<PAGE>
As filed with the Securities and Exchange Commission on January 20, 1999
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------
CHEAP TICKETS, INC.
(Exact Name of Registrant as Specified in Its Charter)
--------------
<TABLE>
<S> <C> <C>
Delaware 561599 99-0338363
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1440 Kapiolani Boulevard, Honolulu, Hawaii 96814
(808) 945-7439
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------
Michael J. Hartley
Chairman of the Board, Chief Executive Officer and President
Cheap Tickets, Inc.
1440 Kapiolani Boulevard, Honolulu, Hawaii 96814
(808) 945-7439
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies of all communications to be sent to:
<TABLE>
<S> <C>
Henry M. Fields, Esq. Arthur J. Simon, Esq.
Victor H. Sim, Esq. Diane Bono, Esq.
Mavis L. Yee, Esq. SONNENSCHEIN NATH & ROSENTHAL
MORRISON & FOERSTER LLP 8000 Sears Tower, Chicago, Illinois 60606
555 West Fifth Street, Los Angeles, California
90013-1024 (312) 876-8000
(213) 892-5200
</TABLE>
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
<CAPTION>
Proposed Proposed
Amount maximum maximum Amount of
Title of each class of to be offering price aggregate registration
securities to be registered registered(1) per unit(1) offering price(2) fee(2)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value [$.001]...... shares $ $50,000,000 $15,841.00
- --------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Includes shares which the Underwriters have options to purchase to
cover, if any, over-allotments.
(2) Estimated solely for purpose of calculating the amount of the registration
fee. This estimate is made in accordance with Rule 457(c) under the
Securities Act of 1933, as amended.
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information in this Prospectus is not complete and may be changed. We may not +
+sell these securities until the time the registration statement filed with +
+the Securities and Exchange Commission becomes effective. This Prospectus is +
+not an offer to sell the securities and we are not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted or +
+would be unlawful prior to registration or qualification under the securities +
+laws of any such state. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PROSPECTUS
Shares
www.cheaptickets.com
[LOGO OF CHEAP TICKETS INC. APPEARS HERE]
Common Stock
We are a leading retail seller of discount tickets for domestic leisure air
travel. We are the leading seller of non-published fares for regularly
scheduled domestic routes. We sell our tickets through call centers, retail
stores and our Internet site at "www.cheaptickets.com."
<TABLE>
<CAPTION>
Per
The Offering Share Total
------------ ----- -----
<S> <C> <C> <C>
This is our initial public
Public Offering Price.............. $ $ offering,
and no market currently
Underwriting Discounts............. $ $ exists for
our shares. The offering
Proceeds to Cheap Tickets, Inc. ... $ $ price may
not reflect the market price
of our shares after the
Offering.
</TABLE>
We have granted the Underwriters the right to purchase an additional [ ]
shares to cover over-allotments. The Underwriters expect to deliver shares of
Common Stock to purchasers on or about [ ], 1999.
------------
Proposed Trading Symbol:
Nasdaq National Market--CTIX
------------
This investment involves a high degree of risk. You should purchase shares
only if you can afford a complete loss. See "Risk Factors" commencing on Page
7.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------
William Blair & Company Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
, 1999
<PAGE>
Inside Cover: [Picture of artwork depicting logos of airlines served, picture
of Cheap Tickets' logo with URL "www.cheaptickets.com" below and pictures of
representative vacation locations served] Text: "Cheap Tickets offers the
largest selection of non-published and published leisure fares, including
375,000 proprietary fares and millions of published SABRE fares." [ARTWORK]
Back Inside Cover: [Various pictures of the Company's Website] Text: "Cheap
Tickets offers an online economic solution for consumers looking for the
absolute cheapest travel tickets."
[ARTWORK]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS WHICH
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF COMMON STOCK OF THE
COMPANY INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS OR THE
IMPOSITION OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE
"UNDERWRITING." THESE TRANSACTIONS MAY BE MADE ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, all share and per
share data and information in this Prospectus [assumes that the Company will
split its Common Stock -for-one] and assumes that the
Underwriters will not exercise their over-allotment option. This Prospectus
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed in
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in "Risk Factors."
THE COMPANY
We are a leading retail seller of discount tickets for domestic leisure air
travel. In 1998, we sold approximately 963,000 airline tickets through call
centers, retail stores and our Internet site at "www.cheaptickets.com." We are
the leading seller of non-published fares for regularly scheduled domestic
routes. Non-published fares are tickets that we buy from airlines and resell to
consumers at significant discounts off published fares. Sales of non-published
fares accounted for approximately 59% of our airline gross bookings in 1998. We
have rights to buy these fares under contracts from over 25 airline carriers,
including America West, American, Continental, TWA and US Airways. We purchase
these fares only when we resell them to customers, so that we do not carry
inventory. We also offer a full complement of regularly published fares,
affording customers a breadth of choice in leisure travel tickets at attractive
prices that we believe is unmatched in the industry. We also sell cruise
tickets, auto rentals and hotel reservations.
We began selling tickets over the Internet in October 1997. In 1998, we sold
97,000 tickets through our website, generating $25 million in gross bookings.
Internet sales represented approximately 9% of our gross bookings in 1998 and
15% in the fourth quarter of 1998, reflecting the rapid increase in Internet
sales as a percentage of gross bookings. At December 31, 1998, we had over
430,000 registered online users, with 180,000 registering in the fourth quarter
of 1998.
Since 1986, we have provided an efficient distribution channel for airlines
to sell excess capacity without eroding their published fare structures.
Domestic airlines had average excess system capacity of 32.5% from 1995 to
1997, and excess capacity is estimated to be 29.4% in 1998. We seek to match
excess capacity with consumer demand for the lowest price available. Currently,
we offer approximately 375,000 non-published fares at any given time, covering
most major domestic and international routes. We set prices on these fares
lower than those available on published fares to meet the demands of leisure
travelers. These fares contain restrictions typically making them unattractive
for full fare passengers, who seek the convenience of tickets that can be
exchanged or canceled and do not have advance purchase or minimum stay
requirements. We believe our track record of selling excess capacity without
compromising the airlines' fare structures provides a strong incentive for the
airlines to continue to use us as the premier outlet for the sale of domestic
non-published fares.
We also offer to customers a full menu of regularly published fares in
addition to non-published fares. In 1994, we became the first non-airline to
file our non-published fares through the Airline Tariff Publishing Corporation.
This allows us to integrate our non-published fares with published fares in a
special area of the SABRE reservations system to which only we have access.
This system automatically sorts through millions of fares, including our non-
published fares, to identify the lowest fares available for the desired
itinerary. These fares are then posted in ascending price order for use by our
reservation agents and Internet customers.
The travel industry is large and growing. Consumers in the United States
spent $126 billion on travel through travel agencies in 1997, up from $101
billion in 1995. Airline travel continues to be the largest segment of the
industry, with $70.5 billion, or 56%, of total travel booked through travel
agencies in 1997.
3
<PAGE>
Increasingly, the Internet has become an attractive method to sell travel
tickets directly to the public. Currently, travel represents the second largest
online retail category sold over the Internet. Online airline travel bookings
were $1.6 billion in 1998 and are expected to grow at a compounded annual
growth rate of 46%, reaching $10.6 billion in 2003.
Our growth strategy is to expand our customer base, significantly increase
our brand awareness, expand our strategic relationships and increase call
center productivity. First, we plan to capitalize on our position as the market
leader in selling non-published fares to rapidly grow our Internet ticket
sales. We intend to broaden our online visibility with Internet content,
commerce and service providers. Second, we plan to aggressively expand brand
recognition nationally and internationally. To accomplish this goal, we intend
to augment our successful print media marketing and increase advertising on
leading websites and in other media. Third, we plan to expand existing and
establish new strategic relationships with airlines to increase sales of their
excess capacity. We also intend to seek new relationships with other travel
suppliers, certain Internet portals and travel-related websites. Finally, we
plan to expand our call center capacity through improved productivity. We
intend to invest substantial resources in developing, acquiring and
implementing technological enhancements to our call centers.
Our executive offices are located at 1440 Kapiolani Boulevard, Honolulu,
Hawaii 96814; our telephone number is (808) 945-7439 and our facsimile number
is (808) 946-3844. We were incorporated in Hawaii in 1986 and reincorporated in
Delaware on February 1, 1999.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company........................... [ ] shares
Common Stock to be outstanding
after the Offering................ [ ] shares(1)
Use of proceeds.................... For advertising and brand development;
for development of technological
infrastructure; to redeem
outstanding Mandatorily Redeemable
Preferred Stock; and for general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol............................ CTIX
</TABLE>
- --------
(1) Based on the number of shares outstanding as of September 30, 1998.
Excludes [47,200] shares of Common Stock issuable and [94,203] shares
reserved for issuance under the 1997 Stock Option Plan as of September 30,
1998. Includes [212,104] shares of Common Stock issuable upon the exercise
of warrants outstanding as of September 30, 1998. It is anticipated that
all the warrants will be exercised immediately prior to the closing of the
Offering. Excludes [ ] shares reserved for issuance under the 1999 Stock
Incentive Plan. See Notes 5 and 12 to the Financial Statements,
"Management--Employee Stock Plans," "Description of Capital Stock."
----------------
4
<PAGE>
SUMMARY FINANCIAL DATA
(in thousands, except per share and operating data)
Set forth below are summary financial data of the Company for the periods
indicated, which have been derived from the Company's audited and unaudited
financial statements. The operating data were not audited. The summary
financial data set forth below should be read in conjunction with the Company's
Financial Statements and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
-------------------------- --------------------
1995 1996 1997 1997 1998
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Gross bookings
(unaudited)(1)........... $ 91,994 $105,944 $153,674 $ 112,084 $ 199,115
======== ======== ======== ========= =========
Results of Operations:
Non-published fares....... $ 66,340 $ 58,982 $ 96,379 $ 73,714 $ 122,995
Commissions............... 2,738 5,614 6,470 4,674 8,053
-------- -------- -------- --------- ---------
Net revenues(1)......... 69,078 64,596 102,849 78,388 131,048
Gross profit.............. 12,654 15,428 21,479 16,403 26,501
Selling, general and
administrative expenses.. 11,921 14,352 23,091 16,561 24,093(2)
-------- -------- -------- --------- ---------
Net operating income
(loss)................. 733 1,076 (1,612) (158) 2,408
Net earnings (loss)....... $ 17 $ 674 $ (1,009) $ (111) $ 1,473
Basic earnings (loss) per
share(3)................. $ [0.02 $ 0.63 $ (1.14) $ (0.22) $ 1.00]
Number of shares used in
computing basic earnings
(loss) per share(3)...... [1,054 1,065 1,108 1,108 1,090]
Diluted earnings (loss)
per share(3)............. $ [0.02 $ 0.63 $ (1.14) $ (0.22) $ 0.84]
Number of shares used in
computing diluted
earnings (loss)
per share(3)............. [1,054 1,065 1,108 1,108 1,302]
Operating Data:
Airline tickets sold:..... 313,863 357,551 554,403 393,936 682,239
Call centers............ 313,863 357,551 552,383 393,936 626,184
Internet................ -- -- 2,020 -- 56,055
Registered Internet
users.................... -- -- 5,000 -- 250,218
</TABLE>
<TABLE>
<CAPTION>
September 30, 1998
----------------------
Actual As Adjusted(4)
------- --------------
<S> <C> <C>
Balance Sheet Data:
Net working capital ................................. $ 4,247 $
Total assets......................................... 14,903
Long-term debt....................................... 1,098 1,098
Mandatorily Redeemable Preferred Stock(5)............ 4,007 --
Stockholders' equity................................. 1,897
</TABLE>
- --------
(1) Gross bookings is a memorandum item and is not included in the Company's
results of operations. It consists of the aggregate retail value of non-
published fares and published fares that are sold on a commission basis.
Net revenues consist of sales of non-published fares and commissions.
Commissions (including incentive overrides) are earned primarily on
published fares sold and include certain other payments based on the volume
of transactions. Gross bookings are not required by generally accepted
accounting principles ("GAAP") and should not be considered in isolation or
as a substitute for other information prepared in accordance with GAAP. The
Company believes that gross bookings provide a useful comparison between
historical periods, and year-to-year changes in such information provide a
useful measure of market acceptance of the Company's products. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
(2) In the second quarter of 1998, the Company issued stock options to
employees to acquire [47,200] shares of the Company's Common Stock at
[$2.50] per share. Total compensation associated with these options
amounted to $26,600 of which $1,795 has been charged to operations for the
nine months ended September 30, 1998. The remainder will be charged over
the remaining five-year vesting period of the options, with the exception
of $1,000, which will be charged at the closing of the Offering at which
time [10,000] options vest by their terms.
5
<PAGE>
(3) See Notes 1 and 5 to the Financial Statements for the calculation of
earnings per share, including an explanation of the number of shares used
in computing the amount of basic and diluted earnings per share. [Further
adjustment for pre-offering split.]
(4) As adjusted to reflect (1) the receipt of net proceeds of the Offering; (2)
the redemption of the Mandatorily Redeemable Preferred Stock (including a
charge for the unaccreted discount); (3) the exercise of warrants to
purchase up to [212,104] shares of Common Stock at an exercise price
[$0.01] per share; and (4) the immediate recognition of unearned
compensation related to certain stock options that fully vest upon the
completion of this Offering.
(5) The Mandatorily Redeemable Preferred Stock is required to be redeemed upon
the closing of this Offering. The redemption price upon the closing of this
Offering will be approximately $4.8 million. See "Capitalization." The
Preferred Stock was issued at a discount of $885,170. The Company is
accreting the discount over a five year period. At redemption, it is
anticipated that the unaccreted discount will be $580,439. Upon redemption,
the unaccreted discount will be charged directly to stockholders' equity,
and have a dilutive effect on the calculation of earnings per share.
6
<PAGE>
RISK FACTORS
In addition to the other information we provide in this Prospectus, you
should carefully consider the following risks before deciding whether to invest
in our Common Stock. These are not the only risks we face. Some risks are not
yet known to us and there are others we do not currently believe are material
but could later turn out to be so. All of these could hurt our business. The
trading price of our Common Stock could decline because of general market
conditions or if any or all of these risks came to pass, and you could lose all
or part of your investment. In evaluating the risks of investing in us, you
should also evaluate the other information set forth in this Prospectus,
including our financial statements and the notes accompanying them.
Reliance on Travel Suppliers; No Long-Term Contracts.
In 1998, approximately 98% of our gross bookings came from the sale of
airline tickets. The tickets consist of two kinds:
(1) Non-published fares. These are tickets we acquire from the airlines
and resell to consumers at substantial discounts off published fares. The
airlines sell us tickets at these non-published fares primarily to dispose
of excess capacity without eroding published fare structures. In 1998, non-
published fares represented about 59% of our airline gross bookings and 92%
of our net revenues, and we believe that our continuing ability to obtain
them is key to our success. We have contracts with more than 25 airlines
that permit us to acquire non-published fares on routes designated in the
contracts at specified prices. These contracts do not require airlines to
provide a specific quantity of tickets or to deal with us exclusively.
Although the terms vary, the typical contract is for a period from one to
one and a half years, and many are cancelable on 30 days' notice or less.
We have a consistent record of renewing these contracts, but airlines may
decide not to do business with us or to dispose of excess capacity
themselves or through others. At times in the past, airlines have renewed
contracts with us on less favorable terms and this may continue to occur in
the future. In addition, there may be times when they have less excess
capacity to sell. In 1998, approximately 50% of our gross bookings of non-
published fares came from tickets we bought from three airlines, of which
24% came from one airline. Our business could be hurt by:
. Refusals by airlines to renew contracts;
. Lack of available excess capacity for an extended time period;
. Renewals of the contracts on less favorable terms; or
. Cancellation of contracts.
(2) Published fares. These are tickets offered generally by travel
agents, airlines and online travel companies. We sell them to customers on
a commission basis. Sales of published fares represented approximately 41%
of our airline gross bookings and approximately 7% of our net revenues in
1998. We have no published fare contracts, consistent with industry
practice. As a result, the airlines could at any time decline to sell
tickets through us. This would significantly decrease the amount and
breadth of our available tickets and could materially hurt our business.
In 1998, approximately 2% of our gross bookings came from the sale of cruise
tickets, auto rentals and hotel reservations. Our business strategy is to
increase the percentage of such alternative travel offerings as a percentage of
our revenues. These travel providers could choose not to do business with us at
any time. If we cannot obtain alternative travel offerings in the future, we
may not be able fully to realize on our growth strategy. See "Business--Cheap
Tickets Growth Strategy--Broaden Existing Products and Offerings."
Dependence on Commission Rates.
We earned approximately 26% of our gross profit in 1998 from commissions
paid by airlines. However, they are not required to pay any particular
commission rates, or any commissions at all. In recent years, airlines
7
<PAGE>
have reduced rates and capped per-ticket commissions. In addition, they have
further reduced rates and capped commissions for online reservations. In
January 1999, one major carrier announced it would impose a surcharge ($1 one-
way, $2 roundtrip) on any domestic ticket purchased anywhere except on that
carrier's own Internet site. Thus, air carriers could further reduce, restrict
or eliminate altogether commissions or impose surcharges for tickets not sold
by them at any time. This could hurt our business. See "Business--Products and
Services," "Business--Strategic Relationships" and "Business--Airline Ticket
Sales."
Unpredictability of Future Revenues; Fluctuations in Quarterly Results.
Our business is seasonal due to customers' leisure travel patterns and
changes in the availability of non-published fares. As a result, we typically
have higher sales and gross profit in the second and third quarters and lower
sales and gross profit in the fourth quarter, and historically we have
experienced losses in net income in the fourth quarter. During periods of high-
volume air travel, such as occur in the fourth quarter of each year, we
historically have had access to fewer non-published fares, and such fares on
certain major routes may be unavailable. Online gross bookings may also tend to
be seasonal and may decline or grow less rapidly in the summer months. The
seasonal sales cycle is fairly predictable, but the cycle may shift year-to-
year, corresponding to changes in the economy or other factors affecting the
market such as price wars. This could lead to unusual volatility in revenues
and earnings.
Gross profit may be impacted by a number of different factors, including:
. the amount of fares sold;
. the percentage of gross bookings represented by non-published fare sales;
. the gross margin percentages on non-published fare sales. These
percentages in turn can be impacted by the sales mix of airlines, whose
net fare prices to us vary, and by competitive factors on various routes
and the possible elimination of profitable routes;
. rates of commissions on published fare sales; and
. the amount of volume bonuses.
Any change in these factors could materially affect our gross margins and
operating results in future periods. Other events outside our control,
including those set forth in other risk factors, may cause us to experience
significant fluctuations in revenues and earnings.
We intend to increase operating expenses in anticipation of future sales. If
these increased sales do not occur or occur only in subsequent periods, we may
experience downward fluctuations in our earnings.
As a result of the foregoing factors, our annual or quarterly results of
operations may be below the expectations of public market analysts and
investors. This in turn could result in a decline in the value of our Common
Stock.
Dependence on the Travel Industry.
We earn almost all our revenues from the travel industry, particularly from
leisure travel. Leisure travel is highly sensitive to personal discretionary
spending levels and thus tends to decline during general economic downturns. In
addition, other adverse trends or events that tend to reduce leisure travel are
likely to harm our business. These may include:
. Political instability;
. Regional hostilities;
. Terrorism;
. Fuel price escalation;
8
<PAGE>
. Travel-related accidents;
. Bad weather; or
. Airline or other travel related strikes.
See "--Unpredictability of Future Revenues; Fluctuations in Quarterly
Results," "Business--Airline Ticket Sales" and "Business--Industry Background."
Competition.
We compete in ticket sales against travel wholesalers, consolidators, online
travel companies, airlines and travel agents based on price and quality of
service. In the leisure travel market, we also compete against frequent flyer
awards and charter flights. Some of our actual and potential competitors have
longer histories, larger customer bases, greater brand recognition or
significantly greater financial, marketing and other resources than we do.
These competitors may also enter into strategic or commercial relationships
with larger, more established or well-financed companies. Certain of our
competitors may be able to secure tickets and other travel products from
airlines and travel suppliers on more favorable terms. They may also devote
greater resources to marketing and promotional campaigns and substantially more
resources to website and systems development. In addition, new technologies may
increase competitive pressures on us. Increased competition may result in
reduced operating margins, loss of market share and decreased brand
recognition. There can be no assurance that we will be able to compete
successfully against current and future competitors.
Competition for Non-Published Fares.
Sellers of Non-Published Fares. Our existing direct competition for non-
published fares comes largely from companies that specialize in the
distribution of discounted fares in the form of regularly scheduled and
chartered flights. We believe that the market for the sale of non-published
fares is highly fragmented. For international routes, it is highly competitive,
with numerous participants offering deeply discounted fares. For domestic
routes, there are few sellers, and they generally have contracts with a small
number of carriers for a limited number of routes. We are the leading seller of
non-published fares for regularly scheduled domestic routes and have contracts
with many carriers covering most major domestic and international routes. As
the domestic airline industry continues to evolve, other competitors could
increase their share of the market, or new ones could enter the market. Such
developments could hurt our business.
Online Travel Companies. Online travel companies are rapidly increasing
their shares of airline ticket sales, but, with limited exceptions (for
example, Priceline.com, Inc.), to our knowledge, non-published fares for
regularly scheduled domestic routes are not currently offered by other online
travel companies. If airlines were to make such fares generally available to
online travel companies, presumably they would risk eroding published fare
structures. However, one or more online companies, a number of which possess
larger customer bases, greater brand recognition and significantly greater
financial, marketing and other resources than us, may succeed in accessing non-
published fares. If they do, it could hurt our business.
Airlines and Travel Agents. Airlines do not generally offer non-published
fares directly or indirectly through affiliates or travel agents for regularly
scheduled travel, presumably to prevent the erosion of their published fare
structures. Some airlines have begun to offer limited special discounted fares
through their Internet sites that are not generally made available to travel
agents. These fares are typically offered on a last-minute, "special sale"
basis. In addition, some airlines offer special promotional fares combining low
base prices and the use of frequent flyer awards. Airlines may expand their
offering of special promotional fares, enter the non-published fare market or
sell non-published tickets through travel agents. Any such change in strategy
by the airline industry could hurt our business.
9
<PAGE>
Certain Competitive Factors Affecting Non-Published Fares.
Published fares also compete with our non-published fares. They effectively
establish price ceilings for our non-published fares. From time to time,
airlines also offer special fares, which may compete directly with our non-
published fares. Direct competition also comes from the airlines when fare wars
break out. Proliferation of special fares or the outbreak of fare wars could
hurt our business.
Competition for Published Fares.
In the sale of published fares, we currently compete with airlines,
traditional travel agents, online travel services and travel industry
reservation databases. The online travel services market is new, rapidly
evolving and intensely competitive, and we expect such competition to intensify
in the future. In the online travel services market, we compete for published
fares with similar commercial websites of other companies, such as Expedia
(operated by Microsoft Corporation), Travelocity (operated by SABRE Group
Holdings Inc., a majority-owned subsidiary of American Airlines), Preview
Travel, Inc., Cendant Corporation, TravelWeb (operated by Pegasus), Internet
Travel Network, Biztravel.com and TheTrip.com, among others. Several
traditional travel agencies, including larger travel agencies such as American
Express Travel Related Services Co. Inc., Uniglobe Travel, Travel Services
International, 800 Travel Systems and Carlson Wagonlit Travel, have
established, or may establish in the future, commercial websites offering
online travel services. Several airlines also have established commercial
websites to sell their tickets and offer other online travel services. In
January 1999, one major carrier announced that it would impose a surcharge ($1
one-way, $2 roundtrip) on any domestic ticket purchased anywhere except on that
carrier's own Internet site. See "Business--Online Travel Market" and
"Business--Competition."
Dependence on Continued Growth of Online Commerce and Internet Infrastructure.
Our future revenues and profits depend, to a certain degree, upon the
widespread acceptance and use of the Internet and online services as a medium
for commerce by customers and sellers. Rapid growth in the use of the Internet
and online services is a recent phenomenon. This growth may not continue. A
sufficiently broad base of customers may not accept, or continue to use, the
Internet as a medium of commerce. Demand for and market acceptance of recently
introduced products and services over the Internet are subject to a high level
of uncertainty. There are few proven products and services. For us to achieve
significant growth, customers who have historically used traditional means of
commerce will instead need to elect to purchase products and services online,
and sellers of products and services will need to accept or expand use of the
Internet as a channel of distribution. Our revenues and profits depend on
customers visiting our website and actually purchasing tickets. Customers could
potentially use the site for route information and choose to purchase tickets
directly from the airlines or elsewhere.
The Internet has experienced, and is expected to continue to experience,
significant growth in the number of users and amount of traffic. Our success
will depend upon the development and maintenance of the Internet's
infrastructure to cope with this increased traffic. This will require a
reliable network backbone with the necessary speed, data capacity and security,
and the timely development of complementary products, such as high-speed
modems, for providing reliable Internet access and services.
Major online service providers and the Internet itself have experienced
outages and other delays as a result of software and hardware failures and
could face such outages and delays in the future. Outages and delays are likely
to affect the level of Internet usage and the processing of transactions on the
Cheap Tickets website. It is unlikely that we could make up for the level of
orders lost in those circumstances by increased phone orders. In addition, the
Internet could lose its viability by reason of delays in the development or
adoption of new standards to handle increased levels of activity or of
increased government regulation. The adoption of new standards or government
regulation may require us to incur substantial compliance costs. See "--
Governmental Regulation and Legal Uncertainties" and "Business--Governmental
Regulation and Legal Uncertainties."
10
<PAGE>
Uncertain Acceptance of the Cheap Tickets Brand.
We believe that we must maintain and enhance the Cheap Tickets brand to
continue to attract and expand business. The success of the Cheap Tickets brand
will depend to a certain extent on our ability to enhance our advertising
programs. The number of Internet sites that offer competing services increase
the importance of establishing and maintaining our brand name recognition. Many
online sites already have well-established brands in online services or the
travel industry generally. We may find it necessary to increase substantially
our financial commitment to advertising and publicity. This could adversely
affect our results of operations. Failure to maintain and enhance our brand
could hurt our business. See "Business--Competition" and "Business--Cheap
Tickets Growth Strategy."
Management of Potential Growth
We have rapidly and significantly expanded our operations and anticipate
further significant expansion. We have also recently added a number of key
managerial and technical employees, and we expect to add additional key
personnel in the future. This expansion has placed, and we expect it will
continue to place, a significant strain on our management, operational and
financial resources. To manage the expected growth of our operations and
personnel, we plan to:
. improve and upgrade transaction-processing, operational, customer service
and financial systems, procedures and controls;
. maintain and expand our relationships with various travel service
suppliers, Internet portals and other travel related website companies and
other third parties necessary to our business;
. expand our finance, administrative and operations staff;
. continue to attract, train and manage our employee base; and
. implement a disaster recovery program.
Our current and planned personnel, systems, procedures and controls may be
inadequate to support our planned growth, and our management may not be able
successfully to identify, manage and exploit existing and potential market
opportunities. Our inability to manage growth effectively could hurt our
business. See "Business--Cheap Tickets Growth Strategy."
Rapid Technological Change.
The industry in which we compete is characterized by:
. rapid technological change;
. changes in user and customer requirements and preferences;
. frequent new product and service introductions embodying new technologies;
. the emergence of new industry standards and practices; and
. the emerging importance of the Internet and the proliferation of companies
offering Internet-based products and services.
These developments could render our existing online sites and proprietary
technology and systems quickly obsolete. As a result, we will be required to
continually improve the performance, features and reliability of our services,
particularly in response to competitive offerings. Our success will depend, in
part, on our ability to enhance our existing services and develop new services
in a cost-effective and timely manner. The development of proprietary
technology entails significant technical and business risks and requires
substantial expenditures and lead time. We may not be able to adapt
successfully to customer requirements or emerging industry standards. In
addition, the widespread adoption of new Internet, networking or
telecommunications
11
<PAGE>
technologies or other technologies could require us to incur substantial
expenditures to modify or adapt our services or infrastructure. Our inability
to do so in a timely manner or the expenses incurred in making such adaptations
could hurt our business. See "--Competition," "Business--Products and Services"
and""Business--Competition."
Risk of System Failure; Lack of Redundancy and Business Interruption Insurance.
Our ability to receive and fill orders through our call centers or online
and provide high-quality customer service largely depends on the efficient and
uninterrupted operation of our computer and communications hardware systems.
Our online servers are located in San Jose, California, SABRE's computers are
located in Tulsa, Oklahoma, our communication systems are located at four call
centers, and our accounting systems' computers are located in Hawaii. These
systems and operations are vulnerable to damage or interruption from power
loss, telecommunications failure, break-ins, natural disasters and similar
events.
We currently do not have redundant systems and do not carry adequate
business interruption insurance. In addition, although we back up data on a
regular basis, we do not have a formal disaster recovery plan. Although we have
adopted network security measures, our servers are vulnerable to computer
viruses, physical or electronic break-ins and similar disruptions. These kinds
of events could lead to interruptions, delays, loss of data or the inability to
accept and confirm customer reservations. The occurrence of any of the
foregoing risks could hurt our business. See "--Online Commerce and Database
Security Risks" and "--Reliance on Third-Party Systems."
Reliance on Third-Party Systems.
We rely on certain third-party computer systems and third-party service
providers, including the computerized central reservation systems of the
airline and hotel industries to make airline ticket and hotel room
reservations. We also rely on third parties to print our airline tickets and
arrange for their delivery. We rely on iXL Holdings to host our online system's
infrastructure, web and database servers.
We use an internally developed system for our website and substantially all
aspects of transaction processing. We currently rely on The SABRE Group
("SABRE") for our general reservations system, including customer profiling,
making reservations and credit card verification and confirmations. Currently,
over 90% of our computing transactions are processed through the SABRE systems.
Our technology relationship with SABRE for Internet operations will further
increase our dependency. If we or SABRE ever elect to terminate the existing
relationship, we would be forced to convert to another provider. This
conversion could require a substantial commitment of time and resources and
hurt our business.
Any interruption in these third-party services or a deterioration in their
performance could seriously disrupt our business. If our arrangement with any
of these third parties is terminated, we may not find an alternative source of
systems support on a timely basis or on commercially reasonable terms. See "--
Risk of System Failure; Lack of Redundancy and Business Interruption Insurance"
and "--Risk of Capacity Constraints."
Risk of Capacity Constraints.
During traffic peaks, we have experienced capacity constraints at our call
centers and we have not been able to answer all calls or service all inquiries
adequately. Capacity constraints can cause unanticipated system disruptions,
slower response times, poor customer service, impaired quality and speed of
reservations and confirmations and delays in reporting accurate financial
information.
We intend to use part of the proceeds of this Offering to upgrade our
systems and increase our processing capability, both online and through our
call centers, to accommodate anticipated increases in customer ticket
12
<PAGE>
sales. However, if we experience a substantial increase in our web traffic or
in reservations beyond expected levels, we may need to expand and upgrade our
technology, transaction-processing systems and network infrastructure. If we
fail to expand and upgrade in a timely manner, our business could be hurt. We
believe that our contemplated systems enhancements will be sufficient to handle
increases in expected demand, but we may not be able to:
. project accurately the rate or timing of such increases;
. upgrade our systems and infrastructure to accommodate future traffic
levels;
. integrate successfully any newly developed or purchased technology with
our existing systems; or
. upgrade and expand our systems in a timely or efficient manner.
Our inability to do so could hurt our business. See "Business--Cheap Tickets
Growth Strategy" and "Business--Products and Services."
Online Commerce and Database Security Risks.
In our business, secured transmission of confidential information over
public networks is essential to maintain consumer and supplier confidence.
Concerns over the security of transactions conducted on the Internet and the
potential compromise of customer privacy may inhibit the growth of commercial
online services as a means of conducting commercial transactions.
We have expended significant resources to protect against security breaches
and to alleviate problems caused by such breaches, and we may need to make
further expenditures for this purpose in the future. We rely on encryption and
authentication technology licensed from third parties to provide the security
and authentication necessary to transmit securely confidential information,
such as customer credit card numbers. In addition, we maintain an extensive
confidential database of customer profiles and transaction information. Our
current security measures may not be adequate and advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments may result in a compromise or breach of the methods we use to
protect customer transaction and personal data. A party who can circumvent our
security might be able to misappropriate proprietary information or cause
interruptions in our operations. Security breaches could also expose us to a
risk of loss or litigation and possible liability for failing to secure
confidential customer information. If any such compromise of our security were
to occur, it could hurt our business. See "--Dependence on Continued Growth of
Online Commerce and Internet Infrastructure," "--Rapid Technological Change,"
"Risk of System Failure" and "Business--Products and Services."
Dependence on Experience, Attraction and Retention of Key Employees.
We depend substantially on the continued services and performance of our
senior management, particularly Michael J. Hartley, the Chairman of the Board,
Chief Executive Officer and President and certain other key personnel. The loss
of the services of any of these executive officers or other key employees could
hurt our business. We do not have employment agreements with any of our key
personnel. In addition, most members of our senior management group have been
recruited and hired over the past 18 months. These individuals may not be able
to fulfill their responsibilities adequately and may not remain with us.
Our future success also depends on our ability to identify, attract, hire,
train, retain and motivate other highly skilled technical, managerial,
marketing and customer service personnel. Competition for such personnel is
intense. The location of our headquarters in Hawaii may also make it more
difficult to attract qualified personnel from the mainland. We may not able to
attract, assimilate or retain sufficiently qualified personnel. In particular,
we may encounter difficulties in attracting a sufficient number of qualified
software developers for our online services and transaction-processing systems.
The failure to retain and attract necessary technical, managerial, marketing
and customer service personnel could hurt our business and impair our growth
strategy.
13
<PAGE>
Although none of our employees is represented by a labor union, our
employees may join or form a labor union. See "Management" and "Business--
Employees."
Risks Associated with Offering New Services.
We plan to introduce new and expanded services. For example, we have started
to offer hotel and auto rental reservations. We may not be able to offer such
services in a cost-effective or timely manner and our efforts may not be
successful. Further, any new service that is not favorably received by
customers could damage our reputation or brand name. Expansion of our services
could also require significant additional expenses and may strain our
management, financial and operational resources. Our inability to generate
revenues from such expanded services or products sufficient to offset their
development or offering cost could hurt our business. See "--Management of
Potential Growth" and "Business--Cheap Tickets Growth Strategy."
Risks Associated with Potential Acquisitions.
We may in the future broaden the scope and content of our business through
the acquisition of existing complementary businesses. For instance, we may
consider the acquisition of companies providing similar services in
international markets or in other sectors of the travel industry. We are not
currently contemplating any such acquisitions. Future acquisitions would expose
us to increased risks. These include risks associated with:
. the assimilation of new operations, sites and personnel;
. the diversion of resources from our existing businesses, sites and
technologies;
. the inability to generate revenues from new sites or content sufficient to
offset associated acquisition costs;
. the maintenance of uniform standards, controls, procedures and policies;
and
. the impairment of relationships with employees and customers as a result
of integration of new businesses.
Acquisitions may also result in additional expenses associated with
amortization of acquired intangible assets or potential businesses. We may not
be successful in overcoming these risks or any other problems encountered in
connection with such acquisitions, and our inability to manage these risks
could hurt our business. See "Business--Cheap Tickets Growth Strategy."
Risks Associated with International Expansion.
One component of our growth strategy is to expand internationally. We may
expend significant financial and management resources to establish local
offices overseas, create localized user interfaces and comply with local
customs and regulations. If the revenues generated by these international
operations are insufficient to offset the expense of establishing and
maintaining them, our business could be hurt. To date, we have no experience in
developing localized versions of our online sites or offshore call centers and
only limited experience in marketing and distributing our travel services
internationally. We may not be able to expand our operations successfully in
such markets. Conducting business on an international level also involves
certain inherent risks, such as unexpected changes in regulatory requirements,
tariffs and other trade barriers, difficulties in staffing and managing foreign
operations, political instability, currency rate fluctuations, seasonality in
leisure travel in certain countries and potentially adverse tax consequences.
One or more of the foregoing factors could hurt our future international
operations and, consequently, our business generally. See "Business--Cheap
Tickets Growth Strategy."
14
<PAGE>
Future Capital Needs.
Based on our current operating plan, we anticipate that the net proceeds of
this Offering, together with our available funds and bank lines, will be
sufficient to satisfy our anticipated needs for working capital, capital
expenditures and business expansion for the foreseeable future. After that
time, we may need additional capital. Alternatively, we may need to raise
additional funds sooner in order to fund more rapid expansion, to develop new
or enhanced services, or to respond to competitive pressures. If we raise
additional funds by issuing equity or convertible debt securities, the
percentage ownership of our stockholders will be diluted. Further, any new
securities could have rights, preferences and privileges senior to those of the
Common Stock.
We currently do not have any commitments for additional financing. We cannot
be certain that additional financing will be available in the future to the
extent required or that, if available, it will be on acceptable terms. If
adequate funds are not available on acceptable terms, we may not be able to
fund our expansion, develop or enhance our products or services or respond to
competitive pressures. See "Use of Proceeds," "Description of Capital Stock"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Year 2000 Risks.
The risks posed by Year 2000 issues could hurt our business in a number of
significant ways. Our information technology system could be substantially
impaired or cease to operate due to Year 2000 problems. Additionally, we rely
on information technology supplied by third parties, and our participating
sellers are also heavily dependent on information technology systems and on
their own third party vendors' systems. The main supplier of our reservations
system is SABRE. Currently, over 90% of our transactions are processed through
SABRE. Year 2000 problems experienced by us or any such third parties could
hurt our business. Additionally, the Internet could face serious disruptions
arising from the Year 2000 problem.
We are evaluating our internal information technology systems and contacting
our information technology suppliers and participating sellers to ascertain
their Year 2000 status. However, our own systems may not be Year 2000 compliant
in a timely manner, any of our participating sellers or other website vendors
may not be Year 2000 compliant in a timely manner, and there may be significant
interoperability problems among information technology systems. Consumers may
not be able to visit our website without serious disruptions arising from the
Year 2000 problem. Given the pervasive nature of the Year 2000 problem,
disruptions in other industries and market segments may hurt our business.
Moreover, the costs related to Year 2000 compliance could be significant.
Finally, Year 2000 issues may impact other entities with which we do
business, including, for example, those responsible for maintaining telephone
and Internet communications. Accordingly, we cannot predict the effect of the
Year 2000 problem on such entities. If these other entities fail to take
preventive or corrective actions in a timely manner, the Year 2000 issue could
hurt our business. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Compliance."
Uncertain Protection of Intellectual Property; Risks of Third Party Licenses.
We regard our copyrights, service marks, trademarks, trade secrets and
similar intellectual property as critical to our success. We rely on a
combination of laws and contractual restrictions, including trademark and
copyright law, trade secret protection and confidentiality and/or license
agreements with our employees, customers, partners and others to establish and
protect our proprietary rights. However, laws and contractual restrictions may
not be sufficient to prevent misappropriation of our technology or deter others
from developing similar technologies. We pursue the registration of certain of
our key trademarks and service marks in the United States. Effective trademark,
service mark, copyright and trade secret protection may not be available in
every country in which our products and services are made available. The steps
we have taken to protect our proprietary rights may not be adequate, third
parties may infringe or misappropriate our copyrights, trademarks,
15
<PAGE>
trade dress and similar proprietary rights, and we may be required to incur
significant expenses preserving our rights. In addition, other parties may
assert infringement claims against us. We may be subject to legal proceedings
and claims from time to time in the ordinary course of our business, including
claims of alleged infringement of the trademarks and other intellectual
property rights of third parties by us. Such claims, even if not meritorious,
could result in the expenditure of significant financial and managerial
resources. See "--Domain Names," "Business--Proprietary Rights" and "Business--
Cheap Tickets Business Strategy."
Domain Names.
We currently hold the Internet domain name "www.cheaptickets.com," as well
as various other related names. Domain names generally are regulated by
Internet regulatory bodies. The regulation of domain names in the United States
and in foreign countries is subject to change. Regulatory bodies could
establish additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names. As a result, we
may not acquire or maintain the "www.cheaptickets.com" domain name in all of
the countries in which we conduct business.
The relationship between regulations governing domain names and laws
protecting trademarks and similar proprietary rights is unclear. Therefore, we
may be unable to prevent third parties from acquiring domain names that
infringe or otherwise decrease the value of our trademarks and other
proprietary rights. See "--Uncertain Protection of Intellectual Property; Risks
of Third Party Licenses," "--Governmental Regulation and Legal Uncertainties,"
"Business--Proprietary Rights" and "Business--Governmental Regulation and Legal
Uncertainties."
Governmental Regulation and Legal Uncertainties.
Certain segments of the travel industry are heavily regulated by the United
States and other governments. Accordingly certain services offered by us are
affected by such regulations. For example, we are subject to federal
regulations prohibiting unfair and deceptive practices. In addition, federal
regulations concerning the display and presentation of information currently
applicable to airline booking services could be extended to us in the future,
as well as other laws and regulations aimed at protecting customers accessing
online or other travel services. In California, Hawaii and certain other
states, we are required to register as a seller of travel, comply with certain
disclosure requirements and participate in the state's restitution fund.
We are also subject to regulations applicable to businesses generally and
laws or regulations applicable to online commerce. Currently, few laws and
regulations directly apply to the Internet and commercial online services.
However, it is possible that laws and regulations may be adopted with respect
to the Internet or commercial online services covering issues such as user
privacy, pricing, content, copyrights, distribution, antitrust and
characteristics and quality of products and services. Further, the growth and
development of the market for online commerce may prompt calls for more
stringent consumer protection laws. Such laws would likely impose additional
burdens on companies conducting business online. The adoption of any additional
laws or regulations may decrease the growth of the Internet or commercial
online services. In turn, this could decrease the demand for our products and
services and increase our cost of doing business, or otherwise hurt our
business.
Moreover, in many states, there is currently great uncertainty whether or
how existing laws governing issues such as property ownership, sales and other
taxes, libel and personal privacy apply to the Internet and commercial online
services. These issues may take years to resolve. For example, tax authorities
in a number of states, as well as a Congressional advisory commission, are
currently reviewing the appropriate tax treatment of companies engaged in
online commerce, and new state tax regulations may subject us to additional
state sales and income taxes. New legislation or regulation, the application of
laws and regulations from jurisdictions whose laws do not currently apply to
our business, or the application of existing laws and regulations to the
Internet and commercial online services could hurt our business. See "--Domain
Names," "--Dependence on Continued Growth of Online Commerce and Internet
Infrastructure" and "Business--Governmental Regulation and Legal
Uncertainties."
