended to be an "excess
benefit plan", as defined in section 3 of the Employee Retirement Income
Security Act of 1974, as amended (defined in Section 2.1 as the "Act"), that
is exempt from the provisions of the Act by reason of section 4(b)(5) of the
Act. The plan provides benefits only to a select group of highly compensated
or managerial employees and is thus also intended to be a "top hat plan"
within the meaning of sections 201(2), 301(a)(3), and 401(a)(2) of the Act.
Accordingly, this Supplemental Plan shall not constitute a "qualified plan"
that is subject to the limitations of section 401(a) of the Code, nor shall
it constitute a "funded plan" for purposes of such requirements or of the
requirements of the Act.
ARTICLE TWO
DEFINITIONS AND CONSTRUCTION
2.1 DEFINITIONS. For purposes hereof, unless otherwise clearly
apparent from the context, the following phrases or terms shall have the
following indicated:
(a) "AA Prior Plan" - The Retirement Benefit Plan of
American Airlines, Inc. for Officer, Management and Specialist, and
Non-Management Salaried Personnel.
(b) "Act"- The Employee Retirement Income Security Act of
1974, as amended from time to time.
(c) "Affiliated Company" - An "Affiliated Company", as
defined in SGRP.
(d) "Average Incentive Compensation" - Is equal to (i)
divided by (ii), where (i) is equal to the sum of the five (5) highest annual
Incentive Compensation awards paid to a Participant (or deferred by the
Participant) by the Company or American Airlines, Inc., or by a corporate
affiliate of either of them on or after January 1, 1985, and before the
earlier of (A) the date of the Participant's actual retirement under the
Legacy Plan, (B) the date of the Participant's death, or (C), the date of
employment separation of the Participant and (ii) is five (5). If the
Participant has less than five (5) Incentive Compensation awards during the
period described above, "Average Incentive Compensation" will be the sum of
all annual Incentive Compensation awards paid during such period, divided by
the number of calendar years in which the participant was eligible to receive
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awards. If an individual is not credited with a "year of Credited Service" as
defined in Article II of the Legacy Plan (or would not have been credited
with a year of Credited Service had the participant been a Legacy
Participant) during a calendar year for which such Incentive Compensation is
paid, that portion of the Incentive Compensation or Variable Compensation
taken into account for such period will be prorated, based on the partial
credited service which the Participant earned (or would have earned) under
the Legacy Plan during such period.
(e) "Average Performance Return" - Is equal to (i) divided
by (ii) where (i) is the sum of a Participant's five (5) highest annual
Performance Return awards paid by the Company or American Airlines, Inc. or
by a corporate affiliate of either of them during the ten (10) calendar years
preceding the first to occur of (A) the calendar year in which occurs the
Participant's actual retirement under the Legacy Plan, (B) the calendar year
in which the Participant's death occurs, or (C) the date of employment
separation of the Participant and (ii) is five (5).
(f) "Base Plans" - The Legacy Plan and SGRP. Each of the
Base Plans may be individually referred to hereunder as a "Base Plan".
(g) "Beneficiary" - The beneficiary or beneficiaries of the
Participant, as identified under the terms of each respective Base Plan.
(h) "Board of Directors" - The Board of Directors of the
Company.
(i) "Code" - The Internal Revenue Code of 1986, as amended
from time to time.
(j) "Code Limits" -
(i) the restrictions of section 401(a)(17)
of the Code, which limit the amount of "Compensation" (as
defined in SGRP) that may be considered for purposes of SGRP,
and limit the amount of "Basic Compensation" (as defined in
the Legacy Plan) that may be considered for purposes of the
Legacy Plan; as of the effective date of this Supplemental
Plan, such limits are generally set forth and described in
Section 2.1(h) of the Legacy Plan and Article 2.11 of SGRP;
(ii) the restrictions of section 415 of the
Code, which limit the amount of allocations permissible under
SGRP and the amount of benefits that may be accrued and paid
under the Legacy Plan; as of the effective date of this
Supplemental Plan, such limits are generally set forth and
described in Article VII of SGRP and Section 6.5 of the Legacy
Plan.
(k) "Committee" - The administrative committee appointed to
manage and administer the Supplemental Plan.
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(l) "Company"- Sabre Holdings Corporation, a Delaware
corporation, or any successor thereto.
(m) "Employee" - An employee of the Company or an
Affiliated Company who is eligible to participate in the Legacy Plan and/or
SGRP, in accordance with the applicable terms and provisions of such Base
Plans.
