<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___ TO ___
--------------------
Commission File Number 0-22935
PEGASUS SYSTEMS, INC.
(Exact Name of Registrant as specified in its charter)
DELAWARE 75-2605174
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3811 TURTLE CREEK BOULEVARD, SUITE 1100, DALLAS, TEXAS 75219
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (214) 528-5656
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares of the registrant's common stock outstanding as of November
10, 1998 was 10,509,793.
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<PAGE> 2
PEGASUS SYSTEMS, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements PAGE
----
<S> <C> <C> <C>
a) Consolidated Balance Sheets
as of September 30, 1998 and December 31, 1997.............................3
b) Consolidated Statements of Operations
for the Three and Nine Months Ended September 30, 1998 and 1997............4
c) Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1998 and 1997......................5
d) Notes to Consolidated Financial Statements ...................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...........................................11
Item 3. Quantitative and Qualitative Disclosures about Market Risk........................17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................................18
Item 2. Changes in Securities and Use of Proceeds.........................................18
.
Item 3. Defaults Upon Senior Securities...................................................18
Item 4. Submission of Matters to a Vote of Security Holders...............................18
Item 5. Other Information.................................................................18
Item 6. Exhibits and Reports on Form 8-K..................................................18
SIGNATURES...........................................................................................19
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PEGASUS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 27,758,691 $ 30,166,793
Restricted cash 2,026,791 1,286,032
Short-term investments 12,151,632 9,380,050
Accounts receivable, net of allowance for doubtful
accounts of $67,666 and $77,860, respectively 3,856,184 1,972,135
Other current assets 1,041,836 1,232,874
------------ ------------
Total current assets 46,835,134 44,037,884
Capitalized software, net 911,260 1,183,453
Property and equipment, net 2,667,084 2,712,091
Goodwill, net of accumulated amortization of
$448,341 and $303,815, respectively 4,468,930 1,560,900
Other noncurrent assets 2,270,642 428,981
------------ ------------
Total assets $ 57,153,050 $ 49,923,309
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 5,113,216 $ 4,115,037
Unearned income 848,615 477,688
Current portion of capital lease obligations 740,209 1,048,179
------------ ------------
Total current liabilities 6,702,040 5,640,904
Capital lease obligations, net of current portion 118,853 661,049
Other noncurrent liabilities 151,278 143,612
Stockholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares authorized;
zero shares issued and outstanding, -- --
Common stock, $.01 par value; 50,000,000 shares authorized;
10,626,277 and 10,297,529 shares issued, respectively 106,263 102,975
Additional paid-in capital 62,776,200 58,120,337
Unearned compensation (519,663) (738,533)
Accumulated deficit (12,155,583) (13,980,697)
Less treasury stock (116,484 shares, at cost) (26,338) (26,338)
------------ ------------
Total stockholders' equity 50,180,879 43,477,744
------------ ------------
Total liabilities and stockholders' equity $ 57,153,050 $ 49,923,309
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 4
PEGASUS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $ 7,802,819 $ 5,778,146 $ 20,751,479 $ 15,235,966
Cost of services 2,516,873 2,113,973 7,091,049 5,471,125
Research and development 741,272 585,834 1,966,738 1,818,074
Write-off of purchased in-process R & D 2,723,614 -- 2,723,614 --
General and administrative expenses 1,109,292 939,779 3,202,457 2,611,564
Marketing and promotion expenses 1,190,380 1,068,263 3,610,230 2,986,413
Depreciation and amortization 565,573 862,784 2,081,309 2,290,768
------------ ------------ ------------ ------------
Operating income (loss) (1,044,185) 207,513 76,082 58,022
Other income (expense):
Interest income 632,136 342,507 1,929,184 442,346
Interest expense (33,561) (128,398) (122,000) (543,832)
------------ ------------ ------------ ------------
Income (loss) before income taxes (445,610) 421,622 1,883,266 (43,464)
Income taxes 26,248 10,000 58,152 26,000
------------ ------------ ------------ ------------
Net income (loss) $ (471,858) $ 411,622 $ 1,825,114 $ (69,464)
============ ============ ============ ============
Net income (loss) per share:
Basic $ (0.04) $ 0.05 $ 0.17 $ (0.01)
============ ============ ============ ============
Diluted $ (0.04) $ 0.04 $ 0.16 $ (0.01)
============ ============ ============ ============
Weighted average shares outstanding:
Basic 10,508,023 8,173,482 10,441,834 6,196,251
============ ============ ============ ============
Diluted 10,508,023 9,379,501 11,168,105 6,196,251
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE> 5
PEGASUS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,825,114 $ (69,464)
Adjustments to reconcile net income (loss) to net cash from operating
activities:
Accrued interest reclassified to notes payable -- 58,049
Windfall tax benefit from employee exercise of non-qualified stock options 281,692 --
Depreciation and amortization 2,081,309 2,290,768
Write-off of purchased in-process R & D 2,723,614 --
Recognition of stock option compensation 203,942 122,342
Amortization of premiums on short-term investments 17,816 --
Net loss on sale of property and equipment 4,821 --
Changes in assets and liabilities:
Restricted cash (740,759) (531,471)
Accounts receivable (1,735,014) (1,238,358)
Other current and noncurrent assets (125,524) (662,300)
Accounts payable and accrued liabilities 845,233 1,143,030
Unearned income 176,108 254,156
Other noncurrent liabilities 17,928 17,928
------------ ------------
Net cash provided by operating activities 5,576,280 1,384,680
------------ ------------
Cash flows from investing activities:
Purchase of software, property and equipment (1,268,726) (818,661)
Purchase of marketable securities (22,553,383) (1,476,691)
Proceeds from maturity of marketable securities 19,763,985 4,181,767
Purchase of Driving Revenue LLC (5,998,366) --
Purchase of minority interests (1,500,000) --
Proceeds from sale of property and equipment 29,887 --
------------ ------------
Net cash provided by (used in) investing activities (11,526,603) 1,886,415
------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of stock 4,392,387 40,493,500
Repayment of notes payable to affiliates -- (5,447,134)
Repayment of capital leases (850,166) (895,034)
Proceeds from capital leases -- 3,913
------------ ------------
Net cash provided by financing activities 3,542,221 34,155,245
------------ ------------
Net increase (decrease) in cash and cash equivalents (2,408,102) 37,426,340
Cash and cash equivalents, beginning of period 30,166,793 1,796,311
------------ ------------
Cash and cash equivalents, end of period $ 27,758,691 $ 39,222,651
============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 124,257 $ 537,379
============ ============
Income taxes paid $ 191,288 $ --
============ ============
Supplemental schedule of noncash investing and financing activities:
Common stock warrants issued in exchange for customer contract asset $ -- $ 238,000
============ ============
Acquisition of equipment under capital leases $ -- $ 79,144
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 6
PEGASUS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
In July 1995, Pegasus Systems, Inc. (Pegasus or the Company) was formed
as a Delaware holding company to combine the operations of two existing
companies operating in the same industry, The Hotel Industry Switch
Company, Inc. (THISCO) and The Hotel Clearing Corporation (HCC). For
accounting purposes, the combination was recorded as a purchase of HCC.
The accompanying financial statements include the consolidated accounts
of Pegasus and its wholly owned subsidiaries, THISCO, HCC and Pegasus IQ.
THISCO is consolidated with its wholly owned subsidiary, TravelWeb, Inc.
(TravelWeb), and HCC is consolidated with its wholly owned subsidiary,
Pegasus Systems Inc. (UK) Limited (Pegasus UK, formerly The Hotel
Clearing Corporation (UK) Limited) (collectively, the Company). All
significant intercompany balances have been eliminated in consolidation.
THISCO was formed in September 1988 as a Delaware corporation. The
Company's THISCO service provides an electronic interface from hotel
central reservation systems to travel agencies through Global
Distribution Systems (GDSs), which are electronic travel information and
reservation systems such as SABRE.
HCC, acquired by the Company in July 1995, was formed in July 1991 as a
Delaware corporation. The Company's HCC service consolidates commissions
paid by participating hotels to a participating travel agency into a
single monthly payment and provides participants with comprehensive
transaction reports. Hotel properties and travel agencies worldwide
utilize the HCC service to increase the efficiency and reduce costs
associated with preparing, paying and reconciling the hotel room
reservation commissions.
Pegasus UK, a wholly owned subsidiary of HCC, was formed in September
1993 in England to market and provide services for travel agents and
hotel chains operating in Europe, Africa and Asia.
TravelWeb was formed in October 1995 as a Delaware corporation. The
Company's TravelWeb service provides individual travelers direct access
to online hotel information and the ability to make reservations
electronically at hotel properties. In addition, through its NetBooker
service, the Company offers TravelWeb's comprehensive hotel database and
Internet hotel reservation capabilities to third party web sites.
Pegasus IQ was formed in November 1997 as a Delaware corporation. Pegasus
IQ is expected to provide a wide array of hotel industry data, research
and reporting services for benchmark analysis and strategic planning
purposes.
6
<PAGE> 7
In August 1998, the Company acquired Driving Revenue LLC (Driving
Revenue), a hotel database marketing and consulting firm.
The financial information presented herein should be read in conjunction
with the Company's annual consolidated financial statements for the year
ended December 31, 1997 and the notes thereto, which have been filed with
the Securities and Exchange Commission on Form 10-K as of and for the
year ended December 31, 1997. The foregoing unaudited consolidated
financial statements as of September 30, 1998 and December 31, 1997 and
for the three and nine months ended September 30, 1998 and 1997 reflect
all adjustments (all of which are of a normal recurring nature) which
are, in the opinion of management, necessary for a fair presentation of
the results of the interim periods. The results for interim periods are
not necessarily indicative of results to be expected for the year.
2. SECONDARY PUBLIC OFFERING
The Company completed a secondary offering (Secondary) in February 1998.
The Company's Registration Statement on Form S-1 with respect to the
Secondary was declared effective on February 11, 1998. The Company sold
280,321 shares of common stock at a price of $17.50 per share. Net
proceeds to the Company, after deduction of the underwriting discount and
estimated offering expenses, were approximately $4.2 million. Selling
stockholders also sold 2,134,679 shares at a price of $17.50 per share.
The Company did not receive any proceeds from the sale of shares by the
selling stockholders.
3. ACQUISITION
In August 1998, the Company acquired all of the equity interest in
Driving Revenue for $6 million plus estimated expenses of less than
$100,000 (Acquisition). Driving Revenue is a hotel database marketing and
consulting firm based in Rockville, MD.
The Acquisition was recorded under the purchase method of accounting, and
accordingly, the results of operations of Driving Revenue for all periods
subsequent to the Acquisition date are included in the accompanying
consolidated financial statements. The purchase price has been allocated
to assets acquired and liabilities assumed based on estimated fair value
at the date of Acquisition. The approximate fair value of assets acquired
and liabilities assumed at the date of acquisition, after giving effect
to the write off of certain purchased research and development, is
summarized as follows:
<TABLE>
<S> <C>
Current assets (including approximately $2,000 cash) .... $ 176,000
Software ................................................ $ 344,000
Property and equipment .................................. $ 42,000
Goodwill ................................................ $ 3,053,000
Current liabilities ..................................... $ 338,000
</TABLE>
Approximately $2,724,000,based on a valuation performed by a third party,
was allocated to in-process research and development projects that at the
time of the Acquisition had not
7
<PAGE> 8
reached technological feasibility and had no probable alternative future
use. Such amount of in-process research and development was charged to
expense at the date of acquisition. The balance of the purchase price
paid, approximately $3,053,000 was recorded as the excess of cost over
the fair value of net assets acquired (goodwill) and is being amortized
on a straight-line basis over a 10 year period ending August 2008.
4. EARNINGS PER SHARE
The following table sets forth the basic and diluted net income (loss)
per share (EPS) computation for the three and nine months ended September
30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net income (loss) ($471,858) $ 411,622 $ 1,825,114 ($69,464)
----------- ----------- ----------- ----------
Basic:
Weighted average number of shares outstanding 10,508,023 8,173,482 10,441,834 6,196,251
----------- ----------- ----------- ----------
Net income (loss) per share ($0.04) $ 0.05 $ 0.17 ($0.01)
----------- ----------- ----------- ----------
Diluted:
Weighted average number of shares outstanding 10,508,023 8,173,482 10,441,834 6,196,251
----------- ----------- ----------- ----------
Additional weighted average shares from assumed
exercise of dilutive stock options and warrants, net
of shares to be repurchased with exercise proceeds -- 1,206,019 726,271 --
----------- ----------- ----------- ----------
Weighted average number of shares outstanding used
in the diluted net income (loss) per share calculation 10,508,023 9,379,501 11,168,105 6,196,251
----------- ----------- ----------- ----------
Net income (loss) per share ($0.04) $ 0.04 $ 0.16 ($0.01)
----------- ----------- ----------- ----------
</TABLE>
Outstanding options and warrants with strike prices below the average
fair market value of the Company's common stock for the three months
ended September 30, 1997 and the nine months ended September 30, 1998,
were included in the diluted EPS calculations for those periods. Options
for 54,000 shares of the Company's common stock at strike prices from
$19.44 to $22.74 were excluded from the diluted EPS calculation for the
nine months ended September 30, 1998 because they were antidilutive. The
excluded options expire from December 2005 to December 2006.