16
<PAGE>
Federal legislation imposing certain limitations on the ability of states to
impose taxes on Internet-based sales was enacted in 1998. The Internet Tax
Freedom Act, as this legislation is known, imposes a three-year moratorium on
state and local taxes on electronic commerce (unless such taxes were in effect
prior to October 1, 1998) but only where such taxes are discriminatory on
Internet access. It is possible that the legislation could not be renewed when
it terminates in October 2001. Failure to renew the legislation could allow
state and local government to impose taxes on Internet-based sales, and such
taxes could hurt our business.
Broad Management Discretion over Allocation of Proceeds.
The net proceeds of this Offering are estimated to be approximately $[ ]
million (approximately $[ ] million, if the Underwriters' over-allotment
option is exercised in full) at an assumed initial public offering price of
$[ ] per share and after deducting the estimated underwriting discount and
estimated offering expenses. Our management will retain broad discretion as to
the allocation of approximately $ million of the proceeds of this
Offering. See "Use of Proceeds."
No Prior Market for Our Common Stock; Volatility of Stock Price.
Prior to this Offering, you could not buy or sell our Common Stock publicly.
An active market for our Common Stock may not develop or be sustained after
this Offering. With the Underwriters, we will determine the offering price for
our Common Stock. That price may bear no relationship to the price at which the
Common Stock will trade after completion of this Offering. The market price of
the Common Stock is likely to be volatile and could be subject to significant
fluctuations in response to factors such as the following, some of which are
beyond our control:
. quarterly variations in our operating results;
. operating results that vary from the expectations of securities analysts
and investors;
. changes in expectations as to our future financial performance, including
financial estimates by securities analysts and investors;
. changes in market valuations of other travel, Internet or online service
companies;
. announcements of technological innovations or new services by us or our
competitors;
. announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
. loss of one or more major travel suppliers;
. additions or departures of key personnel;
. future sales of our Common Stock; and
. stock market price and volume fluctuations.
Domestic and international stock markets often experience extreme price and
volume fluctuations. These fluctuations, as well as general political and
economic conditions, such as a recession or interest rate or currency rate
fluctuations, may adversely affect the market price of our Common Stock.
The market prices for stocks of Internet-related and technology companies,
particularly following an initial public offering, frequently reach levels that
bear no relationship to the operating performance of these companies. These
market prices generally are not sustainable and are subject to wide variations.
If our Common Stock trades to such levels following this Offering, it likely
will thereafter experience a material decline.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert management's
attention and resources.
17
<PAGE>
Control by Current Stockholders.
Upon consummation of this Offering, Michael J. Hartley, Chairman of the
Board, Chief Executive Officer and President of the Company, and Sandra T.
Hartley, Vice President, Employee Relations and Director and wife of Michael J.
Hartley, together with their respective affiliates, will beneficially own
approximately [ ] and [ ] percent, respectively ([ ] and [ ]
percent, respectively, if the Underwriters' over-allotment option is exercised
in full), of our outstanding Common Stock, subject to certain adjustments. As a
result, if they act together, they will have the ability to control the outcome
on all matters requiring stockholder approval (including the election and
removal of directors and any merger, consolidation or sale of all or
substantially all of our assets) and to control our management and affairs.
Such control could discourage others from initiating potential merger, takeover
or other change of control transactions. As a result, the market price of our
Common Stock could be adversely affected. See "Principal Stockholders."
Effect of Preferred Stock on Common Stock; Anti-Takeover Effect of Certain
Charter Provisions.
Our Board of Directors has the authority to issue up to [5,000,000] shares
of Preferred Stock and to determine the price, rights, preferences, privileges
and restrictions, including voting rights, of those shares without any further
vote or action by the stockholders. We have outstanding [425,000] shares of
Mandatorily Redeemable Preferred Stock, all of which are required to be
redeemed by us upon the closing of the Offering. We have no present plans to
issue any additional shares of Preferred Stock, but we may do so. The rights of
the holders of Common Stock may be subject to, and adversely affected by, the
rights of the holders of any Preferred Stock that may be issued in the future.
Moreover, the issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change of control of the Company without further
action by the stockholders and may adversely affect the voting and other rights
of the holders of Common Stock. This could have an adverse impact on the market
price of our Common Stock. Further, certain provisions of our charter
documents, including provisions permitting stockholders to take action by
written consent with a two-thirds vote and limiting the ability of stockholders
to raise matters at a meeting of stockholders without giving advance notice,
may have the effect of delaying or preventing changes in control or management
of the Company. These governance provisions also could hurt the market price of
our Common Stock. See "Description of Capital Stock."
Shares Eligible for Future Sale.
Sales of substantial amounts of our Common Stock in the public market after
this Offering could adversely affect the prevailing market price of the Common
Stock. Immediately upon the effectiveness of this Offering, [ ] shares
will be freely tradable. Commencing 180 days following the date of this
Offering, an additional [ ] shares will become freely tradable upon
the expiration of agreements not to sell such shares, subject to compliance
with Rule 144 promulgated under the Securities Act of 1933, as amended. The
remaining [ ] shares will become freely tradable at various times
thereafter. William Blair & Company, L.L.C. may, in its sole discretion and at
any time without notice, release all or any portion of the securities subject
to these agreements. Immediately after this Offering, we intend to register
approximately [ ] shares of our Common Stock reserved for issuance
under our stock option plan. Sales of Common Stock by stockholders upon
expiration of the lock-up agreements may adversely affect the market price of
the Common Stock. See "Underwriting."
As of the effective date of the Registration Statement, holders of [212,104]
shares of Common Stock will be entitled to registration rights with respect to
their shares. Holders of such shares can require us to register the shares at
any time following 180 days after the effective date, subject to certain
conditions. See "Shares Eligible for Future Sale" and "Description of Capital
Stock--Registration Rights."
Dilution.
The initial public offering price is expected to be substantially higher
than book value per share of the outstanding Common Stock. Investors purchasing
shares of Common Stock will incur immediate substantial dilution in the amount
of $ per share. In addition, investors purchasing shares in the Offering
will incur additional dilution to the extent outstanding options are exercised.
See "Dilution."
18
<PAGE>
FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this Prospectus constitute forward-
looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of
activity, performance or achievements to be materially different from any
future results, levels of activity, performance, or achievements expressed or
implied by such forward-looking statements. Such factors include, among other
things, those listed under "Risk Factors" and elsewhere in this Prospectus.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "could," "expects," "plans," "intends," "
anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative of such terms and other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor anyone else
assumes responsibility for the accuracy and completeness of such statements. We
are under no duty to update any of the forward-looking statements after the
date of this Prospectus.
19
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering, after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company, are estimated to be $ million ($ million if
Underwriters exercise their over-allotment option in-full) at an assumed
initial public offering price of $ per share. During 1999, the Company
intends to use a significant amount of such proceeds for advertising and brand
development expenditures and approximately $9 million for development of the
Company's technological infrastructure in order to support growth. An
additional use of proceeds will be the redemption of the existing Mandatorily
Redeemable Preferred Stock for approximately $4.8 million, the substantial
majority of which is held by Phillips-Smith Specialty Retail Group III, L.P.
Two of the Company's directors are principals of that group. The balance of the
proceeds will be used for general corporate purposes, including working
capital, and to fund additional advertising and brand development expenditures
and technological infrastructure. The Company may apply an undetermined amount
of the proceeds toward the acquisition of complementary businesses. The Company
has no agreements or understandings with respect to any such acquisition.
Pending application, the net proceeds will be invested in short-term,
investment grade, interest-bearing obligations. See "Risk Factors--Future
Capital Needs."
DIVIDEND POLICY
The Company has never declared or paid dividends on its Common Stock and
anticipates for the foreseeable future that all earnings will be retained for
use in its business. The payment of any future dividends will be at the
discretion of the Board of Directors. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1998, and as adjusted to give effect to the sale of
shares of Common Stock offered by the Company and the application of net
proceeds therefrom. See "Use of Proceeds." The table should be read in
conjunction with the financial statements and notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
September 30, 1998
----------------------
Actual As Adjusted(1)
------ --------------
(in thousands)
<S> <C> <C>
Long-term debt, excluding current installments...... $ 638 $ 638
Capital lease obligations, excluding current
installments....................................... 460 460
------ ------
Total debt (2).................................... 1,098 1,098
------ ------
Mandatorily Redeemable Preferred Stock, $1 par value
(aggregate involuntary liquidation preference of
$4,250,000 plus unpaid cumulative dividends),
425,000 shares issued and outstanding (actual);
none issued or outstanding (as adjusted)(3)........ 4,007 --
------ ------
Stockholders' equity:
Preferred stock, $1 par value--authorized
5,000,000 shares; 425,000 shares of Mandatorily
Redeemable Preferred Stock issued and outstanding
(actual); none issued or outstanding (as
adjusted)........................................ -- --
Common stock, $.01 par value; 5,000,000 shares
authorized, 1,033,834 shares issued and
outstanding (actual); [ ] shares issued and
outstanding (as adjusted) (4).................... $ 10
Additional paid-in capital........................ 551
Unearned compensation............................. (25)
Retained earnings................................. 1,361
------ ------
Total stockholders' equity....................... 1,897
------ ------
Total capitalization........................... $7,002 $
====== ------
</TABLE>
- --------
(1) As adjusted to reflect the receipt of the net proceeds of the Offering, the
redemption of the Preferred Stock, the exercise of [212,104] warrants at
[$.01] per share and the immediate recognition of unearned compensation
related to certain stock options that fully vest upon the completion of
this Offering.
(2) Total debt excludes the Company's current installments of long-term debt of
$191,000 and current installments of capital lease obligations of $171,000.
See Notes 3 and 8 to Financial Statements.
(3) The Mandatorily Redeemable Preferred Stock amount is presented net of
unaccreted issuance costs and discount aggregating $667,505, and includes
unpaid cumulative dividends, which are required to be paid at redemption of
$425,000. Total redemption value, including dividends of $600,000 upon the
closing of this Offering is expected to be $4,800,000. After redemption,
the Company will continue to have [5,000,000] authorized shares of
preferred stock, which may be issued with or without mandatory redemption
features.
(4) As of September 30, 1998, there were stock options outstanding to purchase
an aggregate of [47,200] shares of Common Stock at an exercise price of
[$2.50] per share and [94,250] shares were reserved for future issuance
under the Company's employee stock plan. In addition, there were warrants
outstanding to purchase an aggregate of [212,104] shares of Common Stock at
an exercise price of [$.01] per share. See "Management--Employee Stock
Plans."
21
<PAGE>
DILUTION
As of September 30, 1998, the Company had a historical and pro forma net
tangible book value of approximately $ or $ per share of Common
Stock, and $ or $ per share of Common Stock, respectively. Pro
forma net tangible book value represents total tangible assets less total
liabilities, including the effect of the redemption of Mandatorily Redeemable
Preferred Stock and the exercise of certain warrants, divided by the number of
shares of Common Stock outstanding at that date including shares of Common
Stock to be issued upon the exercise of warrants. Without taking into account
any other changes in the pro forma net tangible book value after September 30,
1998, other than to give effect to the receipt by the Company of the net
proceeds from the sale of the shares of Common Stock offered by the
Company hereby at the initial public offering price of $ per share, the
pro forma net tangible book value at September 30, 1998 would have been
approximately $ or $ per share. This represents an immediate
increase in net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to new investors
purchasing shares of Common Stock in this Offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share............................. $
Net tangible book value per common share as of September 30, 1998...
Effect of pro forma adjustments:....................................
Redemption of Mandatorily Redeemable Preferred Stock..............
Exercise of warrants..............................................
---
Pro forma net tangible book value per share.........................
Increase per share attributable to new investors....................
---
Pro forma net tangible book value per share after the Offering......
---
Dilution per share to new investors................................. $
===
</TABLE>
The following table summarizes, on a pro forma basis, as of September 30,
1998, the differences between the number of shares of Common Stock purchased
from the Company, the aggregate consideration paid and the average price per
share paid by existing stockholders and new investors purchasing shares of
Common Stock in this Offering:
<TABLE>
<CAPTION>
Shares Total
Purchased Considerations Average
-------------- -------------- Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)........... % $ % $
New investors(1)...................
--- ----- --- -----
Total............................ 100.0% $ 100.0%
=== ===== === =====
</TABLE>
- --------
(1) The foregoing tables include an aggregate of [212,104] shares issuable upon
exercise of warrants outstanding as of September 30, 1998 at an exercise
price of [$.01] per share,all of which are expected to be exercised
immediately prior to the closing of this Offering. Also includes the
redemption of [425,000] shares of Preferred Stock outstanding as of
September 30, 1998. Excludes (a) [47,200] shares issuable upon exercise of
outstanding options at a weighted average exercise price of [$2.50] per
share as of September 30, 1998, and (b) an aggregate of [94,203] shares
available for future issuance under the Company's 1997 Stock Option Plan.
See "Management--Employee Stock Plans" and Notes 5 and 12 to Financial
Statements.
22
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except per share and operating data)
The following selected financial data for the years ended December 31, 1995,
1996 and 1997 and as of December 31, 1996 and 1997 have been derived from the
Company's Financial Statements included elsewhere in this Prospectus which have
been audited by PricewaterhouseCoopers LLP, independent public accountants. The
following selected financial data for the years ended December 31, 1993 and
1994 and as of December 31, 1993, 1994 and 1995 have been derived from the
audited financial statements of the Company not included in this Prospectus.
The operating data are derived from information compiled by the Company and are
unaudited. The selected financial data for the nine months ended September 30,
1997 and 1998 and as of September 30, 1998 are derived from unaudited financial
data of the Company included elsewhere in this Prospectus. Results of
Operations for interim periods are not necessarily indicative of results to be
expected for the entire year. The following information is qualified by
reference to, and should be read in conjunction with, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Financial Statements and related Notes thereto included elsewhere in the
Prospectus.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
Year Ended December 31, (unaudited)
------------------------------------------------ ------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross bookings
(unaudited)--(1)....... $36,597 $52,951 $91,994 $105,944 $153,674 $112,084 $199,115
======= ======= ======= ======== ======== ======== ========
Results of Operations:
Non-published fares..... $ -- (2) $ -- (2) $66,340 $ 58,982 $ 96,379 $ 73,714 $122,995
Commissions............. -- (2) -- (2) 2,738 5,614 6,470 4,674 8,053
------- ------- ------- -------- -------- -------- --------
Net revenues(1)........ -- (2) -- (2) 69,078 64,596 102,849 78,388 131,048
Cost of sales........... -- (2) -- (2) 56,424 49,168 81,370 61,985 104,547
------- ------- ------- -------- -------- -------- --------
Gross profit............ 5,230 8,128 12,654 15,428 21,479 16,403 26,501
Selling, general and
administrative
expenses............... 4,530 7,947 11,921 14,352 23,091 16,561 24,093(3)
------- ------- ------- -------- -------- -------- --------
Net operating income
(loss)................. 700 181 733 1,076 (1,612) (158) 2,408
Other income
(deductions)........... (36) 31 (709) 37 (3) (30) 89
------- ------- ------- -------- -------- -------- --------
Earnings (loss) before
income taxes........... 664 212 24 1,113 (1,615) (188) 2,497
Income taxes............ 247 60 7 439 (606) (77) 1,024
------- ------- ------- -------- -------- -------- --------
Net earnings (loss)..... $ 417 $ 152 $ 17 $ 674 $ (1,009) $ (111) $ 1,473
======= ======= ======= ======== ======== ======== ========
Basic earnings (loss)
per share(4)........... $ [0.40 $ 0.14 $ 0.02 $ 0.63 $ (1.14) $ (0.22) $ 1.00]
======= ======= ======= ======== ======== ======== ========
Number of shares used in
computing basic
earnings (loss) per
share(4)............... [1,054 1,054 1,054 1,065 1,108 1,108 1,090
Diluted earnings (loss)
per share(4)........... $ [0.40 $ 0.14 $ 0.02 $ 0.63 $ (1.14) $ (0.22) $ 0.84]
======= ======= ======= ======== ======== ======== ========
Number of shares used in
computing diluted
earnings (loss) per
share(4)............... [1,054 1,054 1,054 1,065 1,108 1,108 1,302
Operating Data:
Airline tickets sold:... 124,847 180,656 313,863 357,551 554,403 393,936 682,239
Call centers........... 124,847 180,656 313,863 357,551 552,383 393,936 626,184
Internet............... -- -- -- -- 2,020 -- 56,055
Registered Internet
users.................. -- -- -- -- 5,000 -- 250,218
Balance Sheet Data:
Net working capital..... $ 407 $ 451 $ 182 $ 466 $ 2,356 $ 3,453 $ 4,247
Total assets............ 2,704 2,954 3,740 5,999 11,204 14,133 14,903
Long-term debt.......... 608 653 537 1,715 948 933 1,098
Mandatorily Redeemable
Preferred Stock(5)..... -- -- -- -- 3,622 3,493 4,007
Stockholders' equity.... 697 849 866 1,544 812 1,832 1,897
</TABLE>
- --------
(1) Gross bookings is a memorandum item and is not included in the Company's
results of operations. It consists of the aggregate retail value of non-
published fares and published fares that are sold on a commission basis.
Net revenues consist of sales of non-
23
<PAGE>
published fares and commissions. Commissions (including incentive overrides)
are earned primarily on published fares sold and include certain other
payments based on the volume of transactions. Gross bookings are not
required by GAAP and should not be considered in isolation or as a
substitute for other information prepared in accordance with GAAP. The
Company believes that gross bookings provide a useful comparison between
historical periods, and year-to-year changes in such information provide a
useful measure of market acceptance of the Company's products. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
(2) Net revenues for 1993 and 1994 were not separately identified from gross
bookings and are not available. In addition, cost of sales for 1993 and
1994 were previously accounted for on a gross bookings basis and are not
available on a GAAP basis.
(3) In the second quarter of 1998, the Company issued stock options to
employees to acquire [47,200] shares of the Company's Common Stock at
[$2.50] per share. Total compensation associated with these options
amounted to $26,600 of which $1,795 has been charged to operations for the
nine months ended September 30, 1998. The remainder will be charged over
the remaining five-year vesting period of the options, with the exception
of $1,000, which will be charged at the closing of the Offering at which
time [10,000] options vest by their terms.
(4) See Notes 1 and 5 to the Financial Statements for the calculation of
earnings per share, including an explanation of the number of shares used
in computing the amount of basic and diluted earnings per share. [Further
adjustment for pre-offering split.]
(5) The Mandatorily Redeemable Preferred Stock is required to be redeemed upon
the closing of this Offering. The redemption price upon the closing of this
Offering will be approximately $4.8 million. See "Capitalization." The
Preferred Stock was issued at a discount of $885,170. The Company is
accreting the discount over a five-year period. At redemption, it is
anticipated that the unaccreted discount will be $580,439. Upon redemption,
the unaccreted discount will be charged directly to stockholders' equity,
and have a dilutive effect on the calculation of earnings per share.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto of the Company. In evaluating the risks of
investing in this Company, prospective investors should also evaluate the other
information set forth in this Prospectus, including the Risk Factors.
Overview
The Company is principally engaged in the sale of discount tickets for
domestic leisure air travel. A majority of its gross bookings have historically
come from the sale of non-published fares, which the Company acquires from
airlines and resells to the public at a profit. The Company purchases non-
published fares only when it resells them to customers, so that it carries no
inventory. On these fares, the Company sets its resale prices to meet the
demands of leisure travelers who are looking for the lowest price. The Company
also sells published fares for which it receives commissions from the airlines.
Sales of non-published fares generally carry higher margins as a percentage of
gross bookings than commissions on published fare bookings.
The Company's revenues have been generated by ticket sales through the
Company's four call centers and, to a lesser extent, through 12 walk-in retail
stores. In October 1997, the Company broadened its ticket distribution by
offering online booking at "www.cheaptickets.com." Internet bookings have
experienced significant month-to-month growth in 1998 and accounted for
approximately 9% of total gross bookings in 1998 and approximately 15% in the
last quarter of 1998. At December 31, 1998, the Company had over 430,000
registered online users, with 180,000 registering in the fourth quarter of
1998. The Company expects online gross bookings and net revenue to represent an
increasing portion of gross bookings and net revenues in future periods.
The Company discloses gross bookings as a memorandum item in selected
financial data. It consists of the aggregate retail value of non-published
fares and published fares that are sold on a commission basis. Gross bookings
are not required by GAAP and should not be considered in isolation or as a
substitute for other information prepared in accordance with GAAP. Management
uses gross bookings for various management purposes, including as a measure of
general business activity, success of promotional efforts, capacity to handle
customer demand and efficiency of reservation agents. In addition, management
believes that gross bookings provide a useful comparison between historical
periods, and period-to-period changes in such information provide a useful
measure of market acceptance of the Company's products. Net revenues consist of
sales of non-published fares and commissions. Commissions (including incentive
overrides) are earned primarily on published air fares sold and include certain
other payments based on the volume of transactions.
Substantially all of the Company's gross bookings represent sales of airline
tickets. For the nine months ended September 30, 1998, approximately 98% of
gross bookings arose from airline ticket sales. The remaining gross bookings
arose from sales of cruise tickets, auto rentals, hotel reservations and other
travel related products. The Company expects gross bookings from sources other
than airline ticket sales to increase in future periods.
The Company's cost of sales consists of the net fare cost paid to carriers
to acquire non-published fares. The Company's selling, general and
administrative expenses include all operating and corporate overhead. Major
expense categories include compensation, advertising, communications, credit
card bank fees, occupancy and delivery costs. Selling, general and
administrative expenses also include compensation charges related to the
issuance of stock options.
Results of Operations
The following table sets forth, for the years ended December 31, 1995, 1996
and 1997 and for the nine months ended September 30, 1997 and 1998, information
derived from the statement of operations of the
25
<PAGE>
Company expressed as a percentage of net revenues, and the percentage change in
such items and in gross bookings for the years ended December 31, 1996 and 1997
and the nine months ended September 30, 1998 compared with the prior period.
Any trends illustrated in the following table are not necessarily indicative of
future results.
<TABLE>
<CAPTION>
Percentage Increase
As a Percentage of Net Revenues (Decrease) Over Prior Periods
----------------------------------- -------------------------------
Nine Months Nine Months
Year Ended Ended Year Ended Ended
December 31, September 30, December 31, September 30,
------------------- -------------- ---------------- -------------
1995 to 1996 to
1995 1996 1997 1997 1998 1996 1997 1997 to 1998
----- ----- ----- ------ ------ ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross bookings
(unaudited)............ -- -- -- -- -- 15.2% 45.1% 77.6%
===== ====== ====
Results of Operations:
Non-published fares..... 96.0% 91.3% 93.7% 94.0% 93.9% (11.1)% 63.4% 66.9%
Commissions............. 4.0 8.7 6.3 6.0 6.1 105.0 15.2 72.3
----- ----- ----- ------ ------
Net revenues.......... 100.0 100.0 100.0 100.0 100.0 (6.5) 59.2 67.2
Gross profit............ 18.3 23.9 20.9 20.9 20.2 21.9 39.2 61.6
Selling, general and
administrative
expense................ 17.2 22.2 22.5 21.1 18.4 20.4 60.9 45.5
----- ----- ----- ------ ------
Earnings (loss) from
operations........... 1.1 1.7 (1.6) (0.2) 1.8 46.7 (249.8) nm*
Net earnings (loss)..... 0.0 1.0 (1.0) (0.1) 1.1 nm* (249.7) nm*
</TABLE>
- --------
*nm--not meaningful
Nine Months Ended September 30, 1998 and September 30, 1997
Gross Bookings. For the nine months ended September 30, 1998, gross bookings
increased $87.0 million, or 77.6%, to $199.1 million. The increase in gross
bookings benefited overall from industry-wide growth in the leisure travel
market and improving recognition of the Cheap Tickets brand name from marketing
and advertising efforts and word of mouth. Gross bookings at call centers also
benefited from better productivity by call center reservation agents and the
opening of a fourth call center in Colorado Springs in May of 1998. In
addition, $13.5 million, or 15.5%, of the increase in gross bookings was
attributable to sales generated over the Internet through the Company's
website, which was launched in October 1997.
For the nine months ended September 30, 1998, customers made approximately
92.8% of airline ticket bookings through call centers and approximately 7.2%
over the Internet. For the comparable period in 1997, no Internet bookings were
recorded. For the nine months ended September 30, 1998, sales of non-published
fares accounted for 61.8% of gross bookings compared with 65.8% for the prior
period; conversely, gross bookings of published fares accounted for 38.2% of
gross bookings, compared with 34.2% in the prior period. Sales through the
Internet for the nine months ended September 30, 1998 contributed to the
increase in the percentage of gross bookings of published fares because
published fare sales constituted a higher percentage of Internet sales than of
sales made through the Company's call centers for that period. A fare war in
the third quarter of 1998 also contributed to the lower percentage of gross
bookings of non-published fares.
Net Revenues. Net revenues for the nine months ended September 30, 1998
increased $52.7 million, or 67.2%, to $131.0 million. The increase was
attributable to the same factors as those for the increase in gross bookings,
explained above. By category of net revenue, non-published fare sales increased
$49.3 million, or 66.9%, to $123.0 million, and commissions from published
fares increased $3.4 million, or 72.3%, to $8.1 million. The higher growth rate
in commissions reflected the higher percentage of gross bookings of published
fares for the nine months ended September 30, 1998, partially offset by a
decrease in commission rates.
The Company's net revenues through call centers (including incentive
bonuses) increased $45.4 million, or 57.9%, to $123.8 million. Net revenues
through the Internet were $7.2 million compared with none for the comparable
period in 1997. Net revenues through the Internet represented 5.5% of net
revenues for the nine months ended September 30, 1998. Internet net revenues
for the first three quarters of operations grew as follows: first quarter 1998,
$1.0 million; second quarter 1998, $2.3 million; third quarter 1998, $3.9
million.
26
<PAGE>
Gross Profit. Gross profit increased $10.1 million, or 61.6%, to $26.5
million, consistent with the rate of increase of gross bookings. As a
percentage of net revenues, gross profit decreased from 20.9% to 20.2%. This
decrease was primarily attributable to a decrease in gross margins of 0.9
percentage points on non-published fares. The decrease in non-published fare
margins was primarily attributable to a contract renewal with one carrier at a
less favorable rate. A decrease in gross margins on sales of published fares
and a decline in the proportion of non-published fares sold, partially offset
by increased volume bonuses, also contributed to the reduction in gross profit.
Selling, General and Administrative Expenses. For the nine months ended
September 30, 1998, selling, general and administrative expenses increased $7.5
million, or 45.5%, to $24.1 million, and decreased as a percentage of net
revenues from 21.1% to 18.4%. The major components of these increases were
compensation, credit card and bank fees, and advertising costs. The increase in
advertising costs was primarily attributable to the Company's website launch in
October 1997, including promotions on Yahoo, Travelocity and other websites.
Internet marketing costs can be expected to increase significantly in future
periods to promote Internet sales. Credit card fees increased as a result of
volume and rate increases charged by the Company's charge card associations.
The decrease in selling, general and administrative expenses as a percentage of
net revenues was primarily attributable to the leverage from increased sales.
In the second quarter of 1998, the Company issued stock options to employees
to acquire [47,200] shares of the Company's Common Stock at [$2.50] per share.
Total compensation associated with these options amounted to $26,600, of which
$1,795 has been charged to operations for the nine months ended September 30,
1998. The remainder will be charged over the remaining five-year vesting period
of the options, with the exception of $1,000, which will be charged at the
closing of the Offering, at which time [10,000] options vest by their terms.
Net Earnings (Loss). The Company had net earnings of $1.5 million for the
nine months ended September 30, 1998, compared with the prior period's loss of
$111,000. This increase was attributable to increased net revenues, with a
proportionately lower increase in selling, general and administrative expenses,
partially offset by lower gross profit percentages.
Years Ended December 31, 1997 and December 31, 1996
Gross Bookings. For the year ended December 31, 1997, gross bookings
increased $47.7 million, or 45.1%, to $153.7 million, primarily from continued
industry-wide growth in the leisure travel industry and enhanced recognition of
the Cheap Tickets brand name from marketing and advertising efforts. The
increase was also associated with increases in capacity, including the
expansion of existing call centers and higher reservation agent productivity.
Net Revenues. Net revenues increased $38.3 million, or 59.2%, to $102.8
million. The increase in net revenues was attributable to the same factors as
the increase in gross bookings. During 1997, the increase in net revenues
reflected the growth of non-published fare sales by $37.4 million, or 63.4%, to
$96.4 million. By contrast, net revenues from commissions increased only
$856,000, or 15.2%, to $6.5 million. The slower growth of net revenues from
commissions was attributable to slower growth in gross bookings of published
fares and a decrease from 10% to 8% in commissions on published fares
implemented by a number of air carriers during 1997.
In 1997, nearly all of the Company's net revenues were generated through
call centers, with the exception of approximately $176,000 from Internet sales
following the launch of the Company's website in October 1997. Net revenues
from non-published fare sales in 1997 represented 62.7% of gross bookings,
compared with 55.7% in 1996.
Gross Profit. Gross profit increased by $6.1 million, or 39.2%, to $21.5
million and decreased as a percentage of net revenues from 23.9% to 20.9%. The
decrease of 3.0% as a percentage of net revenues was
27
<PAGE>
primarily attributable to decreases in gross margins of 0.6 percentage points
on non-published fare sales and of 2.4 percentage points on commissions and
incentive bonuses, partially offset by an increase in the proportion of gross
bookings of non-published fares. The decrease in non-published fare margins was
partially attributable to the termination in 1997 of certain profitable routes
and the imposition of various restrictions by a major carrier on non-published
fares. The decrease in gross profit from commissions was primarily attributable
to industry-wide decreases in commission rates on published fares from 10% to
8% during 1997.
Selling, General and Administrative Expenses. The Company's selling, general
and administrative expenses increased $8.7 million, or 60.9%, to $23.1 million
and increased as a percentage of net revenues from 22.2% to 22.5%. These
increases resulted primarily from increased employees and infrastructure to
support higher levels of sales. The increase in compensation and employee
benefits reflected the hiring of over 119 new employees, largely reservation
agents and, to a lesser extent, support staff. Other major components of the
increase were telephone expense, advertising costs, delivery expenses, and
credit card and bank fees. Occupancy costs also rose, with the opening of three
additional retail locations and the expansion of space in Honolulu and Los
Angeles.
Net Earnings (Loss). The Company incurred a net loss in 1997 of $1.0
million, compared with net earnings of $674,000 in 1996. The decrease in net
earnings was primarily attributable to the decrease in gross profit as a
percentage of net revenues.
Years Ended December 31, 1996 and December 31, 1995
Gross Bookings. For the year ended December 31, 1996, gross bookings
increased $14.0 million, or 15.2%, to $105.9 million. This reflected an
increase in gross bookings of published fares, partially offset by a decrease
in gross bookings of non-published fares. The increase in gross bookings was
attributable to successful marketing and an increase in call center capacity,
including the opening of a third call center in the first quarter of 1996.
Net Revenues. Net revenues decreased $4.5 million, or 6.5%, to $64.6
million. The decrease corresponded to a reduction in sales of non-published
fares of $7.4 million, or 11.1%, to $59.0 million. Net revenues from
commissions increased by $2.9 million, or 105.0%, to $5.6 million. The
reduction in non-published fare sales was primarily attributable to the
termination of a contract provision with one carrier that had required the
Company to sell non-published fares through certain travel agents at low
margins, resulting in $10.5 million in net revenues from such sales in 1995,
compared with $617,000 in 1996. The reduction in non-published fare sales was
partially offset by increased sales of published fares and the commissions
resulting therefrom.
Gross Profit. Gross profit increased $2.8 million, or 21.9%, to $15.4
million and increased as a percentage of net revenues from 18.3% to 23.9%. This
increase was primarily attributable to an increase in gross margins of 0.8
percentage points on non-published fares. This increase was primarily
attributable to the procurement of a favorable contract with a major carrier
and termination of a net fare contract with less favorable pricing. In
addition, the margin on non-published fares increased after the first quarter
of 1996 when the Company ceased selling certain low margin non-published fares
to specified travel agents. An increase in gross margins on published fares and
increased volume bonuses also contributed to the increase in gross profits as a
percentage of net revenues, partially offset by a reduction in non-published
fare sales.
Selling, General and Administrative Expenses. The Company's selling, general
and administrative expenses increased $2.4 million, or 20.4%, to $14.4 million
and increased as a percentage of net revenues from 17.2% to 22.2%. The largest
component of the increase was compensation expense, which was primarily
attributable to the opening of the Lakeport call center in January 1996.
Net Earnings (Loss). Net earnings increased from $17,000 to $674,000. Higher
margins on both non-published and published fare sales contributed to the
increase. In addition, there was non-recurring income of $37,000 in 1996,
compared with non-recurring expense in 1995 of $709,000.
28
<PAGE>
Seasonality and Quarterly Financial Information.
The Company's business is seasonal due primarily to customers' leisure
travel patterns and changes in the availability of non-published fares. As a
result, the Company typically has higher sales and gross profit in the second
and third quarters and lower sales and gross profit in the fourth quarter.
During periods of high-volume air travel, such as occur in the fourth quarter
of each year, the Company historically has had access to fewer non-published
fares, and such fares on certain major routes may be blacked out or otherwise
unavailable. Online gross bookings may also tend to be seasonal and may decline
or grow less rapidly in the summer months. The seasonal sales cycle is fairly
predictable, but the cycle may shift year-to-year, corresponding to changes in
the economy or other factors affecting the market such as price wars. This
could lead to unusual volatility in revenues and earnings. See "Risk Factors--
Unpredictability of Future Revenues; Fluctuations in Quarterly Results."
The following table sets forth selected unaudited quarterly financial
information for each of the eight quarters in the period ended September 30,
1998, as well as such data expressed as a percentage of the Company's net
revenues for the periods presented. This information has been derived from
unaudited statements of operations data that, in the opinion of management, are
stated on a basis consistent with the audited financial statements and include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of such information in accordance with GAAP. The Company's
results of operations for any quarter are not necessarily indicative of the
results to be expected in any future period.
<TABLE>
<CAPTION>
Quarter Ended
(unaudited)
---------------------------------------------------------------------
1996 1997 1998
------- ---------------------------------- ------------------------
Sept. Sept.
Dec. 31 Mar. 31 June 30 30 Dec. 31 Mar. 31 June 30 30
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross bookings ......... $25,394 $28,361 $40,764 $42,959 $41,590 $52,754 $70,431 $75,930
======= ======= ======= ======= ======= ======= ======= =======
Results of operations
Non-published fares..... $11,987 $17,798 $27,126 $28,789 $22,666 $30,449 $45,722 $46,823
Commissions............. 1,495 1,381 1,691 1,602 1,796 1,949 2,491 3,614
------- ------- ------- ------- ------- ------- ------- -------
Net revenues.......... 13,482 19,179 28,817 30,391 24,462 32,398 48,213 50,437
Cost of sales........... 9,803 15,104 22,782 24,097 19,386 25,959 39,016 39,572
------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 3,679 4,075 6,035 6,294 5,076 6,439 9,197 10,865
Selling, general and
administrative
expenses............... 3,522 4,389 5,735 6,439 6,530 6,430 8,128 9,535
------- ------- ------- ------- ------- ------- ------- -------
Net operating income.... 157 (314) 300 (145) (1,454) 9 1,069 1,330
Other income
(deductions)........... (17) 9 (47) 9 27 35 22 32
------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) before
income taxes........... 140 (305) 253 (136) (1,427) 44 1,091 1,362
Income taxes............ 40 (125) 104 (56) (529) 18 447 559
------- ------- ------- ------- ------- ------- ------- -------
Net earnings (loss)..... $ 100 $ (180) $ 149 $ (80) $ (898) $ 26 $ 644 $ 803
======= ======= ======= ======= ======= ======= ======= =======
Basic earnings (loss)
per share.............. $ [0.09 $ (0.16) $ 0.13 $ (0.19) $ (0.92) $ (0.09) $ 0.48 $ 0.61]
Diluted earnings (loss)
per share.............. [0.09 (0.16) 0.13 (0.19) (0.92) (0.08) 0.40 0.52]
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
As a Percentage of Net Revenues
Quarter Ended
(unaudited)
--------------------------------------------------------------------
1996 1997 1998
------- ---------------------------------- ------------------------
Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30
------- ------- ------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-published fares..... 88.9% 92.8% 94.1% 94.7% 92.7% 94.0% 94.8% 92.8%
Commissions............. 11.1 7.2 5.9 5.3 7.3 6.0 5.2 7.2
----- ----- ----- ----- ----- ----- ----- -----
Net revenues.......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of sales........... 72.7 78.8 79.1 79.2 79.3 80.1 80.9 78.5
----- ----- ----- ----- ----- ----- ----- -----
Gross profit............ 27.3 21.2 20.9 20.8 20.7 19.9 19.1 21.5
Selling, general and
administrative
expenses............... 26.1 22.9 19.9 21.3 26.6 19.9 16.9 18.9
----- ----- ----- ----- ----- ----- ----- -----
Net operating income.... 1.2 (1.7) 1.0 (0.5) (5.9) 0.0 2.2 2.6
Other income
(deductions)........... (0.2) 0.1 (0.1) 0.1 0.1 0.1 0.1 0.1
----- ----- ----- ----- ----- ----- ----- -----
Earnings (loss) before
income taxes........... 1.0 (1.6) 0.9 (0.4) (5.8) 0.1 2.3 2.7
Income taxes............ 0.3 (0.7) 0.4 (0.1) (2.1) 0.0 1.0 1.1
----- ----- ----- ----- ----- ----- ----- -----
Net earnings (loss)..... 0.7% (0.9)% 0.5% (0.3)% (3.7)% 0.1% 1.3% 1.6%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Liquidity and Capital Resources
For the nine months ended September 30, 1998, the Company generated cash
from operating activities of $3.2 million, compared with $3.8 million for the
nine months ended September 30, 1997. For the nine months ended September 30,
1998, cash generated from operating activities was comprised principally of net
earnings plus depreciation of $1.9 million and net changes in working capital
and other accounts. For the nine months ended September 30, 1997, cash
generated from operating activities was comprised principally of an increase in
accounts payable of $4.0 million adjusted by changes in other accounts. For
that period, there was a net loss of $111,000, offset by depreciation of
$251,000.
For the year ended December 31, 1997, the Company generated $1.5 million in
cash from operating activities. The Company generated this cash primarily from
an increase in accounts payable of $2.5 million, partially offset by a net loss
of $1.0 million. The primary account payable is the weekly settlement to the
Airline Reporting Corporation ("ARC") for airline tickets purchased less
commissions earned. This is generally a significant balance, and the timing of
the current ARC payment relative to month-end can cause fluctuations in month-
end balances. For 1996, the Company generated cash from operating activities of
$411,000. This cash was generated primarily from net earnings plus depreciation
of $878,000, partially offset by changes in operating accounts. For 1995, the
Company generated cash from operating activities of $651,000. Cash was
generated primarily from changes in working capital accounts. Net earnings plus
depreciation were $128,000.
For the nine months ended September 30, 1998, the Company generated cash
from investing activities of $159,000, while in the prior period it used cash
in investing activities of $135,000. Capital expenditures for the nine months
ended September 30, 1998 and 1997 were $342,000 and $135,000, respectively.
During the first nine months of 1998, the Company received $501,000 in proceeds
from the sale of a condominium office formerly used as a company office. In
1997, the Company made $496,000 in capital expenditures and raised $3.9 million
net of issuance expenses from a private placement of preferred stock. In 1996,
the Company made $1.3 million in capital expenditures, primarily consisting of
the furnishing and equipping of a new call center in Lakeport, California and
the acquisition of additional equipment. In 1995, the Company made $367,000 in
capital expenditures.
At September 30, 1998, the Company maintained on hand cash and cash
equivalents of $9.2 million, and the Company's net working capital was $4.2
million. The Company has available a $3.0 million credit facility with a bank
expiring on December 5, 1999. This facility accrues interest at either (1) the
bank's base rate or
30
<PAGE>
(2) LIBOR plus an applicable margin, at the Company's option. There were no
drawdowns against this facility at September 30, 1998. The Company had
outstanding long-term debt net of current installments of $637,000 and capital
lease obligations of $460,000. Long-term debt included $548,000 for a mortgage
on the Lakeport, California call center.
The Company believes that the net proceeds from this Offering, together with
its current cash and cash equivalents and anticipated cash flow from operations
will be sufficient to meet its anticipated cash needs for the required
redemption of Preferred Stock, working capital, debt service and capital
expenditures, at least for the foreseeable future. The Company has budgeted
approximately $9 million for capital expenditures in 1999 from proceeds of this
Offering, nearly all of which is intended to be used for technological
improvements and upgrades. The Company currently is seeking an increase in its
bank lines, which are currently undrawn. If cash generated from internal
operations is not sufficient to satisfy the Company's liquidity requirements,
the Company may seek to increase available bank lines or sell additional equity
or debt securities. The sale of convertible debt or equity securities could
result in additional dilution to the Company's shareholders. There is no
assurance that financing will be available in amounts or on terms acceptable to
the Company, if at all.
Recently Issued Accounting Standards
In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 130 states that
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. SFAS No. 131
requires disclosures regarding segments of an enterprise and related
information that reflects the different types of business activities in which
the enterprise engages and the different economic environments in which it
operates. The adoption of SFAS No. 130 in 1998 did not have an effect on the
Company's financial statements since the Company does not have elements of
comprehensive income other than net earnings. The effect of implementing SFAS
No. 131, which is applicable to public companies, has not been determined since
the Company is privately owned.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which standardized the
disclosure requirements for pension and other postretirement benefits. The
Company plans to implement SFAS No. 132 (which does not change existing
measurement or recognition standards for the Company's defined contribution
plan) in its financial statements for the year ending December 31, 1998. The
adoption of this standard is not expected to have a material effect on the
Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS No.
133 requires the recognition of all derivative instruments as either assets or
liabilities in the statement of financial position and measurement of those
derivative instruments at fair value. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. Currently, the Company
does not hold derivative instruments or engage in hedging activities. The
adoption of this standard is not expected to have a material effect on the
Company's financial statements.