(n) "Incentive Compensation" - Annual compensation of a
Participant paid or payable by the Company or an Affiliated Company or by
American Airlines, Inc. or a corporate affiliate thereof after January 1,
1985, pursuant to an annual incentive compensation or variable compensation
award plan of any of such organizations, whether such bonus is paid currently
or is deferred. Compensation paid or payable pursuant to a long-term,
multi-year incentive or performance plan shall not constitute Incentive
Compensation pursuant to this Supplemental Plan.
(o) "Legacy Plan" - The SABRE Group, Inc. Legacy Pension
Plan, as it may be amended from time to time.
(p) "Legacy Plan Supplemental Benefit" - The benefit, if
any, that is calculated or paid by reason of Article Four.
(q) "Participant" - An Employee entitled to a benefit under
this Supplemental Plan.
(r) "Performance Return" - Compensation paid to a
Participant on a specified portion of one (1) or more career equity shares
granted to a Participant, as determined by the Board of Directors of the
Company (and, before January 1, 1997, by the Board of Directors of American
Airlines, Inc. or a corporate affiliate thereof).
(s) "Restoration Plan" - The Sabre Holdings Corporation
Supplemental Executive Retirement Plan (Non-Officer), as it may be amended
from time to time.
(t) "SGRP" - The Sabre Group Retirement Plan, as it may be
amended from time to time.
(u) "SGRP Supplemental Benefit" - The benefit, if any, that
is paid or calculated by reason of Article Five.
(v) "Supplemental Plan" - The employee benefit program set
forth in this document, entitled The Sabre Holdings Corporation Supplemental
Executive Benefit Plan (Officer), as it may be amended form time to time.
(w) "Supplemental Plan Credited Service" - For a Legacy
Participant (as defined in SGRP), Supplemental Credited Service is the amount
of Credited Service that the Participant has
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in the Legacy Plan. For a Participant who is not a Legacy Participant,
Supplemental Credited Service is the credited service that the Participant
would have earned had the Participant been a Legacy Participant.
2.2 CONSTRUCTION. Terms that appear initially capitalized in the
text of this Supplemental Plan that are not defined in Section 2.1 shall have
the definitions assigned to them in the Base Plans. The Base Plans are
functionally and operationally related to this Supplemental Plan. This
Supplemental Plan shall be interpreted in a manner consistent with the Base
Plans and the Restoration Plan to provide the benefits contemplated hereunder
in a comprehensive manner. If any provision of this Supplemental Plan is
determined to be for any reason invalid or unenforceable, the remaining
provisions of this Supplemental Plan shall continue in full force and effect.
All of the provisions of this Supplemental Plan shall be construed and
enforced in accordance with the laws of the State of Texas, except as
otherwise required by the Act, the Code or other applicable federal law.
Headings and subheadings are for the purpose of reference only and are not to
be considered in the construction of this Plan.
ARTICLE THREE
PARTICIPATION AND VESTING
3.1 ELIGIBILITY. Only Employees of the Company or an Affiliated
Company who are eligible to participate in either or both of the Base Plans
shall be eligible to participate in this Supplemental Plan.
3.2 PARTICIPATION. Any elected officer of the Company who is
eligible to participate in this Supplemental Plan shall be a Participant. In
addition, the Board of Directors may select from among the Employees who are
not elected officers but who are eligible to participate in this Supplemental
Plan those Employees who shall also be Participants. Each Employee who is
selected for participation in this Supplemental Plan shall be notified of his
participation by the Company or the Committee. Such selection is entirely in
the discretion of the Board of Directors.
3.3 VESTING.
(a) SGRP SUPPLEMENTAL BENEFIT. If a Participant separates
from service prior to becoming vested in the Employer Contribution benefit
under SGRP pursuant to its terms and conditions, the Participant forfeits the
correspondingly unvested portion of any supplemental benefits accrued
pursuant to Article V. Conversely, if the Participant has a vested interest
in the Employer Contribution benefit under SGRP, the Participant has a
similarly vested interest in the benefits pursuant to Article V under this
Supplemental Plan.
(b) LEGACY PLAN SUPPLEMENTAL BENEFIT -- LEGACY PLAN
PARTICIPANTS. If a Participant separates from service prior to becoming
vested in any benefit under the Legacy Plan, the Participant forfeits the
benefits accrued pursuant to Article IV hereunder. Conversely, if the
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Participant has a vested interest in benefits under the Legacy Plan, the
Participant has a similarly vested interest in the corresponding benefits
pursuant to Article IV under this Supplemental Plan.