Options to purchase 1,236,266 shares of common stock and warrants to
purchase 345,723 shares of common stock granted from 1996 through
September 30, 1998 were excluded from the diluted EPS calculation for the
three months ended September 30, 1998. The strike prices of these options
ranged from $2.01 to $22.74 with expirations from December 2005 through
December 2006. The strike price of these warrants was $7.20 with an
expiration of May 1999.
8
<PAGE> 9
Options to purchase 1,084,070 shares of common stock and warrants to
purchase 345,723 shares of common stock granted from 1996 through
September 30, 1997 were excluded from the diluted EPS calculation for the
nine months ended September 30, 1997. The strike prices of these options
ranged from $2.01 to $15.30 with expirations from December 2005 through
December 2006. The strike price of these warrants was $7.20 with an
expiration of May 1999.
5. OTHER INVESTMENTS
An equity investment in Customer Analytics, Inc. of $500,000 for the
purchase of 250,000 preferred shares was completed in June 1998. Customer
Analytics, Inc. is a new database marketing applications and solutions
provider specializing in the area of customer relationship marketing. The
investment will be accounted for on the lower of cost or fair value.
In September 1998, the Company completed an equity investment in
Intermezzo Systems, Inc. The Company purchased 225,225 shares of Series B
Convertible Preferred Stock for $1,000,000. Intermezzo Systems, Inc. is a
developer of hotel reservation and property management systems and
software. The investment will be accounted for on the lower of cost or
fair value.
6. STOCKHOLDERS' EQUITY
In May 1998, the stockholders approved an amendment to the Company's
Second Amended and restated Certificate of Incorporation that decreased
the number of authorized shares of common stock, $.01 par value per
share, of the Company from 100 million to 50 million. The financial
statements have been retroactively adjusted to reflect the reduction in
authorized shares. The stockholders also approved amendments to the
Company's 1997 Stock Option Plan that increased the number of shares of
Common Stock reserved for issuance under the Plan and that provided for
grants of options to the Company's non-employee directors; and the
stockholders approved the adoption of the 1997 Employee Stock Purchase
Plan.
In September 1998, the Board of Directors authorized the repurchase of
shares of the Company's common stock from time to time in the aggregate
amount of up to $6 million. No shares have been acquired as of September
30, 1998.
Also, in September 1998, the Board of Directors declared a dividend
distribution of one preferred stock purchase right for each outstanding
share of the Company's common stock. Each right will entitle stockholders
to buy one one-thousandth of a share of the Company's Series A Preferred
Stock for each share of the Company's common stock held, at a price of
$90.00. The rights will be exercisable only if a person or group of
affiliated or associated persons acquires, or has announced the intent to
acquire, 20% or more of the Company's common stock.
9
<PAGE> 10
7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share" (FAS 128). FAS 128 simplifies the standards for
computing EPS previously found in Accounting Principles Board No. 15,
"Earnings per Share" (APB 15), and makes them comparable to international
EPS standards by replacing the presentation of primary EPS with a
presentation of basic EPS. The provisions and disclosure requirements for
FAS 128 were required to be adopted for interim and annual periods ending
after December 15, 1997, with restatement of EPS for prior periods.
Accordingly, EPS data for all periods presented has been restated to
reflect the computation of EPS in accordance with the provisions of FAS
128.
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (FAS 130) which was issued in June
1997. FAS 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general-purpose financial statements. It
requires all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. FAS 130 is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comparative purposes is required upon
adoption. There were no items which qualified for treatment as components
of comprehensive income for the periods presented.
In June 1997, Statement of Financial Accounting Standards No. 131,
"Disclosure About Segments of an Enterprise and Related Information" (FAS
131) was issued. FAS 131 establishes standards for the way that public
business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial
reports issued to stockholders. FAS 131 is effective for periods
beginning after December 15, 1997. The Company will adopt FAS 131 in its
financial statements for the year ending December 31, 1998.
On March 4, 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 requires
computer software costs related to internal use software that are
incurred in the preliminary project stage should be expensed as services
consumed in developing or obtaining internal-use computer software;
payroll and payroll-related costs for employees who are directly
associated with and who devote time to the internal-use computer software
project (to the extent of the time spent directly on the project); and
interest costs incurred when developing computer software for internal
use should be capitalized. SOP 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. Accordingly, the
Company will adopt SOP 98-1 in its financial
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<PAGE> 11
statements for the year ending December 31, 1999. The Company does not
believe the adoption of SOP 98-1 will have a material effect on the
Company's results of operations or financial condition.
On June 15, 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (FAS 133)
was issued. FAS 133 is effective for all fiscal quarters of all fiscal
years beginning after June 15, 1999 (January 1, 2000 for the Company).
FAS 133 requires that all derivative instruments be recorded on the
balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if it is the type of hedge transaction.
Management of the Company anticipates that, since it does not currently
use derivative instruments, the adoption of FAS 133 will have no effect
on the Company's results of operations or its financial position.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Net revenues. The Company's revenues for the three months ended
September 30, 1998 increased to $7.8 million from $ 5.8 million for the three
months ended September 30, 1997, an increase of 35.0%. This increase in revenues
was primarily driven by higher transaction levels for the Company's Electronic
Reservations and Payment and Data Systems services.
Revenues contributed by the Electronic Reservations service increased by 24.4%
in the three months ended September 30, 1998 as compared to the three months
ended September 30, 1997. This increase resulted primarily from an increase in
the number of hotel reservations made through the Company's site on the Internet
(www.travelweb.com) as well as reservations made by other sites that use the
Company's NetBooker service. In addition, more hotel companies paid fees to be
listed in the Company's hotel database. Net reservations made through the
Company's THISCO service increased by 28.8%, but this increase was substantially
offset by a reduction in the average fee per reservation paid by hotel companies
to the Company. As a result, net revenues from the THISCO service for the three
months ended September 30, 1998 increased to $2.4 million from $2.3 million, an
increase of 3.0%
Revenues contributed by Payment and Data Systems increased by 44.1% as a result
of an increase in the value of transactions processed through the Company's HCC
service as well as the acquisition of Driving Revenue. Hotel commission
transactions processed during the three months ended September 30, 1998
increased by 20.8% as compared to the three months ended September 30, 1997, due
in part to the addition of hotel properties and travel agencies participating in
the HCC service. The value of commissions paid by the Company increased by 30.5%
in the three months ended September 30, 1998 as compared to the three months
ended September 30, 1997 because of an increase in the number of hotel
commission transactions
11
<PAGE> 12
processed by the Company combined with an increase in the average value of the
commission processed, due to rising overall hotel average daily rates and a
higher proportion of the Company's transactions generated by full-service and
luxury hotel chains.
Cost of services. Cost of services increased by $403,000, or 19.1%, to
$2.5 million in the three months ended September 30, 1998 from $2.1 million in
the three months ended September 30, 1997. Cost of services increased due to
additional staffing, higher rates of pay for technology personnel and the
increased number of transactions processed through the HCC service.
Research and development. Research and development expenses increased
$155,000, or 26.5%, to $741,000 in the three months ended September 30, 1998
from $586,000 in the three months ended September 30, 1997. This increase was
primarily due to an increased level of expenditures related to Pegasus IQ, a
data warehousing and data mining service focused on the hospitality industry.
Write-off of purchased in-process research and development. The Company
incurred a charge of $2.7 million attributable to the write-off of purchased
in-process research and development related to the Company's acquisition of
Driving Revenue in August 1998.
General and administrative expenses. General and administrative
expenses increased $170,000, or 18.0%, to $1.1 million in the three months ended
September 30, 1998 from $940,000 in the three months ended September 30, 1997.
This increase was primarily driven by higher legal, accounting, insurance,
printing and reporting costs associated with operating as a public company.
Marketing and promotion expenses. Marketing and promotion expenses
increased $122,000, or 11.4%, to $1.2 million in the three months ended
September 30, 1998 from $1.1 million in the three months ended September 30,
1997. Marketing and promotion expenses grew primarily due to the addition of
Sales and Marketing staff, the promotion of the TravelWeb service and
amortization of new customer contract incentives.
Depreciation and amortization. Depreciation and amortization expenses
decreased $297,000, or 34.5%, to $566,000 in the three months ended September
30, 1998 from $863,000 in the three months ended September 30, 1997. This
decrease was primarily due to the completion of the amortization of capitalized
software related to the Company's acquisition of 83.3% of the outstanding
capital stock of HCC in 1995.
Interest income. During the three months ended September 30, 1998, the
Company realized $632,000 in interest income as a result of short-term
investments of operating cash balances.
Interest expense. Interest expense decreased $95,000, or 73.9%, to
$34,000 in the three months ended September 30, 1998 from $128,000 in the three
months ended September 30, 1997. The expense reflects payments made under
capital equipment leases. The Company repaid all of its promissory notes payable
to certain stockholders of the Company on August 15, 1997
12
<PAGE> 13
using a portion of the proceeds from its Initial Public Offering of common stock
on August 6, 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Net revenues. The Company's revenues for the nine months ended
September 30, 1998 increased to $20.8 million from $15.2 million for the nine
months ended September 30, 1997, an increase of 36.2%. This increase in revenues
was primarily driven by higher transaction levels for the Company's Electronic
Reservations and Payment and Data Systems services.
Revenues contributed by the Electronic Reservations service increased by 20.5%
in the nine months ended September 30, 1998 as compared to the nine months ended
September 30, 1997. This increase resulted primarily from an increase in the
number of hotel reservations made through the Company's site on the Internet
(www.travelweb.com) as well as reservations made by other sites that use the
Company's NetBooker service. In addition, more hotel companies paid fees to be
listed in the Company's hotel database. Net reservations made through the
Company's THISCO service increased by 21.7%, but this increase was offset by a
reduction in the average fee per reservation paid by hotel companies to the
Company. As a result, net revenues from the THISCO service for the nine months
ended September 30, 1998 remained consistent with the prior year same period at
$6.6 million.
Payment and Data Systems revenues increased by 36.2% as a result of a 40.2%
increase in hotel commission transactions processed during the nine months ended
September 30, 1998 as compared to the nine months ended September 30, 1997, due
in part to the addition of hotel properties and travel agencies participating in
the HCC service. The value of commissions paid by the Company increased by 56.7%
in the nine months ended September 30, 1998 as compared to the nine months ended
September 30, 1997 because of an increase in the number of hotel commission
transactions processed by the Company combined with an increase in the average
value of the commission processed, due to rising overall hotel average daily
rates and a higher proportion of the Company's transactions generated by
full-service and luxury hotel chains. Net revenues arising from the increase in
commissions paid was somewhat offset by a reduction in the average fee received
by the Company from participating travel agencies for consolidating and
remitting hotel commission payments.
Cost of services. Cost of services increased by $1.6 million, or 29.6%,
to $7.1 million in the nine months ended September 30, 1998 from $5.5 million in
the nine months ended September 30, 1997. Cost of services increased due to
additional staffing, higher rates of pay for technology personnel and the
increased number of transactions processed through the HCC service.
Research and development. Research and development expenses increased
$149,000, or 8.2%, to $2.0 million in the nine months ended September 30, 1998
from $1.8 million in the nine months ended September 30, 1997. This increase was
primarily due to a higher level of
13
<PAGE> 14
expenditures relating to the development of the Company's new data warehousing
and data mining service.
Write-off of purchased in-process research and development. The Company
incurred a charge of $2.7 million attributable to the write-off of purchased
in-process research and development related to the Company's acquisition of
Driving Revenue in August 1998.
General and administrative expenses. General and administrative
expenses increased $591,000, or 22.6%, to $3.2 million in the nine months ended
September 30, 1998 from $2.6 million in the nine months ended September 30,
1997. This increase was primarily driven by higher legal, accounting, insurance,
printing and reporting costs associated with operating as a public company.
Marketing and promotion expenses. Marketing and promotion expenses
increased $624,000, or 20.9%, to $3.6 million in the nine months ended September
30, 1998 from $3.0 million in the nine months ended September 30, 1997.
Marketing and promotion expenses grew primarily due to the addition of Sales and
Marketing staff, the promotion of the TravelWeb service and amortization of new
customer contract incentives.
Depreciation and amortization. Depreciation and amortization expenses
decreased $209,000, or 9.1%, to $2.1 million in the nine months ended September
30, 1998 from $2.3 million in the nine months ended September 30, 1997. This
decrease was primarily due to the completion of the amortization of capitalized
software related to the Company's acquisition of 83.3% of the outstanding
capital stock of HCC in 1995, partially offset by the amortization of software
purchased from Wetherly International in December 1997.
Interest income. During the nine months ended September 30, 1998, the
Company realized $1.9 million in interest income as a result of short-term
investments of operating cash balances.
Interest expense. Interest expense decreased $422,000, or 77.6%, to
$122,000 in the nine months ended September 30, 1998 from $544,000 in the nine
months ended September 30, 1997. The expense reflects payments made under
capital equipment leases. The Company repaid all of its promissory notes payable
to certain stockholders of the Company on August 15, 1997 using a portion of the
proceeds from its Initial Public Offering of common stock on August 6, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $5.6 million for the nine months ended
September 30, 1998 compared to net cash provided of $1.4 million in the nine
months ended September 30, 1997.
Net cash used in investing activities for the purchase of software, furniture
and equipment amounted to $1.3 million in the nine months ended September 30,
1998 compared to $819,000
14
<PAGE> 15
in the nine months ended September 30, 1997. In addition, in the nine months
ended September 30, 1997 the Company acquired equipment under capital leases
with a principal value of $79,000.