In March 1998, the Accounting Standards Executive Committee (AcSEC) of the
American Institute of Certified Public Accountants (AICPA) issued Statement of
Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use." In April 1998, the AcSEC issued SOP 98-5,
"Reporting on the Costs of Start-Up Activities." These standards are effective
for the Company's year ending December 31, 1999. The Company has not determined
the impact of the implementation of these pronouncements.
Year 2000 Compliance.
The Company is taking steps to address potential Year 2000 problems. The
Company has formed a project team from its systems and technology, finance,
telecom and operations departments. The project team is
31
<PAGE>
responsible for implementing the following four-phase process: (1) identifying
the computer systems and products affected; (2) contacting vendors and
suppliers; (3) determining the Year 2000 compliance status of each system and
product; and (4) implementing any necessary changes. Although the Company does
not currently expect the impact of the Year 2000 issue will be material to
systems still under evaluation, the Company could discover (or fail to
discover) Year 2000 issues in the course of its evaluation process that would
have a material and adverse effect on the Company's business, results of
operations or financial condition if not properly addressed.
The Company has completed phases one and two and is currently in the process
of completing phase three. In addition, the Company has already completed all
four phases for several of its systems. Management anticipates that it will
complete phase four for all of the Company's significant computer systems by
the end of the second quarter of 1999. If the systems material to the Company's
operations have not been made Year 2000 compliant upon completion of phases
three and four, the Year 2000 issue could have a material and adverse effect on
the Company's business, results of operations and financial condition.
The Company currently has three types of computer systems or programs which
may be affected. They include: (1) reservations database systems, (2) PC/LAN
systems and (3) non-informational technology systems. The reservations database
systems involve the computer programs and products responsible for airline,
cruise, car and hotel reservations and other transactional systems. PC/LAN
systems include the Company's personal computer network systems. Non-
informational technology systems include systems or hardware containing
embedded technology such as micro controllers.
The main supplier of the Company's reservation database systems is SABRE.
Currently, over 90% of the Company's computing transactions are processed
through the SABRE systems. This includes transactions involving airline
reservations, booking, ticketing, car and hotel rentals, cruises and
accounting. SABRE has advised the Company that it has a Year 2000
implementation plan in place. Further, SABRE has advised the Company that it
has already resolved Year 2000 issues for its main computer system--the
airlines reservations system. The Company intends to implement all changes
required by SABRE for the Company to be Year 2000 compliant by the end of the
second quarter of 1999. There can be no assurances that SABRE will be Year 2000
compliant and that the impact of SABRE's non-compliance, if any, would not be
material.
The Company is currently in the process of replacing all of its PC/LAN
computing systems with a completion date scheduled for the second quarter of
1999. All the new PC/LAN systems being installed, including hardware, software,
applications and operating systems, have been represented by their vendors to
be Year 2000 compliant. The Company believes that any systems that it has not
yet replaced do not present any Year 2000 concerns because, to the Company's
knowledge, these systems already are Year 2000 compliant or will have Year 2000
upgrades available beginning in the first quarter of 1999. In addition, the
Company is currently requiring that any new systems it purchases meet Year 2000
compliance requirements. There can be no assurances that such PC/LAN computing
systems will be Year 2000 compliant and that the impact of such non-compliance,
if any, would not be material.
The Company has not yet evaluated its non-informational technology systems.
However, the Company is working with facilities management in each of its
operational centers to seek to achieve Year 2000 compliance for these systems
before the end of the second quarter of 1999. In addition, the Company has not
yet developed a contingency plan in the event that any of its critical computer
systems are not Year 2000 compliant by January 1, 2000.
Based on the steps being taken and progress to date, management estimates
that the expenses for ensuring Year 2000 compliance of its computer products
and systems will not have a material adverse effect on operations or earnings,
and can be financed out of cash flow from operations. Despite such plans and
the Company's assessment of current hardware and software, the assessment of
the Company's current state of compliance may not be fully accurate, and the
Company's plans for achieving full compliance with Year 2000 issues may not in
fact be fully successful. The Company is also in the process of attempting to
verify that all of
32
<PAGE>
the products supplied by third-party vendors have either resolved the Year 2000
issue or have a published plan to do so. In certain cases, such as with SABRE,
the Company has relied in good faith on representations and warranties
regarding Year 2000 compliance provided to it by third-party vendors of
hardware and software, and on consultants. Such representations and warranties
may not be accurate in all material respects and the advice or assessments of
consultants may not be reliable. If third parties are not able to make their
systems Year 2000 compliant in a timely manner, it could have a material and
adverse effect on the Company's business, results of operations and financial
condition.
Finally, Year 2000 issues may impact other entities with which the Company
does business, including, for example, those responsible for maintaining
telephone and Internet communications. Accordingly, the Company cannot predict
the effect of the Year 2000 problem on such entities. If these other entities
fail to take preventive/or corrective actions in a timely manner, the Year 2000
issue could have a material and adverse effect on the Company's business,
results of operations and financial condition. See "Risk Factors--Year 2000
Compliance."
33
<PAGE>
BUSINESS
The Company is a leading retail seller of discount tickets for domestic
leisure air travel. In 1998, the Company sold approximately 963,000 airline
tickets through call centers, retail stores and its Internet site at
"www.cheaptickets.com." The Company is the leading seller of non-published
fares for regularly scheduled domestic routes. Non-published fares are tickets
that the Company buys from the airlines and resells to consumers at significant
discounts off published fares. Sales of non-published fares accounted for
approximately 59% of the Company's airline gross bookings in 1998. The Company
has rights to buy these fares under contracts from over 25 airline carriers,
including America West, American, Continental, TWA and US Airways. It purchases
these fares only when it resells them to customers, so that it does not carry
inventory. The Company also offers a full complement of regularly published
fares, affording customers a breadth of choice in leisure travel tickets at
attractive prices which management believes is unmatched in the industry. The
Company also sells cruise tickets, auto rentals and hotel reservations.
The Company began selling tickets over the Internet in October 1997. In
1998, the Company sold 97,000 tickets through its website, generating $25
million in gross bookings. Internet sales represented approximately 9% of our
gross bookings in 1998 and 15% in the fourth quarter of 1998, reflecting the
rapid increase in Internet sales as a percentage of gross bookings. At December
31, 1998, the Company had over 430,000 registered online users, with 180,000
registering in the fourth quarter of 1998.
Since 1986, the Company has provided an efficient distribution channel for
airlines to sell excess capacity without eroding their published fare
structures. According to the Air Transport Association ("ATA"), domestic
airlines had average excess system capacity of 32.5% from 1995 to 1997, and
excess capacity is estimated to be 29.4% in 1998. The Company seeks to match
excess capacity with consumer demand for the lowest price available. Currently,
the Company offers approximately 375,000 non-published fares at any given time,
covering most major domestic and international routes. The Company sets prices
on these fares lower than those available on published fares to meet the
demands of leisure travelers. These fares contain restrictions typically making
them unattractive for full fare passengers, who seek the convenience of tickets
that can be exchanged or canceled and do not have advance purchase or minimum
stay requirements. Management believes its track record of selling excess
capacity without compromising the airlines' fare structures provides a strong
incentive for the airlines to continue to use the Company as the premier outlet
for the sale of domestic non-published fares.
The Company also offers to customers a full menu of regularly published
fares in addition to non-published fares. In 1994, the Company became the first
non-airline to file its non-published fares through the Airline Tariff
Publishing Corporation. This allows the Company to integrate its non-published
fares with published fares in a special area of the SABRE reservations system
to which only the Company has access. This system automatically sorts through
millions of fares, including our non-published fares, to identify the lowest
fares available for the desired itinerary. These fares are then posted in
ascending price order for use by the Company's reservation agents and Internet
customers.
Industry Background.
Consumers in the United States spent $126 billion on travel through travel
agencies in 1997, up from $101 billion in 1995, according to the Travel Weekly
1998 U.S. Travel Agency Survey. According to the same source, the leisure
travel component of this market is also growing rapidly, as leisure travel
accounted for $64.5 billion, or 51%, of total travel in 1997. Leisure travel
bookings increased 30% from 1995 to 1997, the largest increase in recent years.
Management believes that the growth in leisure travel has been driven by a
number of factors, including an increase in disposable income levels in the
United States, the aging of the population and the availability of affordable
airfares. Airline travel (including business and leisure travel) continues to
be the largest segment of the travel industry, with $70.5 billion, or 56%, of
total travel booked through travel agencies in 1997.
34
<PAGE>
Airline Ticket Sales.
Published Fares. Historically, airlines have sold tickets directly or
through travel agencies on a commission basis. The traditional travel agency
channel of distribution is highly fragmented, with few nationally recognized
brands. According to The American Society of Travel Agents, over 23,000 travel
agencies operate in more than 33,000 locations in the United States, and the
average travel agency generates approximately $3.8 million in annual gross
bookings per location.
Travel agents are compensated primarily through commissions paid by airlines
on tickets sold. Some travel agencies also charge service fees to their
customers. Travel agents generally receive commissions of 8% of total ticket
price, although these commissions are frequently capped at $25 for a domestic
U.S. one-way ticket and $50 for a domestic round trip ticket. Airlines also
generally pay approximately 5% in commissions for online sales. In addition,
travel agencies can earn performance-based incentive compensation ("override
commissions").
Commissions are determined in the sole discretion of the airlines and are
subject to frequent change. In recent years, airlines have reduced rates and
capped per-ticket commissions generally payable to travel agencies. In
addition, they have further reduced rates and capped commissions for online
reservations. The downward pressure on commission rates may cause traditional
travel agencies to charge service fees to their customers, shift their focus to
higher margin, non-air travel services or reduce the level of customer service.
Travel agencies typically book reservations through electronic global
distribution services such as the SABRE system and Galileo International
Partnership's Apollo system. Global distribution services provide real-time
access for agents to extensive data on fares, availability, schedules and other
travel information. This data is constantly changing, with as many as one
million airfare changes made daily. Customers have historically had to rely on
travel agents to access and interpret this rapidly changing information. See
"Risk Factors--Reliance on Travel Suppliers; No Long-Term Contracts" and "--
Products and Services."
Non-Published Fares. According to the ATA, airline excess capacity in the
United States was 32.5% from 1995 to 1997, and excess capacity is estimated to
be 29.4% in 1998. The airlines can predict excess capacity up to a year in
advance for specific routes and times. Airlines are motivated to sell excess
capacity at prices substantially lower than published tariffs because the
marginal cost of filling excess seats is minimal. However, to succeed in this
strategy, the airlines need assurance that sales of excess capacity at lower
prices do not erode published fare structures. The ability to sell such seats
without eroding published fare structures is a source of incremental profits
for airlines. Management believes that it would be difficult for airlines to
market their excess capacity directly to the public at discount prices because
their discount fares would compete with their own regular published fares, and
they would also risk drawing immediate price competition from other airlines.
In fact, airlines generally have not sold excess capacity directly to the
public, except in extremely limited situations, usually involving last-minute
special offers and the use of frequent flier awards. Management believes that
leisure travelers are particularly suited to the products offered by the
Company, as they are highly price sensitive and willing to be flexible on
carriers, routes and times of travel.
Airlines generally have sold excess capacity indirectly through
intermediaries in a manner designed not to erode their published fare
structures while at the same time maximizing incremental excess revenues. They
have accomplished this by selling excess capacity to independent third parties
under net fare contracts. The tickets are then resold by these third parties to
the public at prices set by them, generally at a substantial discount below
regularly published fares. The prices of these tickets are not published
(unless published directly by the reseller in the media or otherwise), and the
fares are not available from the airlines directly. Hence, they are referred to
as "non-published fares." The profit margins on non-published fare sales
generally exceed the commissions payable for sales of tickets on an agented
basis.
Non-published fares are restricted to specific routes and times, cannot be
canceled or refunded, and generally contain other restrictions which, while
making them unattractive for full-fare travelers, are acceptable to price
sensitive leisure travelers with flexible itineraries.
35
<PAGE>
For international routes, management believes that the market for the sale
of non-published fares is highly competitive, with numerous participants
offering deeply discounted fares. For domestic routes, there are few sellers,
and they generally have contracts with a small number of carriers for a limited
number of routes. Among these, the Company is the leading seller of non-
published fares for regularly scheduled domestic routes and has contracts with
carriers covering most major domestic and international routes. See "Risk
Factors--Dependence on the Travel Industry."
The Growth of Internet Commerce, Products and Services.
The enormous growth and acceptance of the Internet as a medium of
communication and commerce presents significant opportunities for the Company.
According to Dataquest, more than 43 million households in America currently
have Internet access and that number is projected to grow to nearly 95 million
households by 2001. The factors driving this growth include the increasing
number and decreasing cost of personal computers in homes and offices,
technological innovations providing easier, faster and cheaper access to the
Internet, the proliferation of content and services being provided on the
Internet and the increasing use of the Internet by business and consumers as a
medium for conducting business.
The Internet possesses a number of unique and commercially powerful
characteristics that differentiate it from traditional media: users communicate
or access information without geographic limitations; users access dynamic and
interactive content on a real-time basis; and users communicate and interact
instantaneously. The Internet has created a dynamic and particularly attractive
medium for commerce, empowering customers to gather more comparative purchasing
data than is feasible with traditional commerce systems, to shop in a more
convenient manner and to interact with sellers in many new ways. Forrester
Research estimates that online retail revenues will increase from approximately
$4.8 billion in 1998 to approximately $17.4 billion by 2001. See "Risk
Factors--Dependence on Continued Growth of Online Commerce and Internet
Infrastructure."
Online Travel Market.
As a result of pressures on traditional travel distribution channels and the
emergence of new "e-commerce" opportunities, the online travel industry has
grown rapidly. The Internet provides a convenient and efficient medium for
sales of airline tickets by affording customers direct access to up-to-the-
minute travel information, including changing fares and routes, the ability to
engage in competitive shopping, and the capacity to purchase tickets. According
to Forrester Research, the online travel market is the second largest by dollar
volume and fastest growing area of Internet commerce. Online airline travel
bookings were $1.6 billion in 1998 and are expected to grow at a compounded
annual growth rate of 46%, reaching $10.6 billion in 2003.
In the online travel services market, the Company competes for published
fares with other entities that contain similar commercial websites, such as
Expedia (operated by Microsoft Corporation), Travelocity (operated by SABRE
Group Holdings Inc., a majority-owned subsidiary of American Airlines), Preview
Travel, Inc., and Priceline.com, Inc. Many airlines also have established
commercial websites for their published fares. With limited exceptions (for
example, Priceline.com, Inc.), to management's knowledge, non-published fares
for regularly scheduled domestic routes are not currently offered by online
travel companies. See "Risk Factors--Competition" and "--Competition."
Cheap Tickets Business Strategy.
The Company's objective is to provide travel products to leisure travelers
at discount prices and to enhance its position as a leading provider of non-
published and published fares for domestic leisure travel. The Company also
seeks to benefit travel providers by selling airlines' otherwise unused excess
capacity at high incremental margins without diluting their published fare
structure. The principal elements of the Company's business strategy are:
Broad Selection of Discounted Fares for Customers. The Company offers a
broad selection of non-published and published fares for regularly scheduled
domestic routes at discounted prices, which management
36
<PAGE>
believes is unmatched in the industry. The Company has access to domestic and
international non-published fares for regularly scheduled flights through
contracts with over 25 carriers, including America West, American, Continental,
TWA and US Airways. Customers may book these fares up to a year in advance.
Currently, the Company offers approximately 375,000 non-published fares at any
given time for most major domestic and international routes at discounts
attractive for the leisure traveler. In addition, through the SABRE
reservations system, the Company offers approximately 45 million published
airfares, including those of all major domestic and international commercial
airlines. The Company's non-published fares are integrated with these published
fares on a special area of SABRE, to which only the Company has access,
permitting the Company's reservation agents and its Internet customers to
choose the least expensive itinerary.
Established Direct Sale Business to Consumers. The Company has been selling
airline tickets directly to the public since its inception in 1986 and has an
established infrastructure to execute its direct sales strategy. It sells its
tickets through call centers, retail stores and the Internet. The Company
operates four call centers staffed by approximately 450 employees in Colorado
Springs, Honolulu, Los Angeles and Lakeport, California, 12 retail stores and a
customer service center in Honolulu. The call centers provide toll-free
telephone support and reservation services seven days a week at "1-800-OK-
CHEAP." Online customers can access the Company's easy-to-use website at
"www.cheaptickets.com" at their convenience. Through its call centers, the
Company assists online customers to ensure that they have the full benefit of
its services. Tickets are shipped on a next-day basis, and the Company is
planning to offer "E-tickets" by mid-1999.
Established History of Yield Management for Airline Carriers. The Company
has consistently provided an efficient distribution channel to assist carriers
in selling excess capacity without eroding fare structures. The Company
provides airlines with a yield management solution, enabling them to increase
profits through incremental revenues accompanied by low marginal costs and, in
some cases, to gain market share at the expense of competitors. The Company
targets leisure travelers who are willing to travel on certain routes to fill
flights which normally have a low load factor. Restrictions placed on non-
published fares allow the Company to sell non-published fares aggressively to
the public while leaving the airlines and travel and online agencies to service
full fare customers who demand the convenience of tickets that can be exchanged
or canceled and do not have advance purchase or minimum stay requirements.
Demonstrated Ability to Match Excess Capacity to Consumer Demand. The
Company has proven to airlines that it can efficiently match airlines' excess
capacity to consumer demand for leisure travel by selling increasing volumes of
non-published fares. From 1996 through 1998, the Company sold non-published
fares of $60.0 million, $96.4 million, and $[153.1] million, respectively.
Management believes that the Company's track record of selling excess capacity
without compromising the airlines' fare structures provide a strong incentive
for the airlines to continue to use the Company as the premier outlet for sale
of domestic non-published fares.
Cheap Tickets Growth Strategy.
The Company seeks to become the leading provider of discount travel products
and services to leisure travelers. The Company's growth strategy is to grow its
customer base aggressively, expand strategic alliances, improve call center
productivity, broaden its leisure travel offerings and consider possible
selective acquisitions. The key elements of the Company's growth strategy are
as follows:
Rapidly Expand wInternet Bookings. The Company intends to capitalize on its
position as the market leader in selling non-published fares to rapidly expand
its Internet ticket sales. Management plans to accomplish this through
increased marketing to heighten awareness of the Company's product offerings
and the Cheap Tickets brand. The Company plans to broaden its online visibility
and customer base through relationships with additional Internet content,
commerce and service providers. Online access for the Company's products began
in October 1997. By year-end 1998, 430,000 users had registered at the
Company's website, 180,000 of them in the fourth quarter of 1998. Internet
gross bookings grew rapidly during 1998, from $2.2 million in the first quarter
to $10.6 million in the fourth quarter. Approximately 15% of the Company's
gross bookings were made over the Internet in the fourth quarter. In 1998, the
Company had approximately $25
37
<PAGE>
million in gross bookings from 97,000 Internet ticket sales. Management
believes that the Company's gross bookings from the Internet will continue to
grow rapidly.
Aggressively Build Brand Recognition Nationally and Internationally. The
Company has promoted itself almost exclusively through print media, primarily
in Los Angeles, New York, San Francisco and Honolulu. In addition, a recent
customer survey commissioned by the Company determined that 54% of customers
learned of Cheap Tickets by word of mouth. This has translated into relatively
low customer acquisition costs. The same survey reported that approximately 60%
of the Company's customers surveyed are from California, New York/New Jersey
and Hawaii. With the Company having established strong brand recognition
regionally, management believes that the demand for discounted air travel
presents opportunities for it to expand nationally. Among other initiatives,
the Company plans to broaden its news media advertising to other cities,
including Chicago, Atlanta, Denver and St. Louis. In addition, the Company also
intends to explore avenues for international expansion. The Company's strategy
is to promote, advertise and broaden its brand recognition through a variety of
marketing techniques.
Enhance and Expand Strategic Relationships. The Company currently has
contractual relationships with more than 25 airlines, including America West,
American, Continental, TWA and US Airways. These relationships give the Company
access to non-published fares, which has helped the Company to become the
leading seller of non-published domestic fares to consumers. The Company
intends to continue to build these relationships through increased sales of
excess capacity and seeks new relationships with other airlines, travel
suppliers, Internet portals and travel-related website companies. Through these
existing and new strategic relationships, the Company seeks to broaden access
to non-published fares and to reach additional customers. In addition, the
Company intends to build on its relationship with SABRE to enable it to
continue to provide ease of access to what management believes to be the
broadest available menu of discounted fares for regularly scheduled domestic
routes.
Expand Call Center Capacity through Improved Productivity. The Company
intends to continue to invest substantial resources in developing technological
enhancements to its call centers. These will include a more automated front-end
application for its reservation agents that will reduce errors and increase
productivity; an intelligent call routing ("ICR") system to link the Company's
four call centers and to direct calls to specific agents best able to service
particular customer needs and prioritize calls to reduce hold times; and an
interactive voice response ("IVR") system to reduce the need for agents to
answer general questions, thereby increasing the number of calls the Company
can service and the sales productivity of reservation agents. Management
believes that such enhancements will increase sales and substantially improve
operating efficiency.
Broaden Existing Products and Services. The Company currently realizes 98%
of its gross bookings through airline ticket sales. However, it recently began
selling cruise tickets, auto rentals and hotel reservations. The Company
intends to capitalize on its market leadership in non-published fares, brand
recognition, Internet site, service infrastructure and customer base to promote
these additional travel products. The Company's product expansion strategy will
be to focus on complementary products that require minimal incremental
resources to sell and distribute.
Make Selective Acquisitions. The Company will consider the acquisition of
companies which will add to its customer base, product lines, strategic
relationships or distribution. The Company currently has no agreements or
understandings with respect to any such acquisitions. See "Risk Factors--Risks
Associated with Potential Acquisitions."
Products and Services.
Leisure Airline Tickets. The Company has the right to acquire non-published
fares pursuant to contracts from carriers. The Company then resells these
tickets at profit margins which exceed the typical commissions payable for the
sale of tickets on an agented basis. The prices the Company offers to customers
are generally at
38
<PAGE>
a substantial discount to published fares. The Company purchases these fares
only when it resells them to customers, so that it does not carry inventory.
The Company's non-published fares are not available to consumers directly from
the airlines and are not published (except as advertised by the Company). They
represent excess capacity for which the Company serves as the leading seller of
regularly scheduled domestic routes. The Company currently has contracts to
acquire non-published fares from more than 25 carriers for domestic and
international routes, including America West, American, Continental, TWA and US
Airways. Availability of non-published fares varies from route to route based
on availability from the airline carriers. The Company currently offers
approximately 375,000 non-published fares at any given time, covering most
major domestic and international routes. The Company sells these tickets with
limitations and restrictions that make them unattractive for full fare
travelers, who seek the convenience of tickets that can be exchanged or
canceled and do not have advance purchase or minimum stay requirements. See
"Risk Factors--Reliance on Travel Suppliers; No Long-Term Contracts."
In 1998, approximately 59% of the Company's airline gross bookings were from
non-published fares. For customers who are unable to find a non-published fare
for a particular itinerary, the Company also offers a full menu of regularly
published fares. In 1994, the Company became the first non-airline to file its
non-published fares through the Airline Tariff Publishing Corporation. This
allows the Company to integrate its non-published fares with published fares in
a special area of the SABRE reservations system to which only the Company has
access. This system automatically sorts through millions of fares, including
Cheap Ticket's own non-published fares, to identify the lowest fares available
for the desired itinerary. These fares are then posted in ascending price order
for use by the Company's reservation agents and Internet customers.
For published fares, the Company receives commissions on gross bookings.
Airlines generally pay commissions of 8% of total ticket price, although these
commissions are frequently capped at $25 for a domestic U.S. one-way ticket and
$50 for a domestic round trip ticket. Airlines also generally pay approximately
5% in commissions for online sales. The Company receives commissions at least
as favorable as those received by travel agents, and with many carriers the
Company has negotiated more favorable commission rates. In addition, the
Company frequently benefits from performance-based override commissions.
39
<PAGE>
The following table demonstrates the breadth and availability of the
Company's product and the cost advantages of its non-published fares. It
compares the lowest roundtrip restricted fares for all domestic routes listed
by The New York Times and The Wall Street Journal in their fare tables for the
dates shown. The Company's fares were lower than or comparable to the lowest
available prices reported by the above publications in all the routes, with an
average discount of approximately $65.50 or 20.1%.
<TABLE>
<CAPTION>
Cheap
Lowest Tickets Cost Savings
Availability Published Lowest ---------------
Travel Segment Date(1) Source Fare(2) Fare(3) Dollars Percent
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
New York--Burlington,
Vt..................... 12/28/98 NY Times $150 $148 $ 2 1.3%
New York--Chicago....... 12/28/98 NY Times 221 185 36 16.3
New York--Ft. Myers,
Fla.................... 12/28/98 NY Times 190 178 12 6.3
New York--San Diego..... 12/28/98 NY Times 275 197 78 28.4
New York--Tucson........ 12/28/98 NY Times 398 228 170 42.7
Boston--Washington...... 12/28/98 NY Times 114 114 -- --
Denver--Las Vegas....... 12/28/98 NY Times 178 174 4 2.2
Houston--Orlando........ 12/28/98 NY Times 198 191 7 3.5
Los Angeles--Portland,
Ore.................... 12/28/98 NY Times 198 169 29 14.6
San Francisco--Austin,
Tx..................... 12/28/98 NY Times 324 173 151 46.6
New York--Los Angeles... 01/05/99 Wall St. Journal 286 218 68 23.8
Boston--San Francisco... 01/05/99 Wall St. Journal 315 268 47 14.9
Los Angeles--Dallas..... 01/05/99 Wall St. Journal 293 199 94 32.1
San Diego--Denver....... 01/05/99 Wall St. Journal 477 211 266 55.8
Boston--San Francisco... 01/05/99 Wall St. Journal 315 268 47 14.9
Atlanta--Boston......... 01/05/99 Wall St. Journal 298 140 158 53.0
Orlando--Detroit........ 01/05/99 Wall St. Journal 168 168 -- --
New York--Miami......... 01/05/99 Wall St. Journal 176 166 10 5.7
</TABLE>
- --------
(1) Represents the date on which the fares listed were available for sale.
(2) Represents the lowest roundtrip restricted fare available for the travel
segment and on the date indicated, as reported in the January 3, 1999
edition of The New York Times and the January 8, 1999 edition of The Wall
Street Journal, as applicable. The Wall Street Journal fares were stated to
be the lowest available, but not all small carriers were included. Advance
purchase, midweek departure, length of stay and other restrictions may
apply.
(3) The prices shown were those available on the Company's reservation database
system for the dates and routes indicated.
Other Travel Products and Services. The Company has contractual
relationships to sell cruises on Carnival Cruises and Princess Cruises. In
1998, gross bookings from cruises were approximately $3.4 million. The Company
also has contractual relationships with major auto rental companies to provide
reservations. In 1998, gross bookings from auto rental reservations were
approximately $1.4 million. The Company has recently entered into a number of
contracts to sell hotel room reservations. In 1998, gross bookings from hotel
reservations were negligible. The Company sees these other travel products and
services as potential areas of future growth. See "--Growth Strategies--Broaden
Existing Products and Services" and "Risk Factors--Risks Associated with
Offering New Services."
Call Center Operations. At December 31, 1998, the Company had approximately
450 reservation agents and other call center employees at its four call
centers. Facilities are located in Honolulu, Colorado Springs, Los Angeles and
Lakeport, California. Reservation agents at these call centers receive all in-
bound calls to the Company's toll free number "800-OK-CHEAP." On average, the
call centers receive approximately 120,000 calls per day. Reservation agents
currently conduct fare searches for requested itineraries, sell airline
tickets, explain rules and restrictions applicable to fares and ticket delivery
details, identify retail ticket locations, and provide other assistance. The
call centers also provide customer service for both call center customers and
40
<PAGE>
Internet users. See "Risk Factors--Risk of Capacity Constraints; Reliance on
Internally Developed Systems; System Development Risks."
Management intends to implement ICR and IVR technology in the second quarter
of 1999 to increase the productivity of agents by giving callers automated fare
search capability and answers to common information requests. The Company
compensates reservation agents on an incentive basis to maximize their
productivity. Call centers are segmented into teams, which the Company awards
for the highest productivity and operating effectiveness.
Internet Operations. The Company's online reservations and ticketing service
through its website at "www.cheaptickets.com" provides its customers access to
information on schedules, availability and non-published and published fares
and enables them to book their own travel arrangements at their convenience.
The website is designed to provide customers with quick, efficient, and
flexible service in a manner that facilitates comparison shopping. The
Company's online service automates the processing of customer orders, interacts
with the systems of third party travel suppliers, and allows the Company to
gather, store and use customer and transaction information in a comprehensive
and cost-efficient manner. The website allows customers to dispense with
providing personal profile and payment information after their initial
registration. The website has permitted the Company to expand its customer base
through better service while reducing transactional costs.
The website contains customized software applications that interface the
website with the electronic booking system and database. The Company has
contracted with SABRE for the development and hosting of the site, the
development of the customized software applications, and access to the
electronic booking system and database. The Company also has developed its own
proprietary customized software applications that interfaces the website
directly with the SABRE electronic booking system and database.
The Company maintains a relational database containing information compiled
from customer profiles, shopping patterns and sales data. The Company analyzes
information in this database to develop targeted marketing programs and provide
personalized and enhanced customer service. Its database is scaleable to permit
large transaction volumes with no significant software changes. The Company's
systems support automated e-mail communications with customers to facilitate
confirmations of orders, provide customer support, obtain customer feedback and
engage in targeted marketing programs.
The Company uses a combination of proprietary and industry-standard
encryption and authentication measures designed to protect a customer's
information. The Company maintains an Internet firewall to protect its internal
systems and all credit card and other customer information. See "Risk Factors--
Online Commerce and Database Security Risks," "Risk Factors--Rapid
Technological Change," "Risk Factors--Risk of Capacity Constraints; Reliance on
Internally Developed Systems; System Development Risks" and "--Cheap Tickets
Growth Strategy."
Strategic Relationships.
Airline Relationships. The Company currently has contracts with more than 25
airlines, including America West, American, Continental, TWA and US Airways.
The Company sells non-published fares purchased under these contracts, with
minimum stay and advance purchase requirements, as non-refundable, non-
endorsable and non-changeable tickets and without frequent flyer mileage or
upgrades. Generally, the airline contracts range from one to one and a half
years in length and can be cancelled on short notice. None of these carriers
has any obligation to renew the contracts at their expiration, but the Company
has consistently been successful in obtaining renewals. Management believes
that the Company's track record of selling excess capacity without compromising
the airlines' fare structures provides a strong incentive for the airlines to
continue to use the Company as the premier outlet for the sale of domestic non-
published fares. Management believes that the Company's success in matching
excess capacity to consumer demand for low ticket prices comes from its
strategy of directing its marketing efforts to leisure travelers and selling
restricted tickets
41
<PAGE>
directly to the public in high volumes through call centers and over the
Internet. Although the Company has a consistent history of renewing its
contracts, there are no assurances that any one or several of them will be
renewed. See "Risk Factors--Reliance on Travel Suppliers; No Long-Term
Contracts," "--Cheap Tickets Business Strategy" and "--Cheap Tickets Growth
Strategy."
SABRE Relationship. SABRE is a world leader in the electronic distribution
of travel-related products and services and is a leading provider of
information technology solutions for the travel and transportation industry.
SABRE's electronic booking system and database contains flight schedules,
availability, and published fare information for more than 400 airlines, 50
auto rental companies, 35,000 hotel properties, and dozens of railways, tour
companies, passenger ferries, and cruise lines located throughout the world.
Through the SABRE reservations system, the Company offers approximately 45
million published airfares, including those of all major domestic and
international commercial airlines. In addition, SABRE's electronic booking
system and database hosts the Company's non-published fare information through
a unique arrangement that permits the Company to integrate its non-published
fares with published fares on a special area of the SABRE reservations system
to which only the Company has access. This system automatically sorts through
millions of fares, including Cheap Ticket's own non-published fares, to
identify the lowest fares available for the desired itinerary. These choices
are then posted in ascending price order for use by the Company's reservation
agents and Internet customers. [In January 1999, the Company negotiated a new
five-year agreement with SABRE to continue use of SABRE's system.] See "Risk
Factors--Reliance on Third-Party Systems."
Marketing and Brand Awareness.
The Company's marketing strategy is to aggressively build the Cheap Tickets'
brand name, enhance customer awareness and add new customers, both through call
centers and online. The Company has established Cheap Tickets as a leading
discount travel services brand through limited marketing and promotion. In
1998, the Company spent $3.8 million for sales and marketing expenses. It has
promoted itself almost exclusively through print media, primarily in Los
Angeles, New York, San Francisco and Honolulu. The Company has advertised in
The New York Times, The Washington Post, The Los Angeles Times, The Seattle
Post Intelligencer, The San Diego Tribune, and The Orange County Register,
among other publications. In addition, a recent customer survey commissioned by
the Company determined that 54% of customers learned of Cheap Tickets by word
of mouth. The Company's growth of Internet customers was primarily through
media advertisements and limited online advertising. The Company has advertised
on Yahoo, Excite, Lycos, HotBot, Snap, OnSale and Travelocity, among others.
The Company has purchased various keywords and banners, typically under
contracts of 30 to 90 days in duration. As limited funds were spent on Internet
promotions, the Company has experienced relatively low customer acquisition
costs.
In the future, the Company's strategy is to promote, advertise and broaden
its brand recognition through a variety of marketing techniques. In 1999, it
plans to spend a significant amount of the proceeds from this Offering to
increase advertising in news media and on leading websites. Additionally, the
Company plans to broaden its news media advertising to Chicago, Atlanta, Denver
and St. Louis. See "Risk Factors--Uncertain Acceptance of The Cheap Tickets
Brand" and "Use of Proceeds."
Competition.
The Company competes in ticket sales against travel wholesalers,
consolidators, online travel companies, airlines and travel agents, based on
price and the quality of service. In the leisure travel market, the Company
also competes against frequent flyer awards and against charter flights. Some
of the Company's actual and potential competitors have longer histories, larger
customer bases, greater brand recognition and significantly greater financial,
marketing and other resources than the Company does. The Company may enter into
strategic or commercial relationships with larger, more established or well-
financed companies. Certain of the Company's competitors may be able to secure
services and products from travel suppliers on more favorable terms. They may
also devote greater resources to marketing and promotional campaigns and
substantially more
42
<PAGE>
resources to website and systems development. In addition, new technologies and
the expansion of existing technologies may increase competitive pressures on
the Company. Increased competition may result in reduced operating margins,
loss of market share and brand recognition. There can be no assurance that the
Company will be able to compete successfully against current and future
competitors.
Competition for Non-Published Fares.
Sellers of Non-Published Fares. The Company's existing direct competition
for non-published fares comes largely from companies that specialize in the
distribution of discounted fares in the form of regularly scheduled and
chartered flights. Management believes that the market for the sale of non-
published fares is highly fragmented. For international routes, it is highly
competitive, with numerous participants offering deeply discounted fares. For
domestic routes, there are few sellers, and they generally have net fare
contracts with a small number of carriers for a limited number of routes. Among
these, the Company is the leading seller of non-published fares for regularly
scheduled domestic routes and has contracts with many carriers covering most
major domestic and international routes. As the domestic airline industry
continues to evolve, other competitors could increase their share of the
market, or new ones could enter the market. See "Risk Factors--Dependence on
the Travel Industry."
Online Travel Companies. Online travel companies are rapidly increasing
their shares of airline ticket sales, but, with limited exceptions (for
example, Priceline.com, Inc.), to Management's knowledge, non-published fares
for regularly scheduled domestic routes are not currently offered by online
travel companies. If airlines were to make such fares generally available to
online travel companies, presumably they would risk eroding published fare
structures. However, there can be no assurance that one or more online
companies, a number of which possess larger customer bases, greater brand
recognition and significantly greater financial, marketing and other resources
than the Company, will not succeed in accessing non-published fares.
Airlines and Travel Agents. Airlines do not generally offer non-published
fares directly or indirectly through affiliates or travel agents for regularly
scheduled travel, presumably to prevent the erosion of their published fare
structure. Some airlines do offer limited special discounted fares through
their Internet sites that are not generally made available to travel agents.
These fares are typically offered only on a last-minute, "special sale" basis.
In addition, some airlines offer special promotional fares, combining low base
prices and the use of frequent flyer awards. Airlines may expand their offering
of special promotional fares, enter the non-published fare market or sell non-
published tickets through travel agents.
Certain Competitive Factors Affecting Non-Published Fares.
Published fares also compete with the Company's non-published fares. They
effectively establish price ceilings for the Company's non-published fares.
From time to time, airlines also offer special fares, which may compete
directly with the Company's discounted non-published fares. Direct competition
also comes from the airlines when fare wars break out.
Competition for Published Fares.
In the sale of published fares, the Company currently competes with
airlines, traditional travel agents, online travel services and travel industry
reservation databases. The online travel services market is new, rapidly
evolving and intensely competitive, and the Company expects such competition to
intensify in the future. In the online travel services market, the Company
competes for published fares with similar commercial websites of other
companies, such as Expedia (operated by Microsoft Corporation), Travelocity
(operated by SABRE Group Holdings Inc., a majority-owned subsidiary of American
Airlines), Preview Travel, Inc., Cendant Corporation, TravelWeb (operated by
Pegasus), Internet Travel Network, Biztravel.com and TheTrip.com, among others.
Several traditional travel agencies, including larger travel agencies such as
American Express Travel Related Services Co. Inc., Uniglobe Travel and Carlson
Wagonlit Travel, have established, or may establish in the future, commercial
websites offering online travel services. Several airlines
43
<PAGE>
also have established commercial websites to sell their tickets and offer other
online travel services. In January 1999, one major carrier announced that it
would impose a surcharge ($1 one way, $2 roundtrip) on any domestic ticket
purchased anywhere except on that carrier's own Internet site. See "Risk
Factors--Competition" and "--Online Travel Market."
Proprietary Rights.
The Company regards its domain name, copyrights, service marks, trademarks,
trade dress, trade secrets and similar intellectual property as critical to its
success. The Company relies on a combination of laws and contractual
restrictions, including trademark and copyright law, trade secret protection
and confidentiality and/or license agreements with its employees, customers,
partners and others to establish and protect its proprietary rights. The
Company pursues the registration of certain of its key trademarks and service
marks in the United States. Effective trademark, service mark, copyright and
trade secret protection may not be available in every country in which its
products and services are made available online. See "Risk Factors--Uncertain
Protection of Intellectual Property; Risks of Third Party Licenses" and "Risk
Factors--Domain Name."
Governmental Regulation and Legal Uncertainties.
Certain segments of the travel industry are heavily regulated by the United
States and international governments, and accordingly certain services offered
by the Company are affected by such regulations. For example, the Company is
subject to United States Department of Transportation ("DOT") regulations
prohibiting unfair and deceptive practices. In addition, DOT regulations
concerning the display and presentation of information that are currently
applicable to airline booking services could be extended to the Company in the
future, as well as other laws and regulations aimed at protecting customers
accessing online or other travel services. In California, Hawaii and certain
other states, the Company is required to register as a seller of travel, comply
with certain disclosure requirements and participate in the state's restitution
fund.
The Company is also subject to regulations applicable to businesses
generally and laws or regulations applicable to online commerce. Currently, few
laws and regulations directly apply to the Internet and commercial online
services. However, it is possible that laws and regulations may be adopted with
respect to the Internet or commercial online services covering issues such as
user privacy, pricing, content, copyrights, distribution, antitrust and
characteristics and quality of products and services. Further, the growth and
development of the market for online commerce may prompt calls for more
stringent consumer protection laws. Such laws may impose additional burdens on
companies conducting business online. The adoption of any additional laws or
regulations may decrease the growth of the Internet or commercial online
services. In turn, this could decrease the demand for the Company's products
and services and increase the Company's cost of doing business, or otherwise
have a material and adverse effect on the Company's business, results of
operations and financial condition.
Moreover, in many states, there is currently great uncertainty whether or
how existing laws governing issues such as property ownership, sales and other
taxes, libel and personal privacy apply to the Internet and commercial online
services. These issues may take years to resolve. For example, tax authorities
in a number of states, as well as a Congressional advisory commission, are
currently reviewing the appropriate tax treatment of companies engaged in
online commerce, and new state tax regulations may subject the Company to
additional state sales and income taxes. Any such new legislation or
regulation, the application of laws and regulations from jurisdictions whose
laws do not currently apply to the Company's business, or the application of
existing laws and regulations to the Internet and commercial online services
could have a material and adverse effect on the Company's business, results of
operations and financial condition.
Federal legislation imposing certain limitations on the ability of states to
impose taxes on Internet-based sales was enacted in 1998. This legislation,
known as the Internet Tax Freedom Act, imposes a three-year moratorium on state
and local taxes on electronic commerce (unless in effect prior to October 1,
1998) but only where such taxes are discriminatory on Internet access. It is
possible that this legislation could not be renewed
44
<PAGE>
when it terminates in October, 2001. Failure to renew the legislation would
allow state and local governments to impose taxes on Internet-based sales, and
such taxes could have a material and adverse effect on the Company's business,
results of operation and financial condition. See "Risk Factors--Domain Names,"
"Risk Factors--Dependence on Continued Growth of Online Commerce and Internet
Infrastructure" and "Risk Factors--Governmental Regulation and Legal
Uncertainties."
Employees.
As of December 31, 1998, the Company had approximately 450 reservation
agents and other call center employees, approximately 55 retail stores and
cruise employees and approximately 155 corporate and administrative employees
for a company-wide total of approximately 660 employees. The Company's ability
to attract and retain highly qualified employees will be the principal
determinant of its success. The Company has a policy of using performance-based
and equity-based compensation programs to reward and motivate significant
contributors among its employees. Competition for qualified personnel in the
industry is intense. There can be no assurance that the Company's current and
planned staffing will be adequate to support its future operations or that
management will be able to hire, train, retain, motivate and manage required
personnel. Although none of the Company's employees is represented by a labor
union, there can be no assurance that its employees will not join or form a
labor union. However, the Company has not experienced any work stoppages and
considers its relations with its employees to be good. See "Risk Factors--
Dependence on Experience, Attraction and Retention of Key Employees."
Facilities.
