<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended June 30, 1999
| | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the transition period from _________ to _________
COMMISSION FILE NUMBER 1-13271
800 TRAVEL SYSTEMS, INC.
(Exact name of Small Business Issuer as specified in its charter)
DELAWARE 59-3343338
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4802 GUNN HIGHWAY TAMPA, FLORIDA 33624
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (813) 908-0404
N/A
(Former name, former address and former fiscal year
if changed since last report)
Check whether the issuer (1) 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 | |
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 7,616,296 shares of Common Stock,
$.01 par value, were outstanding, as of July 31, 1999.
Transitional Small Business Disclosure Format (check one):
Yes | | No |X|
<PAGE>
<TABLE>
<CAPTION>
800 TRAVEL SYSTEMS, INC.
INDEX
Page
Number
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance sheets - June 30, 1999 (unaudited) and
December 31, 1998 3
Condensed Statements of Operations - Three and six months ended
June 30, 1999 and June 30, 1998 (unaudited) 4
Condensed Statement of Stockholders' Equity- Six months ended
June 30, 1999 (unaudited) 5
Condensed Statements of Cash Flows- Six months ended
June 30, 1999 and June 30, 1998 (unaudited) 6
Notes to Condensed Financial Statements- June 30, 1999 (unaudited) 7-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-17
PART II. OTHER INFORMATION 17-18
SIGNATURES 19
</TABLE>
<PAGE>
800 TRAVEL SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
CONDENSED BALANCE SHEETS
<CAPTION>
June 30, December 31,
1999 1998
-------------- --------------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 2,294,735 $ 2,387,273
Commissions receivable 824,964 501,555
Other receivable 603,000 -
Prepaids 180,547 166,547
-------------- --------------
Total current assets 3,903,246 3,055,375
-------------- --------------
LEASEHOLD IMPROVEMENTS AND EQUIPMENT, NET 820,198 815,225
-------------- --------------
EXCESS OF COST OVER NET ASSETS ACQUIRED, NET 4,661,756 4,762,864
-------------- --------------
OTHER ASSETS
Trademarks, net 337,138 350,971
Capitalized software 642,424 397,194
Other 134,372 209,765
-------------- --------------
Total other assets 1,113,934 957,930
-------------- --------------
TOTAL ASSETS $ 10,499,134 $ 9,591,394
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 35,113 $ 61,645
Accounts payable 651,451 354,892
Unearned revenue 92,808 -
Accrued liabilities 471,543 394,733
-------------- --------------
Total current liabilities 1,250,915 811,270
UNEARNED REVENUE 353,444 -
DEFERRED RENT 120,430 75,641
LONG-TERM DEBT - excluding current maturities 12,127 24,818
-------------- --------------
Total liabilities 1,736,916 911,729
-------------- --------------
STOCKHOLDERS' EQUITY
Common stock 76,163 75,971
Additional paid-in capital 12,137,150 12,067,342
Accumulated deficit (3,451,095) (3,463,648)
-------------- --------------
Total stockholders' equity 8,762,218 8,679,665
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,499,134 $ 9,591,394
============== ==============
</TABLE>
The accompanying notes are an integral part of these condensed statements.
3
<PAGE>
800 TRAVEL SYSTEMS, INC.
<TABLE>
CONDENSED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES
Commissions $ 2,003,499 $ 2,015,359 $ 3,836,001 $ 3,574,274
Ticket delivery and service fees 1,047,905 981,576 2,095,851 1,501,044
-------------- -------------- -------------- --------------
Total revenues 3,051,404 2,996,935 5,931,852 5,075,318
OPERATING EXPENSES
Employee costs 1,448,985 1,261,346 2,906,719 2,327,792
Other SG&A 1,504,289 1,651,421 3,057,863 2,853,868
-------------- -------------- -------------- --------------
Total operating expenses 2,953,274 2,912,767 5,964,582 5,181,660
-------------- -------------- -------------- --------------
EARNINGS (LOSS) FROM
OPERATIONS 98,130 84,168 (32,730) (106,342)
-------------- -------------- -------------- --------------
INTEREST INCOME, NET 21,744 16,508 45,283 37,910
EARNINGS (LOSS) BEFORE
INCOME TAXES 119,874 100,676 12,553 (68,432)
Provision (benefit) for income taxes - - - -
-------------- -------------- -------------- --------------
NET EARNINGS (LOSS) $ 119,874 $ 100,676 $ 12,553 $ (68,432)
============== ============== ============== ==============
NET EARNINGS (LOSS) PER
COMMON SHARE-BASIC $ .02 $ .01 $ - $ (.01)
============== ============== ============== ==============
- DILUTED $ .01 $ .01 $ - $ (.01)
============== ============== ============== ==============
AVERAGE OUTSTANDING
COMMON SHARES-BASIC 7,616,296 7,473,694 7,615,482 7,427,622
============== ============== ============== ==============
- DILUTED 8,066,503 7,837,296 7,840,581 7,427,622
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of this condensed statement.
4
<PAGE>
800 TRAVEL SYSTEMS, INC.
<TABLE>
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
<CAPTION>
Common Stock Additional Stock
---------------------------- Paid-in Subscriptions Retained
Shares Amount Capital Receivables Deficit Total
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 5,959,709 $ 59,597 $ 5,297,424 $ (21,547) $ (3,765,514) $ 1,569,960
Sales of common stock and
warrants net of issuance expenses
of $2,252,602 1,350,000 13,500 4,872,024 - - 4,885,524
Joseph Stevens Group, Inc.
Acquisition 383,333 3,833 1,944,082 - - 1,947,915
Purchase and retirement of shares (204,615) (2,046) (405,954) - - (408,000)
Exercise of warrants 58,200 582 363,168 - - 363,750
Exercise of stock options 100,000 1,000 99,000 - - 100,000
Issuance of options for services - - 144,750 - - 144,750
Shares exchanged in payment of
Receivables (49,531) (495) (247,152) - - (247,647)
Payment of stock subscription - - - 21,547 - 21,547
Net earnings - - - - 301,866 301,866
------------- ------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1998 7,597,096 75,971 12,067,342 - (3,463,648) 8,679,665
Exercise of warrants (unaudited) 2,000 20 12,480 - - 12,500
Exercise of stock options (unaudited) 17,200 172 57,328 - - 57,500
Net earnings (unaudited) - - - - 12,553 12,553
------------- ------------- ------------- ------------- ------------- -------------
BALANCE, JUNE 30, 1999 (unaudited) 7,616,296 $ 76,163 $ 12,137,150 $ - $ (3,451,095) $ 8,762,218
============= ============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these condensed statements.
5
<PAGE>
800 TRAVEL SYSTEMS, INC.
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
Six Months Ended
June 30,
--------------------------------
1999 1998
-------------- --------------
(unaudited)
<S> <C> <C>
Increase (decrease) in cash
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 12,553 $ (68,432)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 196,736 186,763
Prepaid rent amortization - 6,000
Changes in assets and liabilities, net of acquisition:
(Increase) in receivables (926,409) (432,168)
Decrease (increase) in prepaids and other assets 61,393 (175,759)
Increase (decrease) in deferred rent and unearned revenue 491,041 (74,587)
Increase (decrease) in accounts payable and accrued liabilities 373,369 (1,159,445)
-------------- --------------
Net cash provided by (used in) operating activities 208,683 (1,717,628)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of leasehold improvements and equipment (86,768) (78,133)
Software development costs (245,230) -
Cash paid for acquisition - (2,114,665)
-------------- --------------
Net cash used in investing activities (331,998) (2,192,798)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt (39,223) (217,435)
Proceeds from exercise of options and warrants 70,000 -
Issuance of common stock - 6,657,847
Purchase of common stock - (408,000)
-------------- --------------
Net cash provided by financing activities 30,777 6,032,412
-------------- --------------
NET INCREASE (DECREASE) IN CASH (92,538) 2,121,986
CASH, AT THE BEGINNING OF PERIOD 2,387,273 18,710
-------------- --------------
CASH, AT THE END OF THE PERIOD $ 2,294,735 $ 2,140,696
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest expense $ 1,880 $ 13,128
============== ==============
NON-CASH FINANCING ACTIVITIES
Common stock received for payment of related party receivable $ - $ 247,647
============== ==============
</TABLE>
The accompanying notes are an integral part of these condensed statements.
6
<PAGE>
800 TRAVEL SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1999
(unaudited)
NOTE A: BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulation S-X. They do not include all information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and six month period ended June 30, 1999 are not
necessarily indicative of results that may be expected for the year ending
December 31, 1999 or any future period. The condensed financial statements
should be read in conjunction with the financial statements and the notes
thereto, together with management's discussion and analysis of financial
condition and results of operations, included in the annual report Form 10-KSB/A
for the year ended December 31, 1998.
NOTE B: NET EARNINGS (LOSS) PER COMMON SHARE
The following table reconciles the numerators and denominators of the basic and
diluted earnings (loss) per share computations, as computed in accordance with
FAS 128:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net earnings (loss) - (numerator) $ 119,874 $ 100,676 $ 12,553 $ (68,432)
Basic:
Average common shares outstanding
(denominator) 7,616,296 7,473,694 7,616,296 7,427,622
=========== =========== =========== ===========
Net earnings(loss) per
Common share - basic $ .02 $ .01 $ - $ (.01)
=========== =========== =========== ============
Diluted:
Average common shares outstanding 7,616,296 7,473,694 7,615,482 7,427,622
Effect of dilutive options 450,207 363,602 225,099 -
----------- ----------- ----------- -----------
Adjusted average common shares
(denominator) 8,066,503 7,837,296 7,840,581 7,427,622
=========== =========== =========== ===========
Net earnings (loss) per
common share-diluted $ .01 $ .01 $ - $ (.01)
=========== =========== =========== ===========
</TABLE>
All options and warrants outstanding for the six months ended June 30, 1999 and
1998 are included in the calculation of diluted weighted average shares.
7
<PAGE>
800 TRAVEL SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1999
(unaudited)
NOTE C: COMMITMENTS AND CONTINGENCIES
Software Agreements
In May 1999, 800 Travel Systems entered into a five-year agreement with its
reservation system provider. Pursuant to this agreement, the reservation system
provider agreed to pay 800 Travel Systems an incentive that is recorded as a
receivable and unearned revenue. This incentive will be recognized as revenue
ratably over the life of the agreement. If 800 Travel Systems should terminate
or be deemed in default upon the terms of this agreement, 800 Travel Systems
agrees to repay this incentive in full.
Agreements with Related Parties
In April 1999, 800 Travel Systems entered into a $60,000 loan agreement and a
$100,000 deferred compensation agreement with Mr. Mark Mastrini, President and
CEO of 800 Travel Systems. The total loan amount will be forgiven and the
deferred compensation will be paid if Mr. Mastrini is employed by 800 Travel
Systems as of January 1, 2001 and April 1, 2009, respectively.
8
<PAGE>
800 TRAVEL SYSTEMS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
800 Travel Systems operates as a direct marketer of travel-related services,
primarily providing low-priced airline tickets for domestic and international
travel through its easy to remember, toll-free numbers "1-800-LOW-AIR-FARE"
(1-800-569-2473), "1-800-FLY-4-LESS" (1-800-359-4537) and "1-888-999-VUELA"
(1-888-999-8835). To answer and service these incoming telephone calls from
customers, 800 Travel Systems operates call centers in Tampa, Florida and San
Diego, California.
In addition to its traditional "brick and mortar" call center facilities, 800
Travel Systems is in the process of developing its internet initiative. This
internet initiative will enable consumers to make electronic purchases by
utilizing 800 Travel Systems' website at http://www.lowairfare.com. This website
is expected to utilize a reservation system that is currently being co-developed
by 800 Travel Systems. 800 Travel Systems has the exclusive rights to this
reservation system. In addition to the convenience of on-line purchasing, this
reservation system will provide the consumer with interactive, human
intervention with 800 Travel Systems' reservation agents who can make
suggestions that may improve the customer's travel experience and/or reduce the
cost of travel. Management believes this human intervention will improve agents'
close ratios, increase sales and give 800 Travel Systems a competitive advantage
in the fast-growing, electronic commerce marketplace.
To facilitate the changes needed to successfully complete this internet
initiative, 800 Travel Systems has started to recruit the management talent
needed for the future. In addition, 800 Travel Systems plans to redesign the
existing organization, reorganize management talent and seek strategic alliances
with key partners to meet the challenges anticipated by this internet
initiative.
800 Travel Systems' operating revenues presently consist, and for the immediate
future will continue to consist, principally of (i) commissions on air travel
tickets; (ii) override commissions on air travel tickets booked on certain
airlines; (iii) segment incentives under 800 Travel Systems' agreement with
SABRE; (iv) co-op promotions with suppliers of travel related products and
services; and (v) service fees charged to customers.
Gross reservations represent the aggregate retail value of the tickets sold to
consumers and is presented in the table below for comparative reasons. For
comparative purposes, it is important to recognize that certain other travel
companies report their gross reservations as revenues. Gross reservations are
not required by generally accepted accounting principles (GAAP) and should not
be considered in isolation or as a substitute for other information prepared in
accordance with GAAP. Gross reservations for the three and six months ended June
30, 1999 and 1998 were $20,017,840, $20,818,983, $38,740,140 and $35,969,382,
respectively.
800 Travel Systems' revenues are a function of the number and price of the
tickets its sells and the percentage of the price of such tickets it retains as
commissions and override commissions, as well as the service charge imposed on
customers. As a result of its agreements to sell discounted tickets with
airlines directly, as well as other ticket suppliers, 800 Travel Systems is able
to charge its customers a service charge, while still offering low-priced
tickets. Since 800 Travel Systems is a broker for tickets it does not purchase
or inventory tickets and accordingly, has no costs and/or risks associated with
such inventory.
800 Travel Systems' operating expenses include primarily those items necessary
to advertise its services, maintain and staff its travel reservation centers,
including payroll, commissions and benefits; telephone; general and
administrative expenses, including rent and computer maintenance fees; and,
interest, fees and expenses associated with 800 Travel Systems' financing
activities.