In August 1998, the Company acquired all the equity interest in Driving Revenue
for $6 million plus estimated expenses of less than $100,000. Driving Revenue is
a hotel database marketing and consulting firm based in Rockville, MD.
The Company also purchased minority interests in two start-up ventures. The
Company purchased for $500,000 a minority interest in Customer Analytics, Inc.,
a new venture aimed at providing services to companies in the fields of data
warehousing and data mining. The Company purchased for $1.0 million a minority
interest in Intermezzo, Inc., a developer of hotel reservation and property
management systems and software.
The Company's principal sources of liquidity at September 30,1998 included cash
and cash equivalents of $27.8 million, short-term investments of $12.2 million
and restricted cash of $2.0 million which represents funds for travel agency
commission checks that have not cleared HCC's processing bank and are returned
to HCC. Any of such restricted cash amounts which are not remitted to travel
agents will be escheated to the appropriate state, as required.
The Company believes that its existing cash and liquidity position, combined
with expected operating cash flows, is sufficient to fund operating needs for
the foreseeable future.
YEAR 2000 COMPLIANCE.
The Year 2000 computer issue is primarily the result of Information Technology
(IT) or non-IT systems and programs with date sensitive devices, such as
embedded chips or code using a two digit format, as opposed to four digits, to
indicate the year. Such systems and programs may be unable to correctly
interpret dates beyond the year 1999, which could cause a system failure or
other errors, with the resultant disruption in the operation of such systems.
State of Readiness
Beginning in July 1997, the Company established internally staffed project teams
to address Year 2000 issues related to the Company's services to its customers
as well as any IT and non-IT internal systems supporting the Company's
operations.
The Company is currently in the process of testing and upgrading, if necessary,
its systems and processes to comply with the requirements of the Year 2000 date
transition. Company personnel are researching internal IT and non-IT hardware,
software and data issues related to dates and date range processing and each
product line is undergoing extensive internal and external testing. Any
non-compliant hardware or software discovered during testing will be upgraded or
replaced. This process includes contacting material third party suppliers and
customers to assess their Year 2000 readiness. The following is a table showing
the Company's state of Year 2000 readiness based on management's assessment:
15
<PAGE> 16
STATE OF READINESS
AS OF SEPTEMBER 30, 1998
INTERNAL IT AND NON-IT SYSTEMS AND EQUIPMENT
<TABLE>
<CAPTION>
Phase Percent Estimated
----- Complete Completion Date
-------- ---------------
<S> <C> <C>
Awareness 100% Complete
Assessment of changes required 90% 4Q 98
Remediation or replacement 90% 2Q 99
Testing 75% 2Q 99
Contingency Planning 25% 2Q 99
</TABLE>
SUPPLIERS, CUSTOMERS AND THIRD-PARTY PROVIDERS
<TABLE>
<CAPTION>
Phase Percent Estimated
----- Complete Completion Date
-------- ---------------
<S> <C> <C>
Awareness 100% Complete
Assessment questionnaires 100% Complete
Detail assessment review with 3rd party 25% 2Q 99
providers
Contract review 50% 2Q 99
Contingency planning 25% 2Q 99
Testing as applicable 25% 2Q 99
</TABLE>
Costs
During the nine months ended September 30, 1998 and the year ended 1997, the
Company expensed approximately $194,000 and $108,000, respectively, in labor
costs associated with its Year 2000 efforts. The Company anticipates incurring
additional labor costs of approximately $50,000 in the fourth quarter of 1998.
The Company anticipates incurring additional labor costs at levels comparable to
those incurred in 1997 in the year ending December 31, 1999. In October 1998,
the Company capitalized $48,000 related to computer equipment purchased. This
computer equipment was purchased to address the Year 2000 issue and upon the
completion of Year 2000 testing it is anticipated that such equipment will be
redeployed to support the growth of the current systems. The Company does not
anticipate incurring a material amount of additional costs related to the
purchase of IT or non-IT systems hardware for the purpose of addressing the Year
2000 issue. It is expected that all funds for these matters are being generated
from operations.
To date, no IT development projects have been delayed due to Year 2000
remediation efforts at the Company.
16
<PAGE> 17
Risks/Contingency Plans
Even though the Company is undertaking efforts to ensure that all its systems
and programs are Year 2000 compliant, the Company has no control over services,
functions and data provided by third party vendors and others which may result
in the inability to provide services. The Company has contacted and is working
with its material customers and vendors to verify their Year 2000 compliance.
The Company has requested end-to-end testing with those systems that interface
with the Company's systems. However, the Company has no control over third
parties and if they will be Year 2000 compliant. To date the Company has
received responses from substantially all of its material third parties. The
extent to which third party customers and vendors do not become Year 2000
compliant on a timely basis may have a material adverse effect on the Company's
cash flow and results of operations.
The Company derives nearly all of its revenues from processing electronic
reservations or consolidating hotel commissions electronically. The inability or
limitation of its ability to process electronic hotel reservations or
consolidate hotel commissions as a result of Year 2000 problems would have a
material impact on the Company's revenues and cash flow. Due to the electronic
medium used by the Company to conduct the majority of its business, any
interruption or outage of telecommunications, electricity or other basic utility
services may also adversely impact the Company's ability to do business. As
discussed above, efforts have begun to evaluate the readiness of these critical
suppliers.
The Company services the travel industry and is dependent on the continued
health of the industry. Any general disruption of travel due to Year 2000 issues
that adversely affects other travel vendors such as airlines, hotels and travel
agency systems would have a material adverse effect on the Company's cash flows
and results of operations.
The Company is in the early phase of developing contingency plans and
determining the extent of such plans.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - Not
Applicable
17
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS - The Securities and
Exchange Commission on August 6, 1997 declared effective the
Registration Statement on Form S-1 (File No. 333-28595)
relating to the initial public offering (IPO) of the
Company's Common Stock. The Company raised proceeds, net of
offering expenses, of $40.5 million from the IPO.
Approximately, $5.2 million of these proceeds were used to
repay notes payable to stockholders and repay certain lease
obligations. $400,000 was used to acquire the software assets
of a third-party company. $1,500,000 was used to acquire
minority interests in a database management consulting company
and a company which provides software services to the
hospitality industry. The Company also paid $6,000,000 to
acquire a hotel database marketing and consulting company. The
remainder of these proceeds has been placed in short-term
marketable securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - Not applicable
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS - Not applicable
ITEM 5. OTHER INFORMATION - Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT 10.1 - Citibank Global Payments Service Agreement dated
July 24, 1998 between the Hotel Clearing Corporation and
Citibank, N.A.
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
(b) REPORTS ON FORM 8-K - Not applicable
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements 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.
PEGASUS SYSTEMS, INC.
November 13, 1998 /s/ John F. Davis, III
----------------------
John F. Davis, III,
President and Chief
Executive Officer
November 13, 1998 /s/ Jerome L. Galant
--------------------
Jerome L. Galant
Chief Financial Officer
(principal financial officer)
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
------- -----------------------
<S> <C> <C>
10.1 - Citibank Global Payments Service Agreement dated July 24, 1998
between the Hotel Clearing Corporation and Citibank, N.A.
27 - Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
CITIBANK GLOBAL CASH MANAGEMENT SERVICES
===============================================================================
CITIBANK GLOBAL PAYMENTS
SERVICE AGREEMENT
Customer: The Hotel Clearing Corporation Date: 7/24/98
--------------------------------------------- -------------
Date of Customer's Master Banking Agreement: 7/24/98 (the "Banking Agreement").
-------
This Service Agreement between the Customer and Citibank, N.A. (New
York Branch), a national banking association ("NYB") sets forth the agreement of
the parties on the procedures, terms and conditions pursuant to which the NYB
will provide the Services as further described herein. Capitalized terms not
otherwise defined herein have the meanings accorded such terms in the Banking
Agreement.
Method of Communication: File Transmission
Type of Transfers Approved for Customer as of the date of this Agreement and
associated Handling Fees:
<TABLE>
<CAPTION>
USD Remote Checks:*
<S> <C>
Tier 1: 1 to 20,000 Remote Checks per Month $0.85
Tier 2: 20,001 to 30,000 Remote Checks per Month $0.75
Tier 3: 30,001 + Remote Checks per Month $0.65
*Handling Fee applies to all Remote Checks for relevant Month, depending on
highest Tier achieved in such Month.
Non-USD Remote Checks:**
Tier 1: 1 to 10,001 Remote Checks per Month $2.50
Tier 2: 10,001 to 15,000 Remote Checks per Month $2.25
Tier 3: 15,001 + Remote Checks per Month $2.00
**Handling Fee applies to all Remote Checks for relevant Month, depending on
highest Tier achieved in such Month.
US Dollar Electronic Funds Transfers via ACH: $2.50
US Dollar Electronic Funds Transfers (non-ACH): $8.50
Additional Types of Transfers approved for Customer after commencement of Phase
II as detailed in the Procedures:
Non-US Dollar Electronic Funds Transfers via ACH: S2.50
Non-US Dollar Electronic Funds Transfers (non-ACH): $8.50
Emergency Check Fee: $25.00 per check to be issued outside of normal check
issuance cycle detailed in Procedures.
Statement Fee: NYB's cost for each statement page accompanying any
Transfer beyond the first page, not to exceed $.12 per
page.
Stop Payment Fee: $0.00 per request.
Photocopy Fee: $0.00 per request.
Commission Rate: 50%.
Base Currency: (Any currency identified in the Reference
Supplement to the Manual as usable by Customer for
remittance purposes.)
Foreign Exchange Rate Limits:
For Major Currencies: Prevailing Interbank rate + 50 basis points
For Minor Currencies: Prevailing Interbank rate + 60 basis points
For Exotic Currencies: Prevailing Interbank rate + 100 basis points
</TABLE>
1. The Services. The "Services" will mean Citibank Global Payments which enables
Customer to send payments by instructing NYB to issue a check or effect an
electronic funds transfer (including via a local automated clearing house
system, if available) on behalf of Customer, all via Citibank Global Payments,
in designated currencies (a payment sent via Citibank Global Payments originated
by a Citibank, N.A. branch, subsidiary or affiliate (the "Branch") being a
"Transfer" and a Transfer effected via a check drawn by a Branch being a "Remote
Check") provided that the availability of a designated currency is subject to
change without notice from time to time. However, NYB may elect to discontinue
the availability to Customer of a currency only if NYB makes the same election
as to all of its similarly situated Global Payments clients and NYB promptly
notifies Customer of such election. Each Branch will determine the form and
format of each type of Transfer it effects hereunder, including any subsequent
change or modification
===============================================================================
(C), 1998 Citicorp North America Inc. All Rights Reserved. [CITIBANK LOGO]
(Rev. 071098) File Version
-1-
<PAGE> 2
===============================================================================
modification, using its professional skill and judgment. The "Services" also
shall include a printing and distribution service for statements to be enclosed
with Remote Checks as further described in this Service Agreement.
2. Effecting Transfers.
(a) NYB will cause each Branch to effect Transfers pursuant to the
Customer's instructions provided that the instructions (i) comply with the
requirements and limitations of this Service Agreement and the Procedures
described below, (ii) do not require such Branch to effect a type of Transfer
which Customer and NYB had not previously agreed would be available hereunder to
Customer, and (iii) do not require such Branch to effect such Transfers sooner
than required under the Procedures described below; and provided further that as
long as NYB acts in good faith, NYB may effect any such Transfer even if part or
all of the foregoing have not been satisfied. Customer will promptly notify NYB
of the occurrence of any error in connection with the Services as soon as the
error first comes to Customer's attention, which notice, if oral, Customer must
confirm to NYB in writing within five (5) days. If Customer instructs NYB to
effect a Transfer in a currency other than the Base Currency but specifies the
value of such Transfer in Base Currency only, then NYB will determine the
currency equivalent using an exchange rate NYB determines in good faith for such
Transfer. However, in no event will such exchange rate be less favorable to
Customer than the prevailing Interbank rate for the Currency of Issuance as NYB
shall then determine plus the applicable number of basis points set out at the
beginning of this Service Agreement.
(b) Under no circumstances will NYB be obligated to effect a Transfer
hereunder if (i) the Customer is in default under this Service Agreement or the
Procedures described below, (ii) in the case of an electronic funds transfer, if
such Transfer's instructions designate a beneficiary account which NYB
determines is not maintained at a financial institution that is able to properly
receive such Transfer or (iii) if it would be impossible or impracticable to do
so due to circumstances beyond its control which could not have been reasonably
or practically prevented in the exercise of due care. NYB will promptly notify
Customer if NYB is unable to follow any Customer Transfer instructions. Such
notices must be sent to the Customer's address or facsimile number for notices
set out beneath its signatures below or as otherwise provided in the Procedures
described below. For purposes of this Service Agreement, a Transfer will be
deemed effected when, pursuant to Customer's instructions, a Branch either has
issued a Remote Check (i.e., a Branch has completed, signed and sent out such
Remote Check), or has transmitted an electronic funds transfer payment order.
NYB's books and records kept in good faith in the ordinary course of business
will be prima facie evidence of all matters relating to Customer's Transfers and
related Communications. However, the foregoing shall not be deemed a waiver by
Customer of its right to rebut the accuracy of such books and records.