The Company is headquartered in Honolulu, Hawaii where it leases an
aggregate of approximately 16,100 square feet of space housing its corporate
offices and a call center. The Company's leases for such space expire in
November 2000 and December 2003, with an option to renew such leases covering
approximately 13,300 square feet for an additional five years. The Company also
leases an aggregate of approximately 5,400 square feet of retail or storage
space in six other locations in Hawaii. In July 1994, the Company entered into
a lease for approximately 9,600 square feet in Los Angeles, California, to
serve as one call center. In March 1998, the Company entered into a lease for
approximately 13,000 square feet in Colorado Springs, Colorado, to serve as
another call center. Such leases expire in September 2004 and September 2003,
respectively. The Company is currently in negotiations for a new lease in the
Colorado Springs area, which it anticipates will result in improved cost and
space efficiencies. The Company also leases an aggregate of approximately 8,800
square feet of retail and administrative space in five other locations in
California, approximately 975 square feet of retail space in Seattle in one
location, and approximately 1,650 square feet of retail and administrative
space in New York in two locations. The Company owns a 20,000 square-foot
facility in Lakeport, California, which serves as a fourth call center. The
Company anticipates that it will require additional headquarters' space within
the next 12 months. There can be no assurance that such additional space will
be available on commercially reasonable terms, if at all. See "--Products and
Services" and "--Cheap Tickets Business Strategy."
Legal Proceedings.
The Company is not currently subject to any material legal proceedings. The
Company may from time to time become a party to various legal proceedings
arising in the ordinary course of our business. Any such proceeding against the
Company, even if not meritorious, could result in the expenditure of
significant financial and managerial resources.
45
<PAGE>
MANAGEMENT
Directors and Executive Officers
The names, ages and positions of the Company's directors and officers as of
[January , 1999] are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Michael J. Hartley...... 49 Chairman of the Board, Chief Executive Officer and President
F. Michael Bartholomew.. 51 Chief Operating Officer
Dale K. Jorgenson....... 59 Chief Financial Officer and Vice President, Finance
Tammy A. Ishibashi...... 31 Executive Vice President, Ticket Distribution
Donald K. Klabunde...... 42 Vice President, Systems & Technology
Ronald L. McElfresh..... 49 Vice President, Online Services
Sandra T. Hartley....... 49 Vice President, Employee Relations and Director
Lester R. Stiefel....... 47 Director, Human Resources
LaMont C. Brewer........ 42 Director, Call Centers
Ronald J. Tsolis, Jr. .. 30 Director, Pricing and Yield Management
Giles H. Bateman........ 53 Director, Nominee
Donald J.
Phillips(1)(2)......... 59 Director
Cece Smith(1)(2)........ 54 Director
</TABLE>
- --------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Michael J. Hartley, a co-founder of the Company, has served as Chief
Executive Officer, President and Director of the Company since the Company's
inception in August 1986, and has served as Chairman of the Board since
February 1999. Mr. Hartley is the husband of Sandra T. Hartley, the Company's
Vice President, Employee Relations and the uncle of Tammy A. Ishibashi, the
Company's Executive Vice President, Ticket Distribution. Prior to founding the
Company, Mr. Hartley founded and sold one charter airline and served as an
organizer of two other airlines.
F. Michael Bartholomew has served as Chief Operating Officer of the Company
since January 1999. He joined the Company in December 1997 as Senior Vice
President, Operations. From April 1994 to September 1997, Mr. Bartholomew was
Vice President, Customer Management, at Providian Financial Corporation, a $10
billion public consumer financial services company. From May 1991 to April
1994, Mr. Bartholomew was President of Sierra Technology, a specialized
management consulting company. Prior to that, Mr. Bartholomew was a Senior
Advisor of the U.S. Special Forces, Navy Seals, U.S. Navy. Mr. Bartholomew
holds a B.S. degree in Finance from St. Louis University.
Dale K. Jorgenson joined the Company in May 1998 as Chief Financial Officer
and Vice President, Finance. Prior to that, from 1988 to 1998, he was Chief
Financial Officer and Vice President, Finance, of Interpacific Hawaii Retail
Group and DFS, Ltd. Hawaii Region, both large retail chains in Hawaii. Prior to
that, he held similar positions for 14 years with Castle & Cooke, Inc., now
Dole Food Co. Mr. Jorgenson holds a B.A. degree in Business Administration from
the University of Washington and an M.B.A. degree from Golden Gate University.
He is a certified public accountant.
Tammy A. Ishibashi has served as Executive Vice President, Ticket
Distribution since February 1995 and is responsible for managing the retail
stores and ticket distribution process, which includes fare filings with the
Airline Tariff Publishing Corporation, ticket distribution, refunds and ARC
reporting, and for overseeing the
46
<PAGE>
five departments necessary to accomplish this process. She joined the Company
as Treasurer in September 1990, a position she held until November 1993 when
she was appointed to Second Vice President. Ms. Ishibashi served as a Director
of the Company from September 1990 until February 1999. Ms. Ishibashi is the
niece of Michael J. Hartley, the Company's Chairman of the Board, Chief
Executive Officer and President, and Sandra T. Hartley, the Company's Vice
President, Employee Relations.
Donald K. Klabunde has served as Vice President, Systems & Technology since
January 1999. He joined the Company in February 1998 as Director, Systems &
Technology, to direct the day-to-day and strategic operation of the information
and technology department in the planning, development, implementation, and
support of technological/systems enhancements throughout the company. Prior to
joining the Company, he worked for Deluxe Corporation, a financial services
company, since 1980 in a variety of technical support and information and
technology positions. Mr. Klabunde holds a B.A. degree from the University of
Minnesota.
Ronald L. McElfresh joined the Company in January 1998 as Vice President,
Online Services, to design, develop, implement and maintain the Company's
website. From 1996 to 1997, he worked at Digital Island, a global Internet
service provider, as the Director, Marketing. From June 1995 to June 1996, he
served as general manager at Hawaiian On-Line GTE, an Internet company. From
October 1994 to June 1995, he worked at GTE, a telecommunications company, as
an international services product manager, where he developed and managed
telephony and worked on product development for GTE's original Internet
services. From April 1989 to July 1993, Mr. McElfresh was the Director of
Product Marketing of Brite Voice Systems, Inc., a telecommunications company.
In October 1981, Mr. McElfresh co-founded INFOCOM, a multimedia development
company, where he held various product development and marketing positions,
most recently as General Manager, until October 1987. Mr. McElfresh holds a
B.A. degree from Blackhawk College.
Sandra T. Hartley, a co-founder of the Company, has served as Vice
President, Employee Relations since January 1999. Her responsibilities include
employee relations and benefits, corporate functions and public relations. She
served as Chief Executive Officer of the Company from August 1986 until
September 1998. From August 1986 until January 1999, she has served as Chairman
of the Board of Directors. Ms. Hartley is the wife of Michael J. Hartley, the
Company's Chairman of the Board, Chief Executive Officer and President, and the
aunt of Tammy A. Ishibashi, the Company's Executive Vice President, Ticket
Distribution.
Lester R. Stiefel joined the Company in April 1998 as Director, Human
Resources, to head the human resources function and to ensure that policies and
practices comply with employment laws and regulations and company standards.
Prior to joining the company he worked at Citibank, a financial institution, as
Vice President, Senior Resources Manager from 1986 to 1998, and at The Bank of
Nova Scotia, a financial institution, from 1984 to 1986. Mr. Stiefel holds a
B.A. degree from Herbert Lehman College and a Masters degree from Yeshiva
University.
LaMont C. Brewer joined the Company in September 1998 as Call Center Manager
for the Honolulu, Hawaii location. From February 1999, Mr. Brewer has served as
Director, Call Centers. Prior to joining the Company, he worked at Michigan
Bell/Ameritech, a telecommunications company, since 1985 in different positions
including general manager of a 380 station call center, quality assurance
manager and training supervisor. Mr. Brewer holds a B.A. degree from Wayne
State University.
Ronald J. Tsolis, Jr. joined the Company in May 1998 as Director, Pricing
and Yield Management to maximize the profitability of retail fares offered by
the Company. From July 1993 to May 1998, he held management positions in
Pricing, Planning, and Sales at US Airways. Mr. Tsolis holds a B.S. degree in
Business Logistics from Pennsylvania State University.
Giles H. Bateman has been nominated to serve as a Director of the Company
effective immediately upon the closing of this Offering. He has served as a
director of CompUSA Inc. since December 1991 and as Chairman of the Board of
Directors since December 1993. Since January 1992, Mr. Bateman has been an
47
<PAGE>
investor in and director of other public and private companies, including
Boatracs, Inc. and Beverages and More, Inc. In 1991, Mr. Bateman was a visiting
professor at the University of San Diego Olin Hall School of Business
Administration. Mr. Bateman was co-founder of The Price Company, the operator
of The Price Club chain of warehouse club retail superstores. He served as a
director and Chief Financial Officer of The Price Company from 1976 to 1991 and
as Vice Chairman from 1986 to 1991. Since 1998, Mr. Bateman has volunteered as
the Chairman of the Board of Trustees of The Hoffman Institute in Northern
California. Mr. Bateman holds a B.A. degree from Oxford University and an
M.B.A. degree from Harvard University.
Donald J. Phillips has been a Director of the Company since June 1998. Since
1986, Mr. Phillips has been a general partner of Phillips-Smith Specialty
Retail Group, a retail venture capital investment firm. Mr. Phillips serves as
a director on the Board of Directors for several private companies, including
Garden Escape, Inc. He previously served as a director of publicly-held
retailers CompUSA, Inc., Petsmart, Inc. and A Pea in the Pod, Inc. Mr. Phillips
holds a B.B.A. degree in Economics from Western Michigan University and an
M.B.A. degree from Harvard University.
Cece Smith has been a Director of the Company since July 1997. Since 1986,
Ms. Smith has been a general partner of Phillips-Smith Specialty Retail Group,
a retail venture capital investment firm. Ms. Smith serves as a director on the
Board of Directors of Hot Topic, Inc., a public specialty retailer of music-
related apparel and accessories for young men and women, and a number of
private retail companies. She previously served as a director of publicly-held
retailers Big Mart, Inc. and A Pea in the Pod, Inc. Ms. Smith holds a B.B.A.
degree in Business Administration from the University of Michigan and an M.L.A.
degree in Liberal Arts from Southern Methodist University. Ms. Smith served as
a director from 1992 to 1997 and as Chairman from 1994 to 1996 of the Federal
Reserve Bank of Dallas.
Members of the Board of Directors are elected each year at the Company's
annual meeting of stockholders and serve until the following annual meeting of
the stockholders and until their respective successors have been elected and
qualified.
Prior to his founding of the Company in 1986, Mr. Hartley served from 1973
to 1978 as President and Chief Operating Officer of a commuter airline
operating within Hawaii, which he subsequently sold. From 1974 to 1978, he also
operated a Hawaii-based aviation center, which provided fuel and maintenance
services and flight instruction. In 1977, Mr. Hartley pled guilty to the charge
of conspiracy with the intent to distribute a controlled substance stemming
from an event that occurred in 1975, when he was 25. He served a 90-day work
release program and two and one half years' probation. From 1981 to 1986, Mr.
Hartley was one of several founders of two start-up Hawaii-California airlines,
Hawaii Express and Air-Hawaii. Eight months after Mr. Hartley had been
dismissed as President by a dissident board, Hawaii Express failed in 1983. Mr.
Hartley served as an outside consultant to Air Hawaii until its initial flight
in November of 1985. Air Hawaii faced major fare wars from its competitors
prior to filing for bankruptcy in the spring of 1986.
Committees of the Board of Directors
In January 1999, the Board established an Audit Committee and a Compensation
Committee. The Audit Committee monitors the corporate financial reporting and
the internal and external audits of the Company. The Audit Committee currently
consists of Directors Phillips and Smith. The Compensation Committee makes
recommendations regarding the Company's employee stock plans and makes
decisions concerning salaries and incentive compensation for employees and
consultants of the Company. The Compensation Committee currently consists of
Directors Phillips and Smith. It is anticipated that Giles Bateman will become
a member of both committees upon the closing of this Offering.
Director Compensation
[Nonemployee directors receive $2,500 for each Board meeting and $1,000 for
each committee meeting attended in person as compensation for their services as
directors. Further, directors are reimbursed for certain
48
<PAGE>
reasonable expenses incurred in attending Board or committee meetings. Each
non-employee director will receive upon joining the Company an option to
acquire [ ] shares of Common Stock at an exercise price equal to the then
fair market value. Each non-employee director will also receive automatic
annual grants of options to acquire an additional [ ] shares of Common
Stock at an exercise price equal to the then fair market value of the Common
Stock at the date of grant. Such options will immediately vest and become fully
exercisable on the grant date. See "Employee Stock Plans--1999 Stock Incentive
Plan.]
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between the Company's Board of Directors
or Compensation Committee and any member of any other company's board of
directors or compensation committee, nor has any such interlocking relationship
existed in the past.
Limitation of Liability and Indemnification Matters
Pursuant to the provisions of the Delaware General Corporation Law, the
Company's Certificate of Incorporation provides that directors of the Company
shall not be personally liable for monetary damages to the Company or its
stockholders for a breach of fiduciary duty as a director, except for liability
as a result of (i) a breach of the director's duty of loyalty to the Company or
its stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) an act related to
the unlawful stock repurchase or payment of a dividend under Section 174 of
Delaware General Corporation Law, and (iv) transactions from which the director
derived an improper personal benefit. Such limitation of liability does not
affect the availability of equitable remedies such an injunctive relief or
rescission.
The Company's Certificate of Incorporation, as amended, also authorizes the
Company to indemnify its officers, directors and other agents, by bylaws,
agreements or otherwise, to the fullest extent permitted under Delaware law.
The Company has entered into separate indemnification agreements with its
directors and officers which may, in some cases, be broader than the specific
indemnification provisions contained in the Delaware General Corporation Law.
The indemnification agreements may require the Company, among other things, to
indemnify such officers and directors against certain liabilities that may
arise by reason of their status or service as directors or officers (other than
liabilities arising from willful misconduct of a culpable nature), to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to obtain directors' and officers' insurance if
available on reasonable terms.
The Company's Bylaws, as amended, require the Company to indemnify its
directors and officers and permit the Company to indemnify its other employees
to the fullest extent permitted by law. The Company believes that
indemnification under its Bylaws, as amended, covers at least negligence and
gross negligence on the part of the indemnified party.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.
49
<PAGE>
Executive Compensation--Summary Compensation Table
The following table sets forth all compensation paid by the Company during
fiscal 1998, 1997, 1996, and 1995 to (i) each of the individuals serving as the
Company's principal executive officer during fiscal 1997, (ii) up to four other
most highly compensated executive officers of the Company during fiscal 1997,
and (iii) up to two additional individuals who would have been among the
Company's four most highly compensated executive officers, but for the fact
that they were not serving as executive officers of the Company at the end of
fiscal 1997 (collectively referred to as the "Named Executive Officers").
<TABLE>
<CAPTION>
Long-Term
Compensation
---------------
Annual Compensation
------------------------- Securities
Name and Principal Underlying All Other
Position Year Salary(1) Bonus Options/SARs(#) Compensation($)
------------------ ---- --------- ------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Michael J. Hartley...... 1998 $243,783(2) $50,000 $ -- $ --
Chairman of the Board,
Chief Executive 1997 229,090 -- -- --
Officer and
President(1) 1996 154,170 15,750 -- --
1995 122,750 -- -- --
Sandra T. Hartley....... 1998 235,500(3) 12,500 -- --
Vice President,
Employee Relations 1997 233,050 -- -- --
1996 213,400 15,750 -- --
1995 187,600 -- -- --
F. Michael Bartholomew.. 1998 165,000 41,250 -- --
Chief Operating Officer 1997 6,875(4) -- -- --
1996 -- -- -- --
1995 -- -- -- --
Dale K. Jorgenson(5).... 1998 78,366 21,875 -- --
Chief Financial Officer
and 1997 -- -- -- --
Vice President, Finance 1996 -- -- -- --
1995 -- -- -- --
Tammy A. Ishibashi...... 1998 100,008 25,000 -- --
Executive Vice
President, 1997 73,110 -- -- --
Ticket Distribution 1996 56,600 5,000 -- --
1995 55,200 5,000 -- --
Paul Ouyang(6).......... 1998 201,923 -- -- --
1997 225,000 -- -- 59,854(7)
1996 28,125 -- -- 45,895(8)
1995 -- -- -- --
</TABLE>
- --------
(1) Amounts shown are on a full-year basis and include cash and noncash
compensation earned by the Named Executive Officers.
(2) For fiscal year 1999, Mr. Hartley's annual salary will be $387,140.
(3) For fiscal year 1999, Mrs. Hartley's annual salary will be $75,000.
(4) Mr. Bartholomew's annual salary for 1997 would have been $165,000 if he had
been with the Company for the entire year. He joined the Company in
December 1997. For fiscal year 1999, Mr. Bartholomew's annual salary will
be $190,000.
(5) Mr. Jorgenson's annual salary and bonus for 1998 would have been $150,000
and $45,000, respectively, if he had been with the Company for the entire
year. He joined the Company in May 1998.
(6) Mr. Ouyang was the Chief Financial Officer of the Company until March 23,
1998, at which time he left the Company.
(7) Includes reimbursement for legal fees and taxes.
(8) Includes compensation in the form of stock issuances.
Option Grants In Last Fiscal Year
The Company did not grant any stock options or deferred stock units during
1997.
50
<PAGE>
Employee Stock Plans
1997 Stock Option Plan
The Company's 1997 Stock Option Plan (the "1997 Plan") provides for the
granting to employees of incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue
Code") and for the granting of nonstatutory stock options to employees,
directors and consultants. The 1997 Plan was approved by the Board of Directors
in February 1998 and by the Company's shareholders in April 1998. Unless
terminated sooner, the 1997 Plan will terminate automatically in 2008. A total
of [141,403] shares of Common Stock were reserved for issuance pursuant to the
1997 Plan. As of September 30, 1998, options to purchase [47,200] shares of
Common Stock were outstanding under the 1997 Plan and [94,203] shares of Common
Stock remained available under the 1997 Plan.
The 1997 Plan may be administered by the Board of Directors or a committee
of the Board (the "Committee"). Either the Board or the Committee (the
"Administrator") has the power to determine the terms of the options granted,
including the number of shares subject to each option, the exercisability
thereof, and the form of consideration payable upon such exercise.
Options granted under the 1997 Plan are not generally transferable by the
optionee, and generally each option is exercisable during the lifetime of the
optionee only by such optionee. Unless otherwise specified in the option
agreement, options granted under the 1997 Plan must be exercised within three
months of the end of the optionee's status as an employee or consultant of the
Company, or within twelve months after such optionee's termination by death (by
the Optionee's estate) or disability, but in no event later than the expiration
of the option's term. The exercise price of all incentive stock options granted
under the 1997 Plan must be at least equal to the fair market value of the
Common Stock on the date of the grant. The exercise of nonstatutory stock
options must be at least equal to 85% of the fair market value of the Common
Stock on the date of the grant. With respect to any optionee who owns stock
possessing more than 10% of the voting power of all classes of the stock of
Company's outstanding capital stock, the exercise price of any incentive stock
option or nonstatutory stock option granted must equal at least 110% of the
fair market value of the Common Stock on the date of the grant and the term of
any such incentive stock option held by such an optionee shall not exceed five
years. The term of other options under the 1997 Plan shall not exceed ten
years. The consideration to be paid for the shares of Common Stock upon
exercise of an option will be determined by the Administrator and may include,
cash, check, promissory note, shares of Common Stock, or the assignment of part
of the proceeds from the sale of shares acquired upon exercise of the option.
The 1997 Plan provides that in the event of a merger or a sale of all or
substantially all of the Company's assets, the Administrator has the authority
to provide for the full automatic vesting and exercisability of each option,
including shares as to which the option would not otherwise be exercisable. If
an option becomes exercisable in full in the event of a merger or sale of
assets, the Administrator shall notify the optionee that the option shall be
fully exercisable for a specified period from the date of such notice, and the
option will terminate upon the expiration of such period. To the extent the
option has not been previously exercised, each option will terminate
immediately prior to the consummation of such merger or sale of assets.
During 1998, the Company granted to F. Michael Bartholomew an option to
acquire [10,000] shares of Common Stock at an exercise price of $[2.50] per
share. Upon the completion of this Offering, the option will be fully vested
and exercisable. See "Capitalization" and "Dilution."
1999 Stock Incentive Plan
[The Company's 1999 Stock Incentive Plan (the "1999 Stock Incentive Plan"),
which was adopted by the Board of Directors in 1999, is expected to be
approved by the Company's stockholders prior to the Offering. From and after
the Offering, all further option grants will be made solely under the 1999
Stock Incentive Plan. Initially, [ ] shares of Common Stock, plus an annual
increase to be added on the first day of the Company's fiscal year beginning in
2000 equal to the lesser of (i) [ ] shares of Common Stock,
51
<PAGE>
(ii) percent ( %) of the number of shares outstanding as of such date, or
(iii) a lesser number of shares determined by the administration of the 1999
Stock Incentive Plan are reserved for issuance under the 1999 Stock Incentive
Plan.
With respect to 1999 Awards granted to directors or officers, the 1999 Stock
Incentive Plan is administered by the Board of Directors or a committee
designated by the Board of Directors constituted to permit such 1999 Awards to
be exempt from Section 16(b) of the Exchange Act in accordance with Rule 16b-3
thereunder. With respect to 1999 Awards granted to other participants, the 1999
Stock Incentive Plan is administered by the Board of Directors or a committee
designated by the Board of Directors. In each case, the respective plan
administrator shall determine the provisions, terms and conditions of each 1999
Awards, including, but not limited to, the 1999 Award vesting schedule,
repurchase provisions, rights of first refusal, forfeiture provisions, form of
payment (cash, shares of Common Stock, or other consideration) upon settlement
of the 1999 Award, payment contingencies and satisfaction of any performance
criteria.
The exercise price of Incentive Stock Options must be at least equal to the
fair market value of the Common Stock on the date of grant, and the term of the
option must not exceed ten years. The term of other 1999 Awards will be
determined by the respective plan administrator. With respect to an employee
who owns stock possessing more than 10% of the voting power of all classes of
the Company's outstanding capital stock, the exercise price of any Incentive
Stock Option must equal at least 110% of the fair market value of the Common
Stock on the grant date and the term of the option must not exceed five years.
The exercise price or purchase price, if any, of other 1999 Awards will be such
price as determined based on current market prices for the Company's Common
Stock by the respective plan administrator. The consideration to be paid for
the shares of Common Stock upon exercise or purchase of a 1999 Award will be
determined by the respective plan administrator and may include cash, check,
promissory note, shares of Common Stock, or the assignment of part of the
proceeds from the sale of shares acquired upon exercise or purchase of the 1999
Award.
Pursuant to the 1999 Stock Incentive Plan, the Board of Directors has
adopted the 1999 Non-Employee Director Option Program. Under the Non-Employee
Director Option Program, each non-employee director serving on the Company's
Board of Directors upon joining the Company will receive an option to acquire
[ ] shares of Common Stock at an exercise price per share equal to the
then fair market value of the Common Stock at the date of grant. These options
will vest and become exercisable in [three] equal installments on each yearly
anniversary of the grant date. Non-employee directors appointed to the Board of
Directors following the Offering also will be granted annually at the time of
election or appointment an option to acquire [ ] shares of Common Stock.
Such options will immediately vest and become fully exercisable on the then
grant date.
Each automatic option grant will have a term of ten years and will be
transferable to the extent provided in the agreement evidencing the option.
401(k) Plan
The Company has a 401(k) plan (the "401(k) Plan"), pursuant to which
eligible employees may elect to reduce their current salary by up to the
statutorily prescribed annual limit and have the amount of such reduction
contributed to the 401(k) Plan. Contributions to the 401(k) Plan by the Company
are discretionary. The 401(k) Plan is intended to qualify under Section 401 of
the Internal Revenue Code so that contributions by participants to the 401(k)
Plan, and income earned on plan contributions, are not taxed to participants
until withdrawn from the 401(k) Plan.
52
<PAGE>
Employment Agreements
The Company does not have any employment agreements with any of its key
personnel. The Company has severance agreements with Michael J. Hartley and
Sandra T. Hartley. Each of the severance agreements requires the Company to pay
the respective individual an amount equal to the lesser of (a) twice his or her
respective annual salary or (b) $400,000 in the event that their employment is
terminated either by the Company without cause or by them for good reason.
CERTAIN TRANSACTIONS
During the last fiscal year, the Company did not enter into any transaction
required to be disclosed pursuant to Item 404 of Regulation S-K.
53
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of September 30, 1998,
and is adjusted to reflect the sale of the shares offered hereby by (i) each
person (or group of affiliated persons) who is known by the Company to own
beneficially more than 5% of the Company's Common Stock, (ii) each of the
Company's directors, (iii) each of the Named Executive Officers, and (iv) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
Percentage
Beneficially
Number of Owned(1)(2)
Shares -----------------
Beneficially Before After
Name of Beneficial Owner Owned(1) Offering Offering
- ------------------------ ------------ -------- --------
<S> <C> <C> <C>
Michael J. Hartley (3)......................... [956,788] 92.6%
Sandra T. Hartley (4).......................... [956,788] 92.6
Donald J. Phillips (5)......................... [211,468] 17.0
Cece Smith (6)................................. [211,468] 17.0
Tammy A. Ishibashi (7)......................... [50,357] 4.9
Paul Ouyang (8)................................ [26,689] 2.6
F. Michael Bartholomew (9)..................... [2,000] 1.9
Dale K. Jorgenson.............................. -- *
All directors and executive officers as a group
(12 persons).................................. [1,229,249] 97.9
</TABLE>
- --------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options or warrants held by that person
that are currently exercisable within 60 days of [September 30, 1998] are
deemed outstanding. Such shares, however, are not deemed outstanding for
the purpose of computing the percentage ownership of each other person.
Except as indicated in the footnote to this table and pursuant to
applicable community property laws, each stockholder named in the table has
sole voting power and investment power with respect to the shares set forth
opposite such stockholder's name.
(2) Based on [1,033,834] shares of Common Stock outstanding prior to the
Offering and [ ] outstanding upon the completion of the Offering and
assumes no exercise of Underwriters' over-allotment option.
(3) Includes [135,965] shares of Common Stock held by the Michael J. Hartley
Living Trust, [342,429] shares of Common Stock held by the [Michael J.
Hartley Investment Account] and [478,394] shares of Common Stock held by
Sandra T. Hartley. Mr. Hartley is the husband of Sandra T. Hartley, the
Company's Vice President, Employee Relations who owns [478,394] shares of
Common Stock. Mr. Hartley's address is 1440 Kapiolani Boulevard, Honolulu,
Hawaii 96814. See note (4).
(4) Includes [135,965] shares of Common Stock held by the Sandra T. Hartley
Living Trust, [342,429] shares of Common Stock held by the [Sandra T.
Hartley Investment Account] and [478,394] shares of Common Stock held by
Michael J. Hartley. Ms. Hartley is the wife of Michael J. Hartley, the
Company's Chairman of the Board, Chief Executive Officer and President who
owns [478,394] shares of Common Stock. Ms. Hartley's address is 1440
Kapiolani Boulevard, Honolulu, Hawaii 96814. See note (3).
(5) Represents warrants held by Phillips-Smith Specialty Retail Group III, L.P.
to purchase [211,468] shares of Common Stock exercisable at or within 60
days of September 30, 1998. Mr. Phillips is a co-founder and general
partner of Phillips-Smith Specialty Retail Group III, L.P. Mr. Phillips'
address is c/o Phillips-Smith Specialty Retail Group, 5080 Spectrum Drive,
Suite 805, West Addison, Texas 75001. Phillips-Smith Specialty Retail Group
III, L.P. is the holder of the majority of the [425,000] shares of
Mandatorily Redeemable Preferred Stock. See note (6).
(6) Represents warrants held by Phillips-Smith Specialty Retail Group III, L.P.
to purchase [211,468] shares of Common Stock exercisable at or within 60
days of September 30, 1998. Ms. Smith is a co-founder and general partner
of Phillips-Smith Specialty Retail Group III, L.P. Ms. Smith's address is
c/o Phillips-Smith Specialty Retail Group, 5080 Spectrum Drive, Suite 805,
West Addison, Texas 75001. Phillips-Smith Specialty Retail Group III, L.P.
is the holder of the majority of the [425,000] shares of Mandatorily
Redeemable Preferred Stock. See note (5).
(7) Ms. Ishibashi is the niece of Michael J. Hartley, the Company's Chairman of
the Board, Chief Executive Officer and President, and Sandra T. Hartley,
the Company's Vice President, Employee Relations. See notes (3) and (4).
(8) Represents [26,689] shares held in the name of Paul Ouyang and Deborah
Ouyang, Trustees of the Ouyang 1990 Trust.
(9) Represents stock options held by Mr. Bartholomew to purchase [2,000] shares
of Common Stock exercisable at or within 60 days of September 30, 1998.
54
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of [5,000,000] shares
of Common Stock, par value [$0.01] per share (the "Common Stock") and
[5,000,000] shares of Preferred Stock par value [$1.00] per share, of which all
issued and outstanding Preferred Stock prior to the initial public offering
shall be redeemed upon the closing of this Offering.
The following description of the Company's capital stock does not purport to
be complete and is subject to and qualified in its entirety by the Company's
Certificate of Incorporation and Bylaws and by the provisions of applicable
Delaware law.
The Certificate of Incorporation and Bylaws contain certain provisions that
are intended to enhance the likelihood of continuity and stability in the
composition of the Board of Directors and which may have the effect of
delaying, deferring or preventing a future takeover or change in control of the
Company unless such takeover or change in control is approved by the Board of
Directors.
Common Stock
As of September 30, 1998, there were [1,033,834] shares of Common Stock
outstanding held of record by four stockholders. Holders of Common Stock are
entitled to one vote per share on all matters to be voted upon by the
stockholders. Subject to preferences that may be applicable to any outstanding
Preferred Stock, the holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior liquidation rights of Preferred Stock, if any,
then outstanding. The holders of Common Stock have the preemptive right to
purchase their pro rata portion of any additional shares of Common Stock
whether then or thereafter authorized. The Common Stock has no conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and the shares of Common Stock to be outstanding after the Offering
will be fully paid and non-assessable. See "Dividend Policy."
Preferred Stock
As of September 30, 1998, there were [425,000] shares of Mandatorily
Redeemable Preferred Stock. Upon the closing of this Offering, [5,000,000]
shares of Preferred Stock will be authorized without any shares being issued
and outstanding. The Board of Directors has the authority, without further
action by the stockholders, to issue the shares of Preferred Stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking and purchase fund provisions, and
the number of shares constituting any series and the designations of such
series. The issuance of Preferred Stock could adversely affect the voting power
of holders of Common Stock and the likelihood that such holders will receive
dividend payments and payments upon liquidation and could have the effect of
delaying, deferring or preventing a change in control of the Company. The
Company has no present plan to issue any additional shares of Preferred Stock.
Options
As of September 30, 1998, (i) options to purchase a total of [47,200] shares
of Common Stock were outstanding; and (ii) up to [94,203] additional shares of
Common Stock may be subject to options granted in the future under the 1997
Stock Option Plan.
55
<PAGE>
Warrants
As of September 30, 1998, the Company had warrants outstanding to purchase
[212,104] shares of Common Stock at an exercise price of [$0.01] per share
(subject to adjustment for stock splits, stock dividends and the like), which
expire on July 15, 2002. The Company anticipates that the warrants will be
exercised immediately prior to the closing of the Offering.
Registration Rights
As of the effective date of the Registration Statement, holders of [212,104]
shares Common Stock will be entitled to registration rights with respect to
their Shares. Holders of such shares can require the Company to register the
shares at any time following 180 days after the Effective Date, subject to
certain conditions. See "Risk Factors--Shares Eligible for Future Sale" and
"Shares Eligible for Future Sale."
Delaware Anti-Takeover Law and Certain Charter Provisions
Delaware Anti-Takeover Law
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), an anti-takeover law that restricts certain transactions
and business combinations between a corporation and an "Interested Stockholder"
owning 15% or more of the corporation's outstanding voting stock, for a period
of three years from the date the stockholder becomes an Interested Stockholder.
Subject to certain exceptions, unless the transaction is approved by the board
of directors and the holders of at least two-thirds of the outstanding voting
stock of the corporation (excluding shares held by the Interested Stockholder),
Section 203 prohibits significant business transactions such as a merger with,
disposition of assets to, or receipt of disproportionate financial benefits by
the Interested Stockholder, or any other transaction that would increase the
Interested Stockholder's proportionate ownership of any class or series of the
corporation's stock. The statutory ban does not apply if, upon consummation of
the transaction in which any person becomes an Interested Stockholder, the
Interested Stockholder owns at least 85% of the outstanding voting stock of the
corporation (excluding shares held by persons who are both directors and
officers or by certain employee stock plans).
Limitation of Director and Officer Liability
Pursuant to the provisions of the Delaware General Corporation Law, the
Company's Certificate of Incorporation provides that directors and officers of
the Company shall not be personally liable for monetary damages to the Company
or its stockholders for a breach of fiduciary duty as a director and officer,
except for liability as a result of (i) a breach of the director's duty of
loyalty to the Company or its stockholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) an act related to the unlawful stock repurchase or payment of a dividend
under Section 174 of Delaware General Corporation Law, and (iv) transactions
from which the director derived an improper personal benefit. Such limitation
of liability does not affect the availability of equitable remedies such an
injunctive relief or rescission.
Action by Written Consent
Upon completion of this Offering, the Company's Certificate of Incorporation
will provide that the holders of two-thirds of the outstanding voting capital
stock can take action by written consent or at a duly called annual or special
meeting of stockholders. This provision may have the effect of deterring
hostile takeovers or delaying changes in control or management of the Company.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Common Stock is [ ].
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have approximately
[ ] shares of Common Stock outstanding assuming (i) no exercise of the
Underwriters' over-allotment option, and (ii) no exercise of outstanding
options. Effective upon the consummation of this Offering, assuming no exercise
of outstanding options, the Company will have outstanding options to purchase
approximately [ ] shares of Common Stock to purchase an aggregate of
approximately [ ] shares of Common Stock.
Of the Common Stock outstanding upon completion of this Offering, the
[ ] shares of Common Stock sold in this Offering will be freely tradable
without restriction or further registration under the Securities Act, except
for any shares purchased by "affiliates" of the Company, as that term is
defined under the Securities Act and the Regulations promulgated thereunder (an
"Affiliate"). The remaining [ ] shares of Common Stock held by officers,
directors, employees, consultants and other stockholders of the Company were
sold by the Company in reliance on exemptions from the registration
requirements of the Securities Act and are "restricted securities" within the
meaning of Rule 144 under the Securities Act. Any shares of Common Stock issued
upon the exercise of options or warrants held by any of such persons will
constitute restricted securities. Approximately [ ] of the outstanding
shares of Common Stock that are restricted securities will be eligible for sale
in the public market as of the date of this Prospectus (the "Effective Date")
in reliance on Rule 144(k) under the Securities Act. The remaining [ ]
shares of Common Stock held by existing stockholders are subject to lock-up
agreements with the Representatives. Of the shares of Common Stock subject to
lock-up agreements, approximately [ ] shares may not be sold or
transferred until 180 days after the Effective Date. None of the shares subject
to such lock-up agreements may be sold or transferred during the applicable
lock-up period without the consent of the underwriters except for transfers
pursuant to gifts or certain partnership distributions and similar transfers in
which the transferee enters into a substantially similar lock-up agreement.
Upon the expiration of the lock-up agreements, all of such locked-up shares
will become eligible for sale 180 days, respectively, after the Effective Date
subject to the provisions of the Rules 144(k), 144 or 701. William Blair &
Company, L.L.C. may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to these lock-up
agreements.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially
owned restricted securities for a period of at least one year from the later of
the date such restricted securities were acquired from the Company or the date
they were acquired from an Affiliate, is entitled to sell, within any three-
month period commencing 90 days after the Effective Date, a number of shares
that does not exceed the greater of 1% of the then outstanding shares of Common
Stock (approximately [ ] shares immediately after this Offering) or the
average weekly trading volume in the Common Stock during the four calendar
weeks preceding such sale. Sales under Rule 144 are also subject to certain
provisions relating to the number and notice of sale and the availability of
current public information about the Company.
Further, under Rule 144(k), if a period of at least two years has elapsed
between the later of the date restricted securities were acquired from the
Company and the date they were acquired from an Affiliate of the Company, a
holder of such restricted securities who is not an Affiliate at the time of the
sale and has not been an Affiliate for at least three months prior to the sale
would be entitled to sell the shares immediately after the Effective Date
without regard to the volume and manner of sale limitations described above.
Any employee, director or consultant to the Company who purchased his or her
shares pursuant to a written compensation plan or contract is entitled to rely
on the resale provisions of Rule 701, which permits non-Affiliates to sell
their Rule 701 shares beginning 90 days after the Effective Date without having
to comply with the volume limitations and other restrictions of Rule 144
holding period restrictions. As of [September 30, 1998], there were outstanding
options to purchase approximately [ ] shares with under certain
circumstances would be available for sale pursuant to Rule 701, of which
approximately [ ] of the shares underlying such options are subject to
lock-up agreements. Of the approximately [ ] total shares issuable upon
exercise of outstanding options, approximately [ ] shares may not be sold
or transferred until 180 days after the Effective Date. Options for
approximately [ ] of the total [ ] shares were exercisable as of
[September 30, 1998].
57
<PAGE>
Prior to this Offering, there has been no public market for the Common Stock
of the Company, and any sale of substantial amounts of Common Stock in the open
market, or the availability of shares for sale, may adversely affect the market
price of the Common Stock and the ability of the Company to raise funds through
equity offerings in the future.
As of the effective date of the Registration Statement, holders of [212,104]
shares of Common Stock will be entitled to registration rights with respect to
their shares. Holders of such shares can require the Company to register the
shares at any time following 180 days after the effective date, subject to
certain conditions. See "Risk Factors--Shares Eligible for Future Sale" and
"Description of Capital Stock--Registration Rights."
58
<PAGE>
UNDERWRITING
The several Underwriters named below (the "Underwriters"), for which William
Blair & Company, L.L.C. and Dain Rauscher Wessels, a Division of Dain Rauscher
Incorporated ("Dain Rauscher Wessels") (the "Representatives") are acting as
representatives, have severally agreed, subject to the terms and conditions set
forth in the Underwriting Agreement by and among the Company and the
Underwriters (the "Underwriting Agreement"), to purchase from the Company, and
the Company has agreed to sell to each of the Underwriters, the respective
number of shares of Common Stock set forth opposite each Underwriters' name in
the table below.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
William Blair & Company, L.L.C. ...................................
Dain Rauscher Wessels..............................................
---------
Total............................................................
=========
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Common Stock
being sold pursuant to the Underwriting Agreement if any of the Common Stock
being sold pursuant to the Underwriting Agreement (excluding shares covered by
the over-allotment option granted therein) is purchased. In the event of
default by any Underwriter, the Underwriting Agreement provides that, in
certain circumstances, the purchase commitments of the non-defaulting
Underwriters shall be increased or the Underwriting Agreement may be
terminated.
The Representatives have advised the Company that the Underwriters propose
to offer the Common Stock to the public initially at the public offering price
set forth on the cover page of this Prospectus and to selected dealers at such
price less a concession of not more than $ per share. The Underwriters may
allow, and such dealers may re-allow, a concession not in excess of $ per
share to certain other dealers. After commencement of the initial public
offering, the public offering price, and other selling terms may be changed by
the Representatives.
The Company has granted to the Underwriters an option, exercisable within 30
days after the date of this Prospectus, to purchase up to an aggregate of
[ ] additional shares of Common Stock to cover over-allotments, at the
same price per share to be paid by the Underwriters for the other shares
offered hereby. If the Underwriters purchase any such additional shares
pursuant to this option, each of the Underwriters will be committed to purchase
such additional shares in approximately the same proportion as set forth in the
table above. The Underwriters may exercise the option only for the purpose of
covering over-allotments, if any, made in connection with the distribution of
the shares of Common Stock offered hereby.
All stockholders of the Company, who hold in the aggregate [ ] shares
of Common Stock, and the Company have agreed that for a period of 180 days
after the date of this Prospectus, without the prior written consent of William
Blair & Company, L.L.C., they will not, directly or indirectly, offer, sell,
assign, transfer, encumber, pledge, contract to sell, grant an option to
purchase, or otherwise dispose of, other than by operation of law, any shares
of Common Stock or securities convertible or exchangeable into, or exercisable
for, Common Stock (except in the case of bona fide gifts to immediate family
members of such persons who agree to be bound by such restrictions, or to
limited partners or shareholders, who agree to be bound by such restrictions).
In considering a request for its consent to a sale or transfer within the 180-
day period, William Blair & Company, L.L.C. will take into account various
factors, including, but not limited to, the number of shares requested to be
sold, the anticipated manner and timing of sale, the potential impact of the
sale on the market for the Common Stock, and market conditions generally. The
Company may grant options and issue Common Stock under existing stock option or
stock purchase plans and issue unregistered shares in connection with any
outstanding convertible securities or options during the lock-up period. See
"Risk Factors--No Prior Market for Our Common Stock; Volatility of Stock
Price."
59
<PAGE>
The Company has agreed to indemnify the Underwriters and their controlling
persons against certain liabilities, including liabilities under the Securities
Act, or to contribute to payments the Underwriters may be required to make in
respect thereof.
The Representatives have informed the Company that the Underwriters will not
confirm, without client authorization, sales to their client accounts as to
which they have discretionary authority.
Prior to this Offering, there was no public market for the Common Stock of
the Company. Consequently, the initial public offering price for the Common
Stock will be determined by negotiations among the Company and the
Representatives. Among the factors which will be considered in such
negotiations are the prevailing market conditions, the results of operations of
the Company in recent periods, the market capitalizations and stages of
development, and recent market prices of securities, of other companies which
the Company and the Representatives believe to be comparable to the Company,
estimates of the business potential of the Company, the present state of the
Company's development, the general condition of the securities markets at the
time of this Offering, and other factors which are deemed relevant. There can
be no assurance that an active trading market will develop for the Common Stock
or that the Common Stock will trade in the public market subsequent to this
Offering at or above the initial public offering price.
During and after this Offering, the Underwriters may purchase and sell the
Common Stock in the open market in order to facilitate this Offering.
Specifically, the Underwriters may over-allot or otherwise create a short
position in the Common Stock for their own account by selling more shares of
Common Stock than have been sold to them by the Company pursuant to the
Underwriting Agreement. The Underwriters may elect to cover any such short
position by purchasing shares of Common Stock in the open market or by
exercising the over-allotment option granted to them by the Company. The
Underwriters also may impose a penalty bid, whereby selling concessions allowed
to syndicate members or other broker-dealers in respect of shares of Common
Stock sold in this Offering for their account may be reclaimed by the syndicate
if such shares are repurchased by the syndicate in stabilizing or covering
transactions.