Set forth below for the periods indicated are the revenues as a percentage of
gross reservations, and operating expenses, other income and net earnings (loss)
as a percentage of revenues, for the three and six month periods ended June 30,
1999 and 1998, respectively.
9
<PAGE>
800 TRAVEL SYSTEMS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Continued
<TABLE>
<CAPTION>
Three Month Ended Six Month Ended
June 30, June 30,
---------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Commissions 10% * 9.7%* 9.9%* 9.9%*
Ticket delivery and service fees 5.2 4.7 5.4 4.2
--------- --------- --------- ---------
Total Revenues 15.2 14.4 15.3 14.1
Employee costs 47.5 ** 42.1 ** 49.0 ** 45.9 **
SG & A, other 49.3 55.1 51.5 56.2
--------- --------- --------- ---------
Total Operating Expenses 96.8 97.2 100.6 102.1
--------- --------- --------- ---------
Other Income .7 .6 .8 .8
--------- --------- --------- ---------
Net Earnings (Loss) 3.9% 3.4% 0.2% (1.3)%
========= ========= ========= =========
</TABLE>
* Revenues as a percentage of gross reservations.
** Expenses as a percentage of revenues.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
REVENUES. Revenues for the three months ended June 30, 1999 were approximately
equal to the revenues for the three months ended June 30, 1998. Increases in
revenues from delivery and service fees charged to customers were offset by
decreases in revenues from commissions on reservations made. Revenues remained
relatively constant in a period when gross reservations decreased. Revenues as a
percentage of gross reservations increased to 15.2% for the three months ended
June 30, 1999 from 14.4% for the three months ended June 30, 1998. This increase
represents a 7.1% increase in the mix of revenues generated by commissions and
fees on gross reservations and is primarily attributed to increased commissions
related to the new contract effective May 1999 with 800 Travel Systems'
reservation system provider. Gross reservations booked for the three months
ended June 30, 1999 decreased $.8 million or 3.9% to $20 million. This decrease
was primarily due to increased competitive pressures from internet-based,
on-line travel agencies and less productive, new reservation agents who were
hired as a result of normal attrition. In addition, gross reservations were
negatively impacted by less productive, new reservation agents who were hired to
replace certain experienced agents that were reassigned to develop 800 Travel
Systems' internet initiative. To increase gross reservations, 800 Travel Systems
is continuing to develop its internet initiative by improving its website
(http://www.lowairfare.com) which will enable customers to make reservations
on-line. 800 Travel Systems' website when fully implemented will allow for human
intervention, which Management believes will result in more reservations booked.
To increase gross reservations in its traditional "brick and mortar" operations,
800 Travel Systems intends to improve certain core competencies such as
negotiated discounted ticket pricing with airlines, hiring additional
reservation agents, increasing travel-related products to sell and increasing
and/or reallocating advertising dollars to new advertising programs.
10
<PAGE>
800 TRAVEL SYSTEMS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Continued
OPERATING EXPENSES. Operating expenses for the three months ended June 30, 1999
were approximately equal to the operating expenses for the three months ended
June 30, 1998. Operating expenses as a percentage of revenues remained
relatively constant. Employee costs increased to $1.5 million (or 47.5% of
revenues) for the three months ended June 30, 1999 from $1.3 million (or 42.1%
of revenues) for the three months ended June 30, 1998. This $.2 million increase
resulted primarily from increases in the number of reservation agents and was
partially offset by decreases in general and administrative expenses related to
leased computer and office equipment, travel and training. Employee costs as a
percentage of revenues increased primarily from less productive, new reservation
agents who were hired as a result of normal attrition. New reservation agents,
who are initially less productive, were also hired to replace experience agents
who were reassigned to the internet initiative. Employee costs as a percentage
of revenues were also negatively impacted by increased competitive pressures
resulting in customers making more telephone calls to compare prices before
deciding to purchase. Management believes the percentage of operating expenses
to revenues will improve as new reservation agents mature and efficiencies from
certain operational improvements are realized. Effective May 1999, 800 Travel
Systems signed a new contract with its reservation system provider. According to
this contract, 800 Travel Systems must maintain its reservation computer
hardware, therefore Management expects the related operating expenses to
increase and be offset by an increase in commission revenues.
INCOME TAXES. No provision for income taxes has been recorded since 800 Travel
Systems expects earnings before income taxes for the year ended December 31,
1999 to be offset with operating loss carry forwards from prior years.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
REVENUES. Revenues increased $.8 million, or 16.9%, to $5.9 million for the six
months ended June 30, 1999. Revenues as a percentage of gross reservations
increased to 15.3% for the six months ended June 30, 1999 from 14.1% for the six
months ended June 30, 1998. This increase represents a 7.1% increase in the mix
of revenues generated by commissions and fees on gross reservations and is
primarily attributable to the increased fees charged to customers. Gross
reservations booked for the six months ended June 30, 1999 increased $2.8
million or 7.8% to $38.7 million. This increase and the resulting revenue
increase is largely attributable to the increase in the volume of calls handled
at 800 Travel Systems' reservation centers as a result of increases in the
number of reservation agents and certain operating efficiencies.
OPERATING EXPENSES. Operating expenses increased $.8 million, or 15.1%, to $6
million for the six months ended June 30, 1999. Operating expenses as a
percentage of revenues remained relatively constant. Employee costs increased to
$2.9 million (or 49% of revenues) for the six months ended June 30, 1999 from
$2.3 million (or 45.9% of revenues) for the six months ended June 30, 1998. This
$.6 million increase resulted primarily from increases in the number of
reservation agents. Employee costs as a percentage of revenues increased
primarily from less productive, new reservation agents who were hired as a
result of normal attrition. New reservation agents, who are initially less
productive, were also hired to replace experience agents who were reassigned to
the internet initiative. Employee costs as a percentage of revenues were also
negatively impacted by increased competitive pressures resulting in customers
making more telephone calls to compare prices before deciding to purchase.
Management believes the percentage of operating expenses to revenues will
improve as new reservation agents mature and efficiencies from certain
operational improvements are realized.
INCOME TAXES. No provision for income taxes has been recorded since 800 Travel
Systems expects earnings before income taxes for the year ended December 31,
1999 to be offset with operating loss carry forwards from prior years.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $.2 million for the six months
ended June 30, 1999 primarily as a result of an increase in accounts payable and
offset by an increase in receivables. For the six months ended June 30, 1998,
net cash used in operating activities was $1.7 million primarily as a result of
a decrease in accounts payable and an increase in receivables.
11
<PAGE>
800 TRAVEL SYSTEMS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Continued
Net cash used in investing activities was $.3 million for the six months ended
June 30, 1999 primarily as a result of software development costs incurred in
connection with the development of its internet initiative. For the six months
ended June 30, 1998, net cash used in investing activities was $2.2 million
primarily as a result of the acquisition of the San Diego, California call
center operation in January 1998.
Net cash provided by financing activities was $30,777 for the six months ended
June 30, 1999 primarily as a result of net proceeds received from the exercise
of options and warrants. For the six months ended June 30, 1998 net cash
provided by financing activities was $6 million primarily as a result of net
proceeds received from the initial public offering (IPO) in January 1998.
In April 1999, 800 Travel Systems entered into a $60,000 loan agreement and a
$100,000 deferred compensation agreement with Mr. Mark Mastrini, President and
CEO of 800 Travel Systems. The total loan amount will be forgiven and the
deferred compensation will be paid if Mr. Mastrini is employed by 800 Travel
Systems as of January 1, 2001 and April 1, 2009, respectively.
Management believes that the existing cash and cash expected to be provided by
operating activities will be sufficient to fund both the short and long-term
capital and liquidity needs of 800 Travel Systems for the foreseeable future.
800 Travel Systems has budgeted approximately $3.5 million for capital
expenditures, nearly all of which is intended for the internet initiative and
necessary computer hardware relating to the new contract with the reservation
system provider effective May 1999. Approximately $.5 million has been expended
through June 30, 1999 with the remainder to be expended within the next 18
months. If cash expected to be provided by operating activities is not
sufficient to satisfy 800 Travel Systems' liquidity and capital requirements,
800 Travel Systems may seek to sell additional equity or debt securities. The
sale of equity securities or convertible debt could result in additional
dilution to 800 Travel Systems' shareholders. There is no assurance that
financing will be available in amounts or on terms acceptable to 800 Travel
Systems, if at all.
Year 2000 Readiness
The economy in general, and the travel and transportation industry in
particular, may be adversely affected by risks associated with the onset of the
Year 2000. 800 Travel Systems' business, financial condition, and results of
operations could be materially adversely affected if systems that it operates or
systems that are operated by other parties (e.g., SABRE, members of the airline
industry, utilities, telecommunications service providers, data providers,
credit card transaction processors) with which 800 Travel Systems' systems
interface, are not Year 2000 compliant in time. There can be no assurance that
the systems of 800 Travel Systems or the systems of these other parties will
continue to properly function and interface and will otherwise be Year 2000
compliant. Although 800 Travel Systems is not aware of any threatened claims
related to the Year 2000, 800 Travel Systems may be subject to litigation
arising from such claims and, depending on the outcome, such litigation could
have a material adverse affect on 800 Travel Systems. It is not clear whether
800 Travel Systems' insurance coverage would be adequate to offset these and
other business risks related to the Year 2000.
The key systems integral to the operations of 800 Travel Systems' business are
the SABRE computer reservation system and its telephone switching equipment.
Because 800 Travel Systems books tickets in advance (in certain cases up to ten
months in advance), Year 2000 problems could have surfaced as early as the three
months ended June 30, 1999, but have not yet materialized. Representatives of
SABRE have completed the project to ensure that the SABRE system is Year 2000
compliant. 800 Travel Systems, together with its telephone equipment vendors,
has already completed service intended to ensure its telephone switching
equipment is Year 2000 compliant.
800 Travel Systems will continue to test its ancillary equipment and interface
with its vendors to determine if they are Year 2000 compliant and, if not, to
address any problems uncovered. 800 Travel Systems has substantially completed
testing its systems and does not see a need for substantial future expenditures
with respect to its systems.
The expected costs and completion dates for the Year 2000 projects are forward
looking statements based on management's best estimates, which were derived
using numerous assumptions of future events, including the continued
availability of resources, third party modification plans and other factors.
Actual results could differ materially from these estimates as a result of
factors such as the availability and cost of trained personnel, the ability to
locate and correct all relevant computer codes and similar uncertainties.
Contingency Plans.
Given the interdependence of 800 Travel Systems and certain third parties, for
example SABRE, ARC and other members of the airline industry, 800 Travel Systems
may be unable to maintain continuous operations if the systems of one or more of
these parties is not Year 2000 compliant. Whenever cost beneficial, 800 Travel
Systems has developed contingency plans designed to minimize the disruption to
operations in the event of failure of 800 Travel Systems' or third parties'
systems to be Year 2000 Compliant. For example, 800 Travel Systems plans to have
dedicated staff available at crucial dates to remedy unforeseen problems and may
install defensive code to protect its real-time systems from improperly
formatted date data supplied by third parties.
800 Travel Systems estimates that the total costs of its year 2000 project will
be immaterial. Although there can be no assurances thereof, the estimated costs
of the year 2000 project are not expected to have a material impact on 800
Travel Systems' business, operations or financial condition in future periods.
Seasonality
Based upon the results of its operations during 1998 and 1999 to date and its
knowledge of the travel industry, 800 Travel Systems anticipates its business
may be affected by seasonality. Travel bookings typically are low in the months
January through March, increase in April through September as consumers plan
their vacations and typically decline in October through December. In response,
800 Travel Systems will vary the number of agents on staff at any time. During
1998, 800 Travel Systems was able to decrease the number of its reservation
agents during the fourth quarter through attrition. There can be no assurance
that 800 Travel Systems may not have to take pro-active steps to reduce its work
force in response to seasonal fluctuations in the future. Notwithstanding 800
Travel Systems' efforts, the seasonality of the travel industry is likely to
adversely impact 800 Travel Systems' business. Moreover, as a consequence of
such seasonality and other factors, 800 Travel Systems' quarterly revenue and
operating results will be difficult to forecast and period to period comparisons
of results may not be relevant or informative.
Forward-Looking Statements
Certain oral statements made by management from time to time and certain
statements contained herein that are not historical facts are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 and, because such statements
involve risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements. The words "expect",
"believe", "goal", "plan", "intend", "anticipate", "estimate", "will" and
similar expressions and variations thereof if used, are intended to specifically
identify forward-looking statements Forward-looking statements, including those
in Management's Discussion and Analysis of Financial Condition and Results of
Operations, are statements regarding the intent, belief or current expectations,
estimates or projections of 800 Travel Systems, its Directors or its Officers
about 800 Travel Systems and the industry in which it operates, and assumptions
made by management, and include among other items, (i) 800 Travel Systems'
strategies regarding growth, including its intention to further develop and
improve its Interactive Reservation Internet System (IRIS); (ii) 800 Travel
12
<PAGE>
800 TRAVEL SYSTEMS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Continued
Systems' financing plans; (iii) trends affecting 800 Travel Systems' financial
condition or results of operations; (iv) 800 Travel Systems' ability to continue
to control costs and to meet its liquidity and other financing needs; (v) 800
Travel Systems' Year 2000 readiness plans and costs; and (vi) 800 Travel
Systems' ability to respond to changes in customer demand, including as a result
of increased competition. Although 800 Travel Systems believes that its
expectations are based on reasonable assumptions, it can give no assurance that
the anticipated results will occur. 800 Travel Systems disclaims any intention
or obligation to update or revise forward-looking statements, whether as a
result of new information, future events or otherwise.