3. Payment, Fees and Commission.
(a) Customer shall (i) pay to NYB the total face amount of each
Transfer NYB is to effect for Customer pursuant to its instructions, (ii) make
this payment in the Base Currency or such other currency as NYB may agree to
accept (the "Currency of Payment"), and (iii) send this payment to NYB's Global
Payments Account for such Base Currency or such other account as NYB may
designate from time-to-time, all pursuant to the Procedures described below,
such that this payment is received in final settlement of good funds available
to NYB no later than the day NYB receives from Customer its instructions to
effect such Transfer. When the Currency of Payment for a Transfer is in a
currency other than the currency in which such Transfer is denominated (the
"Currency of Issuance"), Customer agrees to pay the Currency of Payment
equivalent at the exchange rate that the Global Payments Trading Center
designated by NYB quotes for such Transfer all as described in the Procedures.
However, in no event will Such exchange rate be less favorable to Customer than
the prevailing Interbank rate for the Currency of Issuance as NYB shall then
determine plus the applicable number of basis points set out at the beginning of
this Service Agreement. For purposes of this rate calculation, NYB shall
determine in its sole but reasonable discretion whether a particular Currency of
Issuance is a major, minor or exotic currency.* If the laws of the country of
the Base Currency provides that a new or different currency shall replace the
Base Currency as legal tender in such country, then as of the effective date of
such replacement (or sooner if the parties so agree) the Base Currency shall be
deemed to be such new or different currency. The effect of local banking days
upon the timing of Customer's payment and delivery obligations hereunder will be
as described in the Procedures described below.
(b) As long as this Agreement remains in effect, NYB will pay Customer
a commission once each calendar quarter calculated separately for each Currency
of Issuance in which Customer's Transfers have been effected by Remote Checks
by:
(i) multiplying each day's ending balance during the prior
calendar quarter, net of reserve requirements, escheated funds and
handling and delivery fees, of the funds paid by Customer for
Transfers effected by Remote Checks denominated in such Currency
of Issuance, times the Commission Rate described at the beginning
of this Agreement, and then
(ii) multiplying the resulting product times the daily (or, for
Investment Rates quoted from the Far Eastern Economic Review,
weekly) quoted Investment Rate for such day, adjusted to a per
diem basis, described in the Reference Supplement to the Manual
for such Currency of Issuance as stated that day in such financial
publication or electronic reporting service as NYB designates from
time to time (the resulting product being the commission Customer
earned for such day), and then
(iii) adding together the amount of commission Customer earned
each day during such quarter (using exchange rates determined by
NYB).
In the event Customer becomes entitled to have Transfers effected in a currency
not available on the Services as of the effective date of this Agreement NYB or
its designated affiliate will determine in its sole discretion the Investment
Rate applicable to such new currency (provided such new rate is the same rate
NYB has offered to all its similarly situated Global Payments clients) and upon
such determination, such new Currency of Issuance and rate will be incorporated
into the list of currencies and rates set out in this Agreement or the Manual.
The Investment Rates shall be as stated in the Financial Times or, for the
Singapore Dollar Investment Rate, the Far Eastern Economic Review or, for the
Spanish Peseta Investment Rate, the International Monitor Service of Reuters,
Ltd. or, for the US Dollar Investment Rate, the Board of Governors of the US
Federal Reserve System's Statistical Release of Selected Interest Rates - Form
H.15, or, if not provided therein, in such financial publication as NYB elects
from time to time.
* Client makes such payments (i.e. those payments which cover the value of the
Transfer to be effected hereunder) solely in exchange for NYB's obligation to
effect the applicable Transfers, together with the right to enforce the
performance of such obligation, all pursuant to the terms of this Service
Agreement and the Master Agreement.
===============================================================================
** See Addendum 1. [CITIBANK LOGO]
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<PAGE> 3
===============================================================================
(c) Customer will pay NYB a Handling Fee for each effected Transfer and
such other fees all at the rate and in the currency set out in the beginning of
this Agreement, as invoiced by NYB from time to time. Following the Commitment
Period, NYB may modify or adjust the fees and rates set out in this Agreement
upon dispatch of written notice thereof to Customer at least one hundred eighty
(180) days prior to the effective date of such modification or adjustment. The
parties hereto shall negotiate in good faith to agree, prior to the one hundred
eightieth (180th) day before the expiration of the Commitment Period, on the
fees and rates that shall apply after the expiration of the Commitment Period.
(d) If Customer fails to make any payment as required in this Service
Agreement or any other agreement respecting the Services, then NYB, at its
option, may (i) stop payment on, dishonor, cancel or recall any Transfer for
which Customer owes such payment, (ii) elect not to effect any further Transfers
unless and until Customer makes such payment, (iii) impose and Customer will pay
upon demand a special fee calculated for each day (or portion thereof) such
payment remains unpaid following its due date, and/or (iv) exercise any other
rights or remedies NYB may have under or by virtue of this Service Agreement or
any other agreement with Customer, at law or in equity. Such Special Fee will be
computed on the entire unpaid amount at the Two-Month London Late Eurodollar Bid
Money Rate, adjusted to a per diem basis, as quoted on the day such amount was
due in such financial publication or electronic reporting service as NYB
designates from time to time. NYB shall notify Customer of any such failure to
make a payment promptly following NYB's discovery thereof.
4. Statements.
(a) Citibank will print and distribute with each Remote Check issued
pursuant to this Service Agreement a statement in accordance with this Service
Agreement and the Procedures described below. The statements will be available
in three different initial formats and will be printed in accordance with
Customer's informational and formatting requirements subject to the limitations
described in the Procedures and to the capabilities and limitations of NYB
and/or NYB's vendors. Customer shall pay NYB, promptly upon invoice therefor,
any costs NYB incurs in the development and setup of any additional statements
or statement formats and of any changes in the three initial statement formats.
NYB may subcontract part or all of its obligations with respect to these
statements provided NYB remains responsible for the full performance of such
obligations. NYB shall notify Customer of any such subcontracting.
(b) Instead of using NYB, Customer may elect to use a third party
vendor for printing and distributing statements to be included with some or all
of the Remote Checks NYB issues for the Customer hereunder. In such an event,
NYB shall modify its process, at Customer's expense, so as to deliver the
applicable Remote Checks to a location of Customer's choosing for further
handling by the Customer and/or the Customer's vendor. Customer shall give NYB
adequate notice of such election to allow NYB to make such modification and to
properly test to ensure that check production, transaction edits and control
processes inherent in the Services are maintained. In the event Customer elects
to use such vendor for all of its statement printing and distribution for all of
the Remote Checks, the Handling Fee for each of such Remote Checks shall be
reduced by $0.12.
5. Indemnity. Customer will indemnify NYB and each Branch against and hold each
of them harmless from any loss, liability or expense (including reasonable
attorneys' fees) arising from (i) any action taken by any of them in good faith
in compliance with or pursuant to Customer's request to amend, stop payment on,
recall or cancel any Transfer or NYB's request to stop payment on, recall or
cancel a Transfer under Paragraph 3(d) above, regardless of whether such request
was then valid, binding or effective under applicable laws or regulations, (ii)
any action taken by any of them in good faith in compliance with or reliance
upon any Communication to the extent they followed the Procedures with respect
to such Communications,(iii) any claim directly or indirectly arising out of any
agreement, undertaking or arrangement between Customer and any actual or
prospective payee, beneficiary or recipient of any Transfer or any party for
whom Customer is effecting a Transfer except to the extent such claim arose out
of NYB's breach of its material obligations under this Service Agreement or the
Procedures described below. NYB will indemnify Customer, its subsidiaries and
affiliates against and hold them harmless from any loss, liability or expense
(including reasonable attorneys' fees) arising from any claim which directly or
indirectly arose out of any representation by NYB to any third party which is
inconsistent with the services to be provided by NYB as set forth herein. In
addition, NYB, at its expense, shall correct any errors in the performance of
its obligations hereunder due solely to its negligence or that of its personnel;
provided, however, that Customer shall promptly notify NYB of the error as soon
the error first comes to Customer's attention and, if Customer makes such
notification orally, Customer must send a written confirmation to NYB within
five (5) days. However, in no event will either party hereto be liable to the
other party for loss of good will or for special, indirect, incidental or
consequential damages, regardless of whether any party has been advised of the
possibility of such damages, nor shall either party be liable to the other for
any loss, liability or expense to the extent caused directly by the other
party's breach of its material obligations under the Service Agreement or the
Procedures described below.
6. Warranty Waiver. EXCEPT AS SPECIFICALLY PROVIDED ELSEWHERE IN THIS SERVICE
AGREEMENT, THERE ARE NO WARRANTIES WITH RESPECT TO ANY OF NYB'S SERVICES,
PERSONNEL, PROGRAMS OR EQUIPMENT AND NYB DISCLAIMS ALL OTHER WARRANTIES, EXPRESS
OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
7. Termination.
(a) Upon completion of the Commitment Period described in Paragraph
11(f) below, either party may terminate this Service Agreement at any time for
any reason upon one hundred eighty (180) days' prior written notice to the other
party. In addition, NYB may by notice immediately terminate this Service
Agreement without further formality or judicial interference being required upon
the occurrence of any of the following events: (i) any default by Customer in
any of its agreements with any of its lenders, (ii) Customer becoming unable to
pay its debts as and when they become due or (iii) the commencement of any
assignment for the benefit of creditors or any bankruptcy, liquidation,
winding-up, reorganization or similar proceedings involving the Customer. Either
party may by notice to the other immediately terminate this Service Agreement
without further formality or judicial interference being required should the
other party substantially breach any one of its material obligations under this
Service Agreement. The effective date of any termination notice will be the date
of its receipt by the addressee. No termination of the Banking Agreement, with
respect to the Services, shall be effective until the effective date of the
termination of this Service Agreement.
(b) Upon any termination of this Service Agreement, all sums due
hereunder will be immediately due and payable without further notice or demand.
===============================================================================
[CITIBANK LOGO]
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(c) Notwithstanding any such termination, the parties obligations,
representations and Indemnities with respect to (i) any Transfer effected on or
before the effective date of such termination, and (ii) confidentiality as
described in the Procedures described below, will survive such termination. In
addition, the terms and conditions of Paragraphs 3(d), 5, 6, 7, 8, 10 and 11(e)
hereof will survive such termination.
8. Governing Law. Any action or dispute regarding this Service Agreement or the
handling of any Transfer shall be governed by the laws of the State of New York,
United States of America, without giving effect to conflict of laws provisions,
except with regard to the handling of any Remote Check for purposes of
presentment, payment, collection or return which instead will be governed by and
interpreted according to the laws of the country or state in which the drawee on
the check is located except when the Remote Check is payable through the
drawee's agent in which case the laws of the country or state of such agent
shall be used. For the benefit of NYB, Customer agrees that the courts of New
York shall have nonexclusive jurisdiction to hear any dispute arising out of or
in connection with this Service Agreement and irrevocably submits to the
jurisdiction of such courts. To the extent Customer is located outside of the
United States of America and may have or may acquire sovereign immunity from the
jurisdiction of any court or legal process (including relief by way of
injunction or specific performance) in respect of itself or its property.
Customer hereby irrevocably waives such immunity in respect of its obligations
hereunder and further waives any defense in connection with such immunity it may
have or acquire against the enforcement of any judgment rendered by any court in
respect of this Service Agreement.
9. Additional Covenants of Customer.
(a) Customer will maintain procedures to ensure that it will use the
Services only in connection with legal, bona fide transactions conducted on an
arm's-length basis. However, the foregoing will not be deemed to prohibit
Customer from having NYB effect a Transfer payable to or for the benefit of any
of Customer's offices, branches, parent, subsidiaries or affiliates, provided
the Transfer and the underlying transaction in respect of such Transfer do not
violate any applicable law or regulation.
(b) Within a reasonable time after the request of NYB, Customer will
deliver to NYB financial data (including reports to supervisory and regulatory
authorities) reasonably relating to the Transfers or the financial condition of
Customer.
10. Recalls and Stop Payments
(a) NYB will have no obligation to comply with Customer's instruction
to recall or stop payment on any Transfer and to refund Customer's payment for
such Transfer, unless (i) NYB receives such instruction in sufficient time
before such Transfer is settled or presented for payment for NYB and the
applicable Branch or drawee to act upon such instruction, (ii) such instruction,
including its form, format and method of transmission, complies with the
procedures and requirements set out in the Procedures described below, (iii)
such recall or stop payment can be made in accordance with applicable laws and
regulations, the Procedures described below and, with respect to Transfers
denominated in currencies which NYB has classified "secondary" for purposes of
the Services generally, NYB's applicable policies, procedures and requirements
which are subject to change without notice from time-to-time, (iv) Customer
provides NYB with such security as it may reasonably require in accordance with
applicable banking practice and (v) NYB recovers the funds, if any, which NYB
transferred in settlement of such Transfer.
(b) Each of Customer's recall or stop payment instructions will be
treated as continuing in effect unless and until the part of the NYB effecting
such recall or stop payment receives Customer's notice to rescind such
instruction in sufficient time to act thereon, which notice must comply in all
respects with the NYB's then applicable policies, procedures and requirements.