The activities described above may stabilize, maintain, or otherwise affect
the market price of the Common Stock and make such price higher than it might
otherwise be in the open market. The imposition of a penalty bid may also
affect the price of the Common Stock to the extent that it discourages resales
thereof. These activities, if commenced, may be discontinued at any time
without notice and may be effected on the Nasdaq Stock Market or otherwise.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to whether the Underwriters will engage in such transactions or
choose to discontinue any transactions engaged in or the direction or magnitude
of any effect that such transactions may have on the price of the Common Stock.
60
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon by
Morrison & Foerster LLP, Los Angeles, California. Certain matters in connection
with this Offering will be passed upon for the Underwriters by Sonnenschein
Nath & Rosenthal, Chicago, Illinois.
EXPERTS
The financial statements as of December 31, 1997 and 1996 and for each of
the three years in the period ended December 31, 1997 included in this
Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
In August 1998, the Company selected PricewaterhouseCoopers LLP as its
principal independent auditors to replace KPMG LLP. The decision to retain
PricewaterhouseCoopers LLP was recommended by the Board of Directors. In
connection with the audit for the years ended December 31, 1996 and 1997, and
the period through August 1998, there were no disagreements with KPMG LLP on
any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which, if not resolved to the
satisfaction of KPMG LLP, would have caused them to make reference to the
matter in their report. The report of KPMG LLP on the financial statements of
the Company for the years ended December 31, 1996 and 1997 did not contain any
adverse opinion or disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope or accounting principles.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments and exhibits thereto, the "Registration Statement") under the
Securities Act with respect to the shares of Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the shares of Common Stock offered hereby, reference
is made to the Registration Statement. Statements contained in this Prospectus
as to the contents of any contract or other document are not necessarily
complete, and in each instance reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. Copies of such
materials may be examined without charge at, or obtained upon payment of
prescribed fees from, the Public Reference Section of the Commission at Room
1024 Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices located at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and at 7 World Trade Center, 13th Floor,
New York New York 10048. The Commission maintains a World Wide Website that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the site is http://www.sec.gov. Reports, proxy statements and other
information concerning the Company may also be inspected at the National
Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington D.C.
20006.
61
<PAGE>
CHEAP TICKETS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statements of Stockholders' Equity......................................... F-5
Statements of Cash Flows................................................... F-6
Notes to the Financial Statements.......................................... F-8
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
The Stockholders and Board of Directors
Cheap Tickets, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in stockholders' equity and cash flows present fairly,
in all material respects, the financial position of Cheap Tickets, Inc. at
December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
October 13, 1998, except for
Notes 4 and 5, as to which
the date is January 15,
1999
F-2
<PAGE>
CHEAP TICKETS, INC.
BALANCE SHEETS
December 31, 1996 and 1997 and September 30, 1998
<TABLE>
<CAPTION>
December 31,
----------------------- September
1996 1997 30, 1998
---------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Assets (Note 3)
Current Assets:
Cash and cash equivalents.............. $1,583,284 $ 6,254,406 $ 9,232,480
Trade accounts and other receivables... 1,066,168 663,969 1,793,229
Refundable income taxes................ -- 663,209 75,601
Ticket inventories..................... 262,769 119,771 399,012
Other current assets................... 142,062 259,719 514,424
---------- ----------- -----------
Total current assets................. 3,054,283 7,961,074 12,014,746
Property and equipment, net (Note 2)..... 2,230,994 2,520,046 2,705,400
Property held for sale................... 550,000 550,000 --
Other assets............................. 163,395 172,470 182,994
---------- ----------- -----------
$5,998,672 $11,203,590 $14,903,140
========== =========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable....................... $1,869,108 $ 4,385,778 $ 6,133,254
Accrued expenses and other
liabilities........................... 343,760 557,528 1,273,127
Current installments of long-term debt
(Note 3).............................. 78,749 528,825 190,830
Current installments of capital lease
obligations (Note 8).................. 95,950 132,722 170,707
Income taxes payable................... 200,336 -- --
---------- ----------- -----------
Total current liabilities............ 2,587,903 5,604,853 7,767,918
Long-term debt, excluding current
installments (Notes 3 and 10)........... 1,355,175 598,139 637,485
Capital lease obligations, excluding
current installments (Note 8)........... 359,356 349,542 460,397
Other noncurrent liabilities............. 152,646 217,598 132,456
---------- ----------- -----------
Total liabilities.................... 4,455,080 6,770,132 8,998,256
---------- ----------- -----------
Commitments (Notes 7, 8 and 12)
Mandatorily redeemable cumulative
preferred stock, $1 par value (aggregate
involuntary liquidation preference of
$4,250,000, plus unpaid cumulative
dividends). Issued and outstanding
425,000 shares at December 31, 1997 and
September 30, 1998 (Note 4)............. -- 3,621,896 4,007,495
---------- ----------- -----------
Stockholders' Equity (Notes 4, 5, 11 and
12):
Preferred stock, $1 par value.
Authorized 5,000,000 shares; issued
and outstanding 425,000 shares of
mandatorily redeemable cumulative
preferred stock at December 31, 1997
and September 30, 1998................ -- -- --
Common stock, $.01 par value.
Authorized 5,000,000 shares; issued
and outstanding 1,060,523 shares at
December 31, 1996 and 1997 and
1,033,834 shares at September 30,
1998.................................. 1,053 10,605 10,338
Additional paid-in capital............. 45,842 547,017 550,937
Unearned compensation.................. (42,071) (19,127) (24,805)
Retained earnings...................... 1,538,768 273,067 1,360,919
---------- ----------- -----------
Total stockholders' equity........... 1,543,592 811,562 1,897,389
---------- ----------- -----------
$5,998,672 $11,203,590 $14,903,140
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
CHEAP TICKETS, INC.
STATEMENTS OF OPERATIONS
Years Ended December 31, 1995, 1996 and 1997
and Nine Months Ended September 30, 1997 and 1998
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
--------------------------------------- --------------------------
1995 1996 1997 1997 1998
----------- ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Supplemental Information
(unaudited)
(Note 1):
Gross bookings......... $91,994,257 $105,944,252 $153,673,826 $112,084,284 $199,114,820
=========== ============ ============ ============ ============
Results of Operations:
Non-published fares..... $66,340,289 $ 58,981,893 $ 96,379,304 $ 73,713,379 $122,994,328
Published fare
commissions and
bonuses................ 2,737,891 5,613,761 6,470,082 4,674,229 8,053,344
----------- ------------ ------------ ------------ ------------
Net revenues........... 69,078,180 64,595,654 102,849,386 78,387,608 131,047,672
Cost of sales........... 56,423,819 49,167,998 81,370,511 61,984,290 104,547,056
----------- ------------ ------------ ------------ ------------
Gross profit............ 12,654,361 15,427,656 21,478,875 16,403,318 26,500,616
Selling, general and
administrative expenses
(Notes 10 and 11)...... 11,920,732 14,351,321 23,091,193 16,561,749 24,092,620
----------- ------------ ------------ ------------ ------------
Net operating income
(loss)................. 733,629 1,076,335 (1,612,318) (158,431) 2,407,996
Other income
(deductions):
Cost of abandoned
financing (Note 9).... (622,156) -- -- -- --
Provision for decline
in value of property
held for sale......... (94,904) -- -- -- --
Gain (loss) on sale or
disposal of property
and equipment......... (64,693) 3,680 (2,164) (2,164) (48,786)
Interest income........ 101,949 81,987 183,723 98,057 268,866
Interest expense....... (62,203) (91,488) (185,428) (139,997) (117,955)
Other, net............. 32,172 42,185 994 14,446 (12,746)
----------- ------------ ------------ ------------ ------------
(709,835) 36,364 (2,875) (29,658) 89,379
----------- ------------ ------------ ------------ ------------
Earnings (loss) before
income taxes........... 23,794 1,112,699 (1,615,193) (188,089) 2,497,375
Income taxes (Note 6)... 6,584 438,997 (606,633) (77,116) 1,023,924
----------- ------------ ------------ ------------ ------------
Net earnings (loss)..... $ 17,210 $ 673,702 $ (1,008,560) $ (110,973) $ 1,473,451
=========== ============ ============ ============ ============
Basic earnings (loss)
per common share....... $ 0.02 $ 0.63 $ (1.14) $ (0.22) $ 1.00
=========== ============ ============ ============ ============
Average common shares
outstanding............ 1,054,344 1,065,020 1,107,723 1,107,723 1,089,930
=========== ============ ============ ============ ============
Diluted earnings (loss)
per common share....... $ 0.02 $ 0.63 $ (1.14) $ (0.22) $ 0.84
=========== ============ ============ ============ ============
Average diluted common
shares outstanding..... 1,054,344 1,065,020 1,107,723 1,107,723 1,302,034
=========== ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
CHEAP TICKETS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1996 and 1997
and Nine Months Ended September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Unearned Retained Stockholders'
Stock Capital Compensation Earnings Equity
------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... $ 1,000 $ -- $ -- $ 847,856 $ 848,856
Net earnings.......... -- -- -- 17,210 17,210
------- -------- -------- ---------- ----------
Balance at December 31,
1995................... 1,000 -- -- 865,066 866,066
Net earnings.......... -- -- -- 673,702 673,702
Issuance of common
stock (Note 11)...... 53 45,842 (45,895) -- --
Amortization of
unearned compensation
(Note 11)............ -- -- 3,824 -- 3,824
------- -------- -------- ---------- ----------
Balance at December 31,
1996................... 1,053 45,842 (42,071) 1,538,768 1,543,592
Net loss.............. -- -- -- (1,008,560) (1,008,560)
Issuance of warrants
(Note 4)............. -- 510,652 -- -- 510,652
Accretion to
mandatorily
redeemable cumulative
preferred stock
redemption price
(Note 4)............. -- -- -- (87,066) (87,066)
1000-for-1 common
stock split (Note
4)................... 9,477 (9,477) -- -- --
Stock dividend (Note
4)................... 75 -- -- (75) --
Accrual of dividends
on mandatorily
redeemable cumulative
preferred stock (Note
4)................... -- -- -- (170,000) (170,000)
Amortization of
unearned compensation
(Note 11)............ -- -- 22,944 -- 22,944
------- -------- -------- ---------- ----------
Balance at December 31,
1997................... 10,605 547,017 (19,127) 273,067 811,562
Net earnings.......... -- -- -- 1,473,451 1,473,451
Accretion to
mandatorily
redeemable cumulative
preferred stock
redemption price
(Note 4)............. -- -- -- (130,599) (130,599)
Accrual of dividends
on mandatorily
redeemable preferred
stock (Note 4)....... -- -- -- (255,000) (255,000)
Reversal of
amortization of
unearned compensation
(Note 11)............ -- -- (3,820) -- (3,820)
Forfeiture of common
stock (Note 11)...... (267) (22,680) 22,947 -- --
Stock option
compensation (Note
12).................. -- 26,600 (26,600) -- --
Amortization of
unearned stock option
compensation......... -- -- 1,795 -- 1,795
------- -------- -------- ---------- ----------
Balance at September 30,
1998 (unaudited)....... $10,338 $550,937 $(24,805) $1,360,919 $1,897,389
======= ======== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
CHEAP TICKETS, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1996 and 1997
and Nine Months Ended September 30, 1997 and 1998
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
----------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ----------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net earnings (loss)... $ 17,210 $ 673,702 $(1,008,560) $ (110,973) $1,473,451
Adjustments to
reconcile net
earnings (loss) to
net cash provided by
operating activities:
Deferred income
taxes.............. (43,666) 11,263 (19,053) (2,422) 10,819
Depreciation and
amortization....... 111,216 204,552 370,237 250,971 411,325
Stock option
compensation....... -- -- -- -- 1,795
Stock compensation
expense (benefit).. -- 3,824 22,944 17,200 (3,820)
Loss (gain) on sale
or disposal of
property and
equipment.......... 64,693 (3,680) 2,164 2,164 48,786
Provision for
decline in value of
property held for
sale............... 94,904 -- -- -- --
Changes in -
Trade accounts and
other
receivables...... (317,784) (632,912) 152,199 (377,613) (1,129,260)
Refundable income
taxes............ (39,004) 39,004 (663,209) (125,980) 587,608
Ticket
inventories...... 65,906 (260,023) 142,998 231,939 (279,241)
Other current
assets........... 12,800 (42,540) (105,790) (258,666) (214,881)
Other noncurrent
assets........... (18,636) (67,924) (26,267) 39,822 (10,524)
Accounts payable.. 498,797 384,344 2,516,670 4,000,634 1,747,476
Income taxes
payable.......... -- 200,336 (200,336) (200,336) --
Accrued expenses
and other
liabilities...... 220,053 (137,830) 213,768 306,904 715,599
Other noncurrent
liabilities...... (15,591) 38,440 64,952 (19,794) (135,785)
---------- ---------- ----------- ---------- ----------
Net cash provided
by operating
activities...... 650,898 410,556 1,462,717 3,753,850 3,223,348
---------- ---------- ----------- ---------- ----------
Cash flows from
investing activities:
Capital expenditures.. (367,180) (1,295,832) (496,406) (135,319) (342,215)
Proceeds from sale of
property and
equipment............ -- 36,349 10,075 -- 501,214
---------- ---------- ----------- ---------- ----------
Net cash provided by
(used in) investing
activities........... (367,180) (1,259,483) (486,331) (135,319) 158,999
---------- ---------- ----------- ---------- ----------
Cash flows from
financing activities:
Proceeds from issuance
of mandatorily
redeemable cumulative
preferred stock and
common stock
warrants, net........ -- -- 3,875,482 3,875,482 --
Increase (decrease) in
bank overdraft....... 233,777 (233,777) -- -- --
Proceeds from issuance
of long-term debt.... -- 928,213 -- -- 307,200
Principal payments on
long-term debt....... (130,103) (54,019) (56,960) (43,922) (605,849)
Proceeds from issuance
of other debt........ -- -- 500,000 500,000 --
Principal payments on
other debt........... (37,678) -- (500,000) -- --
Principal payments on
capital lease
obligations.......... -- (46,117) (123,786) (91,787) (105,624)
---------- ---------- ----------- ---------- ----------
Net cash provided by
(used in) financing
activities......... 65,996 594,300 3,694,736 4,239,773 (404,273)
---------- ---------- ----------- ---------- ----------
Net increase
(decrease) in cash
and cash
equivalents........ 349,714 (254,627) 4,671,122 7,858,304 2,978,074
Cash and cash
equivalents at
beginning of period... 1,488,197 1,837,911 1,583,284 1,583,284 6,254,406
---------- ---------- ----------- ---------- ----------
Cash and cash
equivalents at end of
period................ $1,837,911 $1,583,284 $ 6,254,406 $9,441,588 $9,232,480
========== ========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
CHEAP TICKETS, INC.
STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31, 1995, 1996 and 1997
and Nine Months Ended September 30, 1997 and 1998
Noncash investing and financing activities:
In the nine months ended September 30, 1998, the Company recorded $26,600
as unearned compensation in connection with its stock option plan for
options granted through June 1998 (see Note 12).
In June 1997, the Company satisfied a debt obligation of $250,000 by
offsetting such amount with an equal amount of incentive reimbursements
receivable (see Note 10).
Capital lease obligations of $501,423 and $150,744 were incurred in the
years ended December 31, 1996 and 1997, respectively, when the Company
entered into leases for new equipment. During the nine months ended
September 30, 1997 and 1998, new capital lease obligations amounted to
$150,744 and $254,464, respectively.
In 1996, the Company recorded $45,895 as unearned compensation in
connection with the issuance of 53 shares of common stock under a stock
compensation arrangement (see Note 11).
The Company accrued dividends of $170,000 on mandatorily redeemable
preferred stock for the year ended December 31, 1997 and $75,000 and
$255,000 for the nine months ended September 30, 1997 and 1998,
respectively.
Supplemental cash flow information:
The Company paid interest of $62,203, $91,488 and $185,428 for the years
ended December 31, 1995, 1996 and 1997, respectively, and $139,997 and
$117,955 for the nine months ended September 30, 1997 and 1998,
respectively. The Company paid income taxes, net of refunds received, of
$70,139, $188,394 and $275,965 for the years ended December 31, 1995, 1996
and 1997, respectively, and $425,496 for the nine months ended September
30, 1998. No income taxes were paid during the nine months ended September
30, 1997.
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
CHEAP TICKETS, INC.
NOTES TO THE FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Business
Cheap Tickets, Inc. (Company) was incorporated under the laws of the state
of Hawaii on August 20, 1986, for the primary purpose of providing travel
services, including airline tickets, cruise tickets, auto rentals, hotel
reservations and other travel products. The Company operates in Hawaii,
California, New York and Washington, with approximately 18%, 18% and 10% of
sales activity to customers residing in the state of Hawaii for the years ended
December 31, 1995, 1996 and 1997, respectively, and 12% and 9% for the nine
months ended September 30, 1997 and 1998, respectively. The Company deals with
over 100 airline carriers. Gross bookings through three of these airline
carriers accounted for approximately 79%, 48% and 46% of the Company's sales
activity for the years ended December 31, 1995, 1996 and 1997, respectively,
and 48% and 39% for the nine months ended September 30, 1997 and 1998,
respectively.
Cash Equivalents
The Company considers all highly liquid debt securities with original
maturities of three months or less to be cash equivalents. There were no cash
equivalents at December 31, 1996 and 1997 and September 30, 1998.
Trade Accounts and Other Receivables
Trade accounts and other receivables primarily consist of commissions and
volume bonuses from travel service providers. There were no allowances for
doubtful accounts receivable at December 31, 1996 and 1997 and September 30,
1998.
Ticket Inventories
Ticket inventories, consisting of prepaid Hawaii inter-island airline
coupons, are stated at the lower of cost or market. The Company does not carry
any other airline ticket inventories. Inventory cost is the acquisition price
of the coupons or tickets. The specific identification method is used to
determine the basis of inventory and cost of coupons or tickets removed from
inventory.
Property and Equipment
Property and equipment are carried at cost. Equipment held under capital
leases is stated at the lower of the present value of minimum lease payments or
estimated fair value of the equipment at the inception of the lease.
Depreciation on property and equipment is calculated on the straight-line
method over the estimated useful lives of the respective assets. Leasehold
improvements and equipment held under capital leases are amortized on the
straight-line method over the estimated useful life of the asset or the lease
term, whichever is shorter.
The estimated depreciable lives of major classes of property and equipment
are as follows:
<TABLE>
<S> <C>
Building and improvements................................... 40 years
Leasehold improvements...................................... 5 to 40 years
Furniture, fixtures and office equipment.................... 5 to 7 years
Computer equipment.......................................... 3 to 5 years
Vehicles.................................................... 5 years
</TABLE>
Property Held for Sale
In 1995, the Company moved its Hawaii operations to larger leased premises.
The Company's commercial condominium office facility from which it moved, was
held for sale at December 31, 1997. This property is
F-8
<PAGE>
CHEAP TICKETS, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
stated at estimated fair value, less costs to sell. A write-down of $94,904 was
recorded in 1995. The property was sold in August 1998 and a loss of $49,000
was recorded thereon.
Revenue Recognition
Revenues consist of non-published fares, commissions and overrides on
published fares, and volume bonuses from a travel service network. Non-
published fares are fares that are bought by the Company under negotiated net
fare contracts from various airline carriers and other travel service providers
and resold to consumers at fares determined by the Company generally at a
significant discount off published fares. The Company also sells travel
services at regular published fares and earns a commission on such sales.
The Company recognizes revenues and commissions when earned, which is at the
time the reservation is ticketed and payment is received. Such revenues are
reported net of an allowance for cancellations and refunds. Due to the
restrictive nature of the Company's sales, which are generally noncancelable
and nonrefundable, cancellations and refunds are not significant.
Volume bonus and override revenues are recognized at the end of each monthly
or quarterly measurement period if the specified target has been achieved.
Supplemental Information (Unaudited)
Gross bookings represent the sum of the retail price of non-published fares
sold and the retail price of published fares that are sold on a commission
basis. This information does not affect the Company's operating results.
Disclosure of gross bookings is not required by generally accepted accounting
principles ("GAAP"). Gross bookings are not included in revenues or operating
results, and should not be considered in isolation or as a substitute for other
information prepared in accordance with generally accepted accounting
principles. Management uses gross bookings for various management purposes,
including as a measure of general business activity, success of promotional
efforts, capacity to handle customer demand and efficiency of reservation
agents. In addition, management believes that gross bookings provide a useful
comparison between historical periods, and that period-to-period changes in
such information are a useful measure of market acceptance of the Company's
products.
Advertising
Advertising costs are expensed as incurred. Advertising expenses amounted to
$1,311,752, $1,453,392 and $2,495,325 for the years ended December 31, 1995,
1996 and 1997, respectively, and $1,610,191 and $2,321,504 for the nine months
ended September 30, 1997 and 1998, respectively.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
F-9
<PAGE>
CHEAP TICKETS, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
effective January 1, 1997. This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
(undiscounted and without interest) expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured as the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. Adoption of this
Statement did not have a material impact on the Company's financial position,
results of operations, or liquidity.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ significantly from those
estimates. Material estimates that are particularly susceptible to significant
change relate to the determination of the estimated fair value of property held
for sale, the valuation allowance for deferred tax assets and the allowance for
doubtful receivables. Management believes that such provisions and allowances
have been appropriately determined in accordance with generally accepted
accounting principles.
Fair Value of Financial Instruments
The fair values of the Company's long-term debt approximates carrying values
based on current financing for similar loans available to the Company.
Accounting for Stock Based Compensation
The Company accounts for employee stock based compensation in accordance
with Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" and related interpretations, as permitted by SFAS No. 123
"Accounting for Stock Based Compensation."
Per Share Data
In 1997 the Company adopted SFAS No. 128, "Earnings Per Share," which
specifies the computation, presentation and disclosure requirements for
earnings per share. Prior period earnings per share data has been presented in
accordance with the provisions of SFAS No. 128.
F-10
<PAGE>
CHEAP TICKETS, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
The following is a reconciliation of the numerator and denominators of the
basic and diluted earnings (loss) per common share:
<TABLE>
<CAPTION>
Income Shares Per Share
Years ended December 31, (Numerator) (Denominator) Amount
------------------------ ----------- ------------- ---------
<S> <C> <C> <C>
1995:
Basic
Income available to common shares... $ 17,210 1,054,344 $ 0.02
======
Effect of dilutive securities......... -- --
----------- ---------
Diluted
Net income and assumed conversions.. $ 17,210 1,054,344 $ 0.02
=========== ========= ======
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
1996:
Basic
Income available to common shares... $ 673,702 1,065,020 $ 0.63
======
Effect of dilutive securities......... -- --
----------- ---------
Diluted
Net income and assumed conversions.. $ 673,702 1,065,020 $ 0.63
=========== ========= ======
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
1997:
Basic
Net loss............................ $(1,008,560)
Preferred dividends................. (170,000)
Accretion of mandatorily redeemable
cumulative preferred stock
discount........................... (87,066)
-----------
Loss available to common shares..... (1,265,626) 1,107,723 $(1.14)
======
Effect of dilutive securities......... -- --
----------- ---------
Diluted
Net loss and assumed conversions.... $(1,265,626) 1,107,723 $(1.14)
=========== ========= ======
</TABLE>
F-11
<PAGE>
CHEAP TICKETS, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Income Shares Per Share
Nine Months Ended September 30, (Numerator) (Denominator) Amount
- ------------------------------- ----------- ------------- ---------
<S> <C> <C> <C>
1997:
Basic
Net loss................................. $ (110,973)
Preferred dividends...................... (85,000)
Accretion of mandatorily redeemable
cumulative preferred stock discount..... (43,533)
----------
Loss available to common shares.......... (239,506) 1,107,723 $(0.22)
======
Effect of dilutive securities.............. -- --
---------- ---------
Diluted
Net loss and assumed conversions......... $ (239,506) 1,107,723 $(0.22)
========== ========= ======
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
1998:
Basic
Net income............................... $1,473,451
Preferred dividends...................... (255,000)
Accretion of mandatorily redeemable
cumulative preferred stock discount..... (130,599)
----------
Income available to common shares........ 1,087,852 1,089,930 $ 1.00
======
Effect of dilutive securities:
Common stock warrants.................... -- 212,104
---------- ---------
Diluted
Net income and assumed conversions....... $1,087,852 1,302,034 $ 0.84
========== ========= ======
</TABLE>
Net earnings (loss) per share is computed using the weighted average number
of common and common equivalent shares outstanding during the period. Warrants
to purchase 212,104 shares of common stock were outstanding in 1997 but were
not included in the computation of diluted loss per share for the year ended
December 31, 1997 and nine months ended September 30, 1997 since it would have
had an antidilutive effect. Such warrants had a dilutive effect in the nine
months ended September 30, 1998.
The Company has computed common and common equivalent shares in determining
the number of shares used in calculating net earnings (loss) per share for all
periods presented pursuant to the Securities and Exchange Commission Staff
Accounting Bulletin (SAB) No. 83. SAB 83 requires the Company to include all
common shares and common share equivalents issued during the twelve month
period preceding the filing date of an initial public offering in its
calculation of the number of shares used to determine net earnings (loss) per
share as if the common share equivalents had been outstanding for all periods
presented. Accordingly, 47,200 stock options issued in 1998 are reflected as if
they had been outstanding since 1995.
New Pronouncements
In 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," and
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 130 states that 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.
F-12
<PAGE>
CHEAP TICKETS, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
SFAS No. 131 requires disclosures regarding segments of an enterprise and
related information that reflects the different types of business activities in
which the enterprise engages and the different economic environments in which
it operates. The adoption of SFAS No. 130 in 1998 did not have an effect on the
Company's financial statements since the Company does not have elements of
comprehensive income other than net earnings. The effect of implementing SFAS
No. 131, which is applicable to public companies, has not been determined since
the Company is privately owned.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which standardized the
disclosure requirements for pension and other postretirement benefits. The
Company plans to implement SFAS No. 132 (which does not change existing
measurement or recognition standards for the Company's defined contribution
plan) in its financial statements for the year ending December 31, 1998. The
adoption of this standard is not expected to have a material effect on the
Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS No.
133 requires the recognition of all derivative instruments as either assets or
liabilities in the statement of financial position and measurement of those
derivative instruments at fair value. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. Currently, the Company
does not hold derivative instruments or engage in hedging activities. The
adoption of this standard is not expected to have a material effect on the
Company's financial statements.
In March 1998, the Accounting Standards Executive Committee (AcSEC) of the
American Institute of Certified Public Accountants (AICPA) issued Statement of
Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use." In April 1998, the AcSEC issued SOP 98-5,
"Reporting on the Costs of Start-Up Activities." These standards are effective
for the Company's year ending December 31, 1999. The Company has not determined
the impact of the implementation of these pronouncements.
Reclassifications
Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform with the 1997 presentation. These reclassifications had
no effect on net earnings as previously reported.
Unaudited Interim Financial Information
The accompanying interim financial statements as of September 30, 1998, and
for the nine months ended September 30, 1997 and 1998 together with the related
notes are unaudited but include all adjustments consisting of only normal
recurring adjustments, which the Company considers necessary to present fairly,
in all material respects, its financial position, results of operations and
cash flows for such periods. Results for the nine months ended September 30,
1997 and 1998 are not necessarily indicative of results for the entire year.
Historically, the fourth quarter of the year generally reflects slower business
activity due to the seasonality of the Company's business.
F-13
<PAGE>
CHEAP TICKETS, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
2. Property and Equipment
A summary of property and equipment at December 31, 1996 and 1997 and
September 30, 1998 is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------- September 30,
1996 1997 1998
---------- ---------- -------------
<S> <C> <C> <C>
Land................................... $ 158,239 $ 158,239 $ 158,239
Building and improvements.............. 746,011 741,761 741,761
Leasehold improvements................. 283,451 339,807 341,626
Furniture, fixtures and office
equipment (Note 8).................... 1,524,236 2,089,861 2,660,114
Vehicles............................... 120,903 122,916 122,916
---------- ---------- ----------
2,832,840 3,452,584 4,024,656
Less accumulated depreciation and
amortization.......................... 601,846 932,538 1,319,256
---------- ---------- ----------
$2,230,994 $2,520,046 $2,705,400
========== ========== ==========
</TABLE>
Depreciation and amortization amounted to $111,216, $204,552 and $370,237
for the years ended December 31, 1995, 1996 and 1997, respectively, and
$250,971 and $411,325 for the nine months ended September 30, 1997 and 1998,
respectively.
F-14
<PAGE>
CHEAP TICKETS, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
3. Debt
Long-term debt at December 31, 1996 and 1997 and September 30, 1998 consists
of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
September 30,
1996 1997 1998
---------- ---------- -------------
<S> <C> <C> <C>
Bank Debt-
3.08% above an indexed rate (total rate of
9% at December 31, 1997 and September 30,
1998) note payable in monthly installments
of $6,056 including interest, due April 1,
2012, collateralized by a first mortgage
on land and building...................... $ 604,475 $ 585,816 $570,395
1.5% above bank's base rate (total rate of
10.5% at December 31, 1997) mortgage note,
payable in monthly installments of $6,000
including interest, due December 1, 1998,
collateralized by a commercial condominium
with a carrying value of $550,000 (see
Note 1)*.................................. 516,229 496,316 --
10% note payable in monthly installments of
$1,413 including interest, balance due
January 26, 2001, collateralized by a
vehicle................................... 56,571 44,832 35,172
1.75% above bank's preferred base rate
note, paid in 1997........................ 6,649 -- --
Other-
8.25% note payable in monthly installments
of $13,930 including interest, due
February 28, 2000......................... -- -- 222,748
1% promissory note, satisfied in 1997 (see
Note 10).................................. 250,000 -- --
---------- ---------- --------
Total long-term debt..................... 1,433,924 1,126,964 828,315
Less current installments of long-term
debt...................................... 78,749 528,825 190,830
---------- ---------- --------
Long-term debt, excluding current
installments.............................. $1,355,175 $ 598,139 $637,485
========== ========== ========
</TABLE>
- --------
* The 1.5% above the bank's base rate mortgage note payable is collateralized
by property held for sale as of December 31, 1997. Upon sale of the property
in August 1998, the unpaid balance of the mortgage note was repaid.
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1997, and thereafter, are as follows:
<TABLE>
<S> <C>
Year ending December 31
1998............................................................ $ 528,825
1999............................................................ 36,975
2000............................................................ 40,639
2001............................................................ 28,794
2002............................................................ 29,622
Thereafter...................................................... 462,109
----------
$1,126,964
==========
</TABLE>
F-15
<PAGE>
CHEAP TICKETS, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
The Company has available a $3,000,000 credit facility with a bank expiring
on December 5, 1999. Borrowings under the credit facility accrue interest at
either (1) the bank's base rate (8.5% at December 31, 1997 and 8.25% at
September 30, 1998) or (2) LIBOR plus an applicable margin, as defined, at the
Company's option. The credit facility is collateralized by deposit accounts
with the bank, accounts receivable, inventory, furniture and equipment and
intangible assets. The credit facility contains restrictive covenants which
include requirements to maintain minimum tangible net worth and meet certain
financial ratios. There were no outstanding borrowings under the credit
facility at December 31, 1997 and September 30, 1998.
4. Mandatorily Redeemable Cumulative Preferred Stock
In July 1997, the Company issued and sold 425,000 shares of mandatorily
redeemable cumulative preferred stock, with detachable warrants to purchase an
aggregate of 212,104 shares of common stock of the Company at $0.01 per share,
in exchange for cash consideration of $4,250,000 (the "Equity Transaction").
The net proceeds of $3,875,482, after reflecting transaction costs of
$374,518, were allocated between the warrants and the mandatorily redeemable
cumulative preferred stock based on their relative fair values, resulting in an
allocation of $510,652 and $3,364,830 to the warrants and preferred stock,
respectively. The value attributable to the warrants was recorded as additional
paid-in capital. The excess of the redemption value of the preferred stock of
$4,250,000 over the initial carrying value of $3,364,830 is being accreted by
periodic charges to retained earnings through July 25, 2002. The accretion
amounted to $87,066 for the year ended December 31, 1997 and $43,533 and
$130,599 for the nine months ended September 30, 1997 and 1998, respectively.
In connection with the Equity Transaction, 141,403 shares of common stock
were reserved for issuance under an incentive stock option plan (Plan)
established in February 1998.
The preferred stock has a par value of $1 per share, is nonvoting and
accrues cumulative annual dividends of $.80 per share. The dividends are
payable in quarterly installments commencing on July 25, 2002. Undeclared
cumulative dividends amounted to $170,000 and $425,000 as of December 31, 1997
and September 30, 1998, respectively, and have been accrued as an addition to
preferred stock in the accompanying balance sheet. The preferred stock has a
liquidation preference such that in the event of any liquidation, dissolution
or winding up of the Company, the preferred stockholders will be entitled to
redeem each share for $10, plus all accrued and unpaid dividends thereon as of
the liquidation date before any distribution to other stockholders.
Accordingly, retained earnings may be restricted at the liquidation date if the
amounts due to the preferred stockholders exceed the carrying value of the
preferred stock.
Mandatory quarterly redemption of the lesser of one-twelfth of the largest
number of shares of preferred stock outstanding at any time prior to July 25,
2002, or the number of shares outstanding on such scheduled redemption date,
commences on July 25, 2002, at $10 per share, plus accrued and unpaid dividends
thereon. Upon the closing of an initial public offering of the Company's common
stock, the sale of substantially all of the assets of the Company, or
consolidation or merger involving the Company, the Company will be required to
redeem all outstanding shares of the preferred stock, plus all accrued and
unpaid dividends thereon. The Company also has the option to redeem all or part
of the outstanding shares of preferred stock at any time for $10 per share,
plus accrued and unpaid dividends thereon as of the date the Company decides to
redeem such shares. All redemptions will be settled with cash. The Company does
not have the option to settle redemptions with common stock.
F-16
<PAGE>
CHEAP TICKETS, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Redemption requirements, excluding accrued and unpaid dividends, subsequent
to December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998.............................................................. $ --
1999.............................................................. --
2000.............................................................. --
2001.............................................................. --
2002.............................................................. 354,167
Thereafter........................................................ 3,895,833
----------
$4,250,000
==========
</TABLE>
5. Stockholders' Equity
Common Stock Warrants
The detachable common stock warrants issued in conjunction with the
mandatorily redeemable cumulative preferred stock (see Note 4) are currently
exercisable and provide the preferred stockholders the option to purchase an
aggregate of 212,104 shares of common stock of the Company at $0.01 per share.
The number of shares purchasable on the exercise of the warrants will be
proportionately adjusted in the event of stock dividends, distributions,
subdivisions, combinations, or other changes in common stock, warrants,
issuance of convertible securities or other rights, as more fully described in
the warrant agreement. Appropriate adjustments will also be made to the
purchase price payable per share, but the aggregate purchase price payable of
$2,121 shall remain the same. The warrants expire on July 15, 2002, except that
the warrants terminate immediately upon the closing of an initial public
offering of the Company's common stock, the sale of substantially all of the
assets of the Company, or the consolidation or merger of the Company in which
at least 50% of the voting power of the company is transferred. In addition to
any adjustments made to the number of shares purchasable as previously
described, if immediately prior to the first to occur of an initial public
offering, a sale or an acquisition (each, a "Transfer") and if the value of the
consideration to be received by the warrant holder for its shares (assuming
exercise of the warrant) in connection with the Transfer plus all dividends
received by the warrant holder on its preferred stock as of the date of the
Transfer are less than the redemption value of the warrant holder's preferred
stock multiplied by 1.25n, where n equals the number of years (rounded to the
nearest one hundredth of a year) between the date of the Transfer and the issue
date of the warrant, then the number of shares purchasable on the exercise of
the warrant shall be increased to eliminate such deficiency. The increase
necessary to eliminate such deficiency may not result in the warrant holders
owning over 30% of the common stock on a fully diluted basis as of the date of
the Transfer. In such case, all additional sums necessary to eliminate such
deficiency shall be paid by the Company to the warrant holder in cash upon, and
as a condition to the consummation of, the Transfer.
Common Stock
On June 24, 1997, the Company's Board of Directors approved an amendment to
the Company's articles of incorporation wherein the authorized common stock of
the Company was increased from 5,000 shares at $1 par value to 5,000,000 shares
at $0.01 par value, and to effect a 1000-for-1 stock split. As a result of this
action, 1,051,947 additional common stock shares were issued to shareholders.
In connection with the stock split, $9,477 was transferred to common stock from
additional paid-in capital, representing the adjustment to reflect the
aggregate common stock par value subsequent to the aforementioned amendment.
Subsequent to the stock split, a dividend amounting to 7,523 shares of
common stock was declared and issued to the common stockholders on a pro rata
basis so that the common stock warrants, if and when
F-17
<PAGE>
CHEAP TICKETS, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
exercised, would reflect a 15% common equity interest, considering the shares
of common stock outstanding and the 141,403 shares of common stock to be
reserved for issuance under the proposed management incentive stock option
plan.
In these financial statements, all per share amounts and number of shares
have been restated to reflect the stock split and stock dividend described
above.
As described in Note 11, 26,689 shares were forfeited by an officer upon
his resignation in March 1998.
In connection with an anticipated initial public offering of its common
stock, the Company plans to reincorporate under the laws of the state of
Delaware in 1999. This reincorporation is expected to impact the Company's par
value per share but not the number of shares authorized, issued or
outstanding.
Restriction on Declaration and Payment of Dividends
In connection with the Equity Transaction, written approval from a majority
of the holders of preferred stock, common stock warrants, and common stock
issued upon exercise of warrants, is required for the declaration or payment
of dividends to common stockholders.
6. Income Taxes
Income tax expense (benefit) for the years ended December 31, 1995, 1996
and 1997 and nine months ended September 30, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
Federal State Total
--------- --------- ----------
<S> <C> <C> <C>
Years ended December 31:
1995:
Current............................... $ 37,848 $ 12,402 $ 50,250
Deferred.............................. (34,787) (8,879) (43,666)
--------- --------- ----------
$ 3,061 $ 3,523 $ 6,584
========= ========= ==========
1996:
Current............................... $ 340,761 $ 86,973 $ 427,734
Deferred.............................. 8,889 2,374 11,263
--------- --------- ----------
$ 349,650 $ 89,347 $ 438,997
========= ========= ==========
1997:
Current............................... $(468,136) $(119,444) $ (587,580)
Deferred.............................. (15,465) (3,588) (19,053)
--------- --------- ----------
$(483,601) $(123,032) $ (606,633)
========= ========= ==========
Nine months ended September 30:
1997:
Current............................... $ (59,510) $ (15,184) $ (74,694)
Deferred.............................. (1,966) (456) (2,422)
--------- --------- ----------
$ (61,476) $ (15,640) $ (77,116)
========= ========= ==========
1998:
Current............................... $ 798,939 $ 214,166 $1,013,105
Deferred.............................. 8,406 2,413 10,819
--------- --------- ----------
$ 807,345 $ 216,579 $1,023,924
========= ========= ==========
</TABLE>
F-18
<PAGE>
CHEAP TICKETS, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Deferred tax benefit for the year ended December 31, 1997 and the nine
months ended September 30, 1997 includes the tax benefit of operating loss
carryforwards of $36,247 and $4,204, respectively.
The actual income tax expense (benefit) for the years ended December 31,
1995, 1996 and 1997 and nine months ended September 30, 1997 and 1998 differed
from the expected income tax expense (benefit) computed by applying the U.S.
federal income tax rate of 34% to earnings (loss) before income taxes due to
the following:
<TABLE>
<CAPTION>
Nine Months
Years Ended December 31, Ended September 30,
-------------------------- --------------------
1995 1996 1997 1997 1998
------ -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Federal "expected" income tax
expense (benefit)........... $8,090 $378,318 $(549,166) $(63,950) $ 849,108
State franchise and income
taxes, net of federal income
tax effect.................. 625 60,679 (81,201) (9,456) 147,345
Other........................ (2,131) -- 23,734 (3,710) 27,471
------ -------- --------- -------- ----------
$6,584 $438,997 $(606,633) $(77,116) $1,023,924
====== ======== ========= ======== ==========
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31, 1996 and 1997 and September
30, 1998 are presented below:
<TABLE>
<CAPTION>
December 31,
------------------ September 30,
1996 1997 1998
-------- -------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for decline in value of property
held for sale, not deductible for tax
purposes.................................. $ 38,121 $ 38,121 $ --
Accrued rent not deductible for tax
purposes.................................. 35,531 27,203 23,246
Accrued vacation not deductible for tax
purposes.................................. 19,344 31,211 105,403
Other...................................... -- -- 10,074
Net operating loss carryforwards........... -- 36,247 --
-------- -------- --------
Total gross deferred tax assets.......... 92,996 132,782 138,723
-------- -------- --------
Deferred tax liabilities:
Plant and equipment, principally due to
difference between accumulated accounting
and tax depreciation and amortization..... (29,412) (59,662) (83,963)
Unearned compensation, deductible for for
tax purposes.............................. (17,058) (7,541) --
-------- -------- --------
Total gross deferred tax liabilities..... (46,470) (67,203) (83,963)
-------- -------- --------
Net deferred tax asset................... $ 46,526 $ 65,579 $ 54,760
======== ======== ========
Deferred tax assets and liabilities are
presented in the accompanying balance sheets
as follows:
Other current assets....................... $ 19,344 $ 31,211 $105,403
Other noncurrent assets.................... 27,182 34,368 --
Other noncurrent liabilities............... -- -- (50,643)
-------- -------- --------
$ 46,526 $ 65,579 $ 54,760
======== ======== ========
</TABLE>
There was no valuation allowance provided for deferred tax assets as of
December 31, 1995, 1996 and 1997 and September 30, 1998. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The
F-19
<PAGE>
CHEAP TICKETS, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods which the deferred tax
assets are deductible, management believes it is more likely than not the
Company will realize the benefits of these deductible differences. The amount
of the deferred tax asset considered realizable, however, could be reduced in
the near term if estimates of future taxable income are reduced.
At December 31, 1997, the Company had tax net operating loss carryforwards
for U.S. federal and California state income tax purposes of approximately
$52,000 and $198,000, respectively. These tax net operating loss carryforwards
were utilized in the nine months ended September 30, 1998.