Investors and prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those in the
forward-looking statements as a result of various factors which include, among
others, (i) general economic conditions, particularly those affecting fuel and
other travel costs and their effect on the volume of consumer air travel; (ii)
conditions in the capital markets, including the interest rate environment and
the availability of capital, which could affect 800 Travel Systems' internal
growth and possibilities for strategic alliances in the travel and telemarketing
areas ; (iii) changes in the competitive marketplace that could affect 800
Travel Systems' revenue and/or cost bases, such as increased competition from
traditional and Internet-based travel agencies, consolidators and the airlines
themselves, changes in the commissions paid by airlines, and increased labor,
marketing, computer and communications costs; (iv) the availability and
capabilities of the SABRE electronic travel reservation system and 800 Travel
Systems' ancillary software; (v) the success of IRIS; (vi) the improved
productivity of reservation agents as they gain experience; (vii) 800 Travel
Systems' ability timely to become Year 2000 ready and the Year 2000 readiness of
third parties with which 800 Travel Systems has material relationships,
particularly SABRE and (viii) other factors including those identified in 800
Travel Systems' filings with the SEC including but not limited to information
under the heading "Risk Factors" in the Form SB-2 Registration Statement and
Prospectus for 800 Travel Systems' initial public offering, "Managements
Discussion and Analysis of Financial Condition and Results of Operations-Other
Considerations" in 800 Travel Systems' Form 10-KSB for the year ended December
31, 1998, and the following:
Limited Operating History; History of Losses; Future Operating Results.
800 Travel Systems has been operating for less than four years and during that
time it has generated a significant accumulated operating loss. There can be no
assurance that 800 Travel Systems can continue to operate profitably,
particularly if it seeks to expand through acquisitions or the addition of new
services. 800 Travel Systems only recently initiated its online operations and,
accordingly, its prospects in this field must be considered in light of the
difficulties encountered in any new business.
Future Capital Needs.
800 Travel Systems intends to increase sales volumes by expanding its business
with both its internet initiative as well as its traditional "bricks and mortar"
call center operations. There can be no assurance that 800 Travel Systems'
revenues will increase or even continue at their current levels. If 800 Travel
Systems were to choose to expend significant resources to expand its operations,
it is possible that it would incur losses and negative cash flow. In such event
it is likely 800 Travel Systems would require additional capital. There is no
assurance that such capital will be available or, if available, be on terms
acceptable to 800 Travel Systems.
13
<PAGE>
800 TRAVEL SYSTEMS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Continued
Unpredictability of Future Revenues; Fluctuations in Quarterly Results.
As a result of 800 Travel Systems' limited operating history, 800 Travel Systems
is unable to accurately forecast its revenues. 800 Travel Systems' current and
future expense levels are based on its operating plans and estimates of future
revenues and are to a large extent fixed. 800 Travel Systems may be unable to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in revenues would likely have
an immediate material adverse effect on 800 Travel Systems' business, operating
results and financial condition. Further, if 800 Travel Systems should
substantially increase its operating expenses to offer expanded services, to
fund increased sales and marketing or to develop its technology and
transaction-processing systems, and such expenses are not subsequently followed
by increased revenues, 800 Travel Systems' operating results may deteriorate.
800 Travel Systems expects that it will experience seasonality in its business,
reflecting seasonal fluctuations in the travel industry. Seasonality in the
travel industry is likely to cause quarterly fluctuations in 800 Travel Systems'
operating results and could have a material adverse effect on 800 Travel
Systems' business, operating results and financial condition.
800 Travel Systems is unable to predict the affect, if any, that anticipated
problems relating to Year 2000 may have on gross reservations. If consumers'
perceive Year 2000 problems as a potential risk associated with air
transportation, 800 Travel Systems' revenues may be adversely affected.
Risks Relating to Airline Commissions.
In 1998 the major airlines announced reductions in the commissions they will pay
travel agents from approximately 10% to approximately 8%. 800 Travel Systems
anticipates continued downward pressure on airline commission rates. Such future
reductions, if any, could have a material adverse effect on 800 Travel Systems.
800 Travel Systems is able to offer its customers attractive airfares in large
part due to the favorable override commission arrangements it has obtained for
selling tickets on certain airlines. For example, 800 Travel Systems is able to
offer attractive fares on TWA because of its override commission arrangement
with a consolidator which sells tickets on TWA at a discount (the "TWA
Discounter"). The override commission agreements with most airlines are on a
year-to-year basis. If and when the TWA Discounter is no longer able to sell TWA
tickets, or such agreement otherwise expires, or if 800 Travel Systems is unable
to extend its current override commission arrangements with other carriers or
enter into similar arrangements with similar carriers, 800 Travel Systems could
lose its competitive advantages and its business could be materially adversely
affected.
14
<PAGE>
800 TRAVEL SYSTEMS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Continued
Risks of Year 2000 Non-Compliance.
There can be no assurances that 800 Travel Systems' computer systems,
contingency plans and third party compliance will substantially reduce the risk
of year 2000 non-compliance.
Dependence on SABRE System.
800 Travel Systems' ability to quote air travel ticket prices, make reservations
and sell tickets is dependent upon its contractual right to use, and the
performance of the SABRE electronic travel reservation system. In May 1999, 800
Travel Systems entered into a five-year agreement with SABRE, Inc. to lease the
SABRE system in its Tampa and San Diego reservation centers. If 800 Travel
Systems were to lose the contractual right to use the SABRE system through its
inability to renew the agreement upon expiration thereof or through 800 Travel
Systems' default under the agreement during the term thereof, 800 Travel Systems
would not be able to conduct operations until a replacement system was installed
and became operational. Only a very limited number of companies provide
reservation systems to the travel agency industry. There can be no assurance
that a replacement system could be obtained or, if obtained, leased on favorable
terms or installed in time to successfully continue operations.
If the SABRE system were to cease functioning, 800 Travel Systems would not be
able to conduct operations until a replacement system were installed and became
operational. There can be no assurance that a replacement system could be
obtained or, if obtained, installed in time to successfully continue operations.
During any interruption in the operation of SABRE, 800 Travel Systems would lose
revenues. Other travel agencies using other travel reservation systems would not
15
<PAGE>
800 TRAVEL SYSTEMS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Continued
be subject to such interruption of their operations, and 800 Travel Systems may
lose market share to such competitors. Upon the interruption of the operation of
the SABRE system, 800 Travel Systems could decide to commence operations with
another travel reservation system. Such a change in reservation systems could
incur substantial expenses for acquiring the right to use such system and
retraining its reservation agents. In addition, any impairment of the SABRE
system which does not cause it to cease operations could, nevertheless,
adversely affect the quality of 800 Travel Systems' services, resulting in lost
revenues or market share and could require 800 Travel Systems to subscribe to a
different travel reservation system.
Dependence Upon Key Personnel.
The success of 800 Travel Systems is substantially dependent upon the continuing
services of Mark D. Mastrini, as well as other key personnel. While 800 Travel
Systems has employed a number of executives with industry experience, the loss
of Mr. Mastrini or other significant members of management could have a material
adverse effect on 800 Travel Systems' business, financial condition and results
of operations.
Shares Eligible for Future Sale.
800 Travel Systems is unable to predict the effect, if any, that future sales of
Common Stock (or the potential for such sales), whether those currently subject
to lock-up agreements or otherwise, may have on the market price of the Common
Stock prevailing from time to time. Future sales of substantial amounts of
Common Stock in the public market could impair 800 Travel Systems' ability to
raise capital through an offering of securities and may adversely affect the
market price of the Common Stock.
Necessity to Maintain Current Prospectus and Registration Statement.
800 Travel Systems must maintain an effective registration statement on file
with the Commission before the holder of any of the warrants sold in its IPO
(the "Warrants") may be redeemed or exercised. It is possible that 800 Travel
Systems may be unable to cause a registration statement covering the Common
Stock underlying the Warrants to be effective. It is also possible that the
Warrants could be acquired by persons residing in states where 800 Travel
Systems is unable to qualify the Common Stock underlying the Warrants for sale.
In either event, the Warrants may expire, unexercised, which would result in the
holders losing all the value of the Warrants.
State Blue Sky Registration Required to Exercise Warrants.
Holders of the Warrants have the right to exercise the Warrants only if the
underlying shares of Common Stock are qualified, registered or exempt from
registration under applicable securities laws of the states in which the various
holders of the Warrants reside. 800 Travel Systems cannot issue shares of Common
Stock to holders of the Warrants in states where such shares are not qualified,
registered or exempt. 800 Travel Systems has qualified the Warrants for listing
on the Boston Stock Exchange, which provides for blue sky registration in over
20 states.
16
<PAGE>
800 TRAVEL SYSTEMS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Continued
Redeemable Warrants and Impact on Investors.
The Warrants are subject to redemption by 800 Travel Systems in certain
circumstances. 800 Travel Systems' exercise of this right would force a holder
of a Warrant to exercise the Warrant and pay the exercise price at a time when
it may be disadvantageous for the holder to do so, to sell the Warrant at the
then current market price when the holder might otherwise wish to hold the
Warrant for possible additional appreciation, or to accept the redemption price,
which is likely to be substantially less than the market value of the Warrant in
the event of a call for redemption. Holders who do not exercise their Warrants
prior to redemption by 800 Travel Systems will forfeit their right to purchase
the shares of Common Stock underlying the Warrants. The foregoing
notwithstanding, 800 Travel Systems may not redeem the Warrants at any time that
a current registration statement under the Securities Act covering the sale of
the shares of Common Stock issuable upon exercise of the Warrants is not then in
effect.
PART II. OTHER INFORMATION
Item 6. Exhibits, Lists and Reports on Form 8-K
(a) Exhibits:
Exhibit Description
- ------- -----------
3.1 -- Amended and Restated Certificate of Incorporation (1)
3.2 -- Amended and Restated Bylaws (1)
10.1 -- Form of Registrant's 1997 Stock Option Plan (1)
10.2 -- Promissory Note of 800 Travel Systems dated November 7, 1995 in the
amount of $30,000 to the order of S. Travel, Inc. due and payable
November 7, 1997 (1)
10.3 -- Promissory Note of 800 Travel Systems dated November 7, 1995 in the
amount of $30,000 to the order of S. Travel, Inc. due and payable
November 7, 1998 (1)
10.4 -- Redemption Agreement between 800 Travel Systems and Michael Cantor (1)
10.5 -- Form of Redemption Agreement between 800 Travel Systems and Jose Colon
(1)
10.6 -- Agreement between 800 Travel Systems and Perry Trebatch (1)
10.7 -- Lease dated February 10, 1996 between JFJ Real Estate L.P. and the
Company (1)
10.8 -- Airlines Reporting Corporation ("ARC") Agent Reporting Agreement (1)
10.9 -- Letter dated march 6, 1996 from ARC approving change of ownership (1)
10.10 -- Subscriber Service Agreement dated November 27, 1995 between the
Company and Payroll Transfers Interstate, Inc. (1)
10.11 -- Form of Employment Agreement between 800 Travel Systems and Mark D.
Mastrini (1)
10.12 -- Form of Employment Agreement between 800 Travel Systems and Jerrold B.
Sendrow (1)
10.13 -- Form of Employment Agreement between 800 Travel Systems and Biagio
Bellizzi (1)
10.14 -- Form of Consulting Agreement between 800 Travel Systems and Lucien
Bittar (1)
10.15 -- Agreement of March 1, 1997 between 800 Travel Systems and Global
Discount Travel Services (1)
10.16 -- Lease Agreement effective November 27, 1995 between 800 Travel Systems
and Roque De La Fuente Alexander Revocable Trust No. 1, and addendum
thereto dated June 27, 1995 (1)
10.17 -- Form of Promissory Note in amount of $50,000 issued by Michael Gaggi
to 800 Travel Systems (1)
10.18 -- Form of Promissory Note in amount of $9,000 issued by Lucien Bittar to
800 Travel Systems (1)
10.19 -- Form of Promissory Note in amount of $50,000 issued by Vito Balsamo to
800 Travel Systems (1)
10.20 -- Form of Registration Rights Agreement among 800 Travel Systems,
Michael Gaggi and Pasquale Guadagno (1)
17
<PAGE>
800 TRAVEL SYSTEMS, INC.
10.21 -- Amended Release and Redemption Agreement, dated September 4, 1997,
between 800 Travel Systems and Michael Cantor (amending the agreement
listed as Exhibit 10.4 above (1)
10.22 -- Amended Release and Redemption Agreement, dated September 4, 1997,
between 800 Travel Systems and Jose Colon (amending the agreement
listed as Exhibit 10.5 above) (1)
10.23 -- Form of Amendment to Agreement, dated September __, 1997, between the
Company and Perry Trebatch (amending the agreement listed as Exhibit
10.6 above) (1)
10.24 -- Form of Amendment to Agreement, dated November __, 1997, between the
Company and Perry Trebatch (amending the agreement listed as Exhibit
10.6 above, as amended by the agreement listed as Exhibit 10.29 above)
(1)
10.25 -- Amended and Restated Release and Redemption Agreement, dated November
__, 1997, between 800 Travel Systems and Michael Cantor (amending the
agreement listed as Exhibit 10.4 above, as amended by amended
agreement listed as Exhibit 10.27 above) (1)
10.26 -- Amended and Restated Release and Redemption Agreement, dated November
__, 1997, between 800 Travel Systems and Jose Colon (amending the
agreement listed as Exhibit 10.5 above, as amended by amended
agreement listed as Exhibit 10.28 above) (1)
10.27 -- Agreement dated March 20, 1998 between 800 Travel Systems and Joseph
Stevens Group, LLC (2)
10.28 -- Pledge Agreement dated March 22, 1998 between 800 Travel Systems,
Joseph Stevens Group, LLC and Phillips Nizer Benjamin Krim & Ballon
LLP (2)
10.29 -- 1998 Stock Option Plan (3)
10.30* -- SABRE Subscriber Agreement dated May 1, 1999 between 800 Travel
Systems and SABRE, Inc.
10.31 -- Loan and Pledge Agreement dated April 1, 1999 between 800 Travel
Systems and Mark Mastrini
10.32 -- Deferred Compensation Agreement dated April 20, 1999 between 800
Travel Systems and Mark Mastrini
27.1 -- Financial Data Schedule (for SEC use only)
(1) Incorporated by reference to 800 Travel Systems' Registration Statement
on Form SB-2 No. 333-28237.