(c) Any refunds to which Customer shall be entitled for cancellations,
recalls and stop payments will be made at such exchange rate as NYB will then
determine in good faith, less any applicable lifting fees, costs, charges,
expenses and interest and are subject to foreign currency regulations. Customer
will repay to NYB any credit Customer may receive from NYB in connection with
any Transfer which NYB was unable to cancel, recall or stop payment on due to
Customer's misdescription of such Transfer. However, in no event will such
exchange rate be less favorable to Customer than the prevailing Interbank rate
for the Currency of Issuance as NYB shall then determine plus the applicable
number of basis points set out at the beginning of this Service Agreement.
11. Miscellaneous Terms.
(a) Upon entering into this Service Agreement the parties hereto shall
work together expeditiously and in good faith to prepare mutually agreeable
documents containing specifications, requirements, forms and other details which
the parties deem necessary to facilitate the efficient day-to-day operation of
the Services and communications between the parties respecting the Services. The
final agreed-upon versions of these documents, as revised from time to time
pursuant to the provisions of this Paragraph 11 (a), and together with the most
current version of the Citibank Global Payments User Manual (the "Manual") are
referred to in this Service Agreement collectively as the "Procedures". The
parties will be bound by the provisions set forth in the Procedures. However,
upon prior written notice thereof to Customer, NYB may amend or modify the
Procedures as it may deem in good faith to be reasonably necessary (i) in order
to improve or enhance the services provided under the Services, (ii) in order to
more accurately reflect the features and functionalities of the Services, or
(iii) to comply with all applicable local banking practices or the laws, rules
and regulations of any banking industry association, convention, clearing house
or of any jurisdiction of governmental authority; provided, however, that the
specifications, requirements, forms and other details referred to in the first
sentence of this Paragraph 11(a) shall not be amended without Customer's
consent, which consent shall not be unreasonably withheld or delayed. The
effective date of any such amendment or modification shall be the day Customer
receives a copy of such amendment or modification provided however that the
effective date for any amendment or modification which NYB has made pursuant to
the reasons set forth in Clause (i) or (ii) above and which has not been made
for all of NYB's similarly situated Global Payments clients, shall be fourteen
(14) days after Customer receives such amendment or modification unless NYB
receives written notice from Customer objecting to such amendment or
modification within such fourteen (14) day period, in which case such amendment
or modification shall become effective upon Customer's approval thereof, which
approval shall not be unreasonably withheld or delayed. Notwithstanding the
foregoing, if the terms and conditions of this Service Agreement are
inconsistent with those of the Procedures, those of this Service Agreement will
control and the Procedures will be deemed modified to be consistent with this
Service Agreement.
(b) This Service Agreement, the Procedures, the Banking Agreement and
any related riders, amendments and attachments thereto embody the entire and
only understanding of the parties with respect to the subject matter hereof,
constituting together a single agreement. That certain World
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<PAGE> 5
===============================================================================
Travel Payment Travel Agency Commissions Settlement Program Client Service
Agreement dated December 9, 1991, as amended by an Amendment dated June 19, 1993
(collectively the "Old Agreement between the parties hereto, is terminated
hereby effective upon the commencement of Customer's live usage of the Services;
provided, however, the parties' obligations under the Old Agreement accruing
before the effective date of such termination and all of the terms and
conditions which were to survive a termination pursuant to Paragraph 12(c) of
the Old Agreement shall survive such termination. The parties shall cooperate
by agreeing in writing as to the date upon which Customer's live usage of the
Services shall be deemed to have commenced.
(c) In the event NYB assigns and transfers any of its rights and
obligations under this Service Agreement to its parent, an affiliate or
subsidiary, then Customer shall retain recourse to NYB, and NYB shall remain
responsible to Customer for the exercise and performance of such rights and
obligations so assigned and transferred as though such assignment and transfer
had not occurred, unless and until Customer gives its written consent to such
assignment and transfer, which consent shall not be unreasonably withheld or
delayed.
(d) NYB and Customer are independent contractors and nothing in this
Service Agreement will be deemed to create an employment, joint venture,
partnership or agency relationship between the parties.
(e) Unless otherwise agreed, all notices, instructions or other
Communications to be given to a party under this Service Agreement shall be
given by a direct transmission utilizing the software Citibank may provide
Customer for such purpose or utilizing such other process or method acceptable
to NYB or in accordance with the Procedures, or given to the address, telex (if
confirmed by the appropriate answer back), facsimile (confirmed by agreed upon
procedures) or telephone number and to the individual or department specified by
such party in the Procedures or below (or to such other address, telex,
facsimile, telephone number, individual or department as such party may
designate by notice to the other party). Each party will confirm notices
received via facsimile by return call to the other party's facsimile
confirmation call back number. Unless otherwise specified, any notice,
instruction or other Communication given in accordance with this paragraph shall
be effective upon receipts. Each party may electronically record all telephonic
conversations with the other party in connection with any notices, information,
instructions, orders and communications sent by Customer or NYB, and any such
tape recording may be submitted as evidence in any suit, action or other
proceeding relating to the Services.
(f) Commencing upon Customer's live usage of the Services, Customer
shall utilize such Services for a period of three (3) years (the "Commitment
Period"). During the Commitment Period, Customer shall not use any party other
than NYB and the Branches to send commission payments to any travel agency who
is under contract with or a member of Customer or any of its affiliates or
subsidiaries, including, without limitation, Hotel Clearing Corporation.
12. Effective Date. This Agreement will become effective and binding upon the
parties on the date NYB accepts this Agreement. NYB shall use its best efforts
to commence providing the Services to Customer as soon as possible provided
however NYB shall have no obligation to commence providing the Services sooner
than thirty (30) days after the Procedures are finally agreed upon pursuant to
Paragraph 11 (a) above.
<TABLE>
<S> <C>
ACCEPTED IN NEW YORK THIS 7th DAY THE HOTEL CLEARING CORPORATION
OF AUGUST, 1998.
By: /s/ MICHAEL R. DONAHUE
-----------------------------------------------------
CITIBANK, N.A. (NEW YORK) Authorized Signature
Printed Name Michael R. Donahue
and Title: Senior Vice-President
----------------------------------------------
By: /s/ SONIA V. PRINCE By: /s/ MICHAEL R. DONAHUE
-------------------------------------------------- -----------------------------------------------------
Authorized Signature Authorized Signature
Printed Name SONIA V. PRINCE Printed Name MICHAEL R. DONAHUE
and Title: Vice President and Title: Senior Vice-President
Citibank N.A. Buffalo ---------------------------------------------
4224 Ridge Lee Road
Amherst New York 14226
- ------------------------------------------------------
Facsimile No. for Notices: 715-231-5712 Facsimile No. for Notices: 214-528-5675
--------------------------- ------------------------------
Address for Notices: Global Cash Management Services Address for Notices: 3811 Turtle Creek Blvd.
--------------------------------- ------------------------------------
8430 W. Bryn Mawr Avenue Dallas, Texas 75219
- ------------------------------------------------------ ---------------------------------------------------------
Chicago, Illinois 64631
- ------------------------------------------------------ ---------------------------------------------------------
Attention: Global Corporate Product Manager Attention: Michael R. Donahue
------------------------------------------- ----------------------------------------------
Telephone No: 214-528-5656
------------------------------------------
Tested Telex No: --
----------------------------------------
General Facsimile No.: 214-528-5675
----------------------------------
Facsimile No. for FX Transactions: 214-528-5675
----------------------
Name of Individual to Whom General Notices
are to be Sent: MICHAEL R. DONAHUE
----------------------------------------
Name of Individual to Whom FX Transaction Notices
are to be Sent: LAWRENCE WEARDEN
----------------------------------------
General Facsimile Confirmation Call-Back No. 214-528-5656
------------
Name: Michael R. Donahue
--------------------------------------------------
Facsimile Confirmation Call-Back No.
for FX Transactions: 214-528-5656
-----------------------------------
Name: Michael R. Donahue
--------------------------------------------------
</TABLE>
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<PAGE> 6
ADDENDUM 1
Major currencies are those currencies listed in the Manual as being available
via On-site Checks. Minor currencies are those currencies listed in the Manual
as being available via Remote Checks but not via On-Site Checks. Exotic
currencies are those currencies listed in the Manual as being available only via
Electronic Funds Transfers.
<PAGE> 7
GUARANTY
FOR VALUE RECEIVED, and in consideration of, and in order to induce,
the entering of Citibank, N.A. ("Citibank"), a national banking association with
its principal place of business at 399 Park Avenue, New York, New York, into a
Citibank Global Payments Service Agreement dated July 24, 1998 (the "Service
Agreement") with The Hotel Clearing Corporation ("Client") a corporation
organized under the laws of Delaware, with its principal place of business at
3811 Turtle Creek Blvd., Suite 1100, Dallas, Texas 75219, providing for the
provision of Citibank's Global Payments Service to the Client, the undersigned,
PEGASUS SYSTEMS, INC. (the "Guarantor") a corporation under the laws of
Delaware with its principal place of business at 3811 Turtle Creek Blvd., Suite
1100, Dallas, Texas 75219, being financially interested in and dependent upon
the economic well-being of the Client, hereby absolutely and unconditionally
guaranties to Citibank, its parent, affiliates and subsidiaries (collectively
the "Obligees") the full and prompt performance by Client of all obligations
which Client presently or hereafter may have to any of the Obligees under the
Service Agreement and any other agreement, document, manual or instrument
related thereto, and the payment when due of all sums presently or hereafter
owing by Client to any of the Obligees thereunder (such obligations being
the "Obligations"), and agrees to indemnify the Obligees against any losses any
of them may sustain and expenses any of them may incur as a result of any
default by the Client in its performance or observance of any of the Obligations
and/or as a result of the enforcement or attempted enforcement by any of the
Obligees of any of its rights against Guarantor hereunder.
Guarantor hereby expressly waives all defenses which might constitute a
legal or equitable discharge of a surety or guarantor, and agrees that this
Guaranty shall be valid and unconditionally binding upon Guarantor regardless of
(i) the reorganization, merger or consolidation of the Client into or with
another entity, corporate or otherwise, or the dissolution of the Client, or the
sale or other disposition of all or substantially all of the capital stock,
business or assets of the Client to any other person or party, or (ii) the
voluntary or involuntary bankruptcy (including a reorganization in bankruptcy)
of the Client, or (iii) the granting by any of the Obligees of any indulgences
to the Client, or (iv) the assertion by any of the Obligees against Client of
any of their rights or remedies provided for under the Service Agreement or
existing in its favor in law, equity or bankruptcy, or (v) the release or
discharge by any of the Obligees or by operation of law or otherwise of the
Client from any of its Obligations, or of any other party which may now or
hereafter be directly or indirectly liable for the performance of such
Obligation, or (vi) any invalidity, irregularity, defect or unenforceability of
any provision of the Service Agreement or any agreement, document, manual or
instrument related thereto, or (vii) any of the Obligees' failure or delay to
perfect or continue the perfection of any security interest in any property
which secures any obligations of Client or Guarantor to any of the Obligees, or
to protect the property covered by such security interest, or (viii) the
acceptance of partial payments or performance of such Obligations, or (ix) the
settlement, compounding, compromise, collection or liquidation of any of such
Obligations or the security therefor in any manner, or (x) any consent to the
transfer of security, or (xi) the bid and purchase at any sale of paper or
security.
Guarantor hereby waives notice of and consents to all of the provisions
of the Service Agreement and any agreement, document, manual or instrument
related thereto and to any renewals, amendments or modifications thereof, and to
any actions taken thereunder, and to the execution by Client of the foregoing
documents and of any other agreement, documents, and instruments executed by
Client in connection therewith. Guarantor further agrees that this Guaranty
shall remain and continue in full force and effect notwithstanding any renewal,
extension (including extensions beyond the original term), modification, or
amendment of the Service Agreement or any agreement, document, manual or
instrument related thereto. Guarantor further waives notice of the Obligees'
acceptance of this Guaranty, of any default or non-payment and/or
non-performance by Client under the Service Agreement or any agreement,
document, manual or instrument related thereto, of presentment, protest and
demand, and all other matters to which Guarantor might otherwise be entitled.
Guarantor further agrees that its liability under this Guaranty shall
be absolute, primary and direct and that none of the Obligees shall be required
to pursue any right or remedy it may have against the Client under the Service
Agreement or otherwise (and shall not be required to commence first any action
or obtain any judgment against the Client) before enforcing this Guaranty
against Guarantor, and that Guarantor will, upon demand, pay Citibank the amount
of all sums, the payment of which by Client is in default under the Service
Agreement, and will, upon demand, perform all other obligations of the Client,
the performance of which, by the Client, is in default under the Service
Agreement or any agreement, document, manual or instrument related thereto.
Guarantor further warrants and represents to Citibank that the
execution and delivery of this Guaranty is not in contravention of Guarantor's
Charter, Certificate of Incorporation, By-laws, and applicable law; that the
execution and delivery of this Guaranty and the performance thereof, has been
duly authorized by Guarantor's Board of Directors, and will not result in a
breach of or constitute a default under, or result in the creation of any
security interest, lien, charge or encumbrance upon any property or assets of
Guarantor pursuant to any loan agreement, indenture, or contract to which
Guarantor is a party or by or under which it is bound.
-1-
<PAGE> 8
Within a reasonable time after the request of Citibank, the Guarantor
will produce, or allow Citibank to inspect financial data (including reports to
supervisory authorities) relating to the Service Agreement and the agreements,
documents, manuals and instruments related thereto, or the financial condition
of the Guarantor.