(c) LEGACY PLAN SUPPLEMENTAL BENEFIT -- NON-LEGACY PLAN
PARTICIPANTS. If a Participant who is not a Legacy Plan Participant separates
from service prior to the date that the Participant would have become vested
in the Legacy Plan had the Participant been a Legacy Plan Participant, the
Participant forfeits the benefits accrued pursuant to Article IV hereunder.
Conversely, if the Participant would have had a vested interest in benefits
under the Legacy Plan had the Participant been a Legacy Plan Participant, the
Participant has a similarly vested interest in the corresponding benefits
pursuant to Article IV under this Supplemental Plan.
ARTICLE FOUR
LEGACY PLAN SUPPLEMENTAL BENEFIT
4.1 CALCULATION OF LEGACY PLAN SUPPLEMENTAL BENEFIT. Each
Participant in this Supplemental Plan shall be entitled to a supplemental
benefit calculated in this Section 4.1. Such benefit will be an annual
benefit (payable pursuant to Section 4.2) that as of the date of
determination is equal to:
(a) the benefit to which the person would have been
entitled under the Legacy Plan (or the benefit to which the person would have
been entitled had the Participant been a Legacy Plan Participant) had the
Code Limits not been in effect and using Supplemental Plan Credited Service
instead of Credited Service in applying the terms of the Legacy Plan, plus
(b) the amount determined by multiplying 2% of the
Participant's Average Incentive Compensation by the Participant's Years of
Supplemental Plan Credited Service, plus
(c) the amount determined by multiplying 2% of the
Participant's Average Performance Return by the Participant's years of
Supplemental Plan Credited Service, minus
(d) the sum of
(i) benefits accrued to such person under the terms
and provisions of the Legacy Plan and the Prior Plan (as defined in the
Legacy Plan), and
(ii) the annuity that is the actuarial equivalent
(using the assumptions stated in 4.3(c)) of the benefit the Participant
receives through: (A) the crediting of Employer Contributions and
Employer Matching Contributions in SGRP; (B) the SGRP Supplemental
Benefit as defined in the Restoration Plan; and (C) the SGRP
Supplemental Benefit as defined in this Supplemental Plan.
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The amount determined under 4.1(a), 4.1(b), and 4.1(c) above will be adjusted
to reflect the reduction for the Social Security offset determined under the
Legacy Plan, as though such amounts determined above was payable or would be
payable as a part of the Participant's (or other payee's) benefits under the
Legacy Plan. Such amounts so determined shall be further adjusted to reflect
the Legacy Plan's reductions for early retirement, adjustments for late
retirement and other relevant adjustments to benefits.
The benefit calculated pursuant to this Section 4.1 shall not be
less than the benefit to which such person would have been entitled to under
the Legacy Plan had the Code Limits not been in effect, so that such benefits
would be determined as though the Code Limits were not applicable to benefits
accrued under the Legacy Plan, less the accrued benefit to such person under
the terms and provisions of the Legacy Plan.
4.2 PAYMENT OF LEGACY PLAN SUPPLEMENTAL BENEFIT. Subject to Sections
4.3 and 6.1, the benefit determined pursuant to Section 4.1 shall be paid to
the person entitled thereto as though it were a part of the benefit being
paid to such person under the Legacy Plan, so that it is payable at the same
time, and in the same form, and subject to the same limits and restrictions,
as such person's benefits under the Legacy Plan and the Restoration Plan (or
would be so paid if such person was entitled to benefits under the Legacy
Plan). If the benefits under the Legacy Plan are payable in the form of a
direct rollover pursuant to Section 7.4(e) of the Legacy Plan, the benefits
payable under this Supplemental Plan shall be payable as though the benefits
under the Legacy Plan were payable in the normal form of benefit applicable
to such person under Section 7.2 of the Legacy Plan (or Section 5.9 thereof,
if applicable).
4.3 LUMP-SUM PAYMENT OPTION.
(a) ELECTION OF THE LUMP-SUM OPTION. In lieu of the payment
options specified in the Legacy Plan, a Participant may elect to claim a
lump-sum, one-time payment equal to the present value of the benefit
determined under Section 4.1. To be eligible to receive the lump-sum payment,
the Participant must submit an election to receive the benefit that is: (i)
in writing; (ii) in the form prescribed by the Company; (iii) addressed to
the Secretary of the Company; (iv) made by the Participant, and received by
the Company, at least one year (or such lesser period as the Board of
Directors or its designee shall permit) before he commences payments or one
year before age 65, whichever is the first to occur.