(2) Incorporated by reference to 800 Travel Systems' Report on Form 8-K filed
March 30, 1998.
(3) Incorporated by reference to 800 Travel Systems' Registration Statement
on Form S-8 filed December 15, 1998.
(4) Incorporated by reference to 800 Travel Systems' Report on Form 10-KSB/A
filed March 31, 1999.
* Portions of this exhibit are the subject of a confidential treatment
request.
(b) Reports on Form 8-K.
None.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 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.
Dated: August 16, 1999
800 TRAVEL SYSTEMS, INC.
-----------------------------
(Registrant)
By: /s/ Mark D. Mastrini
------------------------------------
Mark D. Mastrini, President, Chief Executive
Officer and Chief Operating Officer
19
CONFIDENTIAL TREATMENT REQUESTED BY 800 TRAVEL SYSTEMS, INC. FOR PORTIONS OF
THIS AGREEMENT INDICATED BY [**..**] AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
This SABRE' Subscriber Agreement (the "Agreement") is entered into by and
between SABRE Travel Information Network, a division of The SABRE Group Inc.
("TSG") and the undersigned ("Customer'), as of the date executed by TSG below
("Effective Date") regarding the provision of products and services set forth
herein to Customer's locations within the United States and its territories.
1. LEASE TERM
1.1 LEASE. For the term specified in Article 1.2 below, TSG shall lease to
Customer the System, as defined herein.
1.2 TERM. This section is crossed out. See below for amendment.
2. DEFINITIONS.
The following terms shall have the following meanings in this Agreement:
2.1 AGREEMENT means this SABRE Subscriber Agreement, and all Amendments,
Schedules and Supplements made a part hereof.
2.2 CHARGES has the meaning given in Article 3.2.
2.3 COMMUNICATION PROTOCOL means the rules or standards on how data transmission
takes place across computer networks.
2.4 CONFIDENTIAL INFORMATION means this Agreement, any and all applicable rights
to patents, copyrights, trademarks and trade secrets, proprietary and
confidential information of TSG or Customer, their affiliates, subsidiaries,
successors or assigns concerning their past, present or future research,
development, business activities or affairs, finances, properties, methods of
operation, processes and systems, agreements (including without limitation
private fare or special discount agreements) related to the business of TSG or
Customer.
2.5 INFORMATION PROVIDER means any party other than Customer, which provides
information for inclusion in the SABRE System, including, without limitation,
Reed Elsevier Inc., the publisher of the Official Airline Guide.
2.6 INSTRUCTIONS means any and all manuals, operating procedures, manufacturer's
recommendations, rules, and instructions delivered or made available to Customer
by TSG either in hard-copy or via the SABRE System, and which must be complied
with by Customer. Such instructions may be unilaterally revised or amended by
TSG at any time.
2.7 INTERNET means the global computer network commonly referred to as the
"Internet".
2.8 INTERNET CONNECTION means any connection between the Internet and the SABRE
System or System for the purpose of allowing clients of Customer to make direct
reservations for the products and services offered in the SABRE System.
2.9 ISP means any third party computer network which connects Customer or its
employees to the SABRE System or the System via the Internet. ISPs and ISP
supplied equipment such as datalines or browser software are not included in the
definitions of the SABRE System or the System.
2.10 NON-SABRE TRAFFIC means data other than that passing to and from the SABRE
System which is transmitted and received by Customer using the System.
2.11 NON-STANDARD SYSTEM means any hardware, Software, communication access
devices or firmware not acquired from TSG, including any such Non-Standard
System acquired from an ISP.
2.12 PNR means a passenger name record created in the SABRE System.
2.13 PARTICIPANT means any air carrier (including scheduled, charter, domestic
and international airlines) car rental company, surface transportation carrier,
hotel or lodging provider, railroad, steamship company, cruise or tour operator
or other vendor of travel related products, information or services which has an
agreement with TSG for the display of information regarding its products or
services in the SABRE System.
2.14 PROHIBITED SEGMENT means a Travel Service Segment for which no
corresponding space has been reserved within the transporting carrier's internal
reservation system.
2.15 SABRE BOOKING means an airline, hotel, tour, rental car or cruise Segment
that obligates a Participant to pay a booking fee to TSG and that is created in
or processed through the SABRE System by Customer during any one calendar month
or that is secured to Customers location, less cancellations made prior to the
Segment Activity Date. SABRE Bookings are credited in the latter of (i) the
calendar month in which the Segment Activity Date occurs or (ii) the calendar
month in which the Segment is actually processed by the SABRE System for billing
to the Participant. SABRE Bookings may include additional product or service
Segments in the future at TSG's sole discretion.
2.16 SABRE COMPONENT means all memory, disk storage space, ports and any other
element of the Standard Equipment.
2.17 SABRE LICENSEE means a person or entity licensed to market the SABRE System
in a designated area of the world.
2.18 SABRE SUBSCRIBER means a person or entity, other than an airline, which
utilizes the SABRE System to make reservations. The term "SABRE Subscriber"
shall include any person or entity making reservations through any version of
the SABRE System or through a SABRE Licensee.
2.19 SABRE SYSTEM means TSG's global distribution system (commonly referred to
as a computerized reservation system) which collects, stores, processes,
displays and
- -----------------------
* SABRE is a registered trademark of a subsidiary of The SABRE Group, Inc.
<PAGE>
The parties hereby agree that Article 1.2 of the Agreement shall be deleted in
its entirety and the following language shall be deemed included as Article 1.2
thereof
1.2 TERM. The lease term of the System identified on Schedule A shall commence
on the date of installation and shall continue for sixty (60) months ("Initial
Term"). Any additional System installed up to and including the [**..**] month
after the Effective Date shall terminate at the end of the Initial Term. The
term of any additional System installed subsequent to the [**..**] month of this
Agreement shall have a term of sixty (60) months commencing on the date of
installation ("Additional Term"). Any additional System installed after the
Effective Date shall be subject to the terms and conditions of this Agreement.
[**..**] Confidential Treatment Requested
<PAGE>
distributes information through computer terminals concerning air and ground
transportation, lodging and other travel related products and services offered
by travel suppliers and which enables SABRE Subscribers to (i) reserve or
otherwise confirm the use at or make inquiries or obtain information in relation
to, such products and services and/or (ii) issue tickets for the acquisition or
use of such products and services.
2.20 SCHEDULE A means the document reflecting the Charges and any applicable
discounts for the System as amended by any additional documents.
2.21 SEGMENT means (a) for airline bookings, each separate flight segment
reservation identified by a separate flight number in a PNR, multiplied by the
number of passengers booked in such PNR for such flight segment; (b) for hotel
bookings, each separate reservation that is processed through the SABRE System
with an action status code of HK, KK or KL regardless of the number of rooms
suites or other accommodations or the number of persons or the duration of the
stay; (c) for car rental bookings, each separate reservation that is processed
through the SABRE System with an action status code at HK, KK or KL regardless
of the number of vehicles or persons or the duration of the rental; and (d) for
cruise and tour bookings, each separate reservation that is created in or
processed through the SABRE System and confirmed by the Participant regardless
of the number of cabins or travelers or the duration of the cruise or tour. The
term Segment does not include Prohibited Segments.
2.22 SEGMENT ACTIVITY DATE means the first date listed in a PNR for the relevant
Segment.
2.23 SITE means Customer's location at which the System is to be installed as
identified on Schedule A,
2.24 STANDARD EQUIPMENT means the items of hardware and communication access
devices, including, without limitation, communication data lines and networks,
leased to Customer by TSG in accordance with this Agreement and identified on
Schedule A..
2.25 SUPPLEMENT means a document reflecting any changes to the System, and/or
Charges or discounts related thereto, all as agreed to by the parties. A
Supplement will be provided by TSG upon request of Customer.
2.26 SYSTEM means the Standard Equipment SABRE Component, System Software and/or
Internet Connection.
2.27 SYSTEM SOFTWARE means that software delivered by TSG to Customer.
2.28 TRANSACTION means a grouping of characters transmitted to the SABRE System
whether such transmission is made in the SABRE System manually or automated,
including transmissions made through an Internet Connection. Each transmission
to the SABRE System from Customer constitutes one Transaction. No input message
may exceed three hundred (300) characters in length.
2.29 TRANSACTION LIMIT has the meaning given in Article Transaction Ratio has
the meaning given in Article 10.3.
2.30 TRANSACTION RATIO has the meaning given in Article 3.3.
2.31 TRAVEL SERVICE SEGMENT means a SABRE Booking entered in the SABRE System
with an action status code of GK, GL, BK, BL, HN, YK, HK* or HL*.
3. CHARGES AND PAYMENTS
3.1 PREPAYMENT. Upon execution of this Agreement by Customer, Customer shall pay
to TSG the non-refundable prepayment as shown on Schedule A. If the System is
installed, the prepayment shall be credited against the Customer's first
Charges.
3.2 CHARGES. All amounts payable to TSG ("Charges") shall be due and payable in
United States dollars within fifteen (15) days of the date of TSG's invoice,
without setoff or counterclaim.
3.3 ADDITIONAL CHARGES. Customer agrees to pay to TSG additional Charges at
TSG's then prevailing rate for services and materials including without
limitation the following: (a) the installation or removal of Standard Equipment;
(b) Standard Equipment relocation within the Site; (c) each Site disconnect or
relocation to different premises; (d) modifications, upgrades, enhancements or
additions of Standard Equipment and/or System Software; (e) any applicable fees
for non-compliance with any payment terms; (f) installation of peripheral
devices requested by Customer, (g) processing Transactions which exceed the
level of one hundred thirty (130) Transactions per SABRE Booking ("Transaction
Ratio"), (h) materials for use with the Standard Equipment, including, but not
limited to ticket stock for use with thermal ticket printers and (i) connecting
the System to other TSG approved networks or systems. The Transaction Ratio is
subject to change by TSG upon thirty (30) days advance notice to Customer.
3.4 VARIABLES. If Customer elects to use certain variables including, without
limitation, Ticketing and Invoice/Itinerary functions or Microfiche, Customer
shall pay all Charges for such variables based on TSG's then prevailing rate.
3.5 INCREASES. TSG shall have the right to increase the Charges, other than the
Fixed Monthly Charges identified on Schedule A, for the remaining term of this
Agreement upon thirty (30) days advance written notice to Customer. If the
increase exceeds ten percent (10%) of the Charges in any consecutive twelve
month period, Customer may terminate this Agreement upon written notice to TSG
within fifteen days of receipt of TSG's notice of the increase. Notwithstanding
the foregoing, the Charges for data lines or other communication access devices
shall be subject to increase, at any time and without limitation, to cover any
increase in the cost imposed upon TSG by the telecommunications vendor.
3.6 MODIFICATIONS. TSG's completion of any modification to the System or
Customer's payment of any revised Charges related thereto, whichever occurs
first, constitutes acceptance and ratification of the modifications to the
System and the revised Charges and/or discounts related thereto.
3.7 INTEREST. Charges not paid when due shall accrue interest at the rate of
eighteen percent (18%) per annum or the highest rate permitted by the governing
law indicated in Article 15.1, whichever is less.
3.8 TAXES. Customer shall pay any taxes, or assessments including any interest
or penalty thereon levied as a result of this Agreement, excluding taxes
measured by the net income of TSG. Customer shall indemnify and hold harmless
TSG from all costs, fines and expenses (including reasonable legal costs)
incurred by TSG resulting from Customers failure to pay taxes as provided in
this Article.
<PAGE>
4. INSTALLATION AND DELIVERY
4.1 DELIVERY. TSG shall arrange for delivery of the System F.O.B. the Site, on
the estimated installation date, as identified on Schedule A.
4.2 INSTALLATION. Subject to Article 4.3, TSG shall install, or cause to be
installed, the System at the Site. Customer shall allow installation of the
System at the Site. Customer's failure to do so or to give adequate assurance
that it will do so on the estimated installation date, will constitute an Event
of Default pursuant to Article 14.1.2.
4.3 CUSTOMERS OBLIGATIONS PRIOR TO INSTALLATION. Customer at its expense, shall
be responsible for preparing, on or before the estimated installation date, the
Site for the System in accordance with the instructions. If installation of the
System is prevented or delayed because of Customer's failure to prepare the
Site, TSG shall use reasonable efforts to install the System upon Customer's
compliance with this Article and upon payment of all reasonable expenses
incurred by TSG resulting from Customer's failure to prepare the Site.
4.4 RELOCATION AND POSSESSION. Customer shall at all times keep the System in
its sole possession and control at the Site. Customer shall not move any part of
the System from the Site without first obtaining the written consent of TSG.
Such consent will not be unreasonably withheld.
4.5 COMMUNICATION ACCESS. Except when Customer utilizes an ISP to access the
SABRE System, TSG or its designated third party shall install the necessary
communication access device to connect the System to the SABRE System and other
approved systems or networks. All such devices are either owned by TSG or such
third-party, are subject to this Agreement, and shall be returned to TSG or the
third-party as TSG directs upon termination of the Agreement.
4.6 NON-STANDARD SYSTEM.
4.6.1 Subject to Customers compliance with all other terms and conditions
of this Agreement, TSG agrees to allow Customer to connect or use
Non-Standard System with the System without TSG's prior written consent
except to the extent that such Non-Standard System consists of
communications data lines, emulator boards, gateways, routers, ticket
printers or other devices connecting directly to the System or SABRE System
("Reserved Equipment"). TSG consent for Reserved Equipment shall be
conditioned upon TSG certification and approval prior to its use with the
System. Such consent may be withheld in order to preserve the integrity of
the SABRE System and the System.
4.6.2 Customer shall represent and warrant to TSG that the Non-Standard
System and its connection to the System conforms in all respects to TSG's
Non-Standard System standards and specifications, a copy of which Customer
may request from TSG, and will not be altered or modified without prior
notice to TSG.