7. Profit Sharing and 401(k) Plan
The Company sponsors a defined contribution profit sharing plan covering all
employees who have attained the age of 20 and completed one year of service.
Vesting occurs at a rate of 20% per year commencing in the second year of
participation. The Company may make contributions to the plan as determined at
the discretion of the board of directors. The Company's contributions amounted
to $50,000 in 1995. The Company made no contributions in 1996.
Effective January 1, 1997, the Company converted the profit sharing plan
into a qualified 401(k) defined contribution plan. The 401(k) defined
contribution plan allows for voluntary participant contributions of up to 15%
of eligible compensation. Employer contributions remain discretionary and fully
vest to the employee upon the employee's completion of seven years of service.
There were no employer contributions to the 401(k) defined contribution plan in
1997 and in the nine months ended September 30, 1998.
8. Lease Commitments
The Company is obligated under capital leases for office equipment that
expire at various dates through 2004. At December 31, 1996 and 1997 and
September 30, 1998, the gross amounts of office equipment and related
accumulated depreciation recorded under capital leases are as follows:
<TABLE>
<CAPTION>
December 31,
----------------- September 30,
1996 1997 1998
-------- -------- -------------
<S> <C> <C> <C>
Office equipment............................ $501,423 $652,167 $906,631
Less accumulated amortization (amortization
expense charged to depreciation and
amortization).............................. 54,815 144,570 321,314
-------- -------- --------
$446,608 $507,597 $585,317
======== ======== ========
</TABLE>
The Company has noncancelable operating leases, primarily for office space,
that expire at various dates through 2005. These leases generally contain
renewal options for periods ranging from one to five years. Rental expense
incurred for all operating leases amounted to $473,323, $519,560 and $851,709
for the years ended December 31, 1995, 1996 and 1997, respectively, and
$637,372 and $867,421 for the nine months ended September 30, 1997 and 1998,
respectively.
F-20
<PAGE>
CHEAP TICKETS, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Future minimum lease payments under noncancelable operating leases and
future minimum capital lease payments as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ----------
<S> <C> <C>
Year ending December 31
1998................................................. $168,289 $ 658,700
1999................................................. 154,858 643,900
2000................................................. 141,382 569,700
2001................................................. 94,064 303,100
2002................................................. -- 228,700
Thereafter........................................... -- 425,400
-------- ----------
Total minimum lease payments....................... 558,593 $2,829,500
==========
Less amounts representing interest (at rates ranging
from 8.05% to 14.05%)................................. 76,329
--------
Present value of net minimum capital lease payments.. 482,264
Less current installments of capital lease
obligations........................................... 132,722
--------
Capital lease obligations, excluding current
installments........................................ $349,542
========
</TABLE>
9. Abandoned Financing
In 1995, the Company decided to terminate a $25,000,000 revolving bank line
of credit. Accordingly, costs amounting to $622,000 associated with obtaining
the revolving bank line of credit were charged to operations in 1995.
10. Incentive Reimbursements from Local Governments
In 1996, the Company commenced operations of a new reservation center in
Lakeport, California. As an incentive for the Company to operate at the
location, the local government agreed to reimburse the Company for certain
payroll costs related to training. Estimated reimbursements associated with
payroll costs incurred of approximately $458,000 and $28,000 in 1996 and 1997,
respectively, have been recorded by the Company as a reduction of selling,
general and administrative expenses in the accompanying statements of
operations. At December 31, 1996, $353,164 of these incentive reimbursements
were to be collected from the local government. In 1997, $250,000 of the
incentive reimbursements receivable was settled by offsetting the receivable
with an outstanding debt obligation to the local government of $250,000, with
the remaining receivable balance collected in full. No gain or loss was
recognized on the offsetting of such amounts. At December 31, 1997, there were
no incentive reimbursement receivable amounts outstanding.
Additional incentives provided by the local government included the waiver
of certain expenses, including lease rent and property taxes totaling
approximately $99,000 and $12,000 in 1996 and 1997, respectively. The Company
also received $95,400 associated with additional lease rent incentives in 1996
and had recorded this amount as a reduction of selling, general and
administrative expenses in the accompanying 1996 statement of operations.
11. Stock Compensation Arrangement
In November 1996, the Company entered into a Restricted Stock Grant and
Shareholder Agreement (Agreement) whereby 53,378 shares of common stock, after
giving effect to a 1000-for-1 stock split and a
F-21
<PAGE>
CHEAP TICKETS, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
common stock dividend (see Note 5), were granted to an officer of the Company
as compensation for his employment. There was a two year vesting period whereby
the shares vested 50 percent after each year of service with the Company. The
estimated fair value of the common stock shares on the date of grant of $45,895
was being amortized as compensation expense over the two year vesting period.
Noncash compensation expense (benefit) of $3,824 and $22,944 for the years
ended December 31, 1997 and 1998, respectively, and $17,200 and $(3,820) for
the nine months ended September 30, 1997 and 1998, respectively, is included in
selling, general and administrative expenses in the accompanying statement of
operations.
In March 1998, the officer resigned from the Company. In connection with the
resignation, the officer forfeited his nonvested shares of common stock issued
under the Agreement. Such forfeited common stock amounted to 26,689 shares
after giving effect to a 1000-for-1 stock split and a common stock dividend
(see Note 5). The officer's forfeiture of the common shares resulted in a
benefit of $3,820 in 1998 for the recovery of compensation expense previously
taken and decreases in common stock and additional paid-in capital of $267 and
$22,680, respectively.
12. Stock Option Plans
The Company established a stock option plan in April 1998 which provides for
a maximum of 141,403 shares of common stock to be issued under the plan.
Through June 1998, options for 47,200 shares of common stock were granted, with
an exercise price of $2.50 per share. The estimated compensation cost for these
options amounted to $26,600 at the grant dates. Stock option compensation
expense, included in selling, general and administrative expenses, was $1,795
for the nine months ended September 30, 1998. The remaining unamortized
compensation cost of $24,805 at September 30, 1998 will be amortized over the
future vesting periods of the options. The granted options have a five year
vesting period, however, options to purchase up to 10,000 shares will fully
vest should the Company complete an initial public offering of its stock.
The Company is establishing another stock option plan which is expected to
be approved by the Company's stockholders prior to the Company's planned
initial public offering of its common stock.
F-22
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
You should rely only on the information contained in this Prospectus. We
have not authorized anyone to provide you with information different from that
which is set forth in this Prospectus. We are offering to sell shares of
Common Stock and seeking offers to buy shares of common stock only in
jurisdictions where offers and sales are permitted. The information contained
in this Prospectus is accurate only as of the date of this Prospectus,
regardless of the time of delivery of the Prospectus or of any sale of Common
Stock.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUMMARY....................................................... 3
SUMMARY FINANCIAL DATA................................................... 5
RISK FACTORS............................................................. 7
USE OF PROCEEDS.......................................................... 20
DIVIDEND POLICY.......................................................... 20
CAPITALIZATION........................................................... 21
DILUTION................................................................. 22
SELECTED FINANCIAL DATA.................................................. 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................... 25
BUSINESS................................................................. 34
MANAGEMENT............................................................... 46
CERTAIN TRANSACTIONS..................................................... 53
PRINCIPAL STOCKHOLDERS................................................... 54
DESCRIPTION OF CAPITAL STOCK............................................. 55
SHARES ELIGIBLE FOR FUTURE SALE.......................................... 57
UNDERWRITING............................................................. 59
LEGAL MATTERS............................................................ 61
EXPERTS.................................................................. 61
ADDITIONAL INFORMATION................................................... 61
INDEX TO FINANCIAL STATEMENTS............................................ F-1
</TABLE>
Until , 1999 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
[LOGO OF CHEAP TICKETS, INC.]
www.cheaptickets.com
Common Stock
-----------------
PROSPECTUS
-----------------
, 1999
William Blair & Company
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following is an itemized list of the estimated expenses to be incurred
in connection with the Offering of the securities being offered hereunder other
than underwriting discounts and commissions.
<TABLE>
<CAPTION>
Amount
to be Paid
----------
<S> <C>
Registration fee.................................................. $ 15,985
NASD filing fee................................................... 6,250
Nasdaq National Market listing fee................................ 60,000
Printing and Engraving expenses................................... 150,000
Legal fees and expenses........................................... 300,000
Blue Sky qualification fees and expenses.......................... 5,000
Accounting fees and expenses...................................... 100,000
Directors' and Officers' liability insurance...................... 100,000
Transfer Agent and registrar fees................................. 15,000
Miscellaneous..................................................... 47,765
--------
Total........................................................... $800,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the DGCL contains detailed provisions on indemnification of
directors and officers against expenses, judgments, fines and amounts paid in
settlement, actually and reasonably incurred in connection with legal
proceedings. Section 102(a)(7) of the DGCL permits a provision in the
certificate of incorporation of each corporation organized thereunder, such as
the Company, eliminating or limiting, with certain exceptions, the personal
liability of a director of the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. The Certificate of
Incorporation of the Company eliminates the liability of each of its directors
to its stockholders or the Company for monetary damages for breach of fiduciary
duty to the full extent provided by the Delaware General Corporation Law (the
"DGCL"), as such law exists or may hereafter be amended.
Indemnification applies to any threatened, pending or completed action, suit
or proceeding, whether, civil, criminal, administrative or investigative.
Indemnification may include all expenses (including attorneys' fees, judgments,
fines, ERISA excise taxes and amounts paid in settlement) reasonably incurred
by the indemnified person.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
Exhibit
Document Number
-------- -------
<S> <C>
Form of Underwriting Agreement...................................... 1.1
Certificate of Incorporation........................................ 3.1
Form of First Amended and Restated Certificate of Incorporation..... 3.2
Bylaws.............................................................. 3.3
Form of First Amended and Restated Bylaws........................... 3.4
Form of Indemnification Agreements.................................. 10.4
</TABLE>
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities
From January 1, 1996 through December 31, 1998, the Company has issued and
sold the following securities: (i) the Company issued and sold [425,000] shares
of 8% Mandatorily Redeemable Preferred Stock and warrants to purchase up to
[212,104] shares of Common Stock to Phillips-Smith Specialty Retail Group III,
L.P. and Craig Foley for an aggregate purchase price of $4,250,000; and (ii)
the Company issued [26,689] shares of Common Stock to a former officer of the
Company as compensation with an aggregate value of $22,948.
The issuances described about were deemed exempt from registration under the
Securities Act in reliance upon Sections 4(2) or 3(a) of the Securities Act.
The recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates issued in such transactions. All
recipients had adequate access, through their relationships with the Company,
to information about the Company.
Item 16. Exhibits and Financial Statements
(a) Exhibits and Financial Statement Schedules
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation.
3.2* Form of First Amended and Restated Certificate of Incorporation.
3.3 Bylaws.
3.4 Form of First Amended and Restated Bylaws.
4.1* Specimen Stock Certificate.
5.1* Form of Opinion of Morrison & Foerster LLP.
10.1 1997 Stock Option Plan.
10.2* 1999 Stock Option Plan.
10.3 Form of Severance Agreement for Michael J. Hartley and Sandra T.
Hartley.
10.4 Form of Indemnification Agreement.
10.5 The Commerce Tower Office Lease dated July 2, 1995 between Tosei Shoji
Co. and Cheap Tickets, Inc., as amended by the 1st Amendment to the
Commerce Tower Office Lease dated June 14, 1996 and the 2nd Amendment
to the Commerce Tower Office Lease dated October 9, 1997.
10.6 Sublease dated June 1, 1998 between Levi Straus & Co. and Cheap
Tickets, Inc.
10.7 Lease Agreement dated January 19, 1994 between Airport Center
Associates LP and Cheap Tickets, Inc., as amended by the 1st Amendment
to Lease dated July 20, 1994 and the 2nd Amendment to Lease dated
April 25, 1997.
10.8 Lease dated March 31, 1998 between Executive Tower of Colorado
Springs, LLC and Cheap Tickets, Inc.
10.9+ 1994 Net Fare/Commission Agreement dated October 18, 1993 between
Continental Airlines, Inc. and Cheap Tickets, Inc., as amended by
Addendum dated November 12, 1998.
10.10+ 1999 Net Consolidator Agreement dated November 1, 1998 between Trans
World Airlines, Inc. and Cheap Tickets, Inc.
10.11+ Consolidator Agreement dated December 14, 1998 between America West
Airlines, Inc. and Cheap Tickets, Inc.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.12 Credit Agreement dated November 26, 1997 between Bank of Hawaii and
Cheap Tickets, Inc., as amended by First Loan Modification Agreement
dated as of June 15, 1998; and Security Agreement dated November 26,
1997 between Bank of Hawaii and Cheap Tickets, Inc.
10.13+ Subscriber Agreement dated December 31, 1998 between The SABRE Group,
Inc. and Cheap Tickets, Inc., as amended by Amendment No. 1 to SABRE
Subscriber Agreement dated December 31, 1998.
10.14+ Agreement for Negotiated Fares Maintenance dated July 15, 1994 between
SABRE Travel Information Network and CTI Corporation.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Morrison & Foerster LLP (included in the opinion filed
herewith as Exhibit 5.1).
24.1 Power of attorney (included on the signature page).
27.1 Financial Data Schedule.
99.1 Consent of Giles H. Bateman dated as of January 19, 1999.
99.2 Consent Letter of KPMG LLP dated January 19, 1999.
</TABLE>
- --------
* To be filed by amendment.
+ Portions have been omitted pursuant to a confidential treatment request.
(b) Financial Statement Schedules
No schedules are included because the information required to be set forth
therein is not applicable or is shown in the financial statements or notes
thereto.
Item 17. Undertakings
In accordance with Rule 430A of Regulation C under the Securities Act of
1933, as amended (the "Securities Act"), each of the undersigned registrants
hereby undertakes:
(a) That insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item
15 above, or otherwise, the registrants have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrants of expenses incurred
or paid by a director, officer or controlling person of either registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrants will, unless in the opinion of
their counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
(b) That, for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(c) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Honolulu,
County of Honolulu, State of Hawaii, as of January 20, 1999.
CHEAP TICKETS, INC.
/s/ Michael J. Hartley
By: _________________________________
Chief Executive Officer and
President
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Michael J. Hartley and Dale
K. Jorgenson, and each of them, as his true and lawful attorneys-in-fact and
agents, jointly and severally, with full power of substitution and
resubstitution, for and in his stead, in any and all capacities, to sign on his
behalf this Registration Statement on Form S-1 in connection with the offering
of common stock by Cheap Tickets, Inc. and to execute any amendments thereto
(including post-effective amendments), including a registration statement filed
pursuant to Rule 462(b), or certificates that may be required in connection
with this Registration Statement, and to file the same, with all exhibits
thereto, and all other documents in connection therewith, with the Securities
and Exchange Commission and granting unto said attorneys-in-fact and agents,
and each of them, jointly and severally, the full power and authority to do and
perform each and every act and thing necessary or advisable to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, jointly or severally,
or their or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, each thereunto duly authorized, in the City of
Honolulu, County of Honolulu, State of Hawaii, as of January 20, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Michael J. Hartley Chief Executive Officer,
____________________________________ President and Chairman of
Michael J. Hartley the Board of Directors
/s/ Dale K. Jorgenson Vice President of Finance
____________________________________ and Chief Financial Officer
Dale K. Jorgenson
/s/ Tammy A. Ishibashi Executive Vice President
____________________________________
Tammy A. Ishibashi
/s/ Sandra T. Hartley Director
____________________________________
Sandra T. Hartley
/s/ Donald J. Phillips Director
____________________________________
Donald J. Phillips
/s/ Cece Smith Director
____________________________________
Cece Smith
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation.
3.2* Form of First Amended and Restated Certificate of Incorporation.
3.3 Bylaws.
3.4 Form of First Amended and Restated Bylaws.
4.1* Specimen Stock Certificate.
5.1* Form of Opinion of Morrison & Foerster LLP.
10.1 1997 Stock Option Plan.
10.2* 1999 Stock Option Plan.
10.3 Form of Severance Agreement for Michael J. Hartley and Sandra T.
Hartley.
10.4 Form of Indemnification Agreement.
10.5 The Commerce Tower Office Lease dated July 2, 1995 between Tosei Shoji
Co. and Cheap Tickets, Inc., as amended by the 1st Amendment to the
Commerce Tower Office Lease dated June 14, 1996 and the 2nd Amendment
to the Commerce Tower Office Lease dated October 9, 1997.
10.6 Sublease dated June 1, 1998 between Levi Straus & Co. and Cheap
Tickets, Inc.
10.7 Lease Agreement dated January 19, 1994 between Airport Center
Associates LP and Cheap Tickets, Inc., as amended by the 1st Amendment
to Lease dated July 20, 1994 and the 2nd Amendment to Lease dated
April 25, 1997.
10.8 Lease dated March 31, 1998 between Executive Tower of Colorado
Springs, LLC and Cheap Tickets, Inc.
10.9+ 1994 Net Fare/Commission Agreement dated October 18, 1993 between
Continental Airlines, Inc. and Cheap Tickets, Inc., as amended by
Addendum dated November 12, 1998.
10.10+ 1999 Net Consolidator Agreement dated November 1, 1998 between Trans
World Airlines, Inc. and Cheap Tickets, Inc.
10.11+ Consolidator Agreement dated December 14, 1998 between America West
Airlines, Inc. and Cheap Tickets, Inc.
10.12 Credit Agreement dated November 26, 1997 between Bank of Hawaii and
Cheap Tickets, Inc., as amended by First Loan Modification Agreement
dated as of June 15, 1998; and Security Agreement dated November 26,
1997 between Bank of Hawaii and Cheap Tickets, Inc.
10.13+ Subscriber Agreement dated December 31, 1998 between The SABRE Group,
Inc. and Cheap Tickets, Inc., as amended by Amendment No. 1 to SABRE
Subscriber Agreement dated December 31, 1998.
10.14+ Agreement for Negotiated Fares Maintenance dated July 15, 1994 between
SABRE Travel Information Network and CTI Corporation.
23.1 Consent of PricewaterhouseCoopers LLP.
Consent of Morrison & Foerster LLP (included in the opinion filed
23.2* herewith as Exhibit 5.1).
24.1 Power of attorney (included on the signature page).
27.1 Financial Data Schedule.
99.1 Consent of Giles H. Bateman dated as of January 19, 1999.
99.2 Consent Letter of KPMG LLP dated January 19, 1999.
</TABLE>
- --------
* To be filed by amendment.
+ Portions have been omitted pursuant to a confidential treatment request.
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
CHEAP TICKETS, INC.
I. Name
The name of the Corporation is Cheap Tickets, Inc. (hereinafter sometimes
referred to as the "Company").
II. Registered Office and Agent
The address of its registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, 19801, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
III. Purpose
The nature of the business of the Corporation and the objects or purposes
to be transacted, promoted or carried on by it are as follows: To engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
IV. Shares
The total number of shares of all classes of capital stock which the
corporation shall have authority to issue is 10,000,000 shares, of which
5,000,000 shares shall be shares of Preferred Stock with a par value of $1.00
per share, of which 425,000 shares shall be designated 8% Redeemable Preferred
Stock, and 5,000,000 shares shall be shares of Common Stock with a par value of
$0.01 per share.
A. Preferred Stock. Any of the shares of Preferred Stock authorized by
---------------
this Certificate of Incorporation may be issued from time to time in one or more
series. Subject to the limitations and restrictions in this Article IV set
forth and the Certificate of Designation filed with the Secretary of State of
Delaware, the Board of Directors by resolution or resolutions, is authorized to
create or provide for any such series, and to fix the designations, preferences
and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including, without
limitation, the authority to fix or alter the dividend rights, dividend rates,
conversion rights, exchange rights, voting rights, rights and terms of
redemption (including sinking and purchase fund provisions), the redemption
price or prices, the dissolution preferences and the rights in respect to any
distribution of assets of any wholly unissued series of Preferred Stock and the
number of shares constituting any such series, and the designation thereof, or
any of them and to increase or decrease the number of shares of any series so
created, subsequent to the issue of that series but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be so decreased, the shares
<PAGE>
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
There shall be no limitation or restriction on any variation between any of
the different series of Preferred Stock as to the designations, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof; and the several series of
Preferred Stock may, except as hereinafter otherwise expressly provided, vary in
any and all respects as fixed and determined by the Board of Directors,
providing for the issuance of the various series; provided, however, that all
shares of any one series of Preferred Stock shall have the same designation,
preferences and relative, participating, optional or other special rights and
qualifications, limitations and restrictions.
Except as otherwise required by law, or as otherwise fixed by resolution or
resolutions of the Board of Directors with respect to one or more series of
Preferred Stock, the entire voting power and all voting rights shall be vested
exclusively in the Common Stock, and each stockholder of the Corporation who at
the time possesses voting power for any purpose shall be entitled to one vote
for each share of such stock standing in his name on the books of the
Corporation. The Corporation shall exercise its power to issue Preferred Stock
with the view of avoiding the issuance of fractional shares. No stockholder
shall have the right to split the whole shares into fractions.
B. Common Stock.
------------
The Corporation shall have the power from time to time to issue two or
more classes of stock with the preferences, voting powers, restrictions and
qualifications thereof fixed in the resolutions authorizing the issue thereof.
The Board of Directors shall have the authority to divide any or all of the
classes into a series and fix and determine the relative rights, preferences,
voting powers, restrictions and qualifications of the shares of any series
established. The corporation shall exercise its power to issue stock with the
view of avoiding the issuance of fractional shares. No stockholder shall have
the right to split whole shares into fractions or to split fractions.
A stockholder shall have pre-emptive right to purchase his, her or its
pro rata portion of any additional shares of stock of a class he, she or it
owns, whether then or thereafter authorized. Set forth below is a statement of
the preferences, limitations and relative rights of the Common Stock.
1. Dividends. The holders of shares of Common Stock shall be
---------
entitled to receive such dividends as from time to time may be declared by the
Board of Directors of the Corporation, subject to the provisions of Subdivision
A of this Article IV with respect to rights of holders of the Preferred Stock.
2. Liquidation. Upon any liquidation, dissolution or winding up of
-----------
the Corporation whether voluntary or involuntary, after payment in full of the
amounts to be paid to holders of Preferred Stock pursuant to Subdivision A of
this Article IV, the holders of Common
<PAGE>
Stock shall share ratably based upon the number of shares of Common Stock held
by them in all of the remaining assets of the Corporation available for
distribution to its stockholders.
3. Voting Rights. Except as otherwise required by law and subject to
-------------
the provisions set forth in this Article IV, the holders of Common Stock issued
and outstanding shall be entitled to one vote for each share thereof held.
V. Incorporator
The name and mailing address of the sole incorporator is as follows:
Michael J. Hartley
1440 Kapiolani Boulevard, Suite 800
Honolulu, Hawaii 96814
VI. Board of Directors
The Board of Directors is expressly authorized to make, alter, or repeal
the Bylaws of the Corporation.
VII. Election of Directors
Elections of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide. The number of directors shall be fixed
from time to time by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption).
VIII. Related Transactions
No contract or other transaction between the Corporation and any other
person, firm, corporation, association or other organization, and no act of the
Corporation, shall in any way be affected or invalidated by the fact that any of
the directors or officers of the Corporation are parties to such contract,
transaction, or act or are pecuniarily or otherwise interested in the same or
are directors or officers or members of any such other firm, Corporation,
association or other organization, provided that the interest of such director
or officer shall be disclosed or shall have been known to the Board of Directors
authorizing or approving the same, or to a majority thereof. Any director of
the Corporation who is a party to such transaction, contract, or act or who is
pecuniarily or otherwise interested in the same or is a director or officer or
member of such other firm, Corporation, association or other organization, may
be counted in determining a quorum. of any meeting of the Board of Directors
which shall authorize or approve any such contract, transaction or act, and may
vote thereon with like force and effect as if he were in no way interested
therein. Neither any director nor any officer of the Corporation, being so
interested in such contract, transaction or act of the Corporation which shall
be approved by the Board of Directors of the Corporation, nor any such other
person, firm, Corporation, association or other organization in which such
director or officer may be interested or of which such officer
<PAGE>
or director may be a director, officer or member, shall be liable or accountable
to the Corporation, or to any stockholder thereof, for any loss incurred by the
Corporation pursuant to or by reason of such contract, transaction or act, or
for any gain received by any such other party pursuant thereto or by reason
thereof.
IX. Creditors
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
X. Stockholder Action
Effective upon the closing of the Corporation's initial public offering of
securities pursuant to a registration statement filed under the Securities Act
of 1933, as amended, stockholders of the Corporation may not take action by
written consent in lieu of a meeting but must take any such action at a duly
called annual or special meeting.
XI. Amendments
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation. In addition to any affirmative
vote of the holders of the capital stock required by law or this Certificate of
Incorporation the affirmative vote of the holders of at least two-thirds (2/3)
of the Combined Voting power of all of the then outstanding shares of the
Corporation entitled to vote shall be entitled to alter, amend or repeal
Articles X and XI or any provision thereof.
XII. Director Liability
To the fullest extent permitted by Delaware statutory or decisional
law, as amended or interpreted, no director of this Corporation shall be
personally liable to the Corporation or its
<PAGE>
stockholders for monetary damages for breach of fiduciary duty as a director.
This Article XII does not affect the availability of equitable remedies for
breach of fiduciary duties.
I, the undersigned, being the sole incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and,
accordingly, have hereunto set my hands this 3rd day of September, 1998.
/s/ Michael J. Hartley
-------------------------------------------
Michael J. Hartley, Sole Incorporator
<PAGE>
Exhibit 3.3
BYLAWS
OF
CHEAP TICKETS, INC.
a Delaware corporation
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I OFFICES.......................................................................... 1
Section 1.1 Registered Office........................................................... 1
Section 1.2 Other Offices............................................................... 1
ARTICLE II STOCKHOLDERS' MEETINGS.......................................................... 1
Section 2.1 Place of Meetings........................................................... 1
Section 2.2 Annual Meetings............................................................. 1
Section 2.3 Special Meetings............................................................ 2
Section 2.4 Notice of Meetings.......................................................... 2
Section 2.5 Quorum and Voting........................................................... 3
Section 2.6 Voting Rights............................................................... 3
Section 2.7 Auditor..................................................................... 4
Section 2.8 List of Stockholders........................................................ 5
Section 2.9 Stockholder Proposals at Annual Meetings.................................... 5
Section 2.10 Nominations of Persons for Election to the Board of Directors.............. 6
Section 2.11 Action Without Meeting..................................................... 7
ARTICLE III DIRECTORS...................................................................... 7
Section 3.1 Number and Term of Office................................................... 7
Section 3.2 Powers...................................................................... 7
Section 3.3 Vacancies................................................................... 7
Section 3.4 Resignations and Removals................................................... 8
Section 3.5 Meetings.................................................................... 8
Section 3.6 Quorum and Voting........................................................... 9
Section 3.7 Action Without Meeting...................................................... 9
Section 3.8 Fees and Compensation....................................................... 9
Section 3.9 Committees.................................................................. 9
ARTICLE IV OFFICERS........................................................................ 11
Section 4.1 Officers Designated......................................................... 11
Section 4.2 Tenure and Duties of Officers............................................... 11
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE V EXECUTION OF CORPORATE INSTRUMENTS, AND VOTING OF
SECURITIES OWNED BY THE CORPORATION........................................................ 12
Section 5.1 Execution of Corporate Instruments.......................................... 12
Section 5.2 Voting of Securities Owned by Corporation................................... 13
ARTICLE VI SHARES OF STOCK................................................................. 13
Section 6.1 Form and Execution of Certificates.......................................... 13
Section 6.2 Lost Certificates........................................................... 14
Section 6.3 Transfers................................................................... 14
Section 6.4 Transfer Agent.............................................................. 14
Section 6.5 Fixing Record Dates......................................................... 14
Section 6.6 Registered Stockholders..................................................... 15
ARTICLE VII NEW SHARES..................................................................... 16
Section 7.1 Pre-emptive Rights.......................................................... 16
Section 7.2 Terms and Fractional Shares................................................. 16
Section 7.3 Excess Shares............................................................... 16
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION........................................... 16
ARTICLE IX CORPORATE SEAL.................................................................. 17
ARTICLE X INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES
AND AGENTS................................................................................. 17
Section 10.1 Right to Indemnification................................................... 17
Section 10.2 Authority to Advance Expenses.............................................. 18
Section 10.3 Right of Claimant to Bring Suit............................................ 18
Section 10.4 Provisions Nonexclusive.................................................... 18
Section 10.5 Authority to Insure........................................................ 19
Section 10.6 Survival of Rights......................................................... 19
Section 10.7 Settlement of Claims....................................................... 19
Section 10.8 Effect of Amendment........................................................ 19
Section 10.9 Subrogation................................................................ 19
Section 10.10 No Duplication of Payments................................................ 19
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE XI NOTICES......................................................................... 20
ARTICLE XII FISCAL YEAR.................................................................... 21
ARTICLE XIII AMENDMENTS.................................................................... 21
</TABLE>
iii
<PAGE>
BYLAWS
OF
CHEAP TICKETS, INC.
ARTICLE I
Offices
Section 1.1 Registered Office.
The registered office of the corporation in the State of Delaware shall be
in the City of Wilmington, County of New Castle.
Section 1.2 Other Offices.
The corporation may also have offices at such other places, both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
Stockholders' Meetings
Section 2.1 Place of Meetings.
Meetings of the stockholders of the corporation shall be held at such
place, either within or without the State of Delaware, as may be designated from
time to time by the Board of Directors, or, if not so designated, then at the
office of the corporation required to be maintained pursuant to Section 1.2 of
Article I hereof.
Section 2.2 Annual Meetings.
The annual meetings of the stockholders of the corporation, commencing with
the year 1998, for the purpose of election of directors and for such other
business as may lawfully come before it, shall be held on such date and at such
time within ninety (90) days following the close of each fiscal year as may be
designated from time to time by the Board of Directors, or, if not so
designated, then, unless the Chairman of the Board or the President designates
some other date, the annual meeting for that year shall be held on the fourth
(4th) Thursday in the third month following the close of the fiscal year.
<PAGE>
Section 2.3 Special Meetings.
Special meetings of the stockholders of the corporation may be called, for
any purpose or purposes, by the Chairman of the Board or the President or any
two directors at any time. Upon written request of any stockholder or
stockholders holding in the aggregate one-fourth (25%) of the voting power of
all stockholders delivered in person or sent by registered mail to the Chairman
of the Board, President or Secretary of the Corporation. Upon request of such
call or written request, the Secretary shall call a special meeting of
stockholders to be held at the office of the corporation required to be
maintained pursuant to Section 1.2 of Article I hereof at such time as the
Secretary may fix.
Section 2.4 Notice of Meetings.
(a) Except as otherwise provided by law or the Certificate of
Incorporation, written notice of each meeting of stockholders, specifying the
place, date and hour, purpose or purposes and authority for the call of the
meeting, shall be given not less than three (3) nor more than sixty (60) days
before the date of the meeting to each stockholder entitled to vote thereat.
(b) If at any meeting action is proposed to be taken which, if taken, would
entitle stockholders fulfilling the requirements of section 262(d) of the
Delaware General Corporation Law to an appraisal of the fair value of their
shares, the notice of such meeting shall contain a statement of that purpose and
to that effect and shall be accompanied by a copy of that statutory section.
(c) When a meeting is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. Such adjournment may be to such
time and to such place as shall be determined by a majority vote of the
stockholders present.
(d) Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, either before or after such meeting, and to the extent
permitted by law, will be waived by any stockholder by his attendance thereat,
in person or by proxy. Any stockholder so waiving notice of such meeting shall
be bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
(e) Unless and until voted, every proxy shall be revocable at the pleasure
of the person who executed it or of his legal representatives or assigns, except
in those cases where an irrevocable proxy permitted by statute has been given.
Section 2.5 Quorum and Voting.
(a) At all meetings of stockholders, except where otherwise provided by
law, the Certificate of Incorporation, or these Bylaws, the presence, in person
or by proxy duly authorized, of the holders of a majority of the outstanding
shares of stock entitled to vote shall constitute a quorum for the transaction
of business and the concurring vote of the holders of a majority of the shares
of such stock constituting a quorum shall be valid and binding upon the
<PAGE>
corporation. Shares, the voting of which at said meeting have been enjoined, or
which for any reason cannot be lawfully voted at such meeting, shall not be
counted to determine a quorum at said meeting. In the absence of a quorum, any
meeting of stockholders may be adjourned, from time to time, by vote of the
holders of a majority of the shares represented thereat, but no other business
shall be transacted at such meeting. At such adjourned meeting at which a quorum
is present or represented any business may be transacted which might have been
transacted at the original meeting. The stockholders present at a duly called or
convened meeting, at which a quorum is present, may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
(b) Except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, when seventy-five percent (75%) of the stockholders entitled to
vote at any meeting sign, by themselves or their proxies or other authorized
representatives, a written consent or approval on the record of such meeting,
however called or notified, the doings of such meeting shall be valid.
(c) Where a separate vote by a class or classes is required, a majority of
the outstanding shares of such class or classes, present in person or
represented by proxy, shall constitute a quorum entitled to take action with
respect to that vote on that matter and the affirmative vote of the majority of
shares of such class or classes present in person or represented by proxy at the
meeting shall be the act of such class.
Section 2.6 Voting Rights.
(a) Except as otherwise provided by law, only persons in whose names shares
entitled to vote stand on the stock records of the corporation on the record
date for determining the stockholders entitled to vote at said meeting shall be
entitled to vote at such meeting. A personal representative, guardian or trustee
may vote the stock of the corporation held by him, in person or by proxy, at any
meeting of the corporation, whether or not such stock shall have been
transferred to his name on the books of the corporation. In case the stock shall
not have been so transferred to his name on the books of the corporation, he
shall satisfy the Secretary that he is the executor, administrator, guardian or
trustee holding such stock in such capacity, and to this end, the Secretary may
require him to file with the corporation a certified copy of his letters as such
executor, administrator or guardian of his appointment or authority as trustee
before he is permitted to vote in the manner described heretofore. Shares
standing in the names of two or more persons shall be voted or represented in
accordance with the determination of the majority of such persons, or, if only
one of such persons is present in person or represented by proxy, such person
shall have the right to vote such shares and such shares shall be deemed to be
represented for the purpose of determining a quorum.
(b) Every person entitled to vote or execute consents shall have the right
to do so either in person or by an agent or agents authorized by a written proxy
executed by such person or his duly authorized agent, which proxy shall be filed
with the Secretary of the corporation at or before the meeting at which it is to
be used. Said proxy so appointed need not be a
<PAGE>
stockholder. No proxy shall be voted on after eleven (11) months from its date
unless the proxy provides for a longer period.
(c) Without limiting the manner in which a stockholder may authorize
another person or persons to act for him as proxy pursuant to subsection (b) of
this section, the following shall constitute a valid means by which a
stockholder may grant such authority:
(1) A stockholder may execute a writing authorizing another person or
persons to act for him as proxy. Execution may be accomplished by the
stockholder or his authorized officer, director, employee or agent signing such
writing or causing his or her signature to be affixed to such writing by any
reasonable means including, but not limited to, by facsimile signature.
(2) A stockholder may authorize another person or persons to act for
him as proxy by transmitting or authorizing the transmission of a telegram,
cablegram, or other means of electronic transmission to the person who will be
the holder of the proxy or to a proxy solicitation firm, proxy support service
organization or like agent duly authorized by the person who will be the holder
of the proxy to receive such transmission, provided that any such telegram,
cablegram or other means of electronic transmission must either set forth or be
submitted with information from which it can be determined that the telegram,
cablegram or other electronic transmission was authorized by the stockholder. If
it is determined that such telegrams, cablegrams or other electronic
transmissions are valid, the inspectors or, if there are no inspectors, such
other persons making that determination shall specify the information upon which
they relied.
(d) Any copy, facsimile telecommunication or other reliable reproduction of
the writing or transmission created pursuant to subsection (c) of this section
may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could be
used, provided that such copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original writing or transmission.
Section 2.7 Auditor.
(a) The stockholders may at any annual meeting, or at any special meeting
called for that purpose, appoint some person, firm or corporation engaged in the
business of auditing to act as the auditor of the corporation.
(b) No director or officer shall be eligible to serve as auditor of the
corporation.
(c) The auditor shall, at least once in each fiscal year and more often if
required by the stockholders, examine the books and papers of the corporation
and compare the statements of the Chief Financial Officer with the books and
vouchers of the corporation, and otherwise make a complete audit of the books of
the corporation, and thereafter make appropriate reports to stockholders.
<PAGE>
Section 2.8 List of Stockholders.
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at said meeting, arranged in
alphabetical order, showing the address of and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held and which
place shall be specified in the notice of the meeting, or, if not specified, at
the place where said meeting is to be held, and the list shall be produced and
kept at the time and place of meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 2.9 Stockholder Proposals at Annual Meetings.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, otherwise properly brought before the meeting by or at
the direction of the Board of Directors or otherwise properly brought before the
meeting by a stockholder. In addition to any other applicable requirements, for
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation, not
less than thirty (30) days nor more than sixty (60) days prior to the meeting;
provided, however, that in the event that less than forty (40) days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth (10th) day following the day on
which such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set forth as
to each matter the stockholder proposes to bring before the annual meeting, (i)
a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and record address of the stockholder proposing such business, (iii)
the class and number of shares of the corporation which are beneficially owned
by the stockholder, and (iv) any material interest of the stockholder in such
business.
Notwithstanding anything in the Bylaws to the contrary, no business shall
be conducted at the annual meeting except in accordance with the procedures set
forth in this Section 2.9, provided, however, that nothing in this Section 2.9
shall be deemed to preclude discussion by any stockholder of any business
properly brought before the annual meeting in accordance with said procedure.
The Chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the
<PAGE>
provisions of this Section 2.9, and if he should so determine, he shall so
declare to the meeting and any such business not properly brought before the
meeting shall not be transacted.
Section 2.10 Nominations of Persons for Election to the Board of Directors.
In addition to any other applicable requirements, only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors. Nominations of persons for election to the Board of
Directors of the corporation may be made at a meeting of stockholders by or at
the direction of the Board of Directors, by any nominating committee or person
appointed by the Board of Directors or by any stockholder of the corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Section 2.10. Such nominations, other
than those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the corporation. To be
timely, a stockholder's notice shall be delivered to or mailed and received at
the principal executive offices of the corporation not less than thirty (30)
days nor more than sixty (60) days prior to the meeting; provided, however, that
in the event that less than forty (40) days' notice or prior public disclosure
of the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the tenth (10th) day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or re-election as a director, (i) the name,
age, business address and residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the class and number of shares of
the corporation which are beneficially owned by the person, and (iv) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to Rule 14a under
the Securities Exchange Act of 1934, as amended; and (b) as to the stockholder
giving the notice, (i) the name and record address of the stockholder, and (ii)
the class and number of shares of the corporation which are beneficially owned
by the stockholder. The corporation may require any proposed nominee to furnish
such other information as may reasonably be required by the corporation to
determine the eligibility of such proposed nominee to serve as a director of the
corporation. No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth herein.
These provisions shall not apply to nomination of any persons entitled to be
separately elected by holders of preferred stock.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
Section 2.11 Action Without Meeting.
Unless otherwise provided in the Certificate of Incorporation, any action
required by statute to be taken at any annual or special meeting of stockholders
of the corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken
<PAGE>
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, are signed by all the
holders of outstanding stock who would have been entitled to vote upon the
action if such meeting were held. To be effective, a written consent must be
delivered to the corporation by delivery to its registered office in Delaware,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to a corporation's registered office shall be by hand or
by certified or registered mail, return receipt requested. Every written consent
shall bear the date of signature of each stockholder who signs the consent and
no written consent shall be effective to take the corporate action referred to
therein unless, within sixty (60) days of the earliest dated consent delivered
in the manner required by this Section to the corporation, written consents
signed by a sufficient number of holders to take action are delivered to the
corporation in accordance with this Section.
ARTICLE III
Directors
Section 3.1 Number and Term of Office.
The number of directors which shall constitute the whole of the Board of
Directors shall be fixed from time to time by the Board of Directors. With the
exception of the first Board of Directors, which shall be elected by the
incorporators, and except as provided in the Certificate of Incorporation in
Section 3.3 of this Article III, the directors shall be elected by a plurality
vote of the shares represented in person or by proxy, at the stockholders annual
meeting in each year and entitled to vote on the election of directors. Except
as provided in the Certificate of Incorporation, elected directors shall hold
office until the next annual meeting and until their successors shall be duly
elected and qualified. Directors need not be stockholders. If, for any cause,
the Board of Directors shall not have been elected at an annual meeting, they
may be elected as soon thereafter as convenient at a special meeting of the
stockholders called for that purpose in the manner provided in these Bylaws.
Section 3.2 Powers.
The powers of the corporation shall be exercised, its business conducted
and its property controlled by or under the direction of the Board of Directors.
Section 3.3 Vacancies.
Vacancies and newly created directorships resulting from any increase in
the authorized number of directors may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director,
and each director so elected shall hold office for the unexpired portion of the
term of the director whose place shall be vacant, and until his successor shall
have been duly elected and qualified. A vacancy in the Board of Directors shall
be deemed to exist under this Section in the case of the death, removal or
resignation of any director, or if the stockholders fail at any meeting of
stockholders at which directors are to be elected
<PAGE>
(including any meeting referred to in Section 3.4 below) to elect the number of
directors then constituting the whole Board.
Section 3.4 Resignations and Removals.
(a) Any director may resign at any time by delivering his written
resignation to the Secretary, such resignation to specify whether it will be
effective at a particular time, upon receipt by the Secretary or at the pleasure
of the Board of Directors. If no such specification is made it shall be deemed
effective at the pleasure of the Board of Directors. When one or more directors
shall resign from the Board, effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office for the unexpired portion of the term of the director whose
place shall be vacated and until his successor shall have been duly elected and
qualified.
(b) Unless otherwise restricted by statute, by the Corporation's
Certificate of Incorporation, as ameded or restated, or by these Bylaws, the
stockholders may at any special meeting the notice of which shall state that it
is called for that purpose, remove, with or without cause, any director and fill
the vacancy.
Section 3.5 Meetings.
(a) The annual meeting of the Board of Directors shall be held immediately
after the annual stockholders' meeting and at the place where such meeting is
held or at the place announced by the Chairman at such meeting. No notice of an
annual meeting of the Board of Directors shall be necessary and such meeting
shall be held for the purpose of electing officers and transacting such other
business as may lawfully come before it.