(b) CONDITIONS ON ELECTION OF THE LUMP-SUM OPTION. To elect
the lump-sum option, the Participant must execute a general release; submit
to a physical examination to provide medical evidence of normal life
expectancy satisfactory to the Company; and provide spousal consent if the
Participant has an Eligible Spouse as defined in the Legacy Plan.
(c) CALCULATION OF THE LUMP-SUM OPTION. In calculating the
Lump-Sum Payment, the interest rate shall be equal to the annual interest
rate on 30-year Treasury securities
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(GATT rate) for the third month preceding the Participant's retirement date.
The mortality assumption used will be the mortality assumption as determined
by the Committee.
(d) PAYMENT OF THE LUMP-SUM OPTION. The lump-sum payment
will be paid to the Participant within 30 days of the Participant's first
receipt of benefits under the Legacy Plan (or if the Participant is not a
participant in the Legacy Plan, the date that the Participant would have
first received benefits if the Participant had been a participant in the
Legacy Plan).
4.4 LUMP-SUM PAYMENT OF SMALL BENEFITS. Notwithstanding the
provisions of Section 4.2, if, upon termination of employment, the value of
the Participant's vested Legacy Plan Supplemental Benefit (calculated
according to the terms of Section 4.3(c)) is less than or equal to $25,000,
the Participant's vested Legacy Plan Supplemental Benefit will be paid to the
Participant in the form of a lump-sum as soon as is administratively feasible
following termination of employment.
4.5 ADJUSTMENTS TO THE LEGACY PLAN SUPPLEMENTAL BENEFIT.
Notwithstanding any other provision of this Supplemental Plan to the
contrary, the Board of Directors may adjust a Participant's Legacy Plan
Supplemental Benefit upward by adjusting upward the Participant's Credited
Service or the accumulation rate specified in Section 4.1.
ARTICLE FIVE
SGRP SUPPLEMENTAL BENEFIT
5.1 CALCULATION OF BENEFIT.
(a) RESTORATION OF THE SGRP 2.75% EMPLOYER CONTRIBUTIONS If
allocations to a Participant's Employer Contribution Account (as defined in
SGRP) are limited by operation of the Code Limits, a restoration benefit
shall be payable by operation of this Section 5.1. The amount of the benefit
will be determined by crediting to an account established pursuant to this
Supplemental Plan the amount of Employer Contribution that would have been
allocated to the Participant's Employer Contributions Account without the
Code Limits minus the amounts contributed to the SGRP.
(b) RESTORATION OF THE SGRP 3% EMPLOYER MATCHING
CONTRIBUTIONS. If allocations to a Participant's Employer Matching
Contribution Account (as defined in SGRP) are limited by operation of the
Code Limits, a restoration benefit shall be payable by operation of this
Section 5.1. The amount of the benefit will be determined by crediting to an
account established pursuant to this Supplemental Plan the amount of Employer
Matching Contribution that could have been allocated to the Participant's
Employer Contributions Account without the Code Limits and without the
requirement that the Participant make Employee Before-Tax Deferrals (as
defined in SGRP) minus the amounts that would have been contributed to the
SGRP had the Participant received the full match in the SGRP.
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(c) CONTRIBUTIONS DUE TO INCENTIVE COMPENSATION. Each
Participant's account who is not a Legacy Participant shall be credited with
5.75% of the Participant's Incentive Compensation for the applicable period.
(d) TIMING OF CONTRIBUTIONS. Contributions to a
Participant's supplemental account shall occur at the time that the
contributions would have been credited to the Participant's Account under
SGRP absent the Code Limits or would have been credited to the Participant's
Account under SGRP had the Participant's Incentive Compensation for the
applicable period been considered Compensation (as defined in SGRP).
(e) ADJUSTMENTS TO ACCOUNTS TO REFLECT EARNINGS. Accounts
under this Supplemental Plan shall be adjusted as though they were invested
pursuant to the Participant's direction under rules established by the
Committee among the investment funds chosen by the Committee.
5.2 PAYMENT OF SGRP SUPPLEMENTAL BENEFIT. Subject to Section 6.1, at
the time benefits become payable to the Participant, the Participant's
Eligible Spouse or other Beneficiary under SGRP, the benefit described in
Section 5.1 shall be payable to such person, payable in the same manner as
benefits are payable to such person pursuant to SGRP. Notwithstanding
anything in this Section 5.2 to the contrary, however, no benefit under this
Supplemental Plan may be paid in a non-lump sum form unless such method of
payment has been irrevocably elected by the Participant at least one (1) year
before the earlier of (a) the date such benefits became payable pursuant to
this Article Five, or (b) the date of the event creating a right to
distribution on account of employment separation for any reason under SGRP.