Guarantor hereby agrees that the failure of any of the Obligees to
insist in any one or more instances upon a strict performance or observance of
any of the terms, provisions or covenants of the Service Agreement, or any
agreements, documents, manuals or instruments related thereto, or to exercise
its rights thereunder, shall not be construed or deemed to be a waiver or
relinquishment for the future of any such terms, provisions, covenants, or
rights, but such terms, provisions, covenants, and rights shall continue and
remain in full force and effect. Receipt by any of the Obligees of any sums
payable under the Service Agreement or agreements, documents, manuals or
instruments related thereto, with knowledge that the Client has breached any of
the terms, provisions, or covenants thereof, shall not be deemed to be a waiver
by the Obligees of such breach.
No assignment or other transfer by any of the Obligees or the Client of
any interest, right or obligation under the Service Agreement or any agreement,
document, manual or instrument related thereto, or assumption by any third party
of the obligations of the Client under the Service Agreement or any such
agreement, document, manual or instrument, shall extinguish or diminish the
unconditional, absolute, primary and direct liability of Guarantor under this
Guaranty, Guarantor hereby consenting to and waiving all notice of such
assignment, transfer or assumption.
This Guaranty is a continuing Guaranty which shall remain in effect
until notice of termination in writing from the undersigned is actually received
by an officer of Citibank at Global Cash Management Services, 750 Washington
Blvd., Stamford, Connecticut 06901, U.S.A. Such termination will be effective
only with respect to those of the undersigned (if more than one) as give notice
(and the continuing liability of other parties hereto shall not be affected) and
only with respect to all Obligations incurred or contracted by Client or
acquired by any of the Obligees one hundred eighty (180) days after the date on
which such notice is so received, but this Guaranty shall remain in full force
and effect as to all Obligations existing at the date of receipt of such notice
and to those incurred one hundred eighty (180) days thereafter and to all
renewals, extensions and refinancings thereof until full and proper payment or
performance of such Obligations to the proper Obligee.
If a claim is made upon any of the Obligees at any time for repayment
or recovery of any amount(s) or other value it received, from any source, in
payment of or on account of any of the obligations of the Client guaranteed
hereunder and such Obligee repays or otherwise becomes liable for all or any
part of such claim by reason of (a) any judgment, decree or order of any court
or administrative body having competent jurisdiction, or (b) any settlement or
compromise of any such claim, the Guarantor shall remain jointly and severally
liable to such Obligee hereunder for the amount so repaid or for which such
Obligee is otherwise liable to the same extent as if such amount(s) had never
been received by such Obligee, notwithstanding any termination hereof or of the
Service Agreement or any other agreement evidencing any of the obligations of
the Client.
This writing is intended by the parties as a final expression of this
Guaranty and is intended also as a complete and exclusive statement of the terms
of the agreement. No course of prior dealings between the parties, no usage of
the trade and no parol or intrinsic evidence of any nature, shall be used or be
relevant to supplement or explain or modify any term used in this Guaranty.
Any of the Obligees may assign its interest in this Guaranty without
notice to Guarantor but Guarantor may not assign or transfer any of its rights
or obligations hereunder. Any assignee of such Obligee shall have all the rights
of such Obligee hereunder and may enforce this Guaranty against Guarantor with
the same force and effect as if this Guaranty were given to such assignee in the
first instance. This guaranty should be construed liberally in the Obligees'
favor, shall inure to the benefit of the Obligees, and their successors and
assigns, and shall be binding upon Guarantor and its successors and assigns.
This Guaranty shall be construed under and governed by the laws of the State of
New York, United States of America.
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed
by its duly authorized officer, this 27th day of July, 1998.
PEGASUS, SYSTEMS, INC.
By: /s/ JOHN F. DAVIS III (Corporate Seal)
-------------------------------------
John F. Davis, III
President and CEO
Attest: /s/ RIC L. FLOYD
---------------------------------
Ric L. Floyd, Secretary
-2-
<PAGE> 9
CITIBANK GLOBAL CASH MANAGEMENT SERVICES
================================================================================
SOFTWARE LICENSE AGREEMENT
Customer: Hotel Clearing Corporation
-------------------------------------------------------------------
Date: 7/24/98
------------------------------------------------------------------------
Name and Date of Service: Citibank Electronic Banking Service
---------------------------------------------------
Citibank Global Payments Service Agreement dated
7/28/98
Each Service Agreement referenced above ("Service Agreement") between the
Customer and Citibank, N.A., and/or an affiliate thereof (the "Bank") sets
forth the terms and conditions under which the Bank provides cash management
and other banking and financial products and services, as applicable, to the
Customer. Subject to the Service Agreement, this Software License Agreement
including each schedule attached hereto (the "Schedule") between Customer and
the Bank, for itself and as agent for each affiliate or subsidiary providing
services under the Service Agreement, sets forth the terms and conditions under
which a license is granted to use certain proprietary financial and/or
communications software in connection with the services described in the guides
and manuals delivered to the Customer in connection with this License (the
"Documentation") and the guides, manuals and other information delivered in
connection with the Service Agreement (together, the "Materials") as such
Materials may be revised from time to time. Capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the Service
Agreement and in the Materials.
SOFTWARE LICENSE
1. THE LICENSE: The Bank hereby grants the Customer for its own use a
non-exclusive, non-transferable license (the "License") to use standard software
(a) pertaining to the services provided to Customer by the Bank under the
Service Agreement as identified on the Schedule (the "Licensed Programs") and
only as specified in the Materials and for the purposes set forth in the Service
Agreement, (b) enabling performance of certain banking functions and/or access
to certain of the Bank's financial services described in each applicable Service
Agreement, (c) enabling communication with the Bank via the Bank's Global
Telecommunications Network, or, at the Bank's discretion, via recommended public
telecommunication networks (each of the foregoing networks, a "Network") and use
of the proprietary data and processes, files and the Documentation, as any of
these may be revised by the Bank from time to time, provided to the Customer by
the Bank in connection with this Software License Agreement (together with the
Licensed Programs, collectively, the "Licensed Items").
2. COPYRIGHT: The Bank will provide one copy of the Licensed Programs and the
Documentation appropriate for the services delivered to Customer under the
Service Agreement for each Customer facility at which the Bank approves in
writing use of the Licensed Items. The Customer may not copy any portion of the
Licensed Programs or related Licensed Items, except to make three copies for
archival purposes, for use in an emergency, or for replacement of a copy made on
defective media. The Bank's copyright and other proprietary notices, as they
appear on the most recent version of the related Documentation, must be included
on all copies.
3. CONFIDENTIALITY: The Licensed Items and all copyrights and other proprietary
rights of the Bank therein are the exclusive, valuable and confidential property
of the Bank and its relevant supplier(s). The Customer agrees not to alter or
modify any Licensed Items and to keep these Licensed Items confidential and to
limit access to its employees (under a similar duty of confidentiality) who
require access for the proper use of the Licensed Items, except to the extent
any Licensed Items are already in the public domain or the Customer is required
to do otherwise by law or judicial process. Nothing in this Software License
Agreement will offset the copyright status of any of the Licensed Items and the
provisions of this paragraph will apply whether or not such Licensed Items are
copyrighted.
4. OTHER RESTRICTIONS: The Customer may not assign, sublicense or otherwise
transfer the License or this Software License Agreement without the Bank's prior
written consent or sell, transfer, publish, disclose, display, modify or
otherwise make the Licensed Items available to others. The Bank reserves the
right to assign this Software License Agreement to any subsidiary or affiliate
of the Bank. The Customer may not reverse engineer, decompile or disassemble the
Licensed Programs, unless such acts may not be prohibited or restricted by
contract under the applicable law of the jurisdiction in which a Licensed
Program is installed. In such event, the Customer may perform such acts, but
only to the extent expressly permitted by applicable local law.
5. ACCEPTANCE: The parties understand and agree that after the Bank's
installation of the Licensed Programs on the Customer's equipment (the
"Equipment"), production usage of the Licensed Programs by the Customer shall
constitute acceptance of the Licensed Programs. Production usage is agreed by
the parties to mean a Customer's initiation of a banking, financial service or
other transaction through Licensed Programs or a Customer's accessing any
reporting system or information database within or via the Bank through the
Licensed Programs.
6. CUSTOMER REMEDY AND TERMINATION: Either party may terminate this Software
License Agreement or any Schedule hereto upon prior written notice to the other.
Termination of any Service Agreement will extinguish the License with respect to
each such Service Agreement automatically. Termination of this Software License
Agreement or a Schedule shall have no effect on any related Service Agreement.
Upon termination in whole or part of this Software License Agreement, all
related Licensed Items shall be returned to the Bank within five (5) business
days and all rights granted under the terminated Software License Agreement or
portion thereof will immediately revert to the Bank. The Bank may (as
appropriate) take immediate possession of the Licensed Items and all copies,
provided that the Bank has first requested return of the Licensed Items and has
given five (5) business days written notice of its intention to take possession.
If a malfunction in the Licensed Programs cannot be remedied, the Bank may upon
written notice terminate the License and refund any License fees on a pro rata
basis for the unexpired period. All restrictive provisions of this Software
License Agreement, such as warranty waivers, limitations of liability,
confidentiality, and export control will survive termination of the License and
of the applicable Service Agreement.
7. CONFLICTS: In the event of a conflict between any terms and conditions
within Section 10 of this Software License Agreement and those within the
Service Agreement, the provisions of the applicable Service Agreement shall
take precedence.
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[CITIBANK LOGO]
<PAGE> 10
CITIBANK GLOBAL CASH MANAGEMENT SERVICES
===============================================================================
LIMITED WARRANTY
8. LIMITED WARRANTY: (a) The Bank will use reasonable efforts to assure that
the Licensed Programs will perform in substantial conformity with the applicable
Documentation for so long as the applicable Service Agreement and the applicable
Schedule are in effect (the "Warranty Period"). This warranty is the only
performance warranty made by the Bank and Bank's sole obligation under this
warranty is to remedy any problems promptly brought to its attention during the
Warranty Period. (b) The Bank will indemnify, defend and hold harmless the
Customer against, and the Customer grants the Bank sole control in its defense
and disposition of, any claim arising under this warranty which alleges that use
of the Licensed Programs infringes a copyright, trade secret, trademark or
service mark of a third person. (c) This warranty is not effective unless the
Bank is notified in writing of the claim. If the Customer or the Bank is ever
enjoined from using any Licensed Program by a final, non-appealable decree, the
Bank at its sole option and expense must either procure a right for the
Customer's continued use of the Licensed Program or modify the Licensed Program
in settlement of the claim. If, in the Bank's sole opinion, it is not reasonably
practical for the Bank to procure such right or to modify the Licensed Program,
the Bank may terminate the applicable License upon written notice and refund any
License Fees on a pro rata basis for the unexpired period. (d) The Customer will
maintain the Equipment (at the Customers expense) according to the applicable
installation and operating manuals and to applicable building and electrical
code requirements.
9. DISCLAIMER OF OTHER WARRANTIES: (a) The Bank does not warrant that the
Licensed Programs or the Networks are error-free. (b) The Bank does not warrant
the compatibility of the Licensed Programs with computer equipment or software.
(c) The Bank's disclaimer of warranty shall also apply to any Customer made
changes to the Licensed Programs' configuration options as previously installed
at Customer's facilities. (d) THE BANK DOES NOT MAKE, AND THE CUSTOMER NOW
EXPRESSLY WAIVES, ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY
WARRANTY OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
10. LIMITATIONS OF LIABILITY: EXCEPT AS SPECIFICALLY PROVIDED IN A SERVICE
AGREEMENT AND IN CLAUSE (c) OF PARAGRAPH 8 ABOVE, AND IN ADDITION TO ANY OTHER
LIMITATIONS OF LIABILITY SET FORTH IN THE SERVICE AGREEMENT, NEITHER THE BANK
NOR ANY OF ITS LICENSORS SHALL BE LIABLE FOR ANY INCIDENTAL, CONSEQUENTIAL OR
PUNITIVE DAMAGES OR OTHER DAMAGES, LOSSES OR CLAIMS ARISING IN ANY WAY
REGARDLESS OF WHETHER THE ACTION IS BROUGHT IN TORT OR IN CONTRACT. UNLESS
OTHERWISE PROVIDED BY APPLICABLE STATUTE OR IN THE SERVICE AGREEMENT, THE
LIABILITY OF THE BANK, FINANCIAL OR OTHERWISE, FOR ANY REASON AND UPON ANY CAUSE
OF ACTION RELATED HERETO SHALL BE LIMITED TO THE AMOUNT THEN PREVIOUSLY PAID BY
THE CUSTOMER TO THE BANK UNDER THIS SOFTWARE LICENSE AGREEMENT OR TO THE
REPROCESSING BY THE BANK OF THE AFFECTED DATA OR TRANSACTION AT NO COST TO
CUSTOMER, PROVIDED THE CUSTOMER DEMONSTRATES TO THE BANK'S SATISFACTION THAT
SUCH REPROCESSING IS REQUIRED DUE TO A DEFECT IN THE LICENSED PROGRAMS.