(b) Except as hereinafter otherwise provided, regular meetings of the
Board of Directors shall be held in such places and at such times as the Board
of Directors may from time to time by vote determine and when any such meeting
or meetings shall be so determined, no further notice thereof shall be required.
(c) Special meetings of the Board of Directors may be held at any time and
place within or without the State of Delaware whenever called by the Chairman of
the Board, the President, Chief Operating Officer, any Vice-President or by any
two directors. Notice of a special meeting shall be given 24 hours prior to the
holding of such special meeting.
(d) Notice of any meeting may be waived in writing at any time before or
after the meeting and will be waived by any director by attendance thereat.
Section 3.6 Quorum and Voting.
(a) A quorum of the Board of Directors shall consist of a majority of the
exact number of directors fixed from time to time in accordance with Section 3.1
of Article III of these Bylaws, but not less than one; provided, however, at any
meeting whether a quorum be present
<PAGE>
or otherwise, the presiding officer or a majority of the directors present may
adjourn from time to time until the time fixed for the next regular meeting of
the Board of Directors or when a quorum shall be present, without notice other
than by announcement at the meeting.
(b) At each meeting of the Board at which a quorum is present all
questions and business shall be determined by a vote of a majority of the
directors present, unless a different vote be required by law, the Certificate
of Incorporation, or these Bylaws.
(c) Any member of the Board of Directors, or of any committee thereof, may
participate in a meeting by means of conference telephone or similar
communication equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting by such means shall
constitute presence in person at such meeting.
(d) The transactions of any meeting of the Board of Directors, or any
committee thereof, however called or noticed, or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice, if all
of the directors shall be present or shall waive notice of such meeting by a
writing filed with the records of the Board of Directors, or after any such
meeting shall express consent to the holding of the meeting and all actions
taken thereat by a writing on or filed with the records of the Board of
Directors. Non-receipt of any notice shall not invalidate any business done at
any meeting at which a quorum is present. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Section 3.7 Action Without Meeting.
Unless otherwise restricted by the Certificate of Incorporation or these
Bylaws, any action required or permitted to be taken at any meeting of the Board
of Directors or of any committee thereof may be taken without a meeting, if all
members of the Board or of such committee, as the case may be, consent thereto
in writing, and such writing or writings are filed with the minutes of
proceedings of the Board or committee.
Section 3.8 Fees and Compensation.
Directors and members of committees may receive such compensation, if any,
for their services, and such reimbursement for expenses, as may be fixed or
determined by resolution of the Board of Directors.
Section 3.9 Committees.
(a) Committees: The Board of Directors may, by resolution passed by a
majority of the whole Board, from time to time appoint such committees as may be
permitted by law. Such committees appointed by the Board of Directors shall
have such powers and perform such duties as may be prescribed by the resolution
or resolutions creating such committee, but in no event shall any such committee
have the powers to declare and pay dividends, fill vacancies in the Board of
Directors or exercise those powers reserved to the Board of Directors by statute
or
<PAGE>
otherwise. The Board of Directors may also appoint a general manager for the
corporation and define his duties.
(b) Term: Except as provided for in the Certificate of Incorporation, the
members of all committees of the Board of Directors shall serve a term
coexistent with that of the Board of Directors which shall have appointed such
committee. The Board, subject to the provisions of subsections (a) of this
Section 3.9, may at any time increase or decrease the number of members of a
committee or terminate the existence of a committee; provided, that no committee
shall consist of less than one member. The membership of a committee member
shall terminate on the date of his death or voluntary resignation, but the Board
may at any time for any reason remove any individual committee member and the
Board may fill any committee vacancy created by death, resignation, removal or
increase in the number of members of the committee. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee, and,
in addition, in the absence or disqualification of any member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
(c) Meetings: Unless the Board of Directors shall otherwise provide,
regular meetings of any committee appointed pursuant to this Section 3.9 shall
be held at such times and places as are determined by the Board of Directors, or
by any such committee, and when notice thereof has been given to each member of
such committee, no further notice of such regular meetings need be given
thereafter; special meetings of any committee may be held at the principal
office of the corporation required to be maintained pursuant to Section 1.2 of
Article I hereof; or at any place which has been designated from time to time by
resolution of such committee or by written consent of all members thereof, and
may be called by any director who is a member of such committee, upon written
notice to the members of such committee of the time and place of such special
meeting given in the manner provided for the giving of written notice to members
of the Board of Directors of the time and place of special meetings of the Board
of Directors. Notice of any special meeting of any committee may be waived in
writing at any time after the meeting and will be waived by any director by
attendance thereat. A majority of the authorized number of members of any such
committee shall constitute a quorum for the transaction of business, and the act
of a majority of those present at any meeting at which a quorum is present shall
be the act of such committee.
ARTICLE IV
Officers
Section 4.1 Officers Designated.
The officers of the corporation shall be a Chief Executive Officer,
President, Chief Operating Officer, one or more Vice-Presidents, a Secretary,
and a Chief Financial Officer. The Board of Directors or the President may also
appoint a Chairman of the Board, assistant
<PAGE>
secretaries, assistant treasurers, and such other officers and agents with such
powers and duties as it or he shall deem necessary. The order of the seniority
of the Vice- Presidents shall be in the order of their nomination, unless
otherwise determined by the Board of Directors. The Board of Directors may
assign such additional titles to one or more of the officers as they shall deem
appropriate. Any one person may hold any number of offices of the corporation at
any one time unless specifically prohibited therefrom by law. The salaries and
other compensation of the officers of the corporation shall be fixed by or in
the manner designated by the Board of Directors.
Section 4.2 Tenure and Duties of Officers.
(a) General: All officers shall hold office at the pleasure of the Board
of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors. Nothing in these Bylaws shall be construed as creating any
kind of contractual right to employment with the corporation.
(b) Duties of the Chairman of the Board of Directors and Chief Executive
Officer: The Chairman of the Board of Directors (if there be such an officer
appointed) shall be the chief executive officer of the corporation and, when
present, shall preside at all meetings of the stockholders and the Board of
Directors. The Chairman of the Board of Directors shall perform such other
duties and have such other powers as the Board of Directors shall designate from
time to time.
(c) Duties of President: The President shall be the chief executive
officer of the corporation in the absence of the Chairman of the Board and Chief
Executive Officer and shall preside at all meetings of the stockholders and at
all meetings of the Board of Directors, unless the Chairman of the Board of
Directors and Chief Executive Officer has been appointed and is present. The
President shall perform such other duties and have such other powers as the
Board of Directors shall designate from time to time.
(d) Duties of Chief Operating Officer: The Chief Operating Officer shall
assume and perform the duties of the President in the absence or disability of
the President or whenever the office of the President is vacant. The Chief
Operating Officer shall perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.
(e) Duties of Vice-Presidents: The Vice-Presidents, in the order of their
seniority, may assume and perform the duties of the Chief Operating Officer in
the absence or disability of the Chief Operating Officer or whenever the office
of the Chief Operating Officer is vacant. The Vice-President shall perform such
other duties and have such other powers as the Board of Directors or the
President shall designate from time to time.
(f) Duties of Secretary: The Secretary shall attend all meetings of the
stockholders and of the Board of Directors and any committee thereof, and shall
record all acts and proceedings thereof in the minute book of the corporation.
The Secretary shall give notice, in
<PAGE>
conformity with these Bylaws, of all meetings of the stockholders, and of all
meetings of the Board of Directors and any Committee thereof requiring notice.
The Secretary shall perform such other duties and have such other powers as the
Board of Directors shall designate from time to time. The President may direct
any Assistant Secretary to assume and perform the duties of the Secretary in the
absence or disability of the Secretary, and each Assistant Secretary shall
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(g) Duties of Chief Financial Officer: The Chief Financial Officer shall
keep or cause to be kept the books of account of the corporation in a thorough
and proper manner, and shall render statements of the financial affairs of the
corporation in such form and as often as required by the Board of Directors or
the President. The Chief Financial Officer, subject to the order of the Board of
Directors, shall have the custody of all funds and securities of the
corporation. The Chief Financial Officer shall perform all other duties commonly
incident to his office and shall perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time. The President may direct any Assistant Treasurer to assume and perform the
duties of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Assistant Treasurer shall perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
ARTICLE V
Execution of Corporate Instruments, and
Voting of Securities Owned by the Corporation
Section 5.1 Execution of Corporate Instruments.
(a) The Board of Directors may, in its discretion, determine the method
and designate the signatory officer or officers, or other person or persons, to
execute any corporate instrument or document, or to sign the corporate name
without limitation, except where otherwise provided by law, and such execution
or signature shall be binding upon the corporation.
(b) Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, formal contracts of the corporation, promissory
notes, deeds of trust, mortgages and other evidences of indebtedness of the
corporation, and other corporate instruments or documents requiring the
corporate seal, and certificates of shares of stock owned by the corporation,
shall be executed, signed or endorsed by the Chairman of the Board (if there be
such an officer appointed) or by the President; such documents may also be
executed by any Vice-President and by the Secretary or Chief Financial Officer
or any Assistant Secretary or Assistant Treasurer. All other instruments and
documents requiring the corporate signature, but not requiring the corporate
seal, may be executed as aforesaid or in such other manner as may be directed by
the Board of Directors.
<PAGE>
(c) All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation, or in special accounts of the corporation, shall
be signed by such person or persons as the Board of Directors shall authorize so
to do.
(d) The Board of Directors may provide for the execution of checks or
dividend warrants by the printed, lithographed or engraved facsimile signature
or signatures of the person or persons authorized to sign checks or dividend
warrants.
Section 5.2 Voting of Securities Owned by Corporation.
All stock and other securities of other corporations owned or held by the
corporation for itself, or for other parties in any capacity, shall be voted,
and all proxies with respect thereto shall be executed, by the person authorized
so to do by resolution of the Board of Directors or, in the absence of such
authorization, by the Chairman of the Board (if there be such an officer
appointed), or by the President, or by any Vice-President.
ARTICLE VI
Shares of Stock
Section 6.1 Form and Execution of Certificates.
Certificates for the shares of stock of the corporation shall be in such
form as is consistent with the Certificate of Incorporation and applicable law.
Every holder of stock in the corporation shall be entitled to have a certificate
signed by, or in the name of the corporation by, the Chairman of the Board (if
there be such an officer appointed), or by the President, Chief Operating
Officer or any Vice-President and by the Chief Financial Officer or Assistant
Treasurer or the Secretary or Assistant Secretary, certifying the number of
shares owned by him in the corporation. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued with the same effect as if
he were such officer, transfer agent, or registrar at the date of issue. If the
corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided in section
202 of the Delaware General Corporation Law, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the corporation shall issue to represent such class or series of stock, a
statement that the corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
<PAGE>
Section 6.2 Lost Certificates.
The Board of Directors may direct a new certificate or certificates to be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to indemnify the
corporation in such manner as it shall require and/or to give the corporation a
surety bond in such form and amount as it may direct as indemnity against any
claim that may be made against the corporation with respect to the certificate
alleged to have been lost or destroyed.
Section 6.3 Transfers.
Transfers of record of shares of stock of the corporation shall be made
only upon its books by the holders thereof, in person or by attorney duly
authorized, and upon the surrender of a certificate or certificates for a like
number of shares, properly endorsed. The right of any stockholder to transfer
any share of stock shall be subject to those provisions of the Certificate of
Incorporation governing transfers.
Section 6.4 Transfer Agent.
Notwithstanding any of the provisions of these Bylaws, the Board of
Directors may appoint a transfer agent and a registrar of transfers and may
require all certificates of shares to bear the signature of such transfer agent
and of such registrar of transfers.
Section 6.5 Fixing Record Dates.
(a) In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which record date shall not be more than ten (10)
days before the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the date on which the meeting is
held. A determination of stockholders of record entitled notice of or to vote at
a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
(b) In order that the corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten (10) days after the date
upon which the resolution fixing the record date is adopted by the Board of
Directors. If no
<PAGE>
record date has been fixed by the Board of Directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required by
the Delaware General Corporation Law, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered office in Delaware,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to a corporation's registered office shall be by hand or
by certified or registered mail, return receipt requested. If no record date has
been fixed by the Board of Directors and prior action by the Board of Directors
is required by law, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the close
of business on the day on which the Board of Directors adopts the resolution
taking such prior action.
(c) In order that the corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than thirty (30) days prior to
such action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
(d) By resolution, the Board of Directors may at any time close the books
for the transfer of stock for a period not exceeding thirty (30) days.
Section 6.6 Registered Stockholders.
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends, and
to vote as such owner, and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE VII
New Shares
Section 7.1 Pre-emptive Rights.
In case of any increase of the capital stock of the corporation and the
issuance of new shares therefor, such new shares, unless otherwise ordered by
the Certificate of Incorporation, shall be offered to the stockholders of the
class of stock of the corporation being issued in proportion to the existing
shares of such class then respectively held by them; and in the event that any
of the stockholders shall fail to exercise the pre-emptive right to purchase new
shares
<PAGE>
heretofore set forth, then such shares shall be offered to the remaining
stockholders of the corporation of such class in proportion to the existing
shares of such class then respectively held by them prior to being offered for
sale to persons not stockholders in the corporation.
Section 7.2 Terms and Fractional Shares.
Such new shares shall be issued upon such terms and conditions, and with
such rights and privileges annexed thereto, as the stockholders at the meeting
sanctioning such issue shall direct, unless otherwise provided in the
Certificate of Incorporation; provided, however, that if a proportionate
distribution of the new issue of stock shall result in fractional shares, such
fractions shall be sold by the Chief Financial Officer at auction and the net
proceeds distributed pro rata among those entitled thereto.
Section 7.3 Excess Shares.
After the expiration of the time fixed for the exercise of the pre-emptive
right as set forth in Section 7.1 hereof, or on earlier receipt of information
from the stockholder to whom notice of such right is given that he does not
elect to take the shares offered, the directors may dispose of such shares so
declined or not accepted as they may deem most beneficial to the corporation.
ARTICLE VIII
Other Securities of the Corporation
All bonds, debentures and other corporate securities of the corporation,
other than stock certificates, may be signed by the Chairman of the Board (if
there be such an officer appointed), or the President or any Vice-President or
such other person as may be authorized by the Board of Directors and the
corporate seal impressed thereon or a facsimile of such seal imprinted thereon
and attested by the signature of the Secretary or an Assistant Secretary, or the
Chief Financial Officer or an Assistant Treasurer; provided, however, that where
any such bond, debenture or other corporate security shall be authenticated by
the manual signature of a trustee under an indenture pursuant to which such
bond, debenture or other corporate security shall be issued, the signature of
the persons signing and attesting the corporate seal on such bond, debenture or
other corporate security may be the imprinted facsimile of the signatures of
such persons. Interest coupons appertaining to any such bond, debenture or
other corporate security, authenticated by a trustee as aforesaid, shall be
signed by the Chief Financial Officer or an Assistant Treasurer of the
corporation, or such other person as may be authorized by the Board of
Directors, or bear imprinted thereon the facsimile signature of such person. In
case any officer who ceases to be an officer shall have signed or attested any
bond, debenture or other corporate security, or whose facsimile signature shall
appear thereon or before the bond, debenture or other corporate security so
signed or attested shall have been delivered, such bond, debenture or other
corporate security nevertheless may be adopted by the corporation and issued and
delivered as though the person who signed the same or whose facsimile signature
shall have been used thereon had not ceased to be such officer of the
corporation.
<PAGE>
ARTICLE IX
Corporate Seal
The corporate seal shall consist of a die bearing the name of the
corporation and the state and date of its incorporation. Said seal may be used
by causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
ARTICLE X
Indemnification of Officers, Directors, Employees and Agents
Section 10.1 Right to Indemnification.
Each person who was or is a party or is threatened to be made a party to or
is involved (as a party, witness, or otherwise), in any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (hereinafter a "Proceeding"), by reason of the fact that he, or
a person of whom he is the legal representative, is or was a director, officer,
employee, or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation or
of a partnership, joint venture, trust, or other enterprise, including service
with respect to employee benefit plans, whether the basis of the Proceeding is
alleged action in an official capacity as a director, officer, employee, or
agent or in any other capacity while serving as a director, officer, employee,
or agent (hereafter an "Agent"), shall be indemnified and held harmless by the
corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended or interpreted (but, in the
case of any such amendment or interpretation, only to the extent that such
amendment or interpretation permits the corporation to provide broader
indemnification rights than were permitted prior thereto) against all expenses,
liability, and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties, and amounts paid or to be paid in settlement, and any
interest, assessments, or other charges imposed thereon, and any federal, state,
local, or foreign taxes imposed on any Agent as a result of the actual or deemed
receipt of any payments under this Article) reasonably incurred or suffered by
such person in connection with investigating, defending, being a witness in, or
participating in (including on appeal), or preparing for any of the foregoing
in, any Proceeding (hereinafter "Expenses"); provided, however, that except as
-------- -------
to actions to enforce indemnification rights pursuant to Section 10.3 of this
Article, the corporation shall indemnify any Agent seeking indemnification in
connection with a Proceeding (or part thereof) initiated by such person only if
the Proceeding (or part thereof) was authorized by the Board of Directors of the
corporation. The right to indemnification conferred in this Article shall be a
contract right.
Section 10.2 Authority to Advance Expenses.
Expenses incurred by an officer or director (acting in his capacity as
such) in defending a Proceeding shall be paid by the corporation in advance of
the final disposition of such Proceeding, provided, however, that if required by
-------- -------
the Delaware General Corporation Law, as
<PAGE>
amended, such Expenses shall be advanced only upon delivery to the corporation
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this Article or otherwise.
Expenses incurred by other Agents of the corporation (or by the directors or
officers not acting in their capacity as such, including service with respect to
employee benefit plans) may be advanced upon such terms and conditions as the
Board of Directors deems appropriate. Any obligation to reimburse the
corporation for Expense advances shall be unsecured and no interest shall be
charged thereon.
Section 10.3 Right of Claimant to Bring Suit.
If a claim under Section 10.1 or 10.2 of this Article is not paid in full
by the corporation within 90 days after a written claim has been received by the
corporation, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense
(including attorneys' fees) of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending a Proceeding in advance of its final disposition where the
required undertaking has been tendered to the corporation) that the claimant has
not met the standards of conduct that make it permissible under the Delaware
General Corporation Law for the corporation to indemnify the claimant for the
amount claimed. The burden of proving such a defense shall be on the
corporation. Neither the failure of the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper under the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the claimant had not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that claimant has not met the applicable standard of conduct.
Section 10.4 Provisions Nonexclusive.
The rights conferred on any person by this Article shall not be exclusive
of any other rights that such person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, agreement, vote of
stockholders or disinterested directors, or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office. To the extent that any provision of the Certificate, agreement, or vote
of the stockholders or disinterested directors is inconsistent with these
Bylaws, the provision, agreement, or vote shall take precedence.
Section 10.5 Authority to Insure.
The corporation may purchase and maintain insurance to protect itself and
any Agent against any Expense, whether or not the corporation would have the
power to indemnify the Agent against such Expense under applicable law or the
provisions of this Article.
<PAGE>
Section 10.6 Survival of Rights.
The rights provided by this Article shall continue as to a person who has
ceased to be an Agent and shall inure to the benefit of the heirs, executors,
and administrators of such a person.
Section 10.7 Settlement of Claims.
The corporation shall not be liable to indemnify any Agent under this
Article (a) for any amounts paid in settlement of any action or claim effected
without the corporation's written consent, which consent shall not be
unreasonably withheld; or (b) for any judicial award if the corporation was not
given a reasonable and timely opportunity, at its expense, to participate in the
defense of such action.
Section 10.8 Effect of Amendment.
Any amendment, repeal, or modification of this Article shall not adversely
affect any right or protection of any Agent existing at the time of such
amendment, repeal, or modification.
Section 10.9 Subrogation.
In the event of payment under this Article, the corporation shall be
subrogated to the extent of such payment to all of the rights of recovery of the
Agent, who shall execute all papers required and shall do everything that may be
necessary to secure such rights, including the execution of such documents
necessary to enable the corporation effectively to bring suit to enforce such
rights.
Section 10.10 No Duplication of Payments.
The corporation shall not be liable under this Article to make any payment
in connection with any claim made against the Agent to the extent the Agent has
otherwise actually received payment (under any insurance policy, agreement,
vote, or otherwise) of the amounts otherwise indemnifiable hereunder.
ARTICLE XI
Notices
Whenever, under any provisions of these Bylaws, notice is required to be
given to any stockholder, the same shall be given in any of the following ways:
in writing, (i) timely and duly deposited in the United States Mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent, (ii) left with the
stockholder personally, (iii) left at the residence or usual place of business
of the stockholder, or (iv) published in any newspaper of general circulation in
the county in which the principal office of the corporation is located, such
notice to be published not less than two (2) times, on successive days, the
first publication thereof to be not less than three (3) days nor more than ten
(10) days prior to the day assigned for the meeting. Any notice required to be
given to any
<PAGE>
director may be given by any method hereinabove stated, or by telegram or other
means of electronic transmission, except that such notice other than one which
is delivered personally, shall be sent to such address or (in the case of
facsimile telecommunication) facsimile telephone number as such director shall
have filed in writing with the Secretary of the corporation, or, in the absence
of such filing, to the last known post office address of such director. If no
address of a stockholder or director be known, such notice may be sent to the
office of the corporation required to be maintained pursuant to Section 1.2 of
Article I hereof. An affidavit of mailing, executed by a duly authorized and
competent employee of the corporation or its transfer agent appointed with
respect to the class of stock affected, specifying the name and address or the
names and addresses of the stockholder or stockholders, director or directors,
to whom any such notice or notices was or were given, and the time and method of
giving the same, shall be conclusive evidence of the statements therein
contained. All notices given by mail, as above provided, shall be deemed to have
been given as at the time of mailing and all notices given by telegram or other
means of electronic transmission shall be deemed to have been given as at the
sending time recorded by the telegraph company or other electronic transmission
equipment operator transmitting the same. It shall not be necessary that the
same method of giving be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
The period or limitation of time within which any stockholder may exercise any
option or right, or enjoy any privilege or benefit, or be required to act, or
within which any director may exercise any power or right, or enjoy any
privilege, pursuant to any notice sent him in the manner above provided, shall
not be affected or extended in any manner by the failure of such a stockholder
or such director to receive such notice. Whenever any notice is required to be
given under the provisions of the statutes or of the Certificate of
Incorporation, or of these Bylaws, a waiver thereof in writing signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Whenever notice is required
to be given, under any provision of law or of the Certificate of Incorporation
or Bylaws of the corporation, to any person with whom communication is unlawful,
the giving of such notice to such person shall not be required and there shall
be no duty to apply to any governmental authority or agency for a license or
permit to give such notice to such person. Any action or meeting which shall be
taken or held without notice to any such person with whom communication is
unlawful shall have the same force and effect as if such notice had been duly
given. In the event that the action taken by the corporation is such as to
require the filing of a certificate under any provision of the Delaware General
Corporation Law, the certificate shall state, if such is the fact and if notice
is required, that notice was given to all persons entitled to receive notice
except such persons with whom communication is unlawful.
ARTICLE XII
Fiscal Year
The fiscal year of the corporation shall be such as may from time to time
be established by the Board of Directors.
<PAGE>
ARTICLE XIII
Amendments
These Bylaws may be repealed, altered or amended or new Bylaws adopted by
written consent of stockholders in the manner authorized by Section 2.11 of
Article II, or at any meeting of the stockholders, either annual or special, by
the affirmative vote of a majority of the stock entitled to vote at such
meeting, unless a larger vote is required by these Bylaws or the Certificate of
Incorporation. The Board of Directors shall also have the authority to repeal,
alter or amend these Bylaws or adopt new Bylaws (including, without limitation,
the amendment of any Bylaws setting forth the number of directors who shall
constitute the whole Board of Directors) by unanimous written consent or at any
annual, regular, or special meeting by the affirmative vote of a majority of the
whole number of directors, subject to the power of the stockholders to change or
repeal such Bylaws and provided that the Board of Directors shall not make or
alter any Bylaws fixing the qualifications, classifications, or term of office
of directors.
Notwithstanding any other provision of these Bylaws or any provision of law
which might otherwise permit a lesser vote or no vote, but in addition to any
affirmative vote of the holders of the capital stock required by law or by these
Bylaws, the affirmative vote of at least two-thirds (2/3) of the combined voting
power of all of the then outstanding shares of the Corporation entitled to vote
shall be required to alter, amend or repeal Article II, Section 2.11 of the
Bylaws or this Article XIII or any provision thereof, or to add or amend any
other Bylaw in order to change or nullify the effect of such provisions, unless
such amendment shall be approved by a majority of the directors of the
Corporation, not affiliated or associated with any person or entity holding (or
which has announced an intent to obtain) 10% or more of the voting power of the
Corporation's outstanding capital stock.
<PAGE>
CERTIFICATE OF SECRETARY
The undersigned, Secretary of Cheap Tickets, Inc., a Delaware
corporation, hereby certifies that the foregoing is a full, true and correct
copy of the Bylaws of said corporation, with all amendments to date of this
Certificate.
WITNESS the signature of the undersigned and the seal of the
Corporation this 21st day of September, 1998.
/s/ Sandra T. Hartley
-----------------------------
SANDRA T. HARTLEY, Secretary
<PAGE>
Exhibit 3.4
FORM OF
FIRST AMENDED AND RESTATED
BYLAWS
OF
CHEAP TICKETS, INC.
a Delaware corporation
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I OFFICES.......................................................... 1
Section 1.1 Registered Office............................................. 1
Section 1.2 Other Offices................................................. 1
ARTICLE II STOCKHOLDERS' MEETINGS.......................................... 1
Section 2.1 Place of Meetings............................................. 1
Section 2.2 Annual Meetings............................................... 1
Section 2.3 Special Meetings.............................................. 2
Section 2.4 Notice of Meetings............................................ 2
Section 2.5 Quorum and Voting............................................. 3
Section 2.6 Voting Rights................................................. 3
Section 2.7 Auditor....................................................... 4
Section 2.8 List of Stockholders.......................................... 5
Section 2.9 Stockholder Proposals at Annual Meetings...................... 5
Section 2.10 Nominations of Persons for Election to the Board of Directors. 6
Section 2.11 Action Without Meeting........................................ 7
ARTICLE III DIRECTORS...................................................... 7
Section 3.1 Number and Term of Office..................................... 7
Section 3.2 Powers........................................................ 7
Section 3.3 Vacancies..................................................... 7
Section 3.4 Resignations and Removals..................................... 8
Section 3.5 Meetings...................................................... 8
Section 3.6 Quorum and Voting............................................. 9
Section 3.7 Action Without Meeting........................................ 9
Section 3.8 Fees and Compensation......................................... 9
Section 3.9 Committees.................................................... 9
ARTICLE IV OFFICERS........................................................ 11
Section 4.1 Officers Designated........................................... 11
Section 4.2 Tenure and Duties of Officers................................. 11
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE V EXECUTION OF CORPORATE INSTRUMENTS, AND VOTING OF
SECURITIES OWNED BY THE CORPORATION........................................ 13
Section 5.1 Execution of Corporate Instruments............................ 13
Section 5.2 Voting of Securities Owned by Corporation..................... 14
ARTICLE VI SHARES OF STOCK................................................. 14
Section 6.1 Form and Execution of Certificates............................ 14
Section 6.2 Lost Certificates............................................. 15
Section 6.3 Transfers..................................................... 15
Section 6.4 Transfer Agent................................................ 15
Section 6.5 Fixing Record Dates........................................... 15
Section 6.6 Registered Stockholders....................................... 16
ARTICLE VII OTHER SECURITIES OF THE CORPORATION............................ 16
ARTICLE VIII CORPORATE SEAL................................................ 17
ARTICLE IX INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES
AND AGENTS................................................................. 17
Section 9.1 Right to Indemnification...................................... 17
Section 9.2 Authority to Advance Expenses................................. 18
Section 9.3 Right of Claimant to Bring Suit............................... 19
Section 9.4 Provisions Nonexclusive....................................... 19
Section 9.5 Authority to Insure........................................... 19
Section 9.6 Survival of Rights............................................ 19
Section 9.7 Settlement of Claims.......................................... 19
Section 9.8 Effect of Amendment........................................... 20
Section 9.9 Subrogation................................................... 20
Section 9.10 No Duplication of Payments.................................... 20
ARTICLE X NOTICES.......................................................... 20
ARTICLE XI FISCAL YEAR..................................................... 21
ARTICLE XII AMENDMENTS..................................................... 21
</TABLE>
ii
<PAGE>
FORM OF
FIRST AMENDED AND RESTATED BYLAWS
OF
CHEAP TICKETS, INC.
ARTICLE I
Offices
Section 1.1 Registered Office.
The registered office of the corporation in the State of Delaware shall be
in the City of Wilmington, County of New Castle.
Section 1.2 Other Offices.
The corporation may also have offices at such other places, both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
Stockholders' Meetings
Section 2.1 Place of Meetings.
Meetings of the stockholders of the corporation shall be held at such
place, either within or without the State of Delaware, as may be designated from
time to time by the Board of Directors, or, if not so designated, then at the
office of the corporation required to be maintained pursuant to Section 1.2 of
Article I hereof.
Section 2.2 Annual Meetings.
The annual meetings of the stockholders of the corporation, commencing with
the year 1999, for the purpose of election of directors and for such other
business as may lawfully come before it, shall be held on such date and at such
time within one hundred fifty (150) days following the close of each fiscal year
as may be designated from time to time by the Board of Directors, or, if not so
designated, then, unless the Chairman of the Board or the President designates
some other date, the annual meeting for that year shall be held on the fourth
(4th) Thursday in the fifth month following the close of the fiscal year.
<PAGE>
Section 2.3 Special Meetings.
Special meetings of the stockholders of the corporation may be called, for
any purpose or purposes, by the Chairman of the Board or the President or any
two directors at any time. Upon written request of any stockholder or
stockholders holding in the aggregate one-fourth (25%) of the voting power of
all stockholders delivered in person or sent by registered mail to the Chairman
of the Board, President or Secretary of the Corporation. Upon receipt of such
call or written request, the Secretary shall call a special meeting of
stockholders to be held at the office of the corporation required to be
maintained pursuant to Section 1.2 of Article I hereof at such time as the
Secretary may fix.
Section 2.4 Notice of Meetings.
(a) Except as otherwise provided by law or the Certificate of
Incorporation, written notice of each meeting of stockholders, specifying the
place, date and hour, purpose or purposes and authority for the call of the
meeting, shall be given not less than three (3) nor more than sixty (60) days
before the date of the meeting to each stockholder entitled to vote thereat.
(b) If at any meeting action is proposed to be taken which, if taken,
would entitle stockholders fulfilling the requirements of Section 262(d) of the
Delaware General Corporation Law to an appraisal of the fair value of their
shares, the notice of such meeting shall contain a statement of that purpose and
to that effect and shall be accompanied by a copy of that statutory section.
(c) When a meeting is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. Such adjournment may be to such
time and to such place as shall be determined by a majority vote of the
stockholders present.
(d) Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, either before or after such meeting, and to the extent
permitted by law, will be waived by any stockholder by his attendance thereat,
in person or by proxy. Any stockholder so waiving notice of such meeting shall
be bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
(e) Unless and until voted, every proxy shall be revocable at the pleasure
of the person who executed it or of his legal representatives or assigns, except
in those cases where an irrevocable proxy permitted by statute has been given.
Section 2.5 Quorum and Voting.
(a) At all meetings of stockholders, except where otherwise provided by
law, the Certificate of Incorporation, or these Bylaws, the presence, in person
or by proxy duly authorized, of the holders of a majority of the outstanding
shares of stock entitled to vote shall constitute a quorum for the transaction
of business and the concurring vote of the holders of a majority of the shares
of such stock constituting a quorum shall be valid and binding upon the
<PAGE>
corporation. Shares, the voting of which at said meeting have been enjoined, or
which for any reason cannot be lawfully voted at such meeting, shall not be
counted to determine a quorum at said meeting. In the absence of a quorum, any
meeting of stockholders may be adjourned, from time to time, by vote of the
holders of a majority of the shares represented thereat, but no other business
shall be transacted at such meeting. At such adjourned meeting at which a quorum
is present or represented any business may be transacted which might have been
transacted at the original meeting. The stockholders present at a duly called or
convened meeting, at which a quorum is present, may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
(b) Except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, when two-thirds (2/3) of the stockholders entitled to vote at
any meeting sign, by themselves or their proxies or other authorized
representatives, a written consent or approval on the record of such meeting,
however called or notified, the doings of such meeting shall be valid.
(c) Where a separate vote by a class or classes is required, a majority of
the outstanding shares of such class or classes, present in person or
represented by proxy, shall constitute a quorum entitled to take action with
respect to that vote on that matter and the affirmative vote of the majority of
shares of such class or classes present in person or represented by proxy at the
meeting shall be the act of such class.
Section 2.6 Voting Rights.
(a) Except as otherwise provided by law, only persons in whose names
shares entitled to vote stand on the stock records of the corporation on the
record date for determining the stockholders entitled to vote at said meeting
shall be entitled to vote at such meeting. A personal representative, guardian
or trustee may vote the stock of the corporation held by him, in person or by
proxy, at any meeting of the corporation, whether or not such stock shall have
been transferred to his name on the books of the corporation. In case the stock
shall not have been so transferred to his name on the books of the corporation,
he shall satisfy the Secretary that he is the executor, administrator, guardian
or trustee holding such stock in such capacity, and to this end, the Secretary
may require him to file with the corporation a certified copy of his letters as
such executor, administrator or guardian of his appointment or authority as
trustee before he is permitted to vote in the manner described heretofore.
Shares standing in the names of two or more persons shall be voted or
represented in accordance with the determination of the majority of such
persons, or, if only one of such persons is present in person or represented by
proxy, such person shall have the right to vote such shares and such shares
shall be deemed to be represented for the purpose of determining a quorum.
(b) Every person entitled to vote or execute consents shall have the right
to do so either in person or by an agent or agents authorized by a written proxy
executed by such person or his duly authorized agent, which proxy shall be filed
with the Secretary of the corporation at or before the meeting at which it is to
be used. Said proxy so appointed need not be a stockholder. No proxy shall be
voted on after eleven (11) months from its date unless the proxy provides for a
longer period.
<PAGE>
(c) Without limiting the manner in which a stockholder may authorize
another person or persons to act for him as proxy pursuant to subsection (b) of
this section, the following shall constitute a valid means by which a
stockholder may grant such authority:
(1) A stockholder may execute a writing authorizing another person or
persons to act for him as proxy. Execution may be accomplished by the
stockholder or his authorized officer, director, employee or agent signing such
writing or causing his or her signature to be affixed to such writing by any
reasonable means including, but not limited to, by facsimile signature.
(2) A stockholder may authorize another person or persons to act for
him as proxy by transmitting or authorizing the transmission of a telegram,
cablegram, or other means of electronic transmission to the person who will be
the holder of the proxy or to a proxy solicitation firm, proxy support service
organization or like agent duly authorized by the person who will be the holder
of the proxy to receive such transmission, provided that any such telegram,
cablegram or other means of electronic transmission must either set forth or be
submitted with information from which it can be determined that the telegram,
cablegram or other electronic transmission was authorized by the stockholder. If
it is determined that such telegrams, cablegrams or other electronic
transmissions are valid, the inspectors or, if there are no inspectors, such
other persons making that determination shall specify the information upon which
they relied.
(d) Any copy, facsimile telecommunication or other reliable reproduction
of the writing or transmission created pursuant to subsection (c) of this
Section may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
Section 2.7 Auditor.
(a) The stockholders may at any annual meeting, or at any special meeting
called for that purpose, appoint some person, firm or corporation engaged in the
business of auditing to act as the auditor of the corporation.
(b) No director or officer shall be eligible to serve as auditor of the
corporation.
(c) The auditor shall, at least once in each fiscal year and more often if
required by the stockholders, examine the books and papers of the corporation
and compare the statements of the Chief Financial Officer with the books and
vouchers of the corporation, and otherwise make a complete audit of the books of
the corporation, and thereafter make appropriate reports to stockholders.
Section 2.8 List of Stockholders.
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders
<PAGE>
entitled to vote at said meeting, arranged in alphabetical order, showing the
address of and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held and which place shall be specified in the notice of the
meeting, or, if not specified, at the place where said meeting is to be held,
and the list shall be produced and kept at the time and place of meeting during
the whole time thereof, and may be inspected by any stockholder who is present.
Section 2.9 Stockholder Proposals at Annual Meetings.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, otherwise properly brought before the meeting by or at
the direction of the Board of Directors or otherwise properly brought before the
meeting by a stockholder. In addition to any other applicable requirements, for
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation, not
less than thirty (30) days nor more than sixty (60) days prior to the meeting;
provided, however, that in the event that less than forty (40) days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth (10th) day following the day on
which such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set forth as
to each matter the stockholder proposes to bring before the annual meeting, (i)
a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and record address of the stockholder proposing such business, (iii)
the class and number of shares of the corporation which are beneficially owned
by the stockholder, and (iv) any material interest of the stockholder in such
business.
Notwithstanding anything in the Bylaws to the contrary, no business shall
be conducted at the annual meeting except in accordance with the procedures set
forth in this Section 2.9, provided, however, that nothing in this Section 2.9
shall be deemed to preclude discussion by any stockholder of any business
properly brought before the annual meeting in accordance with said procedure.
The Chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 2.9, and if he should
so determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
<PAGE>
Section 2.10 Nominations of Persons for Election to the Board of Directors.
In addition to any other applicable requirements, only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors. Nominations of persons for election to the Board of
Directors of the corporation may be made at a meeting of stockholders by or at
the direction of the Board of Directors, by any nominating committee or person
appointed by the Board of Directors or by any stockholder of the corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Section 2.10. Such nominations, other
than those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the corporation. To be
timely, a stockholder's notice shall be delivered to or mailed and received at
the principal executive offices of the corporation not less than thirty (30)
days nor more than sixty (60) days prior to the meeting; provided, however, that
in the event that less than forty (40) days' notice or prior public disclosure
of the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the tenth (10th) day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or re-election as a director, (i) the name,
age, business address and residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the class and number of shares of
the corporation which are beneficially owned by the person, and (iv) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to Rule 14a under
the Securities Exchange Act of 1934, as amended; and (b) as to the stockholder
giving the notice, (i) the name and record address of the stockholder, and (ii)
the class and number of shares of the corporation which are beneficially owned
by the stockholder. The corporation may require any proposed nominee to furnish
such other information as may reasonably be required by the corporation to
determine the eligibility of such proposed nominee to serve as a director of the
corporation. No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth herein.
These provisions shall not apply to nomination of any persons entitled to be
separately elected by holders of preferred stock.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
Section 2.11 Action Without Meeting.
Unless otherwise provided in the Certificate of Incorporation, any action
required by statute to be taken at any annual or special meeting of stockholders
of the corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent or consents in writing, setting forth
the action so taken, are signed by two-thirds (2/3) the holders of outstanding
stock who would have been entitled to vote upon the action if such meeting were
held. To be effective,
<PAGE>
a written consent must be delivered to the corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer or
agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to a corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. Every written consent shall bear the date of signature of
each stockholder who signs the consent and no written consent shall be effective
to take the corporate action referred to therein unless, within sixty (60) days
of the earliest dated consent delivered in the manner required by this Section
to the corporation, written consents signed by a sufficient number of holders to
take action are delivered to the corporation in accordance with this Section.
ARTICLE III
Directors
Section 3.1 Number and Term of Office.
The number of directors which shall constitute the whole of the Board of
Directors shall be fixed from time to time by the Board of Directors. With the
exception of the first Board of Directors, which shall be elected by the
incorporators, and except as provided in the Certificate of Incorporation in
Section 3.3 of this Article III, the directors shall be elected by a plurality
vote of the shares represented in person or by proxy, at the stockholders annual
meeting in each year and entitled to vote on the election of directors. Except
as provided in the Certificate of Incorporation, elected directors shall hold
office until the next annual meeting and until their successors shall be duly
elected and qualified. Directors need not be stockholders. If, for any cause,
the Board of Directors shall not have been elected at an annual meeting, they
may be elected as soon thereafter as convenient at a special meeting of the
stockholders called for that purpose in the manner provided in these Bylaws.
Section 3.2 Powers.
The powers of the corporation shall be exercised, its business conducted
and its property controlled by or under the direction of the Board of Directors.
Section 3.3 Vacancies.
Vacancies and newly created directorships resulting from any increase in
the authorized number of directors may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director,
and each director so elected shall hold office for the unexpired portion of the
term of the director whose place shall be vacant, and until his successor shall
have been duly elected and qualified. A vacancy in the Board of Directors shall
be deemed to exist under this Section in the case of the death, removal or
resignation of any director, or if the stockholders fail at any meeting of
stockholders at which directors are to be elected (including any meeting
referred to in Section 3.4 below) to elect the number of directors then
constituting the whole Board.
<PAGE>
Section 3.4 Resignations and Removals.
(a) Any director may resign at any time by delivering his written
resignation to the Secretary, such resignation to specify whether it will be
effective at a particular time, upon receipt by the Secretary or at the pleasure
of the Board of Directors. If no such specification is made it shall be deemed
effective at the pleasure of the Board of Directors. When one or more directors
shall resign from the Board, effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office for the unexpired portion of the term of the director whose
place shall be vacated and until his successor shall have been duly elected and
qualified.
(b) Unless otherwise restricted by statue, by the Corporation's
Certificate of Incorporation, as amended or restated, or by these Bylaws, the
stockholders may at any special meeting the notice of which shall state that it
is called for that purpose, remove, with or without cause, any director and fill
the vacancy.
Section 3.5 Meetings.
(a) The annual meeting of the Board of Directors shall be held immediately
after the annual stockholders' meeting and at the place where such meeting is
held or at the place announced by the Chairman at such meeting. No notice of an
annual meeting of the Board of Directors shall be necessary and such meeting
shall be held for the purpose of electing officers and transacting such other
business as may lawfully come before it.
(b) Except as hereinafter otherwise provided, regular meetings of the
Board of Directors shall be held in such places and at such times as the Board
of Directors may from time to time by vote determine and when any such meeting
or meetings shall be so determined, no further notice thereof shall be required.
(c) Special meetings of the Board of Directors may be held at any time and
place within or without the State of Delaware whenever called by the Chairman of
the Board, the President, Chief Operating Officer, any Vice-President or by any
two directors. Notice of a special meeting shall be given 24 hours prior to the
holding of such special meeting.