If no such election is made in accordance with procedures promulgated by the
Board of Directors or its designee, then payment shall be made in a single
lump sum within sixty (60) days after benefits first became payable to such
person under Section 10.2 of SGRP.
5.3 LUMP-SUM PAYMENT OF SMALL BENEFITS. Notwithstanding the
provisions of Section 5.2, if, upon termination of employment, the value of
the Participant's vested SGRP Supplemental Benefit is less than or equal to
$25,000, the Participant's vested SGRP Supplemental Benefit will be paid to
the Participant in the form of a lump-sum as soon as is administratively
feasible following termination of employment.
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ARTICLE SIX
PAYMENT LIMITATIONS
6.1 RESTRICTIONS. No benefits accrued under this Supplemental Plan
may be withdrawn by, or distributed to, a Participant while the Participant
remains employed by the Company or an Affiliated Company. No loans may be
made to any Participant with respect to benefits accrued under this
Supplemental Plan. Benefits payable under this Supplemental Plan may not be
rolled over or transferred to an individual retirement account or to any
other employee benefit plan. If payment of benefits under the Legacy Plan is
suspended, payment of corresponding benefits under this Supplemental Plan
will be similarly suspended.
6.2 SPOUSAL CLAIMS. Any claim against benefits under this
Supplemental Plan for child support, spousal maintenance, alimony, property
division or other matrimonial or dependent obligations shall be treated
hereunder in the same manner as would a claim for corresponding benefits
under the Base Plans. Such a claim under this Plan shall be subject to all
claims procedures, plan provisions and restrictions of the Base Plans.
6.3 DISABILITY. If a person entitled to any payment under this
Supplemental Plan shall, in the sole judgment of the Committee, be under a
legal disability, or shall otherwise be unable to apply such payment to his
own interest and advantage, the Committee, in the exercise of its discretion,
may direct the Company or provider or payor of the benefit to make any such
payment in any one (1) or more of the following ways: (a) directly to such
person, (b) to his legal guardian or conservator or (c) to his spouse or to
any person charged with the legal duty of his support, to be expended for his
benefit and/or that of his dependents. The decision of the Committee shall in
each case be final and binding upon all persons in interest, unless the
Committee shall reverse its decision due to changed circumstances.
6.4 ASSIGNMENT. Except as provided in Section 6.2, no Participant,
Alternate Payee, Eligible Spouse or other Beneficiary of a Participant shall
have any right to assign, pledge, hypothecate, anticipate or any way create a
lien on any amounts payable hereunder. No amounts payable hereunder shall be
subject to assignment or transfer or otherwise be alienable, either by
voluntary or an involuntary act, or by operation of law, or subject to
attachment, execution, garnishment, sequestration or other seizure under any
legal, equitable or other process, or be liable in any way for the debts or
defaults of Participants, Beneficiaries, Eligible Spouses or Alternate Payees.
6.5 WITHHOLDING. Any taxes required to be withheld from payments to
payees hereunder shall be deducted and withheld by the Company, benefit
provider or funding agent.
6.6 OVERPAYMENT AND UNDERPAYMENT OF BENEFITS. The Committee may
adopt, in its sole discretion, whatever rules, procedures and accounting
practices are appropriate in providing for the collection of any overpayment
of benefits.
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ARTICLE SEVEN
FUNDING
7.1 FUNDING. Benefits under this Supplemental Plan shall be funded
solely by the Company. Benefits hereunder shall constitute an unfunded
general obligation of the Company, but the Company may create reserves, funds
and/or provide for amounts to be held in trust on the Company's behalf,
whether or not in connection with, in anticipation of, or following, an
actual or anticipated Change in Control as defined in the SABRE Group
Holdings, Inc. 1996 Long-Term Incentive Plan, as amended from time to time.
Payment of benefits may be made by the Company, such a trust, or through a
service or benefit provider to the Company or such a trust. Accounts under
this Supplemental Plan are notational, or fictional, unless actually funded
pursuant to Section 7.2.