OTHER
11. COMPLIANCE WITH LAWS: Customer agrees to comply with all applicable laws
including, without limitation, to the extent applicable, the export control laws
of the United States and prevailing regulations which may be issued from time to
time by the United States government concerning the exporting, importing and
re-exporting of the Licensed Items or enhancements thereto. Customer
acknowledges that shipments of the Licensed Items may be subject to the export
laws of the United States and that such laws could delay or preclude delivery of
the Licensed Items in the future. Customer further agrees that it shall, at its
sole cost and expense, obtain and maintain in effect all permits, licenses and
other consents necessary to the conduct of its activities under this Software
License Agreement.
12. GOVERNING LAW/CONSENT TO JURISDICTION: This Software License Agreement
shall be subject to and governed by the laws of the State of New York. To the
extent the Customer may have or may acquire immunity from the jurisdiction of
any court or legal process with respect to itself or its property, the Customer
hereby irrevocably waives such immunity in respect of its obligations hereunder
and further waives any defense it may have or acquire with respect to such
immunity against the enforcement of any judgement rendered by any court with
respect to this Software License Agreement.
13. HEADINGS: Headings are included only for convenience and are not
interpretive.
14. OFFICIAL TEXT: The authoritative text of this Software License Agreement and
all related schedules, exhibits, riders and notices shall be in English as used
in the United States. Any translation from the English is for convenience only.
<TABLE>
<S> <C>
CUSTOMER: Hotel Clearing Corporation CITIBANK, N.A.
--------------------------------------------
By: /s/ MICHAEL R. DONAHUE By: /s/ SONIA V. PRINCE
-------------------------------------------------- -----------------------------------------------------
Printed Name MICHAEL R. DONAHUE Printed Name SONIA V. PRINCE
and title: Senior Vice-President and Title: Vice President
------------------------------------------- ----------------------------------------------
[STAMP]
- ------------------------------------------------------ ---------------------------------------------------------
Address for Notices: 3811 Turtle Creek Blvd., #1100 Address for Notices: [STAMP]
------------------------------------ ------------------------------------
Dallas, Texas 75219
- --------------------------------------------------------- ---------------------------------------------------------
- --------------------------------------------------------- ---------------------------------------------------------
Attention: Michael R. Donahue Attention: Global Corporate Product Manager
---------------------------------------------- ----------------------------------------------
</TABLE>
===============================================================================
[CITIBANK LOGO]
<PAGE> 11
CITIBANK GLOBAL CASH MANAGEMENT SERVICES
===============================================================================
SCHEDULE Date: 7/24/98
to
SOFTWARE LICENSE AGREEMENT
between Citibank, N.A. (New York) and Hotel Clearing Corporation
---------------------------------------
Indicate applicable software. Check only one box per Schedule:
<TABLE>
<S> <C>
[X] Citibanking(R) electronic banking [ ] Travel Agent Commission Settlement (TACS)
offline
[ ] CCM Plus(TM) For Windows(TM) [ ] World Travel Payments
[ ] Dispatch [ ] WorldLink(TM)
[ ] InterAcct(TM) [ ] XPortico
[ ] Online Service Access [ ] Other:
----------------------------------
[ ] SmartPay Plus(R)
</TABLE>
1. In addition to the Licensed Programs described in any other Schedule to the
Software License Agreement, if any, the Licensed Programs shall include:
1 set(s) of the above described Licensed Program.
--
2. The Documentation for the above described Licensed Program is as follows:
a. CitiBank Desktop Guide
-----------------------------------------------------------------
b. CitiBank Quick Reference Guide
-----------------------------------------------------------------
c.
-----------------------------------------------------------------
3. The Licensed Items may be used at the following Customer facilities (attach
additional sheets as necessary).
a. Pegasus Systems Headquarters @ 3811 Turtle Creek Blvd., #1100
Dallas, Texas 75219
-----------------------------------------------------------------
b.
-----------------------------------------------------------------
c.
-----------------------------------------------------------------
4. In consideration of the license granted to Customer under the Software
License Agreement, Customer shall pay to Citibank, a Licensing Fee of N/A.
---
(Provision 5 below applies only to TACS Software)
5. Paragraph 5 in the Software License Agreement refers to the Bank's
installation of Licensed Programs. Since the Customer installs the TACS
software, with respect to TACS software, references in the Software License
Agreement to installation of Licensed Programs shall be deemed to refer to
the Customer's installation of such Licensed Programs.
===============================================================================
[CITIBANK LOGO]
<PAGE> 12
CITIBANK GLOBAL CASH MANAGEMENT SERVICES
===============================================================================
6. Customer hereby certifies on behalf of itself and all its branches
that, unless prior written authorization is obtained from Bank and from the
United States Department of Commerce or other relevant agency of the U.S.
government, Customer will not knowingly reexport, directly or indirectly,
the Licensed Program or any restricted technical data under the United
States Export Administration Regulations (Section 779.4(f)(1)) checked
above - or allow the direct product of such data to be shipped directly or
indirectly - to any of the countries listed in Categories S and Z of the
Export Regulations of the Department of Commerce (currently Libya, Cuba and
North Korea), as well as the following countries and users: Syria, Iran,
Iraq, Yugoslavia (Serbia & Montenegro only), military end-users or military
end-uses in Albania, Bulgaria, Cambodia, Estonia, Laos, Latvia, Lithuania,
Mongolian People's Republic, Romania, the geographic area formerly known as
the Union of Soviet Socialist Republics, Vietnam or the People's Republic
of China.
7. The foregoing assurances will also apply to any of the above Licensed
Programs which are not checked but which Customer may subsequently elect to
obtain and to any subsequent modification, upgrade or enhancement of the
Licensed Program or Documentation that Citibank may provide under the
Software License Agreement.
<TABLE>
<S> <C>
CUSTOMER: Hotel Clearing Corporation CITIBANK, N.A.
--------------------------------------------
By: /s/ MICHAEL R. DONAHUE By: /s/ SONIA V. PRINCE
-------------------------------------------------- -----------------------------------------------------
Printed Name MICHAEL R. DONAHUE Printed Name SONIA V. PRINCE
and Title: Senior Vice-President and Title: Vice President
------------------------------------------- ----------------------------------------------
Citibank N.A. Buffalo
4224 Ridge Lee Road
Amherst, New York 14226
716-831-5712
- ------------------------------------------------------ ---------------------------------------------------------
Date: 7/24/98 Date: August 7, 1998
------------------------------------------------- ---------------------------------------------------
</TABLE>
===============================================================================
[CITIBANK LOGO]
<PAGE> 13
MASTER BANKING AGREEMENT
FOR GLOBAL PAYMENTS AND OTHER SERVICES
Customer (Legal Name): The Hotel Clearing Corporation
--------------------------------------------------------
Address: 3811 Turtle Creek Blvd., Suite 1100, Dallas, Texas 75219
---------------------------------------------------------------------
State/Country of Incorporation or Organization: Delaware Date: 7/24/98
--------------- ---------
1. Introduction
1.1 This Agreement (the "Master Banking Agreement") governs the provision
of electronic banking, funds transfer, cash management, and such
other services as may be agreed from time to time, and which are
governed by a Service Agreement (as defined below) which specifically
references this Master Banking Agreement (each a "Service"). This
Master Banking Agreement applies between the Customer and each
Citibank, N.A. branch, subsidiary and affiliate providing a Service.
In this Master Banking Agreement, "Citibank" means all or any (as the
context may permit) of such branches, subsidiaries and affiliates.
1.2 Further terms relating to a Service may be contained in an agreement
between the parties hereto relating to that Service (a "Service
Agreement"). Citibank shall have no obligation to provide a Service
unless and until the parties have signed a mutually agreeable Service
Agreement relating to that Service. Citibank shall also supply to the
Customer for any Service from time to time all related materials,
including user guides, manuals, data, processes and other
documentation (the "Materials").
1.3 In respect of any Service, this Master Banking Agreement and any
relevant Service Agreement entered into at the same time as, or
after, this Master Banking Agreement shall prevail over any prior
conflicting provision of any agreement relating to that Service.
Subject to the foregoing, in the event of any conflict between this
Master Banking Agreement and any Service Agreement, the Service
Agreement shall prevail in respect of the relevant Service.
1.4 The Old Agreement, as defined in Customer's Citibank Global Payments
Service Agreement, shall terminate as set forth in paragraph 11(b)
of said Citibank Global Payments Service Agreement.
2. Representations
2.1 The Customer represents to Citibank as of the date that this Master
Banking Agreement or any Service Agreement is entered into and at the
time any Service is used that:
2.1.1 it is duly organized and validly existing, and is in good
standing in every jurisdiction where it is required so to
be, except insofar as the failure to be so qualified does
not have a material adverse effect on Customer's ability to
perform fully its obligations under, or the enforceability
of, this Master Banking Agreement or any Service Agreement,
or on the condition (financial or otherwise), assets,
liabilities, business, operations or prospects of Customer;
2.1.2 it has the power and authority to execute and deliver, and
to perform its obligations under, this Master Banking
Agreement and each Service Agreement;
2.1.3 this Master Banking Agreement and each Service Agreement is
(or will be on execution) duly authorized and executed by it
and is (or will be on execution) its legal, valid and
binding obligation;
2.1.4 any consent, authorization or instruction which it is
required to obtain in connection with this Master Banking
Agreement and each Service Agreement has been provided by
any relevant third party;
2.1.5 any act required of it by any relevant governmental or other
authority in connection with this Master Banking Agreement
and each Service Agreement has been or will be done (and
will be renewed if necessary); and
2.1.6 its performance of this Master Banking Agreement and each
Service Agreement and its use of the Services will not
violate or offend any applicable law, regulation, or other
requirement.
2.2 Citibank represents to the Customer as of the date that this Master
Banking Agreement or any Service Agreement is entered into and at the
time any Service is delivered that:
2.2.1 it is duly organized and validly existing, and is in good
standing in every jurisdiction where it is required so to
be, except insofar as the failure to be so qualified does
not have a material adverse effect on Citibank's ability to
perform fully its obligations under, or the enforceability
of, this Master Banking Agreement or any Service Agreement,
or on the condition (financial or otherwise), assets,
liabilities, business, operations or prospects of Citibank;
2.2.2 it has the power and authority to execute and deliver, and
to perform its obligations under, this Master Banking
Agreement and each Service Agreement;
(Rev. 070898)
Page 1
<PAGE> 14
2.2.3 this Master Banking Agreement and each Service Agreement is
(or will be on execution) duly authorized and executed by it
and is (or will be on execution) its legal, valid and
binding obligation;
2.2.4 any consent, authorization or instruction which it is
required to obtain in connection with this Master Banking
Agreement and each Service Agreement has been provided by
any relevant third party;
2.2.5 any act required of it by any relevant governmental or other
authority in connection with this Master Banking Agreement
and each Service Agreement has been or will be done (and
will be renewed if necessary); and
2.2.6 its performance of this Master Banking Agreement and each
Service Agreement and its delivery of the Services will not
violate or offend any applicable law, regulation, or other
requirement.
3. Authority
3.1 Unless the same have already been delivered, the Customer shall
deliver upon its acceptance of this Master Banking Agreement and from
time to time, as appropriate, the name and specimen signature of a
person or persons (each, an "Authorized Person") duly authorized by
the Customer on its behalf to enter into this Master Banking
Agreement and any required Service Agreement, to take any action in
connection with any Service and/or to designate any other person to
do any such thing, together with any other document Citibank may
require, including a letter signed by an appropriate officer, or
equivalent documentation, certifying the authorization of the
Authorized Person and the authenticity of the signature.
3.2 Citibank may rely on the authority of each Authorized Person for all
purposes until Citibank has received written notice or other notice
acceptable to it of any change from an Authorized Person and Citibank
has had a reasonable time to act thereon (after which time it shall
rely on the changed version).
4. Communications
4.1 The Customer and Citibank may agree to certain procedures and
practices, including the use of codes, encryption, passwords, digital
signatures and certificates and other security devices, systems and
software (the "Security Procedures") designed to verify the
origination (but not Customer errors in content, including
discrepancies between account names and numbers) of information,
instructions, orders and other communications (each a
"Communication") sent by the Customer and Citibank. The Customer and
Citibank acknowledge the risk associated with transmitting
Communications and will comply with the Security Procedures in
connection with each Communication. If Citibank takes any action not
provided in, though consistent with, the Security Procedures in
connection with any Communication, such additional action shall not
be deemed to become part of the Security Procedures.
4.2 If Citibank complies with the Security Procedures in respect of a
Communication, Citibank shall be entitled to act on that
Communication and shall not be obliged to verify the content of such
Communication, to establish the identity of the person giving it or
to await any written confirmation of the Communication to be given by
the Customer except as provided in the Security Procedures. In
addition, provided Citibank complies with the Security Procedures,
Citibank shall not be liable for acting on, and the Customer agrees
to be bound by, any Communication sent in the name of the Customer
(whether or not authorized by Customer). Citibank may act on a
Communication by reference to the account number only, even if the
name on the account is also provided.
4.3 Citibank is not obliged to act on a Communication which is not
transmitted in accordance with the Security Procedures. Citibank may
act on an incomplete Communication where, in Citibank's reasonable
opinion, it contains sufficient information and Citibank has
otherwise complied with the Security Procedures. Citibank has no duty
to discover, and shall not be liable for, errors or omissions made by
the Customer or the duplication of any Communication by the Customer.
4.4 Citibank may refuse to execute any Communication where Citibank
reasonably doubts its contents, authorization, origination or its
compliance with the Security Procedures. Citibank shall provide
prompt notice, which may be by telephone, to the Customer of any such
rejected Communication.