4.6.3 Customer shall remove all Non-Standard System placed on or within the
Standard Equipment prior to TSG's removing such Standard Equipment from
Customers Site. TSG disclaims, and Customer hereby waives and indemnities,
any responsibility or liability on the part of TSG, under any theory
whatsoever, for any Non-Standard System that Customer has failed to remove
from the Standard Equipment prior to TSG's removing such Standard Equipment
from Customers Site.
4.6.4 Customer shall not use Non-Standard System in conjunction with the
System for any function not specifically outlined in this Agreement and any
use or attempted use for any other function shall constitute an Event of
Default under Article 14.1.2.
4.6.5 Customer shall also ensure that TSG has access to Customer's Site on
request for conducting on-site inspections, testing or to oversee
installation of the Non-Standard System. Customer is responsible for
ensuring that any Standard Equipment at Customer's Site is connected to the
System for the purposes of performing testing and diagnostics on such
Standard Equipment by TSG's designated agent. If TSG reasonably determines
that the Non-Standard System is causing, or contributing to, a problem with
the System, the SABRE System or another SABRE Subscribers access to or
operation of the SABRE System, then TSG has the right to immediately
restrict access to the SABRE System upon notice to Customer as provided for
in this Agreement and TSG shall have no liability to Customer for such
restriction of access.
4.6.6 Customer agrees that its continued right to maintain the connection
between the Non-Standard System and the System and/or the SABRE System and
to use the Non-Standard System in connection with the Standard Equipment
shall be dependent upon Customer's full cooperation with requests by TSG to
repair, alter, modify, or where necessary, de-install the Non-Standard
System if TSG reasonably determines that the Non-Standard System, or a
component thereof, is impairing the System, the SABRE System or another
SABRE Subscriber's access to or operation of the SABRE System.
4.6.7 Customer shall pay TSG's then prevailing rate for all employee
resources expended by TSG for, but not limited to, TSG's monitoring of the
installation of the Non-Standard System and/or expended in connection with
on-site inspection and/or testing of the Non-Standard System after
installation, service calls and any travel and incidental expenses incurred
by TSG's personnel or vendors for the conduct of such monitoring,
inspecting, testing or service calls; provided, however, that after the
initial Installation of the Non-Standard System, TSG will make such on-site
inspections or test only where it reasonably believes that the Non-Standard
System is impairing the System, the SABRE System or another SABRE
Subscribers access to or operation of the SABRE System.
4.6.8 Customer agrees that TSG has first and complete access to the SABRE
Component. If as a result of Customer's use of Non-Standard System, an
upgrade of the SABRE Component is required, Customer shall comply with the
applicable provisions of this Agreement.
4.6.9 TSG reserves the right to modify the SABRE System or the System, even
if such modification requires changes in Customer's Non-Standard System.
TSG will make reasonable efforts to notify Customer in advance of such
changes. Any expenses incurred in modifying Customer's Non-Standard System
to conform to the SABRE System or System modifications shall be the sole
responsibility of Customer.
<PAGE>
4.7 ACCEPTANCE OF SYSTEM. Upon installation of the System and establishment of a
successful connection with the SABRE System and any other TSG approved systems
or networks, Customer shall be deemed to have accepted the System. Any use of
the System, additional System and/or Non-Standard System further constitutes
acceptance of this Agreement by Customer.
5. REPAIRS AND MAINTENANCE
5.1 REPAIRS AND MAINTENANCE. Upon prompt notification from Customer, TSG or its
designated agent shall promptly repair and maintain or replace the Standard
Equipment provided that the Standard Equipment has been subject to reasonable
operation. Customer shall not make any modifications nor attempt to perform
repairs or maintenance of any kind to the System.
5.2 LIMITATION. TSG is not responsible for repairs and maintenance of any
Non-Standard System or other hardware, software or communication access devices
at Customer's Site or at the locations of other TSG approved systems or networks
beyond the point at which they are connected to the System and/or the SABRE
System.
5.3 NOTIFICATION. Customer shall promptly inform TSG of any breakdown of the
Standard Equipment by contacting SABRE Customer Services. Customer shall
maintain a record of all occasions upon which repair or maintenance service is
performed and make such records available to TSG upon request
5.4 CHARGES. Repair or maintenance services on Standard Equipment during normal
business hours (9:00 a.m. to 6:00 p.m. local time, Monday through Friday,
excluding legal holidays) are included in the Charges, provided that the
Customer has not been negligent and the Standard Equipment has been subject to
reasonable operation; otherwise, Customer will be charged a service fee in
accordance with TSG's or its independent contractors then prevailing rates.
5.5 NON-STANDARD SYSTEM. All maintenance of the Non-Standard System shall be the
sole responsibility of the Customer. TSG will accept calls to SABRE Customer
Services regarding a malfunction of the Non-Standard System if TSG determines
that the malfunction is not attributable to the Non-Standard System. Customer
shall pay TSG's then prevailing maintenance charges for any maintenance calls
for the SABRE System or the System if TSG reasonably determines that the
problems were caused by or attributable to the Non-Standard System.
6. TITLE AND OWNERSHIP OF SYSTEM.
The System leased hereunder shall remain the property of TSG. Customer shall not
in any other manner dispose of the System or any part thereof or suffer any lien
or legal process to be incurred or levied on the System.
7. INSURANCE
7.1 GENERAL. Customer shall take all necessary precautions to protect the System
Installed at Customer's Site.
7.2 At its own cost, Customer shall procure and maintain insurance, from an
insurer and on terms and conditions acceptable to TSG, insuring the System
against all risk of loss or damage, including, without limitation, the risk of
fire, theft and any other such risks as are customarily insured in a standard
all risk policy. Such insurance shall also provide the following:
7.2.1 Full replacement value coverage for the Standard Equipment, which
value is set forth on Schedule A.
7.2.2 An endorsement naming TSG as a co-insured and as a loss payee to the
extent of its interest in the Standard Equipment; and
7.2.3 An endorsement requiring the insurer to give TSG at least thirty (30)
days prior written notice of any intended cancellation, non-renewal,
material change in coverage or, within thirty (30) days of the event
written notice of any default in the payment of a premium.
7.3 Risk of loss for and damage to the System shall pass to the Customer upon
delivery of the System to the Site.
7.4 TSG may request at any time proof of such insurance and/or other form of
surety from Customer. The failure of Customer to produce such proof or surety
within thirty (30) days of the request by TSG will be considered an Event of
Default as defined in Article 14.1.2 herein.
8. TITLE AND OWNERSHIP OF CONFIDENTIAL IN FORMATION
8.1 Each party's Confidential Information shall remain that party's exclusive
property.
8.2 Each party shall maintain the confidentiality of the other party's
Confidential Information at all times during and after the term of this
Agreement. Neither party shall use, sell, sublicense, transfer, publish,
disclose, display, or otherwise make available to others, except as authorized
in this Agreement, the Confidential information of the other party or any other
material relating to the Confidential Information of the other party nor shall
either party permit its officers, employees, agents, contractors or
subcontractors to divulge the other party's Confidential Information without
that party's prior written consent.
8.3 Customer shall use the data, other than Non-SABRE Traffic, transmitted under
this Agreement ("Data") solely for the benefit of itself and its customers in
connection with rendering the following services: (i) air carrier, hotel, car
and rail reservations, including schedule quotations; (ii) customer accounting
and record keeping activities; or (iii) the sale of or reservations for other
miscellaneous products or services offered in the SABRE System. Customer shall
not publish, disclose or otherwise make available to any third party any
compilation of Data obtained from the SABRE System. However, Customer may use
specific Data for the benefit of its customers in connection with any
reservation or schedule quotation production of a hard copy travel itinerary,
invoice, statement or ticket.
8.4 Nothing in this Agreement shall be interpreted to limit in any way TSG's
right to use, market, sell or publish any booking related data subject only to
any applicable laws or regulations.
9. SYSTEM SOFTWARE LICENSE
9.1 OWNERSHIP OF SYSTEM SOFTWARE. Customer acknowledges that TSG or the original
manufacturer of the System Software, as applicable, owns or has licensed from
the owner; copyrights in the respective System Software and
<PAGE>
that ownership and title are retained by the manufacturer or its licenser. All
applicable rights to patents, copyrights, trademarks, and trade secrets inherent
in the System Software and pertinent thereto are and shall remain TSG's or the
original manufacturer's sole and exclusive property. Any copy of such System
Software must incorporate any copyright, trade secret, or trademark notices or
legends appearing in the original version delivered to Customer.
9.2 GRANT OF LICENSE. Subject to the provisions of this Agreement and for the
term specified in Article 1.2, either TSG or the original manufacturer grants to
Customer a non-transferable, non-exclusive limited license to use the System
Software subject to the following restrictions: (a) Customer shall use the
System Software solely in connection with its use of the SABRE System, (b) the
System Software shall be used and installed solely at the Site and solely used
on the Standard Equipment or Non-Standard System authorized under Article 4.6,
(c) the System Software shall be used solely for internal purposes and only in
the ordinary course of business, (d) Customer shall not compile, reverse compile
decompile, disassemble, reverse assemble or reverse engineer the System Software
or any portion thereof, (e) the System Software shall not be copied or reprinted
in whole or in part except (i) a reasonable number of copies of each program may
be made in machine readable form for reasonable archival or backup purposes or
(ii) when TSG has granted permission to do so, (f) Customer shall not lease,
sell, license, sublicense or otherwise transfer the System Software to any other
party, and (g) the terms of this Agreement shall govern the System Software
license unless modified by a license which may be associated with a particular
software product, wherein the license associated with that particular software
product shall govern.
9.3 MODIFICATION RIGHTS. Customer shall not modify the System Software or merge
such software into other programs or create derivative works based on such
software. Additionally, Customer shall not delete or cause to be deleted the
System Software from the Standard Equipment. Notwithstanding anything to the
contrary contained herein, noncompliance with this provision shall constitute an
Event of Default under this Agreement and this Agreement shall immediately
terminate and Customer shall be obligated to pay TSG damages as specified in
Article 14.2 hereof.
9.4 UPGRADES AND MODIFICATIONS. All tangible objects containing or relating to
the System Software are the sole and exclusive property of TSG or the
manufacturer. In the event TSG modifies the System Software, it may deliver such
modified System Software to Customer at its then current charge, if any, and
Customer shall promptly return to TSG any and all tangible objects relating to
all previous versions of the System Software as provided in Article 16.7.
Customer shall be solely responsible for protecting all software not obtained
from TSG hereunder and the data related thereto in the event of a software
upgrade. Customer, in order to receive an upgraded or updated program, shall
comply with any and all terms, conditions and Instructions requested by TSG.
9.5 OPERATING PROGRAM.
9.5.1 Customer acknowledges that the System Software may incorporate, in
part, copyrighted materials pertinent to the Operating Program as
identified on Schedule A ("Operating Program"). Customer agrees that such
copyrighted portions shall be subject to the Operating Program copyright
end license.
9.5.2 If Customer requires additional Operating Programs, Customer shall
notify TSG and TSG will provide Customer with additional copies to support
additional video agent sets pursuant to this Agreement.
9.5.3 Customer will look only to TSG and not to the manufacturer for any
support, maintenance, assistance and upgrades and the like with respect to
the Operating Program and the manufacturer shall have no liability to
Customer in relation to the Operating Program.
9.5.4 No action, regardless of form, arising out of the license of the
Operating Program may be brought more than two years after the cause of
action has arisen.
9.5.5 Customer shall physically retain a copy of the Conditions of Use for
SABRE Users (Attachment I) with each Applicable video agent set or
dedicated fileserver/processor eligible to use such Operating Program.
10. OPERATION OF THE SABRE SYSTEM AND THE SYSTEM
10.1 OPERATION OF SYSTEM.
10.1.1 The SABRE System and the System shall be operated by Customer solely
for the purposes and functions expressly permitted by this Agreement and in
strict accordance with the instructions. Customer shall not in any way
utilize the System for the direct or indirect purpose of bypassing or
circumventing the SABRE System in communicating in any way with
Participants. Any violation of this provision will be deemed an Event of
Default under Article 14.1.2.
10.1.2 Customer may use the System to transmit and receive Non-SABRE
Traffic only from those systems or networks approved in writing by TSG.
Customer acknowledges that in cases of communications capacity limits being
reached, data transmission through the System with the SABRE System will be
given priority over any Non-SABRE Traffic.
10.1.3 Customer shall access the SABRE System only through the System, an
ISP or another system or device authorized in writing by TSG.
10.1.4 Customer shall take all precautions necessary to prevent
unauthorized operation or misuse of the SABRE System or the System,
including without limitation, speculative booking, shell bookings,
reservation of space in anticipation or demand, or improper record or
access. In the event of misuse of the SABRE System or the System, TSG
reserves the right, in addition to all rights under the Agreement, to
immediately terminate the Agreement.
10.1.5 Customer shall not enter any Prohibited Segments into the SABRE
System. Prohibited Segments so entered shall not be calculated in
determining productivity levels under the Agreement. All Travel Service
Segments shall be removed from the SABRE System should corresponding space
be canceled direct via telephone with the transporting carrier.
10.2 NON-EXCLUSIVITY. This Agreement is not exclusive and nothing in the
Agreement is intended to preclude or prohibit Customer from using any other
computerized reservation system. The parties agree that Customer's
<PAGE>
expected use of the System is the Fixed Monthly Discount Booking Level stated in
Schedule A.
10.3 TRANSACTION VOLUME. Notwithstanding the provisions of Article 3.3(g), TSG
shall have the right upon thirty (30) days notice to Customer to limit Customer
to generating no more than one hundred thirty (130) Transactions per SABRE
Booking ("Transaction Limit"). The Transaction Limit may be changed by TSG upon
thirty (30) days advance notice to Customer.
10.4 TRAINING. TSG will make available introductory SABRE System training during
the installation process. For purposes of this Article, the installation process
is defined as anytime between contract signing by both Customer and TSG through
two months after installation is complete.
10.4.1 Upon written request from Customer, at such time that installation
is complete, additional training may be offered subject to availability and
at TSG's then prevailing rate per person, per class. The additional
training charge will be assessed on Customer's monthly invoice.
10.4.2 The training described in Article 10.4 shall be performed at a
location designated by TSG.