7.2 SPRINGING RABBI TRUST UPON CHANGE IN CONTROL. If there is a
Change in Control as defined in the SABRE Group Holdings, Inc. 1996 Long-Term
Incentive Plan, as amended from time to time, the Company will fund the
benefits provided in this Supplemental Plan in a so-called "Rabbi Trust." The
trust so established shall be (i) with a nationally recognized banking
institution with experience in serving as trustee for such matters, (ii)
pursuant to such documentation as recommended by outside counsel to the
Company, and (iii) funded so as to enable the trust to pay the accrued
benefits contemplated under the Supplemental Plan as may be determined by the
Company's independent financial consultant. In addition, the Company's Board
of Directors, its General Counsel or its Corporate Secretary, may take those
additional actions deemed reasonably necessary to accomplish the stated
purpose of this Section 7.2.
7.3 CREDITOR STATUS. A Participant, Eligible Spouse, Alternate Payee
or other Beneficiary shall be a general creditor of the Company with respect
to the payment of any benefit under this Supplemental Plan, unless such
benefits are provided under a contract of insurance or an annuity contract
that has been delivered to such person, in which case such person shall look
to the insurance carrier or annuity provider for payment, and not to the
Company. The Company's obligation for such benefit shall be discharged by the
purchase and delivery of such annuity or insurance contract.
ARTICLE EIGHT
ADMINISTRATION
8.1 PLAN ADMINISTRATION. The Committee is the administrator of this
Plan. If the Board of Directors does not name the Committee, the executives
in charge of the finance, human resources, and the legal departments of the
Company or their designees are the administrators of the Plan and shall have
all of the powers and duties of the Committee. The Committee may designate
one or more individuals, committees or other entities to carry out any of its
responsibilities under this Supplemental Plan, other than as described in
Section 8.2(b). The Committee may be removed by the Board of Directors or its
representative, with or without cause, and the Board of Directors, or its
representative, shall have the power to fill any vacancy which may occur.
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8.2 GENERAL POWERS AND RESPONSIBILITIES OF THE COMMITTEE.
(a) To administer this Supplemental Plan, including but not
limited to, the power to resolve any and all disputes which may arise. The
Committee shall have the exclusive discretionary authority to interpret and
construe the terms of the Supplemental Plan and the exclusive discretionary
authority to determine eligibility for all benefits hereunder, as well as the
amount and method of payment of such benefits. Any such determination or
interpretation of the Supplemental Plan adopted by the Committee shall be
final and conclusive and shall bind all parties.
(b) Subject to the provisions of Article Ten, to amend or
restate the Supplemental Plan in such manner deemed necessary to comply with
applicable laws and to further the objectives of the Supplemental Plan;
provided however, that no such amendment may modify the powers and
responsibilities of the Committee without the consent of the Board of
Directors.
(c) The Committee shall have such other powers as the
Administrator may have under the SGRP.
The Committee may prescribe rules and procedures for allocation of fiduciary
responsibilities among any agents appointed by the Committee. Directions from
the Committee to fiduciaries, agents and service and/or benefit providers
shall be in writing.
8.3 CLAIMS FOR BENEFITS. Claims under this Supplemental Plan shall
be made pursuant to the claims procedures in the Base Plans.
8.4 INDEMNIFICATION OF EMPLOYEES. The Company hereby indemnifies the
Committee and each employee who is delegated responsibilities under the
Supplemental Plan against any and all liabilities and expenses, including
attorney's fees, actually and reasonably incurred by then in connection with
any threatened, pending or completed legal action or judicial or
administrative proceeding to which they may be a party, or may be threatened
to be made a party, by reason of membership on such committee or due to a
delegation of responsibilities, except with regard to any matters as to which
they shall be adjudged in such action to not have acted in good faith and in
a manner which they believed to be in or not opposed to the best interests of
the Plan and, with respect to any criminal action, suit or proceeding, had no
reasonable cause to believe their conduct was unlawful. In addition, the
Company may provide appropriate insurance coverage for any employee or member
of any committee appointed by the Committee or each such other individual
indemnified pursuant to this Section 8.5 who is not otherwise appropriately
insured.
8.5 ACTION TAKEN IN GOOD FAITH. To the extent permitted by the Act,
any employee, officer or director of the Company or an Affiliated Company, or
any member of a committee appointed by the Committee, who are fiduciaries
with respect to the Supplemental Plan shall be entitled to rely upon, and be
fully protected, with respect to any action taken or suffered by them in good
faith.