4.5 If the Customer informs Citibank that it wishes to recall, cancel or
amend a Communication after it has been received by Citibank,
Citibank shall use its reasonable efforts to assist the Customer to
do so, but shall not be liable for any loss, cost or expense suffered
by the Customer if Citibank does not or is unable to amend, cancel or
recall that Communication.
5. Performance
5.1 Citibank is authorized to act on any Communication and provide any
Service using any payment system or intermediary bank it reasonably
selects in good faith in the normal course of business. Citibank's
performance is subject to the rules and regulations from time to time
of any intermediary organization or entity through which it acts on
Communications and provides Services.
5.2 Any obligation of Citibank directly relating to a deposit account of
the Customer and specifically not relating to any Service is subject
to the laws and regulations applicable in the jurisdiction where the
account is held (including those related to exchange control) and
shall be enforceable only against the branch, subsidiary or affiliate
of Citibank N.A. where the account is held, which shall be the sole
place of payment. Citibank shall only be obliged to make payments in
respect of a deposit account in the currency in which that account is
denominated.
Page 2
<PAGE> 15
6. Fees, Interest and other Amounts
6.1 Citibank may charge fees to the Customer from time to time for the
provision of any Service, software or equipment in accordance with
any Service Agreement, fee schedule or letter agreed by the Customer
and Citibank from time to time. The Customer shall pay to Citibank
all fees, interest and other amounts due to or incurred by Citibank
in respect of any Service, software or equipment free from,
deductions and exclusive of Value Added Tax or any equivalent tax
from time to time in force, which will be the responsibility of the
Customer, except for taxes measured by the net income or net worth of
Citibank.
6.2 If the Customer is required by the laws of any relevant jurisdiction
to make any deduction or withholding from any fees, interest or other
amounts on account of tax or other charges, the Customer shall
withhold the same and pay it to the relevant authority, and shall
pay Citibank such additional amount as may be necessary to ensure
Citibank receives an amount equal to the amount it would have
received had no such deduction been made.
7. Responsibility
7.1 Citibank shall be responsible in accordance with this Master Banking
Agreement and any relevant Service Agreement for providing the
Services as required in such Service Agreement and for acting on the
Customer's Communications, but, to the extent not inconsistent with
applicable law, shall be liable only for its failure to act with good
faith or to exercise reasonable care, which shall be determined in
accordance with the reasonable commercial standards of the banking
industry. To the extent Citibank has complied with applicable
Security Procedures and Customer's Communications as required under
this Master Banking Agreement and any relevant Service Agreement,
Citibank shall not be liable for delay or failure in performance by,
nor the accuracy of any Communication provided by, the Customer or a
third party, and shall have no liability to the Customer for any
indirect, incidental, or consequential loss or damages (including
loss of profit), even if advised of the possibility of such loss or
damages.
7.2 Citibank does not guarantee access to any communications, processing
or transaction system not within Citibank's direct control and
accepts no liability to the Customer for any period when any such
system is unavailable or disrupted or for any related delays or
disruption in the provision of any Service.
7.3 Neither the Customer nor Citibank shall be liable for any failure to
meet any of its obligations under this Agreement if the performance
is prevented, hindered or delayed by a Force Majeure Event and in
such case its obligations shall be suspended for so long as the Force
Majeure Event continues (provided that this shall not prevent the
accrual of interest on a principal amount which would have been
payable but for this provision). Each party shall promptly inform the
other of the existence of a Force Majeure Event and shall consult
together to find a mutually acceptable solution. "Force Majeure
Event" means any event due to any cause beyond the reasonable
control of the relevant party, including, without limitation,
unavailability of any communications system, sabotage, fire, flood,
explosion, acts of God, civil commotion, strikes or industrial action
of any kind, riots, insurrection, war or acts of government.
7.4 Neither the Customer nor Citibank shall be liable for any failure to
perform any of its obligations under this Master Banking Agreement or
any Service Agreement if such performance would result in it being in
breach of any law, regulation, requirement or provision of any
government, government agency, banking or taxation authority in
accordance with which it is required to act, as it shall determine.
8. Equipment
To the extent any Service requires equipment (including hardware and
security devices) to be operated by the Customer, the provision of the
Service by Citibank shall be conditional on the proper use and maintenance
of such equipment by the Customer. If Citibank supplies equipment, Citibank
shall remain the owner of such equipment and the Customer agrees to insure
the same, to use it solely in the manner specified in the Materials and in
connection with the relevant Service and not to remove or modify any name
or other identifying mark on the equipment.
9. Information
9.1 Bank Information
9.1.1 The products, Services, software, Materials, data and any
information Citibank or its affiliates provides to Customer
in connection with this Master Banking Agreement or any
Service Agreement other than data or information primarily
derived from data or information initially provided by
Customer to Citibank or its affiliates ("Bank Information")
is the exclusive, valuable and confidential property of
Citibank and/or any of its relevant licensors or suppliers
as the case may be. The Customer agrees to keep all Bank
Information confidential and to limit access to its
employees (under a similar duty of confidentiality) who
require access in the normal course of their employment
except to the extent any Bank Information is already in the
public domain or the Customer is required to do otherwise by
law or judicial process, and to use it in the manner
designated by Citibank and in the ordinary course of the
Customer's business.
9.1.2 To the extent not prohibited by applicable law, and subject
to any restrictions or procedures imposed by any applicable
Service Agreement, the Customer authorizes the transfer of
any information relating to the Customer to and between the
branches, subsidiaries, representative offices, affiliates
and agents of Citibank and third parties selected by any of
them, wherever situated, for confidential use solely in
connection with the provision of products or Services to the
Customer (including for data processing purposes), and
further acknowledges that any such branch, subsidiary,
representative office, affiliate agent or third party shall
be entitled to transfer any such information as required by
any law, court, regulator or legal process.
Page 3
<PAGE> 16
9.1.3 The Customer shall notify Citibank promptly (with
confirmation in writing) if it discovers or reasonably
suspects that any Bank information has been or may be
compromised or disclosed to any unauthorized person.
9.2 Customer Information
9.2.1 The data and any information Customer provides to Citibank
or any of its affiliates in connection with this Master
Banking Agreement or any Service Agreement other than data
or information primarily derived from Bank Information (the
"Customer Information" is the exclusive, valuable and
confidential property of Customer and/or any of its relevant
licensors or suppliers as the case may be. Citibank agrees
to keep all Customer Information confidential and to limit
access to its employees (under similar duty of
confidentiality) who require access in the normal course of
their employment except to the extent provided in Paragraph
9.1.2 above or to the extent any Customer Information is
already in the public domain or Citibank is required to do
otherwise by law or judicial process.
9.2.2 Citibank shall notify Customer promptly (with confirmation
in writing) if it discovers or reasonably suspects that any
Customer Information has been or may be comprised or
disclosed to any unauthorized person.
10. Advertising
Neither the Customer nor Citibank shall display the name, trademark or
service mark of the other without the prior written approval of the other,
nor will the Customer display that of Citicorp or any subsidiary of
Citicorp without prior written approval from Citicorp or the subsidiary
concerned, except as required by law or judicial process. The Customer
shall not advertise or promote any Service without Citibank's prior written
consent. The foregoing shall not prohibit Customer from advertising or
promoting its own capabilities, products or services, including those which
depend upon or are enabled by a Service so long as such advertisement or
promotion does not identify Citibank or such Service.
11. Termination
11.1 Except as otherwise provided in each Service Agreement, the Customer
or Citibank may terminate this Master Banking Agreement or any
Service Agreement upon 30 days' prior written notice (or,in the
event of a material breach by the other party of this Master Banking
Agreement or any Service Agreement, upon 5 days' prior written
notice). Except as otherwise agreed by the parties in writing,
Citibank may cancel any extension of credit made available in
connection with any Service at any time upon giving notice.
11.2 Upon termination of any Service, the Customer shall return to
Citibank all Materials and equipment supplied by Citibank which
relate to the terminated Service, and Citibank shall provide Customer
with a final accounting and status report of all outstanding items
and account balances.
12. General
12.1 This Master Banking Agreement and any Service Agreement may only be
modified by written agreement of the Customer and Citibank. Materials
may be modified by Citibank from time to time; except that Materials
which relate solely to Customer's Citibank Global Payments Service
Agreement may by modified by Citibank as provided by such Service
Agreement.
12.2 If any provision of this Master Banking Agreement or any Service
Agreement is or becomes illegal, invalid or unenforceable under any
applicable law, the remaining provisions shall remain in full force
and effect (as shall that provision under any other law).
12.3 No failure or delay of the Customer or Citibank in requiring
compliance with any requirement or in exercising any right or remedy
under this Master Banking Agreement or any Service Agreement shall
constitute a waiver of such, or any other, requirement, right or
remedy. The waiver by the Customer or Citibank of any requirement,
right or remedy shall be limited to the specific instance.
12.4 Citibank and Customer hereby agree that either party may produce
telephonic or electronic recordings or computer records as evidence
in any proceedings brought in connection with this Master Banking
Agreement or any service Agreement and the Customer hereby agrees to
Citibank's telephonic or electronic monitoring or recording for
security and quality of service purposes. Except as provided in this
Paragraph, recordings and records relating to Customer shall be
deemed information subject to the restrictions set out in Article 9
above.
12.5 Any notice given by personal delivery, facsimile, courier or
registered or certified mail shall be effective with respect to each
party if delivered to it at its address or telephone number specified
beneath its signatures below (or at any other address or telephone
number it may provide by written notice for this purpose)
12.6 Neither the Customer nor Citibank may assign or transfer any of its
rights or obligations under this Master Banking Agreement or any
Service Agreement without the other's prior written consent, which
consent will not be unreasonably withheld or delayed, provided that
Citibank may at any time assign or transfer any or all of its rights,
duties or obligations under this Master Banking Agreement or any
Service Agreement to its parent, an affiliate or subsidiary, provided
such assignment or transfer does not materially adversely affect the
provision of Services to the Customer, the Customer hereby consents
to any such assignment or transfer and agrees to enter into any
agreement which Citibank may reasonably request to effect such
assignment or transfer.
12.7 The authoritative text of this Master Banking Agreement, any Service
Agreement, the Materials and all related documents and notices is in
English. Any translation from the English is for convenience only.
Page 4
<PAGE> 17
13. Governing Law; Jurisdiction
13.1 This Master Banking Agreement and each Service Agreement shall be
governed by and construed in accordance with New York law, without
regard to its conflicts of law rules.
13.2 For the benefit of Citibank, the Customer agrees that the courts of
New York shall have jurisdiction to hear any dispute arising out of
or in connection with this Master Banking Agreement or any Service
Agreement and irrevocably submits to the jurisdiction of such courts.
<TABLE>
<S> <C>
CUSTOMER: THE HOTEL CLEARING CORPORATION
--------------------------------------------------------------------------------------------------------
By: /s/ MICHAEL R. DONAHUE By:
-------------------------------------------------- ---------------------------------------------------
(Authorized Signature) (Authorized Signature)
Name: MICHAEL R. DONAHUE Name:
------------------------------------------------- --------------------------------------------------
Title: Senior Vice-President Title:
------------------------------------------------ -----------------------------------------------
3811 Turtle Creek Blvd.,
Suite 1100
Address for Notices: Dallas, Texas 75063 Address for Notices:
---------------------------------- -----------------------------------
Attention: Michael R. Donahue Attention:
------------------------------------------- --------------------------------------------
CITIBANK DELAWARE CITIBANK, N.A.
By: /s/ MICHAEL R. DONAHUE By: /s/ SONIA V. PRINCE
-------------------------------------------------- ---------------------------------------------------
(Authorized Signature)
Name: SONIA V. PRINCE
---------------------------------------------------
Name: Title: Vice President
------------------------------------------------- -----------------------------------------------
Amherst [ILLEGIBLE] 14226
Title: ----------------------------------------------- -------------------------------------------------------
Address for Notices: Address for Notices: Global Cash Management Services
- ------------------------------------------------------ ----------------------------------
8430 W. Bryn Mawr Avenue
- ------------------------------------------------------
Attention: -------------------------------------------------------
------------------------------------------- Chicago, Illinois 60631
-------------------------------------------------------
Attention: Global Corporate Product Manager
--------------------------------------------
</TABLE>
Page 5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Company's
form 10-Q for the 9 months ended September 30, 1998 filed November 13, 1998 with
Securities and Exchange Commission and is qualified in its entirety by reference
to such 10Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 29,785
<SECURITIES> 12,152
<RECEIVABLES> 3,856
<ALLOWANCES> (68)
<INVENTORY> 0
<CURRENT-ASSETS> 46,835
<PP&E> 17,663
<DEPRECIATION> (14,085)
<TOTAL-ASSETS> 57,153
<CURRENT-LIABILITIES> 6,702
<BONDS> 0
0
0
<COMMON> 106
<OTHER-SE> 50,075
<TOTAL-LIABILITY-AND-EQUITY> 57,153
<SALES> 0
<TOTAL-REVENUES> 20,751
<CGS> 0
<TOTAL-COSTS> 7,091
<OTHER-EXPENSES> 1,967
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 122
<INCOME-PRETAX> 1,883
<INCOME-TAX> 58
<INCOME-CONTINUING> 1,825
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,825
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.16
</TABLE>