10.4.3 Except as otherwise provided herein, Customer is responsible for all
training of all its employees in the proper use of the SABRE System.
10.4.4 In addition to the training described in Article 10.4, TSG may offer
to Customer supplemental training programs on a local level at TSG's then
prevailing rate and method of delivery. Such training may consist of, but
not be limited to, workshops, seminars, self-paced instruction and
individual consultations.
10.4.5 Customer and its trainees agree to comply with all training
procedures and rules established by TSG, and TSG reserves the right to
remove any Customer trainee from the training program if such trainee fails
to comply with such procedures and rules.
10.4.6 TSG may, at its discretion, monitor or test Customers employee's
training levels. If TSG determines the training level of any one or more of
Customers employees to be insufficient, then Customer will institute such
additional training at its own expense (including, if necessary, additional
training by TSG at TSG's then prevailing charges) as may be necessary to
bring Customer's employees to the level of training required by TSG.
11. WARRANTY, AND LIMITATION OF WARRANTY, LIABILITY AND REMEDY
11.1 SABRE WARRANTY. TSG agrees to use reasonable efforts to maintain the
availability of the SABRE System, but shall have no liability for interruptions
in the operation of the SABRE System except as specifically provided herein.
Subject to the terms hereof, in the event that the SABRE System is not operable
ninety-five percent (95%) of the total normal business hours each month,
excluding periods for maintenance of Standard Equipment or other scheduled down
time ("Normal Time"), TSG will reduce the monthly Charges (on a pro-rata basis
according to the percentage of Normal Time during which the SABRE System was not
operable at least ninety-five percent (95%) of the Normal Time. For purposes of
this article, normal business hours shall be 9:00 a.m. to 8:00 p.m., local time
Monday through Saturday. The SABRE System shall be deemed inoperable if Customer
is unable, after calling SABRE Customer Service to make any SABRE Bookings as a
result of a failure attributable to the SABRE System. To request a reduction
under this Article, Customer shall submit a written record to TSG and request an
adjustment in the monthly charges. Customer's written records must be submitted
in a timely manner and include, at a minimum, the date and time of the outage,
the time the outage was reported to SABRE Customer Service, the time the SABRE
System was restored (within normal business hours as defined above) and the type
of outage.
11.2 LIMITED WARRANTY OF THE SYSTEM. In the event of a material malfunction or
defect in an unaltered component of the System that substantially affects
performance of the System that is reported by Customer to TSG and that can be
reproduced by TSG, TSG will use reasonable efforts to correct such malfunction
or defect without additional charge to Customer. THE FOREGOING SHALL BE
CUSTOMER'S SOLE AND EXCLUSIVE REMEDY FOR ANY MALFUNCTION OR DEFECT IN THE
SYSTEM. IF SUCH MALFUNCTION OR DEFECT MATERIALLY IMPAIRS CUSTOMER'S USE OF THE
SYSTEM AND CANNOT BE CURED AS PROVIDED IN THIS SECTION, THEN CUSTOMER'S
ALTERNATE SOLE AND EXCLUSIVE REMEDY SHALL BE TO TERMINATE THIS AGREEMENT WITHOUT
FURTHER LIABILITY TO TSG FOR DAMAGES HEREUNDER.
11.3 EXCLUSION OF OTHER WARRANTIES. EXCEPT AS SPECIFICALLY PROVIDED IN THIS
ARTICLE, THE USE OF THE SABRE SYSTEM, THE DATA DERIVED FROM THE SABRE SYSTEM,
THE SYSTEM AND/OR ANY COMPONENTS THEREOF ARE PROVIDED TO CUSTOMER BY TSG, ANY
INFORMATION PROVIDER OR THE OWNER OF ANY ELEMENT OF THE SYSTEM (AS THE CASE MAY
BE) "AS IS AND WITH ALL FAULTS". ALL OTHER WARRANTIES ARE HEREBY DISCLAIMED
INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF ACCURACY, COMPLETENESS AND
NON-INFRINGEMENT OF THE DATA DERIVED FROM THE SABRE SYSTEM, ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY IMPLIED
WARRANTIES ARISING OUT OF COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF
TRADE.
11.4 LIMITATION OF LIABILITY.
11.4.1 NEITHER TSG NOR ANY INFORMATION PROVIDER NOR ANY OWNER OP ANY
ELEMENT OF THE SYSTEM OR THE SABRE SYSTEM SHALL BE LIABLE TO CUSTOMER OR
ANY THIRD PARTY FOR ANY INJURY, LOSS, CLAIM OR DAMAGE CAUSED IN WHOLE OR IN
PART BY THE NEGLIGENCE OF TSG OR ANY INFORMATION PROVIDER OR BY ANY OWNER
OF ANY ELEMENT OF THE SYSTEM OR BY EVENTS BEYOND THE CONTROL OF TSG OR OF
ANY OF THOSE OTHER PERSONS.
11.4.2 IF A PASSENGER USES A CONFIRMED TICKET FOR AIR TRANSPORTATION ISSUED
PURSUANT TO A RESERVATION MADE BY CUSTOMER BY MEANS OF THE SABRE SYSTEM AND
IS REFUSED CARRIAGE BECAUSE OF AN OVERSALE OF SEATS OR THE LACK OF RECORD
OF SUCH RESERVATION, THE SOLE REMEDY OF CUSTOMER SHALL BE AS SET FORTH IN
THE TARIFF OF THE REFUSING CARRIER OR APPLICABLE TERMS AND CONDITIONS OF
THE CARRIERS CONTRACT OF CARRIAGE.
<PAGE>
11.4.3 TO THE EXTENT THAT TSG HAS ANY LIABILITY UNDER THIS AGREEMENT OR
UNDER ANY THEORY OF LIABILITY, TSG'S CUMULATIVE LIABILITY FOR DAMAGES TO
CUSTOMER HEREUNDER SHALL BE LIMITED TO THE LESSER OF (1) CUSTOMER'S DIRECT
DAMAGES, (2) THE TOTAL AMOUNT OF CHARGES ACTUALLY PAID BY CUSTOMER TO TSG
PURSUANT TO THIS AGREEMENT OVER THE TERM OF THIS AGREEMENT, OR (3) ONE
MILLION DOLLARS ($1,000,000).
11.4.4 NEITHER TSG NOR ANY INFORMATION PROVIDER NOR ANY OWNER OF ANY
ELEMENT OF THE SYSTEM SHALL BE LIABLE TO CUSTOMER UNDER ANY THEORY OF
LIABILITY OR ANY FORM OF ACTION, INCLUDING NEGLIGENCE FOR ANY INCIDENTAL
SPECIAL, PUNITIVE, EXEMPLARY 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 THAT PERSON THAT WOULD
HAVE BEEN LIABLE IN THE ABSENCE OF THIS SECTION HAD BEEN ADVISED OF, KNEW,
OR SHOULD HAVE KNOWN, OF THE POSSIBILITY THEREOF.
11.5 NON-SABRE TRAFFIC. CUSTOMER ACKNOWLEDGES THAT IT IS SOLELY LIABLE FOR THE
CONTENT, ACCURACY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
NON-INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS OR OTHER THIRD PARTY
RIGHTS, OF THE NON-SABRE TRAFFIC. CUSTOMER WARRANTS THAT THE TRANSMISSION AND
RECEIPT OF NON-SABRE TRAFFIC BY CUSTOMER IS NOT IN CONTRAVENTION OF ANY LAWS,
RULES OR REGULATIONS. FURTHER, CUSTOMER HEREBY WARRANTS THAT IT HAS ENTERED INTO
SUCH SEPARATE AGREEMENTS AS IT DEEMS NECESSARY OR APPROPRIATE WITH THE SYSTEMS
OR NETWORK PROVIDERS FOR THE TRANSMISSION AND RECEIPT BY CUSTOMER OF THE
NON-SABRE TRAFFIC AND, IN PARTICULAR, CUSTOMER WARRANTS THAT IT SHALL BE SOLELY
LIABLE TO THESE PROVIDERS FOR ANY MALFUNCTION OR OTHER ADVERSE IMPACT
EXPERIENCED BY SAID PROVIDERS AS A RESULT OF THE TRANSMISSION AND RECEIPT BY
CUSTOMER OF THE NON-SABRE TRAFFIC.
12. INDEMNIFICATION
12.1 Customer and TSG ("Indemnitor") hereby agree to indemnify and hold each
other, their affiliates, subsidiaries, successors and assigns and their
officers, directors, agents and employees ("Indemnitees") harmless from and
against third-party liabilities, including, but not limited to, attorneys' fees,
and other expenses incident thereto, ("Claims") which may be threatened against,
or recoverable from the Indemnitees by reason of any injuries to or death of
persons or loss of, damage to, or destruction of property to the extent arising
out of or in connection with any act, or omission of the Indemnitor.
12.2 Customer will indemnify TSG for any Claims, including debit memos issued by
Participants, arising from Customers misuse of the SABRE System including,
without limitation, making fraudulent bookings and/or failing to honor
Participant ticketing and fare rules.
13. ASSIGNMENT
13.1 ASSIGNMENT OR SUBLEASE BY CUSTOMER. Customer shall not sublease, transfer
or assign this Agreement or any portion thereof, or any right or obligation
hereunder, unless customer has obtained the prior written consent of TSG, which
consent shall not be unreasonably withheld. Any attempted assignment in
violation of this Article shall be void.
13.2 ASSIGNMENT BY TSG. TSG shall have the right to sell, transfer, assign or
delegate its interests, rights and/or obligations, without the prior consent of
Customer, and, provided that such transferee or assignee assumes all of TSG's
obligations, TSG shall be released of all obligations after the effective date
of such sale, transfer, delegation or assignment.
14. TERMINATION AND DEFAULT
14.1 DEFAULT BY CUSTOMER. The occurrence of any one or more of the following
events shall constitute a non-exclusive event of default (the "Event of
Default") pursuant to the terms of this Agreement.
14.1.1 Customer fails to pay any amount when due;
14.1.2 Any representation by Customer is discovered to be materially
misleading or inaccurate, or Customer fails to perform any material
covenant, agreement, obligation, term or condition contained herein;
14.1.3 Customer terminates or cancels this Agreement or any portion
thereof, except as expressly permitted in this Agreement;
14.1.4 Customer ceases to do business as a going concern, makes an
assignment for the benefit of creditors, admits in writing its inability to
pay debts as they become due, acquiesces in the appointment of a trustee,
receiver or liquidator for it or any substantial part of its assets or
properties, or executes an agreement to sell all or substantially all of
its assets without obtaining the consent for assignment of this Agreement
under Article 13.1.
14.1.5 Customer fails to secure and maintain Airlines Reporting Corporation
("ARC") accreditation for ticketing of reservations;
14.1.6 Events of Default described in 14.1.1, 14.1.2 and 14.1.4 shall not
be cause for termination if Customer cures such failure within fifteen (15)
days after date of written notice from TSG. If Customer cures its failure
as provided in this provision, said failure shall not be considered to be
an Event of Default for the purposes of Article 14.2.
14.2 TSG'S RIGHTS UPON TERMINATION. Upon the occurrence of an Event of Default
and subject to Article 14.1.6, TSG shall have the right to any one or more of
the following remedies; (i) terminate this Agreement and Customer's access to
the SABRE System, the System and any other approved systems or networks; (ii)
seek all legal and equitable remedies to which it is untitled, and (iii) retake
immediate possession of the System. If Customers Event of Default results in
termination, Customer agrees to pay to TSG damages suffered by TSG as a result
of such Event of Default.
<PAGE>
14.3 TERMINATION BY CUSTOMER. In the event that TSG breaches any material term
of this Agreement, which breach continues for a period of fifteen (15) days
after TSG receives from Customer written notice which sets forth the specific
breach and Customer's intent to terminate the Agreement if such breach is not
cured, then Customer may immediately terminate the Agreement upon separate
written notice to TSG. Customer may not otherwise cancel, terminate, modify,
repudiate, excuse or substitute this Agreement without TSG's prior written
consent which TSG may withhold in its absolute discretion.
15. MISCELLANEOUS
15.1 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE
OF TEXAS AND THE UNITED STATES OF AMERICA. CUSTOMER HEREBY SUBMITS AND CONSENTS
TO THE NON-EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF TEXAS AND THE COURTS OF THE STATE OF TEXAS IN ANY DISPUTE
ARISING OUT OF THIS AGREEMENT AND AGREES THAT SERVICE OF PROCESS SHALL BE
SUFFICIENT IF MADE ON THE SECRETARY OF STATE OF THE STATE OF TEXAS WITH A COPY
TO BE SENT, REGISTERED MAIL TO THE CUSTOMER AT THE ADDRESS SET FORTH IN SCHEDULE
A OR SUCH OTHER ADDRESS AS CUSTOMER MAY LATER SPECIFY BY WRITTEN NOTICE TO TSG.
15.2 Binding Effect Except as otherwise provided, this Agreement shall inure to
the benefIt of and bind the successors and assigns of the parties hereto.
15.3 DELETION OF EQUIPMENT. During the term of the Agreement Customer may delete
up to ten percent (10%) of the installed productive video agent sets, video
agent set terminal addresses and printers, contingent upon the following: (a)
Customer provides documentation of a substantial decrease in the number of SABRE
Bookings, which decrease is the result of the loss of its commercial accounts
and/or customer base; (b) Customer notifies TSG, in writing, of the description
and location of the equipment to be deleted (the "Deleted Equipment"); (c)
Customer pays to TSG the then current de-installation charges for the Deleted
Equipment plus any outstanding Charges for such Deleted Equipment up through the
Stop Billing Date which TSG will specify to Customer and (d) Customer will
forfeit all right and equity, if any, in the Deleted Equipment removed from
Customer's location.
15.3.1 If Customer complies with the requirements identified in 15.3 above,
TSG shall de-install the Deleted Equipment and disconnect it from the
System.