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ARTICLE NINE
OTHER BENEFITS PLANS OF THE COMPANY
9.1 OTHER PLANS. Nothing contained in this Supplemental Plan shall
prevent a Participant prior to his death, or Eligible Spouse or other
Beneficiary after his death, from receiving, in addition to any payments
provided for under this Supplemental Plan, any payments provided for under
the Base Plans, or which would otherwise be payable or distributable to him,
his Eligible Spouse, Alternate Payee or other Beneficiary under any plan or
policy of the Company or an Affiliated Company or otherwise. Nothing in this
Supplemental Plan shall be construed as preventing the Company or any of its
Affiliated Companies from establishing any other or different plans providing
for current or deferred compensation for employees. Benefits provided under
this Supplemental Plan shall not constitute earnings or compensation for
purposes of determining contributions or benefits under any plan of the
Company intended to "qualify" under section 401(a) of the Code.
9.2 NON-DUPLICATION OF BENEFITS. The amount of any benefit payable
or determined in accordance with the provisions of this Supplemental Plan
shall be reduced by an amount which is the actuarial equivalent of any
benefit which a Participant is entitled to receive by any such other related
plan of the Company or an Affiliated Company if the benefits provided by the
related plan duplicate the benefits of this Supplemental Plan.
ARTICLE TEN
AMENDMENT AND TERMINATION OF THE PLAN
10.1 AMENDMENT. The Board of Directors, or its designee, may amend
this Supplemental Plan at any time and from time to time, in whole or in
part; provided, however, that (i) the benefit accrued under this Supplemental
Plan as of the date of such amendment may not be reduced, (ii) the Board of
Directors may not amend this Supplemental Plan so as to terminate it or cease
the accrual of benefits thereunder, and (iii) Section 7.2 of the Supplemental
Plan may not be amended following a Change in Control.
10.2 TERMINATION. The Board of Directors may suspend or terminate
this Supplemental Plan, in whole or in part, at any time, provided that no
such termination or suspension shall deprive a Participant, or person
claiming benefits under this Supplemental Plan through a Participant, of any
benefit accrued under this Supplemental Plan up to the date of suspension or
termination.
10.3 CONTINUATION. The Company intends to continue this Supplemental
Plan indefinitely, but nevertheless assumes no contractual obligation beyond
the promise to pay the benefits described in this Supplemental Plan.
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ARTICLE ELEVEN
MISCELLANEOUS
11.1 NO REDUCTION OF EMPLOYER RIGHTS. Nothing contained in this
Supplemental Plan shall be construed as a contract of employment between the
Company and any person or as granting a right to any person to be continued
in the employment of the Company or an Affiliated Company, or as a limitation
of the right of the Company or an Affiliated Company to discharge any of its
employees, with or without cause.
11.2 PROVISION BINDING. All of the provisions of this Supplemental
Plan shall be binding upon all persons who shall be entitled to any benefit
hereunder, their heirs and personal representatives.
11.3 ADOPTION BY AFFILIATED COMPANY. With the consent of the Board
of Directors or Committee, an Affiliated Company may become a participating
employer under this Supplemental Plan.
IN WITNESS WHEREOF, the Company has executed this Supplemental
Plan this 22 day of February, 2000 to be effective as of April 24, 1999.
SABRE HOLDINGS CORPORATION
By:
----------------------
Its:
----------------------
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EXHIBIT 21.1
SUBSIDIARIES
SABRE HOLDINGS CORPORATION
Sabre Holdings Corporation SUBSIDIARY
(All subsidiaries are wholly-owned unless otherwise noted in parenthesis.
Each subsidiary's subsidiaries outlined further below.)
Sabre Inc. (Delaware)
Sabre Inc. SUBSIDIARIES
Axess International Network, Inc. (Japan) (25%)
ENCOMPASS Holding, Inc. (Delaware)
Prize Ltd. (Latvia) (50%)
Sabre Decision Technologies International, Inc. (Delaware)
Sabre Decision Technologies Licensing, Inc. (Delaware)
Sabre Investments, Inc. (Delaware)
Sabre International, Inc. (Delaware)
Sabre International Holdings, Inc. (Delaware)
Sabre Limited (New Zealand)
Sabre Soluciones de Viaje S. de R.L. de C.V. (Mexico) (99%)
Sabre Technology Enterprises, Ltd. (Cayman Islands)
Sabre Technology Holland B.V. (The Netherlands)
SST Finance, Inc. (Delaware)
SST Holding, Inc. (Delaware)
TSGL, Inc. (Delaware)
Sabre Sales (Barbados), Ltd.