15.3.2 TSG shall defer all Charges related to the Deleted Equipment
("Deferred Charges") from the Stop Billing Date to the termination date of
this Agreement on the following conditions: (a) the Additional Term and all
other terms and conditions of this Agreement that would have applied to the
Deleted Equipment, shall apply to any Standard Equipment added to the
System after the Stop Billing Date, up to an amount equal in number and
type to the Deleted Equipment or such lesser amount agreed to by TSG
("Re-installed Equipment"); and (b) Customer shall pay TSG all applicable
Charges for the Re-installed Equipment, including installation, lease,
maintenance and use Charges, at TSG's then current rates.
15.3.3 The Deferred Charges shall be deemed waived by TSG at the end of the
Initial Term of the Agreement or any renewal thereof if Customer has not
breached this Agreement. Interest shall accrue on the Deferred Charges at
the maximum rate allowed by applicable law from the date of the deferral
until payment In addition to all other rights under Article 14.2, TSG shall
be entitled to immediate payment of the Deferred Charges plus interest upon
default by Customer.
15.4 ENTIRE AGREEMENT. This Agreement and the instructions constitute the entire
agreement of the parties as to the matters set forth herein and shall supersede
any previous understandings, agreements, representations, statements,
negotiations and undertakings, whether written or oral, between the parties
relating to the matters set forth herein. Any amendment to this Agreement must
be in writing and signed by the authorized representatives of both parties.
15.5 FORCE MAJEURE. TSG and Customer shall be relieved of their obligations
hereunder in the event and to the extent and only so long as that performance is
delayed or prevented by any cause reasonably beyond their control including, but
not limited to, acts of God, public enemies, war, civil disorder, fire, flood,
explosion, labor disputes or strikes, or any acts or orders of any governmental
authority, inability to obtain supplies and materials (including without
limitation computer hardware) or any delay or deficiency caused by the
electrical or telephone line suppliers or other third parties.
15.6 NOTICES. Unless otherwise stated, notices given or required under this
Agreement must be in writing and shall be deemed delivered upon deposit through
the United States Mail, to TSG at P. O. Box 619515, MD 3558, Dallas/Fort Worth,
Texas, 75251-9615 (to be sent to the attention of SABRE Travel Information
Network, Financial Services) or to the Customer at the address set forth in
Schedule A.
15.7 RETURN OF SYSTEM. Upon the termination of this Agreement for any reason,
Customer, at its sole cost and expense, shall return the System and all
Confidential Information as requested by TSG, in good repair, condition and
working order, less normal and ordinary wear and tear, by delivering it to a
common carrier selected and designated by TSG, F.O.B. the destination designated
by TSG in writing.
15.8 SABRE SYSTEM MODIFICATION. TSG retains the right to modify the SABRE
System, at its discretion at any time during the term of this Agreement.
However, such modifications will not materially impair Customers ability to
access and use the SABRE System in the manner expressly permitted in this
Agreement.
15.9 SEVERABILITY. Any provision of this Agreement which may be determined by a
court or other competent governmental authority to be prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability, without invalidating
the remaining provisions thereof, unless said prohibition or unenforceability
materially alters the rights or obligations of either party.
15.10 SUBSEQUENT ACTS OF GOVERNMENT. In the event that there is any change in
any statute, rule, regulation or order governing the operation of computerized
reservations systems, or air transportation generally or the SABRE System, which
in any way materially impairs the benefits of this Agreement to TSG, then the
parties hereto will commence consultation in order to determine what, if any,
changes to this
<PAGE>
Agreement are necessary or appropriate including, but not limited to early
termination of this Agreement If the parties hereto are unable to agree upon
changes in the Agreement in response to such new statute, rule, order or
regulation within thirty (30) days after commencement of such consultation, this
Agreement may be canceled by TSG upon giving Customer ninety (90) days prior
written notice of such cancellation. If TSG elects to terminate the Agreement
pursuant to this Article, except for Customer's obligation to pay any and all
Charges incurred through the date of termination, each party shall be relieved
of any future obligations under this Agreement as of the effective date of
cancellation. Each party shall bear its own costs and expenses incurred as a
result of said termination, Customer does not have the right to terminate the
Agreement under this provision.
15.11 SURVIVING SECTIONS. If the term of the Agreement expires or is terminated
for any reason before Customer has paid to TSG all of the sums due, the
Agreement shall survive such expiration or termination to the extent necessary
to protect TSG's rights until all sums owed to TSG have been paid.
Notwithstanding anything to the contrary referenced herein, Articles 6, 8, 11
and 12 shall survive the termination of this Agreement.
15.12 WAIVER. A failure or delay of either party to require strict performance
to enforce a provision of this Agreement or a previous waiver or forbearance by
either party shall in no way be construed as a waiver or continuing waiver of
any provision of this Agreement.
15.13 ACKNOWLEDGMENT. Customer hereby acknowledges that TSG has offered Customer
a SABRE Subscriber Agreement with a three (3) year term with reasonable terms
and conditions.
16. INTERNET CONNECTIONS.
16.1 LIMITED LICENSE. Customer may establish an Internet Connection using TSG's
products or a third party application. Customer is hereby given a limited
license to utilize data transmitted from the SABRE System for purposes of
developing, operating and maintaining a reservation booking site solely for the
use of its customers and according to the other limitations contained in this
Agreement, including, without limitation, Article 8.3. All uses of the SABRE
System through an Internet Connection will be considered uses by Customer under
this Agreement. Customer may not utilize any data transmitted from the SABRE
System for purposes of developing, operating or maintaining a reservation
booking site or any other redisplay of SABRE System data for any third party
including any un-affiliated travel agencies.
16.2 TERMINATION. The limited license granted in Article 16.1 may be terminated
by TSG for any reason upon five (5) days written notice to Customer. Upon such
termination Customer must immediately remove the Internet Connection and cease
utilizing data transmitted under the Agreement for purposes of developing,
operating or maintaining a reservation booking site.
16.3 BRANDING. Customer agrees to adhere to the branding standards and
requirements as communicated by TSG which may be modified from time to time upon
thirty (30) days advance notice to Customer.
16.4 CHARGES. Customer will pay a Charge for each PNR created through an
Internet Connection at TSG's then current rate.
17. TSG RESERVES THE RIGHT TO CHANGE SABRE GUARANTEE PROGRAM RULES, REGULATIONS,
AND SPECIAL OFFERS WITHOUT NOTICE, AND TO END SABRE GUARANTEE PROGRAMS WITHOUT
NOTICE
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth below.
ALL SIGNATURES MUST BE IN BLACK INK
CUSTOMER
By: /s/ Mark Mastrini
----------------------
(Signature)
Name: Mark Mastrini
---------------------
(Print Name)
Title: CEO
-------------------
Date: 5-21-99
---------------------
Agency Name: 800 Travel Systems, Inc.
d.b.a., 800 LOW AIRFARE
d.b.a., 800 FLY 4 LESS
Pseudo City Code: B8T3, I944
THE SABRE GROUP, INC.
By: /s/ James Quilty
------------------------
(Signature)
Name: James Quilty
----------------------
(Print Name)
Title: Regional Manager
---------------------
Date: 6-3-99
----------------------
<PAGE>
ATTACHMENT
Conditions of Use for SABRE Users
1. QUALIFYING USE. The manufacturer has made this package available to you
through The SABRE Group, whether directly or indirectly, on the understanding
that it is being supplied to you primarily for use with the SABRE System, and
not with a view to resale or other re-marketing.
2. COPYRIGHT AND OTHER RIGHTS
The manufacturer's programs contain material in which the manufacturer and in
many cases the manufacturer's suppliers, retain proprietary rights. The
manufacturer wants these programs to be fully usable by you for the purpose for
which they are supplied, that is, in connection with a computer. No infringement
of the rights of the manufacturer or of the manufacturer's suppliers will occur
provided that the following conditions are observed with respect to each
program:
a. The program is used only on:
(i) a single machine; or
(ii) on any workstation connected to a single fileserver which is
primarily used in connection with the SABRE System.
b. The program is copied into machine readable or printed form for backup
or modification purposes only in support of use on a single machine, or on
a workstation connected to the SABRE System;
c. However, certain diskettes marked "Copy Protected" may include
mechanisms to limit or inhibit copying of the program;
d. The program is modified or merged into another program only for use on a
single machine or on a workstation connected to the SABRE System. Any
portion so merged continues to be subject to these conditions:
e. The copyright notice is reproduced and included in any copy or
modifications made of the program and in any program merged into other
programs; and
f. If the program package is transferred to another party, all copies and
modifications made of the program must be transferred or destroyed. You do
not retain any right with respect to the transferred package. The other
party agrees to observe all of these Conditions of Use.
Any other act involving reproduction or use of or other dealing in the program
is prohibited.
You are reminded that it may be necessary to obtain local and United States
licenses to export or re-export this package.
No statements contained in this package shall affect the statutory rights of any
person.
<PAGE>
AMENDMENT TO SABRE SUBSCRIBER AGREEMENT
This Amendment to that certain Sabre Subscriber Agreement is made and
entered into this 21st day of May, 1999, between Sabre, Inc. ("Sabre") and
800 Travel Systems, Inc. ("Customer").
RECITALS
WHEREAS, Sabre and Customer have entered into that certain Sabre Subscriber
Agreement, dated as of 5-21-99 (the "Agreement"); and
WHEREAS, it is in the best interest of the parties to modify certain
provisions of the Agreement.
NOW THEREFORE, in consideration of the mutual covenants contained herein,
Sabre and Customer hereby agree as follows:
1. EFFECTIVE DATE. The effective date of this Amendment is May 1, 1999.
2. CASH ADVANCE. Sabre agrees to pay to Customer [**..**], as Sabre Promotional
Support, within 30 days after the Agreement and this Amendment have been signed
by both parties.
If an Event of Default as defined in Article 14.1 of the Agreement occurs,
Sabre's obligations under this Amendment are nullified and Customer will be
immediately obligated to repay to Sabre all monies paid by Sabre to Customer
pursuant to this paragraph.
3. YEARLY VOLUME THRESHOLD INCENTIVE. Each year during the Initial Term, Sabre
and Customer agree that Sabre shall pay to Customer [**..**]. This payment shall
be made to Customer within 30 days after the end of each year, even in the event
of a shortfall. Any unpaid portion of this volume threshold incentive shall
revert to Sabre and be unavailable for Customer's use upon an Event of Default
which occurs under the terms of the Agreement Measurement of Sabre Bookings
shall be performed by Sabre [**..**] and is based on all installed productive
video agent sets and video agent set terminal addresses.
4. CURRENT AND EXPANSIONARY DEVICES. Upon the Effective Date of this Amendment
and provided Customer meets the terms and conditions as set forth below and in
the Agreement Sabre shall provide, each month during the term hereof, fixed
monthly discounts to offset the charges for the services and products listed
below that are either currently installed or installed subsequent to the
Effective Date of the Agreement:
(a) data lines, fileservers, gateways, Sabre video agent sets, Sabre
Printers, Satellite Ticket Printers (STP's) or any other equipment standard to
the Sabre System;
(b) Sabrescribe;
(c) [**..**] Turbo Sabre licenses;
(d) installation, de-installation, move and relocation charges (excluding
charges associated with moves or relocations outside the ordinary course of
business which shall be determined by Customer's past practices, which shall be
billed to Customer at Sabre's then prevailing rate);
(e) variable charges for ticketing, Invoice/Itinerary, Option 6 Interface,
Branch Access, Microfiche, WorldFare Premium Pricing Suite, and Credit Card
Address Verification; and
(f) [**..**] of the monthly lease and SMU Charges for Sabre hardware and
software, and Sabre TravelBase/ADS-X equipment, operating system licenses and
software license fee.
5. SITE AND RATIOS OF STANDARD EQUIPMENT. The expansionary Standard Equipment
and services identified above may be used at Customer's current and future
locations. In addition, unlimited productive video agent sets or video agent set
terminal addresses shall be added as long as Customer maintains a Booking level
of at least [**..**] SABRE Bookings per video agent set terminal address.
[**..**] Confidential Treatment Requested
800 TRAVEL SYSTEMS, Inc. Rvsd 4125/992
<PAGE>
6. BOOKING THRESHOLD. Notwithstanding anything contained herein, Sabre shall
have no obligation to perform the undertakings set forth in this Amendment
unless: (a) the Standard Equipment is available for purchase by Sabre on
reasonable terms and conditions from the manufacturer: and (b) Customer
processes a minimum of [**..**] Sabre Bookings per year (the "[**..**] Volume
Threshold") during the Initial Term or complies with paragraph 7.
7. SABRE BOOKINGS BELOW [**..**] VOLUME THRESHOLD. For [**..**] of the
Agreement, if Customer fails to achieve [**..**] of the [**..**] Volume
Threshold as set forth in paragraph 6 during the [**..**] measurement period,
Customer shall pay to Sabre an amount equal to the prevailing average booking
fee that Sabre charges to airlines that participate in the Sabre System
multiplied by the difference between the [**..**] Volume Threshold and the
actual Sabre Bookings at all of Customer's locations. Measurement of the
[**..**] Volume Threshold shall be performed by Sabre on an [**..**] basis
commencing on the Effective Date of the Agreement. For purposes of calculating
the shortfall in each subsequent year of the Agreement, Customer must achieve
[**..**] of the previous year's actual SABRE Bookings (the "Reset [**..**]
Volume Threshold") or pay to Sabre an amount equal to the prevailing average
booking fee that Sabre charges to airlines that participate in the Sabre System
multiplied by the difference between the Reset [**..**] Volume Threshold and the
actual Sabre Bookings at all of Customer's locations.
9. [**..**] VOLUME THRESHOLD INCENTIVE. Sabre and customer agree that if
Customer processes Sabre Bookings above the Volume Threshold described in the
table below at the end of any [**..**] measurement period, Sabre shall pay to
Customer [**..**] per Sabre Booking in excess of the volume threshold as stated
in the table below. Any unpaid portion of this [**..**] volume threshold
incentive shall revert to Sabre and be unavailable for Customer's use if an
Event of Default occurs under the terms of the Agreement. Measurement of Sabre
Bookings shall be performed by Sabre [**..**] and is based on all installed
productive video agent sets and video agent set terminal addresses. Bookings
from the acquisition or merger of another SABRE agency shall not be counted
toward this [**..**] threshold incentive.
[**..**]
10. REPORTS. Reports showing the number of Sabre Bookings shall be provided by
Sabre on a monthly basis. Invoicing, if necessary, will be made at the end of
each month and Customer agrees to pay all amounts due to Sabre, including
applicable taxes, within thirty (30) days of the invoice date.
11. ACQUISITIONS. If at any time during the term of the Agreement. Customer
purchases or otherwise..acquires aJ I of the assets of any travel agency which
utilizes Sabre. then such travel agencies shall be bound by the terms and
conditions as set forth in the Agreement and this Amendment. Notwithstanding the
foregoing; all outstanding receivables at the time of acquisition by Customer
must be paid to Sabre prior to inclusion of the acquired locations and/or
equipment under the terms of the Agreement, unless otherwise agreed to by both
parties. Customer and travel agency acquired must both notify Sabre in writing
of the acquisition and mum, provide at a minimum (i) the pseudo city coda of
acquired location(s), (ii) total number of productive devices being acquired,
and (iii) the effective date of the acquisition.
12. BOOKING THRESHOLD REVIEWS. Commencing on the first anniversary of the
Effective Date but not more than once every contract year, the parties will
review the [**..**] Booking Threshold in order to adjust the [**..**] Booking
Threshold to reflect changes in the actual costs of providing products and
services hereunder. Upon conclusion of such review, Sabre and Customer agree to
reset [**..**] booking threshold goal to previous [**..**] month cycle actual
bookings. Notwithstanding the foregoing, Sabre shall have the right to increase
the [**..**] Booking Threshold to recover any actual increases in communication
costs during the upcoming year. Sabre shall provide to Customer satisfactory
evidence of such increased communication costs. Sabre shall decrease the
[**..**] Booking Threshold upon conclusion of an annual review, in the event and
to the extent that Sabre's cost of providing automation or communication
services hereunder decreases.
[**..**] Confidential Treatment Requested
800 TRAVEL SYSTEMS, Inc. Rvsd 4125/992
2
<PAGE>
13. WHOLLY OWNED OFFICES/OUTLETS. The terms and conditions of the Agreement and
this Amendment are only applicable to wholly owned offices/outlets of Customer
and shall not apply to any franchise or associate operation.
14. CONFIDENTIALITY. It is expressly understood and agreed that this Amendment
and the Agreement, and each and every provision hereof; shall be held and
treated as confidential and shall not be disclosed by Customer to any other
person, firm, organization, association, or entity, of any and every kind,
whether public, private or governmental, for any reason, or at any time, without
the prior written consent of Sabre (except that Customer may disclose the
provisions of the Agreement and this Amendment to its attorneys, accountants
and/or consultants), unless such disclosure is required by law or legal process.
In the event of such disclosure, this Amendment and the Agreement may be
terminated immediately by Sabre, without notice to Customer, and shall have the
right to pursue any remedies available to it in law or in equity.
15. DEFINED TERMS. The defined terms used in this Amendment shall have the
meaning assigned to such terms in the Agreement.
16. AGREEMENT. Except as otherwise provided herein, all other terms of the
Agreement remain in full force and effect. In the event of any conflict between
the terms of the Agreement and this Amendment, the Amendment shall control.
17. TERMINATION OF PRIOR AGREEMENTS. All oral or written agreements entered into
by the parties prior to the effective date of the Agreement and this Amendment
which relate to the maintenance or use of the Sabre System or any portion
thereof shall be deemed terminated upon execution of the Agreement and this
Amendment.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year written below.
800 TRAVEL SYSTEMS, INC. SABRE, INC.
By: /s/ Mark Mastrini By: /s/ James Quilty
---------------------- -------------------------
(Signature) (Signature)
Name: Mark Mastrini Name: James Quilty
---------------------- -------------------------
(Print Name) (Print Name)
Title: CEO Title: Regional Manager
---------------------- -------------------------
Date: May 21, 1999 Date: 6-3-99
---------------------- -------------------------
PCC: B8T3, I944
----------------------
800 TRAVEL SYSTEMS, Inc. Rvsd 4125/992
3
LOAN AND PLEDGE AGREEMENT
AGREEMENT made as of April 1, 1999 between 800 TRAVEL SYSTEMS. INC., a
Delaware corporation having its principal office at 4803 Gunn Highway, Tampa,
Florida 33624 (the "Company") and MARK MASTRINI, residing at 4711 Troydale Road,
Tampa, Florida 33615 ("Executive").
R E C I T A L S
- - - - - - - -
A. Executive is a key member of management of the Company.
B. Executive has requested a loan from the Company to be repaid on a
non-recourse basis as set forth in this Agreement.
C. The Company is willing to make the loan to the Executive as requested on
the terms provided in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
Section 1. THE LOAN AND NOTE
1.1 THE LOAN. Simultaneously with the execution of this Agreement, (i) the
Company will lend to the Executive the sum of Sixty Thousand Dollars ($60,000)
(the "Loan") and (ii) the Executive will execute and deliver to the Company a
Non-Recourse Non-Negotiable Promissory Note in the form of Exhibit A hereto (the
"Note"), in the principal amount of $60,000, bearing interest at the rate of
eight percent (8%) per annum and payable as provided in the Note.
1.2 PAYMENT AND/OR FORGIVENESS OF THE LOAN. (a) If Executive is employed by
the Company as of January 1,2000, the Company shall forgive and forbear
repayment of
<PAGE>
Thirty Thousand Dollars ($30,000) of principal indebtedness under the Note,
PROVIDED all interest accrued on the original principal amount of the Note from
the date of the Note to January 1, 2000 shall remain outstanding.
(b) If Executive is employed by the Company as of January 1, 2001, the
Company shall forgive repayment of all remaining indebtedness under the Note.
(c) If Executive's employment with the Company shall terminate prior
to January 1, 2001 and:
(i) such termination is by the Company "without cause" or any
other justification, as a result of a change in control or by you with
"good reason," all amounts due under the Note shall be forgiven;
(ii) such termination is the result of your death or disability,
all amounts due under the Note shall be forgiven.
(d) Any and all amounts of indebtedness under the Note which are not
forgiven by the Company pursuant to paragraph (a), (b) or (c) above, including
all interest accrued thereon, shall be paid by the Executive to the Company on
April 1, 2001.
Section 2. PLEDGE
2.1 PLEDGE OF STOCK. Executive hereby pledges with the Company as
collateral security for the due and punctual payment of the Note in accordance
with its terms, Twelve Thousand (12,000) shares of common stock, par value $.01
per share, of the Company, together with any other securities or property which
may be receivable, or distributable with respect thereto at any time hereafter
(collectively, the "Shares"). The Executive is simultaneously with the execution
hereof delivering Certificates No. __ representing the Shares, endorsed in
blank.
<PAGE>
If, at any time or from time to time, the fair market value of the shares of
stock pledged to the Company by Executive is less than the amount due under the
Note, the Company shall have the right to demand that Executive pledge to the
Company such additional number of shares necessary to cause the total number of
pledged shares to equal 110% of the amount then due. Executive shall pledge the
appropriate number of shares within ten days of delivery of a request for
additional shares from the Company. For purposes hereof, any additional shares
are included within the term "Shares." All Shares will be returned to the
Executive, except to the extent disposed of or retained pursuant to subsection
2.3 hereof, as follows:
(a) If Executive is employed by the Company on January 1, 2000, the
Company shall release and return to the Executive one or more certificates
representing one-half of the Shares then pledged to the Company.
(b) If Executive is employed by the Company on January 1, 2001, the
Company shall release and return to the Executive all Certificates representing
any Shares remaining subject to the pledge provided for in this Agreement.
2.2 RIGHTS TO SHARES. So long as no Event of Default (as defined in Section
4 below) shall have occurred and be continuing, Executive shall have all voting
and other consensual rights with respect to the Shares. All dividends on or
distributions with respect to the Shares shall be paid over to the Company and
applied as set forth in subsection 2.1 hereof. Upon an Event of Default, all
voting rights of the Executive respecting the Shares shall automatically cease
without notice or further action.
2.3 REMEDIES. Upon the occurrence of an Event of Default, the Company shall
have and may exercise all rights and remedies afforded to a secured party
pursuant to the
<PAGE>
Uniform Commercial Code of the State of Florida, including, without limitation,
the right to sell the Shares at a public or private sale, at which sale the
Company may purchase or have the right to retain the Shares in satisfaction of
the Executive's obligations in accordance with the provisions of the Uniform
Commercial Code of the State of Florida.
Section 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE EXECUTIVE
The Executive hereby represents and warrants to the Company as follows:
3.1 VALIDITY. This Agreement and the Note have been duly and validly
executed and delivered by the Executive and are valid and binding obligations of
the Executive, enforceable against the Executive in accordance with their
respective terms.
3.2 OWNERSHIP OF STOCK. The Executive owns outright and has good and
marketable title to all of the Shares, free and clear of all liens, mortgages,
pledges, encumbrances and charges of any kind except as are created by this
Agreement. The Executive has all power and authority necessary to effectively
pledge the Shares to the Company.
3.3 OTHER LIENS ON THE SHARES. The Executive agrees that from the date
hereof until payment or forgiveness of all outstanding indebtedness under the
Note, the Executive will not create, assume or suffer to exist any pledge, lien,
charge, encumbrance or other security interest of any kind upon any of the
Shares subject to this Agreement except as provided herein without the prior
written consent of the Company.
Section 4. DEFAULT
If any of the following events ("Events of Default") shall occur, and be
continuing:
<PAGE>
4.1 The Executive shall default in the payment of any outstanding
indebtedness under the Note, whether at maturity, by acceleration, by mandatory
prepayment or otherwise, after the same shall become due and payable, and the
grace period provided in the Note shall have expired.
4.2 The Executive shall default in the performance of or compliance with
any agreement, term or condition contained in this Agreement and such default
shall not be remedied within thirty (30) days after notice of such default is
given to the Executive by the Company.
4.3 Any representation or warranty made by the Executive herein or in
connection with the transactions contemplated hereby shall prove to have been
false or incorrect in any material respect. The Company may at any time
thereafter by notice to the Executive declare the entire unpaid balance of the
Note due and payable.
Section 5. NOTICES
All notices and communications provided for herein shall be delivered
personally, by a prepaid overnight courier service or mailed by registered or
certified mail, postage prepaid, addressed to the parties at the addresses first
set forth above, or at such other addresses as may be specified by written
notice.
Section 6. MISCELLANEOUS
6.1 SURVIVAL OF REPRESENTATIONS. All representations and warranties made by
the Executive herein shall survive the making of the Loan and the delivery of
the Note hereunder.
6.2 WAIVER; REMEDIES. No delay on the part of the Company in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor
shall' any single
<PAGE>
or partial exercise of any right, power or privilege hereunder preclude other or
further exercise thereof, or the exercise of any other right, power or
privilege. The rights and remedies herein provided are cumulative and are not
exclusive of any rights or remedies which the Company would otherwise have.
6.3 GOVERNING LAW. This Agreement and the Note shall be construed under the
laws of the State of Florida applicable to agreements made and performed
entirely in such State.
6.4 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon the
successors and assigns of the parties hereto; provided, however, that this
Agreement shall not be assignable by the Executive without the prior written
consent of the Company,
IN WITNESS WHEREOF, the parties hereto have signed or caused this Agreement
to be signed as of the day and year first above written.
THE EXECUTIVE:
/s/ Mark Mastrini
-------------------------
MARK MASTRINI
800 TRAVEL SYSTEMS, INC.
By: /s/ Jerry Sendrow
---------------------
Name: Jerry Sendrow
Title: VP/CFO
April 20, 1999
Mr. Mark Mastrini
c/o 800 Travel Systems, Inc.
4803 Gunn Highway
Tampa, Florida 33624
Re: Deferred Compensation
---------------------
Dear Mr. Mastrini:
This letter sets forth our understanding regarding certain deferred
compensation to be paid to you in connection with your services on behalf of 8OO
Travel Systems, Inc. (the "Company").
1. Subject to the terms and conditions set forth in this letter, the total
deferred Compensation to be paid to you hereunder will be One Hundred Thousand
Dollars ($100,000), together with all interest which may accrue thereon, payable
as follows:
2. Simultaneous with the execution of this letter, the Company will deposit
Twenty Thousand Dollars ($20,000) in a segregated bank account to be maintained
by the Company for purposes of the letter (the "Deferred Compensation Account").
3. Provided that you are still employed by the Company as of such dates,
the Company will deposit an additional Twenty Thousand Dollars ($20,O00) on each
of January 1, 2000, January 1, 2001. January 1, 2002 and January 1, 2003.
4. All funds deposited into the Deferred Compensation Account will remain
on deposit in such account for so long as you remain employed by the Company.
5. Provided your employment with the Company is terminated, the upon such
termination you will be entitled to receive payment of funds on deposit in the
Deferred Compensation Account in total.
<PAGE>
Should your employment with the Company be terminated prior to April 1,
2002,
The proceeds of the Deferred Compensation Account will be paid as follows:
a. If the termination is by the Company "without cause" or any other
justification as a result of a change in control or by you with
"good reason," you will receive all amounts on deposit in the
Deferred Compensation Account;
b. If the termination is voluntarily by you without good reason, all
proceeds of the Deferred Compensation Account go to the Company:
c. If the termination is the result of your death or disability, the
proceeds of the Deferred Compensation Account will be paid to you
(or your beneficiary or estate).
Notwithstanding the foregoing, if you remain employed by the Company
as of April 1, 2009, all amounts in the Deferred Compensation Account will be
paid to you at such time.
Very Truly yours,
800 TRAVEL SYSTEMS, INC.
By: /s/ George A. Warde
---------------------------
Name: George A. Warde
Title: Chairman
ACCEPTED AND AGREED:
/s/ Mark Mastrini
- ---------------------------
Mark Mastrini
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0
0
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