Ticketnet Corporation (Canada)
Travelocity Holdings, Inc. (Delaware)
Travelocity.com LP (Delaware) (44%)
Sabre Decision Technologies International, Inc. SUBSIDIARIES
Airline Technology Services Mauritius Ltd. (Mauritius)
Sabre (Australia) Pty Ltd.
Airline Technology Services Mauritius Ltd. SUBSIDIARY
Sabre Pakistan (Limited) (Pakistan) (99%)
Sabre International, Inc. SUBSIDIARIES
Sabre CIS Holdings, Inc. (Delaware)
Sabre Belgium (Belgium) (99%)
Sabre Computer-Reservierungssystem GmbH (Austria)
Sabre Danmark ApS (Denmark)
Sabre Deutschland Marketing GmbH (Germany)
Sabre Deutschland Services GmbH (Germany)
Sabre Espana Marketing, S.A. (Spain) (99%)
Sabre Europe Management Services Ltd. (UK) (99%)
Sabre France Sarl (France)
Sabre Hellas SA (Greece)
Sabre Ireland Limited (Ireland)
Sabre Italia S.r.l. (Italy) (99%)
Sabre Marketing Nederland B.V. (The Netherlands)
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Sabre International, Inc. SUBSIDIARIES - Continued
Sabre Norge AS (Norway)
Sabre Portugal Servicios LDA (Portugal) (99%)
Sabre Servicios Colombia LTDA (Colombia) (99%)
Sabre Suomi Oy (Finland)
Sabre Sverige AB (Sweden)
Sabre UK Marketing Ltd. (UK) (99%)
STIN Luxembourg S.A. (Luxembourg) (99%)
Sabre International Holdings, Inc. SUBSIDIARIES
Sabre Belgium (Belgium) (1%)
Sabre Espana Marketing, S.A. (Spain) (1%)
Sabre Europe Management Services Ltd. (UK) (1%)
Sabre Italia S.r.l. (Italy) (1%)
Sabre Portugal Servicios LDA (Portugal) (1%)
Sabre Servicios Colombia LTDA (Colombia) (1%)
Sabre UK Marketing Ltd. (UK) (1%)
STIN Luxembourg S.A. (Luxembourg) (1%)
The Sabre Group International (Bahrain) W.L.L. (1%)
Sabre Investments, Inc. SUBSIDIARY
Sabre Investments - PK-1, Inc. (Delaware)
Sabre Investments - B4-1, Inc. (Delaware)
Sabre Investments - LI-1, Inc. (Delaware)
Sabre Investments - WR-1, Inc. (Delaware)
Sabre Soluciones de Viaje S. de R.L. de C.V. SUBSIDIARY
Sabre Informacion S.A. de C.V. (Mexico) (99%)
Sabre Technology Enterprises, Ltd. SUBSIDIARIES
Sabre Technology Enterprises II, Ltd. (Cayman Islands)
Sabre International (Bahrain) W.L.L. (99%)
Sabre Technology Holland B.V. SUBSIDIARIES
Sabre Informacion S.A. de C.V. (Mexico) (1%)
Sabre Soluciones de Viaje S. de R.L. de C.V. (Mexico) (1%)
SST Holding, Inc. SUBSIDIARY
Sabre Sociedad Tecnologica S.A. (Mexico) (51%)
Sabre Sociedad Tecnologica S.A. SUBSIDIARY
Sabre Services Administration (Mexico)
TSGL, Inc. SUBSIDIARY
TSGL Holding, Inc. (Delaware)
TSGL Holding, Inc. SUBSIDIARY
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Travelocity.com LP (Delaware) (10%)
Ticketnet Corporation SUBSIDIARY
148548 Canada, Inc. (Canada)
Travelocity Holdings, Inc. SUBSIDIARIES
Travelocity.com Inc. (Delaware)
Travelocity.com LP (Delaware) (10%)
Travelocity.com Inc. SUBSIDIARY
Travelocity.com LP (Delaware) (36%)
* All subsidiaries are wholly-owned unless otherwise noted in parenthesis
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EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 333-13917, 333-14509, 333-18851 and 333-51291) pertaining to
The Sabre Group Holdings, Inc. 1996 Long-Term Incentive Plan, 1996 Directors
Stock Incentive Plan, Employee Stock Purchase Plan and Deferred Compensation
Plan, respectively, and the Registration Statement on Form S-3 (No.
333-32106) of our report dated March 16, 2000, with respect to the
consolidated financial statements of Sabre Holdings Corporation included in
this Annual Report (Form 10-K) for the year ended December 31, 1999.
ERNST & YOUNG LLP
Dallas, Texas
March 20, 2000
71
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