(d) Notice of any meeting may be waived in writing at any time before or
after the meeting and will be waived by any director by attendance thereat.
Section 3.6 Quorum and Voting.
(a) A quorum of the Board of Directors shall consist of a majority of the
exact number of directors fixed from time to time in accordance with Section 3.1
of Article III of these Bylaws, but not less than one; provided, however, at any
meeting whether a quorum be present or otherwise, the presiding officer or a
majority of the directors present may adjourn from time to time until the time
fixed for the next regular meeting of the Board of Directors or when a quorum
shall be present, without notice other than by announcement at the meeting.
<PAGE>
(b) At each meeting of the Board at which a quorum is present all
questions and business shall be determined by a vote of a majority of the
directors present, unless a different vote be required by law, the Certificate
of Incorporation, or these Bylaws.
(c) Any member of the Board of Directors, or of any committee thereof, may
participate in a meeting by means of conference telephone or similar
communication equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting by such means shall
constitute presence in person at such meeting.
(d) The transactions of any meeting of the Board of Directors, or any
committee thereof, however called or noticed, or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice, if all
of the directors shall be present or shall waive notice of such meeting by a
writing filed with the records of the Board of Directors, or after any such
meeting shall express consent to the holding of the meeting and all actions
taken thereat by a writing on or filed with the records of the Board of
Directors. Non-receipt of any notice shall not invalidate any business done at
any meeting at which a quorum is present. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Section 3.7 Action Without Meeting.
Unless otherwise restricted by the Certificate of Incorporation or these
Bylaws, any action required or permitted to be taken at any meeting of the Board
of Directors or of any committee thereof may be taken without a meeting, if all
members of the Board or of such committee, as the case may be, consent thereto
in writing, and such writing or writings are filed with the minutes of
proceedings of the Board or committee.
Section 3.8 Fees and Compensation.
Directors and members of committees may receive such compensation, if any,
for their services, and such reimbursement for expenses, as may be fixed or
determined by resolution of the Board of Directors.
Section 3.9 Committees.
(a) Committees: The Board of Directors may, by resolution passed by a
majority of the whole Board, from time to time appoint such committees as may be
permitted by law. Such committees appointed by the Board of Directors shall
have such powers and perform such duties as may be prescribed by the resolution
or resolutions creating such committee, but in no event shall any such committee
have the powers to declare and pay dividends, fill vacancies in the Board of
Directors or exercise those powers reserved to the Board of Directors by statute
or otherwise. The Board of Directors may also appoint a general manager for the
corporation and define his duties.
(b) Term: Except as provided for in the Certificate of Incorporation,
the members of all committees of the Board of Directors shall serve a term
coexistent with that of the Board of
<PAGE>
Directors which shall have appointed such committee. The Board, subject to the
provisions of subsections (a) of this Section 3.9, may at any time increase or
decrease the number of members of a committee or terminate the existence of a
committee; provided, that no committee shall consist of less than one member.
The membership of a committee member shall terminate on the date of his death or
voluntary resignation, but the Board may at any time for any reason remove any
individual committee member and the Board may fill any committee vacancy created
by death, resignation, removal or increase in the number of members of the
committee. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee, and, in addition, in the absence or
disqualification of any member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
(c) Meetings: Unless the Board of Directors shall otherwise provide,
regular meetings of any committee appointed pursuant to this Section 3.9 shall
be held at such times and places as are determined by the Board of Directors, or
by any such committee, and when notice thereof has been given to each member of
such committee, no further notice of such regular meetings need be given
thereafter; special meetings of any committee may be held at the principal
office of the corporation required to be maintained pursuant to Section 1.2 of
Article I hereof; or at any place which has been designated from time to time by
resolution of such committee or by written consent of all members thereof, and
may be called by any director who is a member of such committee, upon written
notice to the members of such committee of the time and place of such special
meeting given in the manner provided for the giving of written notice to members
of the Board of Directors of the time and place of special meetings of the Board
of Directors. Notice of any special meeting of any committee may be waived in
writing at any time after the meeting and will be waived by any director by
attendance thereat. A majority of the authorized number of members of any such
committee shall constitute a quorum for the transaction of business, and the act
of a majority of those present at any meeting at which a quorum is present shall
be the act of such committee.
ARTICLE IV
Officers
Section 4.1 Officers Designated.
The officers of the corporation may be a Chief Executive Officer,
President, Chief Operating Officer, one or more Vice-Presidents, a Secretary,
and a Chief Financial Officer. The Board of Directors or the President may also
appoint a Chairman of the Board, assistant secretaries, assistant treasurers,
and such other officers and agents with such powers and duties as it or he shall
deem necessary. The Chairman of the Board shall not be deemed an officer of the
corporation unless expressly and specifically designated by the Board of
Directors. The Chairman of the Board shall perform such duties and have such
powers as expressly designated by the Board of Directors. The order of the
seniority of the Vice- Presidents shall be in the order
<PAGE>
of their nomination, unless otherwise determined by the Board of Directors. The
Board of Directors may assign such additional titles to one or more of the
officers as they shall deem appropriate. Any one person may hold any number of
offices of the corporation at any one time unless specifically prohibited
therefrom by law. The salaries and other compensation of the officers of the
corporation shall be fixed by or in the manner designated by the Board of
Directors.
Section 4.2 Tenure and Duties of Officers.
(a) General: All officers shall hold office at the pleasure of the Board
of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors. Nothing in these Bylaws shall be construed as creating any
kind of contractual right to employment with the corporation.
(b) Duties of the Chief Executive Officer: The chief executive officer of
the corporation and, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chief Executive Officer shall
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time.
(c) Duties of President: The President shall be the chief executive
officer of the corporation in the absence of the Chief Executive Officer and
shall preside at all meetings of the stockholders and at all meetings of the
Board of Directors, unless the Chairman of the Board of Directors and Chief
Executive Officer has been appointed and is present. The President shall perform
such other duties and have such other powers as the Board of Directors shall
designate from time to time.
(d) Duties of Chief Operating Officer: The Chief Operating Officer shall
assume and perform the duties of the President in the absence or disability of
the President or whenever the office of the President is vacant. The Chief
Operating Officer shall perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.
(e) Duties of Vice-Presidents: The Vice-Presidents, in the order of their
seniority, may assume and perform the duties of the Chief Operating Officer in
the absence or disability of the Chief Operating Officer or whenever the office
of the Chief Operating Officer is vacant. The Vice-President shall perform such
other duties and have such other powers as the Board of Directors or the
President shall designate from time to time.
(f) Duties of Secretary: The Secretary shall attend all meetings of the
stockholders and of the Board of Directors and any committee thereof, and shall
record all acts and
<PAGE>
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice, in conformity with these Bylaws, of all meetings of the
stockholders, and of all meetings of the Board of Directors and any Committee
thereof requiring notice. The Secretary shall perform such other duties and have
such other powers as the Board of Directors shall designate from time to time.
The President may direct any Assistant Secretary to assume and perform the
duties of the Secretary in the absence or disability of the Secretary, and each
Assistant Secretary shall perform such other duties and have such other powers
as the Board of Directors or the President shall designate from time to time.
(g) Duties of Chief Financial Officer: The Chief Financial Officer shall
keep or cause to be kept the books of account of the corporation in a thorough
and proper manner, and shall render statements of the financial affairs of the
corporation in such form and as often as required by the Board of Directors or
the President. The Chief Financial Officer, subject to the order of the Board of
Directors, shall have the custody of all funds and securities of the
corporation. The Chief Financial Officer shall perform all other duties commonly
incident to his office and shall perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time. The President may direct any Assistant Treasurer to assume and perform the
duties of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Assistant Treasurer shall perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
ARTICLE V
Execution of Corporate Instruments, and
Voting of Securities Owned by the Corporation
Section 5.1 Execution of Corporate Instruments.
(a) The Board of Directors may, in its discretion, determine the method
and designate the signatory officer or officers, or other person or persons, to
execute any corporate instrument or document, or to sign the corporate name
without limitation, except where otherwise provided by law, and such execution
or signature shall be binding upon the corporation.
(b) Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, formal contracts of the corporation, promissory
notes, deeds of trust, mortgages and other evidences of indebtedness of the
corporation, and other corporate instruments or documents requiring the
corporate seal, and certificates of shares of stock owned by the corporation,
shall be executed, signed or endorsed by the Chairman of the Board (if there be
such an officer appointed) or by the President; such documents may also be
executed by any Vice-President or the Chief Financial Officer. All other
instruments and documents requiring the corporate signature, but not requiring
the corporate seal, may be executed as aforesaid or in such other manner as may
be directed by the Board of Directors.
<PAGE>
(c) All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation, or in special accounts of the corporation, shall
be signed by such person or persons as the Board of Directors shall authorize so
to do.
(d) The Board of Directors may provide for the execution of checks or
dividend warrants by the printed, lithographed or engraved facsimile signature
or signatures of the person or persons authorized to sign checks or dividend
warrants.
Section 5.2 Voting of Securities Owned by Corporation.
All stock and other securities of other corporations owned or held by the
corporation for itself, or for other parties in any capacity, shall be voted,
and all proxies with respect thereto shall be executed, by the person authorized
so to do by resolution of the Board of Directors or, in the absence of such
authorization, by the Chairman of the Board (if there be such an officer
appointed), or by the President, or by any Vice-President.
ARTICLE VI
Shares of Stock
Section 6.1 Form and Execution of Certificates.
Certificates for the shares of stock of the corporation shall be in such
form as is consistent with the Certificate of Incorporation and applicable law.
Every holder of stock in the corporation shall be entitled to have a certificate
signed by, or in the name of the corporation by, the Chairman of the Board (if
there be such an officer appointed), or by the President, Chief Operating
Officer or any Vice-President and by the Chief Financial Officer or Assistant
Treasurer or the Secretary or Assistant Secretary, certifying the number of
shares owned by him in the corporation. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued with the same effect as if
he were such officer, transfer agent, or registrar at the date of issue. If the
corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided in Section
202 of the Delaware General Corporation Law, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the corporation shall issue to represent such class or series of stock, a
statement that the corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
<PAGE>
Section 6.2 Lost Certificates.
The Board of Directors may direct a new certificate or certificates to be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to indemnify the
corporation in such manner as it shall require and/or to give the corporation a
surety bond in such form and amount as it may direct as indemnity against any
claim that may be made against the corporation with respect to the certificate
alleged to have been lost or destroyed.
Section 6.3 Transfers.
Transfers of record of shares of stock of the corporation shall be made
only upon its books by the holders thereof, in person or by attorney duly
authorized, and upon the surrender of a certificate or certificates for a like
number of shares, properly endorsed. The right of any stockholder to transfer
any share of stock shall be subject to those provisions of the Certificate of
Incorporation governing transfers.
Section 6.4 Transfer Agent.
Notwithstanding any of the provisions of these Bylaws, the Board of
Directors may appoint a transfer agent and a registrar of transfers and may
require all certificates of shares to bear the signature of such transfer agent
and of such registrar of transfers.
Section 6.5 Fixing Record Dates.
(a) In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which record date shall not be more than ten (10)
days before the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the date on which the meeting is
held. A determination of stockholders of record entitled notice of or to vote at
a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
(b) In order that the corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten (10) days after the date
upon which the resolution fixing the record date is adopted by the Board of
Directors. If no
<PAGE>
record date has been fixed by the Board of Directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required by
the Delaware General Corporation Law, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered office in Delaware,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to a corporation's registered office shall be by hand or
by certified or registered mail, return receipt requested. If no record date has
been fixed by the Board of Directors and prior action by the Board of Directors
is required by law, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the close
of business on the day on which the Board of Directors adopts the resolution
taking such prior action.
(c) In order that the corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than thirty (30) days prior to
such action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
(d) By resolution, the Board of Directors may at any time close the books
for the transfer of stock for a period not exceeding thirty (30) days.
Section 6.6 Registered Stockholders.
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends, and
to vote as such owner, and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE VII
Other Securities of the Corporation
All bonds, debentures and other corporate securities of the corporation,
other than stock certificates, may be signed by the Chairman of the Board (if
there be such an officer appointed), or the President or any Vice-President or
such other person as may be authorized by the Board of Directors and the
corporate seal impressed thereon or a facsimile of such seal imprinted thereon
and attested by the signature of the Secretary or an Assistant Secretary, or the
Chief Financial Officer or an Assistant Treasurer; provided, however, that where
any such bond, debenture or other corporate security shall be authenticated by
the manual signature of a trustee under an
<PAGE>
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signature of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Chief Financial
Officer or an Assistant Treasurer of the corporation, or such other person as
may be authorized by the Board of Directors, or bear imprinted thereon the
facsimile signature of such person. In case any officer who ceases to be an
officer shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile signature shall appear thereon or before the bond,
debenture or other corporate security so signed or attested shall have been
delivered, such bond, debenture or other corporate security nevertheless may be
adopted by the corporation and issued and delivered as though the person who
signed the same or whose facsimile signature shall have been used thereon had
not ceased to be such officer of the corporation.
ARTICLE VIII
Corporate Seal
The corporate seal shall consist of a die bearing the name of the
corporation and the state and date of its incorporation. Said seal may be used
by causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
ARTICLE IX
Indemnification of Officers, Directors, Employees and Agents
Section 9.1 Right to Indemnification.
To the fullest extent authorized by the Delaware General Corporation Law,
as the same exists or may hereafter be amended or interpreted (but, in the case
of any such amendment or interpretation, only to the extent that such amendment
or interpretation permits the corporation to provide broader indemnification
rights than were permitted prior thereto), the corporation shall indemnify and
hold harmless each director or officer who was or is a party or is threatened to
be made a party to or is involved (as a party, witness, or otherwise), in any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative (hereinafter a "Proceeding"), by
reason of the fact that he, or a person of whom he is the legal representative,
is or was a director or officer of the corporation or is or was serving at the
request of the corporation as a director or officer of another corporation or of
a partnership, joint venture, trust, or other enterprise, including service with
respect to employee benefit plans, whether the basis of the Proceeding is
alleged action in an official capacity as a director or officer, or in any other
capacity while serving as a director or officer, shall be indemnified and held
harmless by the corporation against all expenses, liability, and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties, and amounts
paid or to be paid in settlement, and any interest, assessments, or other
charges imposed thereon, and any federal, state, local, or foreign taxes imposed
on any director as a result of the actual or deemed receipt of any payments
under
<PAGE>
this Article) reasonably incurred or suffered by such person in connection
with investigating, defending, being a witness in, or participating in
(including on appeal), or preparing for any of the foregoing in, any Proceeding
(hereinafter "Expenses"); provided, however, that except as to actions to
enforce indemnification rights pursuant to Section 9.3 of this Article, the
corporation shall indemnify any director or officer seeking indemnification in
connection with a Proceeding (or part thereof) initiated by such person only if
the Proceeding (or part thereof) was authorized by the Board of Directors of the
corporation. The right to indemnification conferred in this Article shall be a
contract right.
The Corporation shall have the authority by contract or by resolution of
the Board of Directors to indemnify and hold harmless to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended or interpreted (but, in the case of any such amendment or
interpretation, only to the extent that such amendment or interpretation permits
the corporation to provide broader indemnification rights than were permitted
prior thereto), each agent or employee who was or is a party or is threatened to
be made a party to or is involved (as a party, witness, or otherwise), in any
threatened, pending, or completed Proceeding, by reason of the fact that he, or
a person of whom he is the legal representative, is or was an agent or employee
of the corporation or is or was serving at the request of the corporation as an
agent or employee of another corporation or of a partnership, joint venture,
trust, or other enterprise, including service with respect to employee benefit
plans, whether the basis of the Proceeding is alleged action in an official
capacity as an agent or employee, or in any other capacity while serving as an
agent or employee, may be indemnified and held harmless by the corporation
against all Expenses; provided, however, that except as to actions to enforce
indemnification rights pursuant to Section 9.3 of this Article, the corporation
shall indemnify any agent or employee seeking indemnification in connection with
a Proceeding (or part thereof) initiated by such person only if the Proceeding
(or part thereof) was authorized by the Board of Directors of the corporation.
The right to indemnification conferred in this Article shall be a contract
right.
Section 9.2 Authority to Advance Expenses.
Expenses incurred by an officer or director (acting in his capacity as
such) in defending a Proceeding shall be paid by the corporation in advance of
the final disposition of such Proceeding, provided, however, that if required by
the Delaware General Corporation Law, as amended, such Expenses shall be
advanced only upon delivery to the corporation of an undertaking by or on behalf
of such director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation as
authorized in this Article or otherwise. Expenses incurred by other Agents of
the corporation (or by the directors or officers not acting in their capacity as
such, including service with respect to employee benefit plans) may be advanced
upon such terms and conditions as the Board of Directors deems appropriate. Any
obligation to reimburse the corporation for Expense advances shall be unsecured
and no interest shall be charged thereon.
<PAGE>
Section 9.3 Right of Claimant to Bring Suit.
If a claim under Section 9.1 or 9.2 of this Article is not paid in full by
the corporation within 90 days after a written claim has been received by the
corporation, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense
(including attorneys' fees) of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending a Proceeding in advance of its final disposition where the
required undertaking has been tendered to the corporation) that the claimant has
not met the standards of conduct that make it permissible under the Delaware
General Corporation Law for the corporation to indemnify the claimant for the
amount claimed. The burden of proving such a defense shall be on the
corporation. Neither the failure of the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper under the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the claimant had not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that claimant has not met the applicable standard of conduct.
Section 9.4 Provisions Nonexclusive.
The rights conferred on any person by this Article shall not be exclusive
of any other rights that such person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, agreement, vote of
stockholders or disinterested directors, or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office. To the extent that any provision of the Certificate, agreement, or vote
of the stockholders or disinterested directors is inconsistent with these
Bylaws, the provision, agreement, or vote shall take precedence.
Section 9.5 Authority to Insure.
The corporation may purchase and maintain insurance to protect itself and
any Agent against any Expense, whether or not the corporation would have the
power to indemnify the Agent against such Expense under applicable law or the
provisions of this Article.
Section 9.6 Survival of Rights.
The rights provided by this Article shall continue as to a person who has
ceased to be an Agent and shall inure to the benefit of the heirs, executors,
and administrators of such a person.
Section 9.7 Settlement of Claims.
The corporation shall not be liable to indemnify any Agent under this
Article (a) for any amounts paid in settlement of any action or claim effected
without the corporation's written
<PAGE>
consent, which consent shall not be unreasonably withheld; or (b) for any
judicial award if the corporation was not given a reasonable and timely
opportunity, at its expense, to participate in the defense of such action.
Section 9.8 Effect of Amendment.
Any amendment, repeal, or modification of this Article shall not adversely
affect any right or protection of any Agent existing at the time of such
amendment, repeal, or modification.
Section 9.9 Subrogation.
In the event of payment under this Article, the corporation shall be
subrogated to the extent of such payment to all of the rights of recovery of the
Agent, who shall execute all papers required and shall do everything that may be
necessary to secure such rights, including the execution of such documents
necessary to enable the corporation effectively to bring suit to enforce such
rights.
Section 9.10 No Duplication of Payments.
The corporation shall not be liable under this Article to make any payment
in connection with any claim made against the Agent to the extent the Agent has
otherwise actually received payment (under any insurance policy, agreement,
vote, or otherwise) of the amounts otherwise indemnifiable hereunder.
ARTICLE X
Notices
Whenever, under any provisions of these Bylaws, notice is required to be
given to any stockholder, the same shall be given in any of the following ways:
in writing, (i) timely and duly deposited in the United States Mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent, (ii) left with the
stockholder personally, (iii) left at the residence or usual place of business
of the stockholder, or (iv) published in any newspaper of general circulation in
the county in which the principal office of the corporation is located, such
notice to be published not less than two (2) times, on successive days, the
first publication thereof to be not less than three (3) days nor more than ten
(10) days prior to the day assigned for the meeting. Any notice required to be
given to any director may be given by any method hereinabove stated, or by
telegram or other means of electronic transmission, except that such notice
other than one which is delivered personally, shall be sent to such address or
(in the case of facsimile telecommunication) facsimile telephone number as such
director shall have filed in writing with the Secretary of the corporation, or,
in the absence of such filing, to the last known post office address of such
director. If no address of a stockholder or director be known, such notice may
be sent to the office of the corporation required to be maintained pursuant to
Section 1.2 of Article I hereof. An affidavit of mailing, executed by a duly
authorized and competent employee of the corporation or its transfer agent
<PAGE>
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, director
or directors, to whom any such notice or notices was or were given, and the time
and method of giving the same, shall be conclusive evidence of the statements
therein contained. All notices given by mail, as above provided, shall be
deemed to have been given as at the time of mailing and all notices given by
telegram or other means of electronic transmission shall be deemed to have been
given as at the sending time recorded by the telegraph company or other
electronic transmission equipment operator transmitting the same. It shall not
be necessary that the same method of giving be employed in respect of all
directors, but one permissible method may be employed in respect of any one or
more, and any other permissible method or methods may be employed in respect of
any other or others. The period or limitation of time within which any
stockholder may exercise any option or right, or enjoy any privilege or benefit,
or be required to act, or within which any director may exercise any power or
right, or enjoy any privilege, pursuant to any notice sent him in the manner
above provided, shall not be affected or extended in any manner by the failure
of such a stockholder or such director to receive such notice. Whenever any
notice is required to be given under the provisions of the statutes or of the
Certificate of Incorporation, or of these Bylaws, a waiver thereof in writing
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent thereto. Whenever notice is
required to be given, under any provision of law or of the Certificate of
Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action
or meeting which shall be taken or held without notice to any such person with
whom communication is unlawful shall have the same force and effect as if such
notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
ARTICLE XI
Fiscal Year
The fiscal year of the corporation shall be such as may from time to time
be established by the Board of Directors.
ARTICLE XII
Amendments
These Bylaws may be repealed, altered or amended or new Bylaws adopted by
written consent of stockholders in the manner authorized by Section 2.11 of
Article II, or at any meeting of the stockholders, either annual or special, by
the affirmative vote of a majority of the stock entitled to vote at such
meeting, unless a larger vote is required by these Bylaws or the Certificate of
Incorporation. The Board of Directors shall also have the authority to repeal,
alter
<PAGE>
or amend these Bylaws or adopt new Bylaws (including, without limitation, the
amendment of any Bylaws setting forth the number of directors who shall
constitute the whole Board of Directors) by unanimous written consent or at any
annual, regular, or special meeting by the affirmative vote of a majority of the
whole number of directors, subject to the power of the stockholders to change or
repeal such Bylaws and provided that the Board of Directors shall not make or
alter any Bylaws fixing the qualifications, classifications, or term of office
of directors.
Notwithstanding any other provision of these Bylaws or any provision of law
which might otherwise permit a lesser vote or no vote, but in addition to any
affirmative vote of the holders of the capital stock required by law or by these
Bylaws, the affirmative vote of at least two-thirds (2/3) of the combined voting
power of all of the then outstanding shares of the Corporation entitled to vote
shall be required to alter, amend or repeal Article II, Section 2.11 of the
Bylaws or this Article XII or any provision thereof, or to add or amend any
other Bylaw in order to change or nullify the effect of such provisions, unless
such amendment shall be approved by a majority of the directors of the
Corporation, not affiliated or associated with any person or entity holding (or
which has announced an intent to obtain) 10% or more of the voting power of the
Corporation's outstanding capital stock.
<PAGE>
CERTIFICATE OF SECRETARY
The undersigned, Secretary of Cheap Tickets, Inc., a Delaware
corporation, hereby certifies that the foregoing is a full, true and correct
copy of the Bylaws of said corporation, with all amendments to date of this
Certificate.
WITNESS the signature of the undersigned and the seal of the
Corporation this _____ day of ________________, 1999.
-------------------------------------
[NAME], Secretary
<PAGE>
Exhibit 10.1
CHEAP TICKETS, INC.
1997 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Non-Qualified Stock
Options, as determined by the Administrator at the time of grant.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of the Committees appointed
-------------
to administer the Plan.
(b) "Applicable Laws" means the legal requirements relating to the
---------------
administration of stock option plans, if any, under applicable provisions of
federal securities laws, California, Delaware and Hawaii corporate and
securities laws, the Code, the rules of any applicable stock exchange or
national market system, and the rules of any foreign jurisdiction applicable to
Options granted to residents therein.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means any committee appointed by the Board to
---------
administer the Plan.
(f) "Common Stock" means the common stock of the Company.
------------
(g) "Company" means Cheap Tickets, Inc, a Hawaii corporation.
-------
(h) "Consultant" means any person who is engaged by the Company or any
----------
Related Entity to render consulting or advisory services as an independent
contractor and is compensated for such services.
(i) "Continuous Status as an Employee, Director or Consultant" means
--------------------------------------------------------
that the provision of services to the Company or a Related Entity in any
capacity of Employee, Director or Consultant, is not interrupted or terminated.
Continuous Status as an Employee, Director or Consultant shall not be considered
interrupted in the case of (i) any approved leave of absence, (ii) transfers
between locations of the Company or among the Company, any Related Entity, or
any successor, in any capacity of Employee, Director or Consultant, or (iii) any
change in status as long as the individual remains in the service of the Company
or a Related Entity in any capacity of Employee, Director or Consultant (except
as otherwise provided in the Option Agreement). An approved leave of absence
shall include sick leave, military leave, or any other authorized personal
leave. For purposes of Incentive Stock Options, no such leave may exceed
<PAGE>
ninety (90) days, unless reemployment upon expiration of such leave is
guaranteed by statute or contract.
(j) "Corporate Transaction" means any of the following shareholder-
---------------------
approved transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state in which the Company is incorporated;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital stock of
the Company's subsidiary corporations) in connection with the complete
liquidation or dissolution of the Company; or
(iii) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held such securities
immediately prior to such merger.
(k) "Director" means a member of the Board.
--------
(l) "Employee" means any person, including an Officer or Director, who
--------
is an employee of the Company or any Related Entity. The payment of a
director's fee by the Company shall not be sufficient to constitute "employment"
by the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(n) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) Where there exists a public market for the Common Stock, the
Fair Market Value shall be (A) the closing price for a Share for the last market
trading day prior to the time of the determination (or, if no closing price was
reported on that date, on the last trading date on which a closing price was
reported) on the stock exchange determined by the Administrator to be the
primary market for the Common Stock or the Nasdaq National Market, whichever is
applicable or (B) if the Common Stock is not traded on any such exchange or
national market system, the average of the closing bid and asked prices of a
Share on the Nasdaq Small Cap Market for the day prior to the time of the
determination (or, if no such prices were reported on that date, on the last
date on which such prices were reported), in each case, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(ii) In the absence of an established market of the type described
in (i), above, for the Common Stock, the Fair Market Value thereof shall be
determined by the Administrator in good faith and in a manner consistent with
Section 260.140.50 of Title 10 of the California Code of Regulations.
<PAGE>
(o) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code.
(p) "Non-Qualified Stock Option" means an Option not intended to
--------------------------
qualify as an Incentive Stock Option.
(q) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
------
(s) "Option Agreement" means the written agreement evidencing the
----------------
grant of an Option executed by the Company and the Optionee, including any
amendments thereto.
(t) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(u) "Optionee" means an Employee, Director or Consultant who receives
--------
an Option under the Plan.
(v) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(w) "Plan" means this 1997 Stock Option Plan.
----
(x) "Registration Date" means the closing of the first sale of Common
-----------------
Stock to the general public pursuant to a registration statement filed with and
declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
(y) "Related Entity" means any Parent, Subsidiary and any business,
--------------
corporation, partnership, limited liability company or other entity in which the
Company, a Parent or a Subsidiary holds a significant ownership interest,
directly or indirectly.
(z) "Share" means a share of the Common Stock.
-----
(aa) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan.
-------------------------
(a) Subject to the provisions of Section 11(a), below, the maximum
aggregate number of Shares which may be optioned and sold under the Plan is one
hundred forty thousand four hundred (140,400) Shares. The Shares may be
authorized, but unissued, or reacquired Common Stock.
(b) If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option exchange program, or
if any unissued
<PAGE>
Shares are retained by the Company upon exercise of an Option in order to
satisfy the exercise price for such Option or any withholding taxes due with
respect to such Option, such unissued or retained Shares shall become available
for future grant under the Plan (unless the Plan has terminated). Shares that
actually have been issued under the Plan shall not be returned to the Plan and
shall not become available for future distribution under the Plan, except that
if unvested Shares are forfeited, or repurchased by the Company at their
original purchase price, such Shares shall become available for future grant
under the Plan.
4. Administration of the Plan.
--------------------------
(a) Plan Administrator. With respect to grants of Options to
------------------
Employees, Directors, Officers or Consultants, the Plan shall be administered by
(A) the Board or (B) a Committee (or a subcommittee of the Committee) designated
by the Board, which Committee shall be constituted in such a manner as to
satisfy Applicable Laws. Once appointed, such Committee shall continue to serve
in its designated capacity until otherwise directed by the Board.
(b) Multiple Administrative Bodies. The Plan may be administered by
------------------------------
different bodies with respect to Directors, Officers, Consultants and Employees
who are neither Directors nor Officers.
(c) Powers of the Administrator. Subject to Applicable Laws and the
---------------------------
provisions of the Plan (including any other powers given to the Administrator
hereunder), and except as otherwise provided by the Board, the Administrator
shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants to whom
Options may be granted from time to time hereunder;
(ii) to determine whether and to what extent Options are granted
hereunder;
(iii) to determine the number of Shares to be covered by each
Option granted hereunder;
(iv) to approve forms of Option Agreement for use under the Plan;
(v) to determine the terms and conditions of any Option granted
hereunder;
(vi) to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable foreign jurisdictions
and to afford Optionees favorable treatment under such laws; provided, however,
that no Option shall be granted under any such additional terms, conditions,
rules or procedures with terms or conditions which are inconsistent with the
provisions of the Plan;
<PAGE>
(vii) to amend the terms of any outstanding Option granted under
the Plan, including a reduction in the exercise price of any Option to reflect a
reduction in the Fair Market Value of the Common Stock since the grant date of
the Option, provided that any amendment that would adversely affect the
Optionee's rights under an outstanding Option shall not be made without the
Optionee's written consent;
(viii) to construe and interpret the terms of the Plan and
Options granted pursuant to the Plan; and
(ix) to take such other action, not inconsistent with the terms
of the Plan, as the Administrator deems appropriate.
(d) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be conclusive and binding on all
persons.
5. Eligibility. Non-Qualified Stock Options may be granted to Employees,
-----------
Directors and Consultants. Incentive Stock Options may be granted only to
Employees of the Company, a Parent or a Subsidiary. An Employee, Director or
Consultant who has been granted an Option may, if otherwise eligible, be granted
additional Options. Options may be granted to such Employees, Directors or
Consultants who are residing in foreign jurisdictions as the Administrator may
determine from time to time.
6. Terms and Conditions of Options.
-------------------------------
(a) Designation of Options. Each Option shall be designated as either
----------------------
an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of Shares subject to Options designated as Incentive Stock Options which
become exercisable for the first time by an Optionee during any calendar year
(under all plans of the Company or any Parent or Subsidiary) exceeds $100,000,
such excess Options, to the extent of the Shares covered thereby in excess of
the foregoing limitation, shall be treated as Non-Qualified Stock Options. For
this purpose, Incentive Stock Options shall be taken into account in the order
in which they were granted, and the Fair Market Value of the Shares shall be
determined as of the date the Option with respect to such Shares is granted.
(b) Conditions of Option. Subject to the terms of the Plan, the
--------------------
Administrator shall determine the provisions, terms, and conditions of each
Option including, but not limited to, the Option vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, and satisfaction of
any performance criteria. The performance criteria established by the
Administrator may be based on any one of, or combination of, increase in share
price, earnings per share, total shareholder return, return on equity, return on
assets, return on investment, net operating income, cash flow, revenue, economic
value added, personal management objectives, or other measure of performance
selected by the Administrator. Partial achievement of the specified criteria
may result in vesting corresponding to the degree of achievement as specified in
the Option Agreement.
<PAGE>
(d) Term of Option. The term of each Option shall be the term stated
--------------
in the Option Agreement, provided, however, that the term shall be no more than
ten (10) years from the date of grant thereof. However, in the case of an
Incentive Stock Option granted to an Optionee who, at the time the Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Option shall be five (5) years from the date of grant thereof or such
shorter term as may be provided in the Option Agreement.
(e) Non-Transferability of Options. Options may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
(f) Time of Granting Options. The date of grant of an Option shall
------------------------
for all purposes, be the date on which the Administrator makes the determination
to grant such Option, or such other date as is determined by the Administrator.
Notice of the grant determination shall be given to each Employee, Director or
Consultant to whom an Option is so granted within a reasonable time after the
date of such grant.
7. Option Exercise Price, Consideration, Taxes and Reload Options.
--------------------------------------------------------------
(a) Exercise Price. The exercise price for an Option shall be as
--------------
follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be not less than one hundred ten
percent (110%) of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described
in the preceding paragraph, the per Share exercise price shall be not less than
one hundred percent (100%) of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Non-Qualified Stock Option:
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be not less than one hundred ten percent (110%)
of the Fair Market Value per Share on the date of grant.
(B) granted to any person other than a person described in
the preceding paragraph, the per Share exercise price shall be not less than
eighty-five percent (85%) of the Fair Market Value per Share on the date of
grant.
<PAGE>
(b) Consideration. Subject to Applicable Laws, the consideration to
-------------
be paid for the Shares to be issued upon exercise of an Option including the
method of payment, shall be determined by the Administrator (and, in the case of
an Incentive Stock Option, shall be determined at the time of grant). In
addition to any other types of consideration the Administrator may determine,
the Administrator is authorized to accept as consideration for Shares issued
under the Plan the following:
(i) cash;
(ii) check;
(iii) delivery of Optionee's promissory note with such recourse,
interest, security, and redemption provisions as the Administrator determines as
appropriate;
(iv) if the exercise occurs on or after the Registration Date,
surrender of Shares or delivery of a properly executed form of attestation of
ownership of Shares as the Administrator may require (including withholding of
Shares otherwise deliverable upon exercise of the Option) which have a Fair
Market Value on the date of surrender or attestation equal to the aggregate
exercise price of the Shares as to which said Option shall be exercised (but
only to the extent that such exercise of the Option would not result in an
accounting compensation charge with respect to the Shares used to pay the
exercise price unless otherwise determined by the Administrator);
(v) if the exercise occurs on or after the Registration Date,
delivery of a properly executed exercise notice together with such other
documentation as the Administrator and the broker, if applicable, shall require
to effect an exercise of the Option and delivery to the Company of the sale or
loan proceeds required to pay the exercise price; or
(vi) any combination of the foregoing methods of payment.
(c) Taxes. No Shares shall be delivered under the Plan to any
-----
Optionee or other person until such Optionee or other person has made
arrangements acceptable to the Administrator for the satisfaction of any
foreign, federal, state, or local income and employment tax withholding
obligations, including, without limitation, obligations incident to the receipt
of Shares or the disqualifying disposition of Shares received on exercise of an
Incentive Stock Option. Upon exercise of an Option the Company shall withhold
or collect from Optionee an amount sufficient to satisfy such tax obligations.
8. Exercise of Option.
------------------
(a) Procedure for Exercise: Rights as a Shareholder.
-----------------------------------------------
(i) Any Option granted hereunder shall be exercisable at such
times and under such conditions as determined by the Administrator under the
terms of the Plan and specified in the Option Agreement but in no case at a rate
of less than 20% per year over five (5) years from the date the Option is
granted, subject to reasonable conditions such as continued
<PAGE>
employment. However, in the case of an Option granted to an Officer, Director
or Consultant, the Option Agreement may provide that the Option may become fully
exercisable, subject to reasonable conditions such as continued employment, at
any time or during any period established in the Option Agreement.
(ii) An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Until the issuance (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a shareholder shall exist with respect
to Optioned Stock, notwithstanding the exercise of an Option. The Company shall
issue (or cause to be issued) such stock certificate promptly upon exercise of
the Option. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the stock certificate is issued, except as
provided in the Option Agreement or Section 11(a), below.
(b) Exercise of Option Following Termination of Employment, Director
----------------------------------------------------------------
or Consulting Relationship. In the event of termination of an Optionee's
- --------------------------
Continuous Status as an Employee, Director or Consultant for any reason other
than disability or death (but not in the event of an Optionee's change of status
from Employee to Consultant or from Consultant to Employee), such Optionee may,
but only within three (3) months after the date of such termination (but in no
event later than the expiration date of the term of such Option as set forth in
the Option Agreement), exercise his or her Option to the extent that the
Optionee was entitled to exercise it at the date of such termination or to such
other extent as may be determined by the Administrator. The Optionee's Option
Agreement may provide that upon the event of termination of the Optionee's
Continuous Status as an Employee, Director or Consultant for "Cause," the
Optionee's right to exercise the Option shall terminate concurrently with the
termination of Optionee's Continuous Status as an Employee, Director or
Consultant. The term "Cause" shall be as defined in the Option Agreement. If
the Optionee should die within three (3) months after the date of such
termination, the Optionee's estate or the person who acquired the right to
exercise the Option by bequest or inheritance may exercise the Option to the
extent that the Optionee was entitled to exercise it at the date of such
termination within twelve (12) months of the Optionee's date of death, but in no
event later than the expiration date of the term of such Option as set forth in
the Option Agreement. In the event of an Optionee's change of status from
Employee to Consultant, an Employee's Incentive Stock Option shall convert
automatically to a Non-Qualified Stock Option on the day three (3) months and
one day following such change of status. To the extent that the Optionee is not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate.
(c) Disability of Optionee. In the event of termination of an
----------------------
Optionee's Continuous Status as an Employee, Director or Consultant as a result
of his or her disability, Optionee may, but only within twelve (12) months from
the date of such termination (and in no event later than the expiration date of
the term of such Option as set forth in the Option
<PAGE>
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination; provided, however, that if such disability is
not a "disability" as such term is defined in Section 22(e)(3) of the Code, in
the case of an Incentive Stock Option such Incentive Stock Option shall
automatically convert to a Non-Qualified Stock Option on the day three (3)
months and one day following such termination. To the extent that the Optionee
is not entitled to exercise the Option at the date of termination, or if
Optionee does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee, the
-----------------
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Option Agreement), by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after death,
the Optionee's estate or a person who acquired the right to exercise the Option
by bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate.
9. Conditions Upon Issuance of Shares.
----------------------------------
(a) Shares shall not be issued pursuant to the exercise of an Option
unless the exercise of such Option and the issuance and delivery of such Shares
pursuant thereto shall comply with all Applicable Laws, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
Applicable Laws.
10. Repurchase Rights. If the provisions of an Option Agreement grant to
-----------------
the Company the right to repurchase Shares upon termination of the Optionee's
Continuous Status as an Employee, Director or Consultant, the Option Agreement
shall provide that the repurchase price will be either:
(a) Not less than the Fair Market Value of the Shares to be
repurchased on the date of termination of the Optionee's Continuous Status as an
Employee, Director or Consultant, and the right to repurchase must be exercised
for cash or cancellation of purchase money indebtedness for the Shares within
ninety (90) days of the termination of the Optionee's Continuous Status as an
Employee, Director or Consultant (or in the case of Shares issued upon exercise
of Options after the date of termination of the Optionee's Continuous Status as
an Employee, Director or Consultant, within ninety (90) days after the date of
the Option exercise), and the right terminates when the Company's securities
become publicly traded; or
<PAGE>
(b) The original purchase price, provided that the right to repurchase
at the original purchase price lapses at the rate of at least twenty percent
(20%) of the Shares subject to the Option per year over five (5) years from the
date the Option is granted (without respect to the date the Option was exercised
or became exercisable), and the right to repurchase must be exercised for cash
or cancellation of purchase money indebtedness for the Shares within ninety (90)
days of termination of the Optionee's Continuous Status as an Employee, Director
or Consultant (or in the case of Shares issued upon exercise of Options after
the date of termination of the Optionee's Continuous Status as an Employee,
Director or Consultant, within ninety (90) days after the date of the Option
exercise).
(c) In addition to the restrictions set forth in (a) and (b) above,
the Shares held by an Officer, Director or Consultant may be subject to
additional or greater restrictions.
11. Adjustments Upon Changes in Capitalization or Corporate Transaction.
-------------------------------------------------------------------
(a) Adjustments Upon Changes in Capitalization. Subject to any
------------------------------------------
required action by the shareholders of the Company, the number of Shares covered
by each outstanding Option, and the number of Shares which have been authorized
for issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan, as well as the price per share of Common
Stock covered by each such outstanding Option, shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other similar event resulting in
an increase or decrease in the number of issued shares of Common Stock. Except
as expressly provided herein, no issuance by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason hereof shall be made with respect to, the
number or price of Shares subject to an Option.
(b) Corporate Transaction. In the event of any Corporate Transaction,
---------------------
each Award which is at the time outstanding under the Plan shall automatically
become fully vested and exercisable and be released from any restrictions on
transfer and repurchase or forfeiture rights, upon shareholder approval of such
Corporate Transaction, for all of the Shares at the time represented by such
Award. To the extent it has not been previously exercised, each Option under
the Plan will terminate immediately prior to the consummation of such proposed
Corporate Transaction, unless the Option is assumed or an equivalent Option is
substituted by the successor corporation or a Parent or Subsidiary of such
successor corporation. For the purposes of this subsection, the Option shall be
considered assumed or substituted for an equivalent Option if, following the
Corporate Transaction, the Option confers the right to purchase with
substantially equivalent provisions as the original Option, for each Share
subject to the Option immediately prior to the Corporate Transaction, the
consideration (whether stock, cash, or other securities or property) received in
the Corporate Transaction by holders of Common Stock for each Share subject to
the Option held on the effective date of the Corporate Transaction (and if
holders were offered a choice of consideration, the type of consideration chosen
by the holders of a majority of the outstanding Shares); provided, however, that
if such consideration received in the Corporate Transaction was not solely
common stock of the successor corporation or its Parent, the
<PAGE>
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise or exchange of the Option for
each Share subject to the Option to be solely common stock of the successor
corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the Corporate Transaction.
12. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board or its approval by the shareholders of the
Company. It shall continue in effect for a term of ten (10) years unless sooner
terminated.
13. Amendment, Suspension or Termination of the Plan.
------------------------------------------------
(a) The Board may at any time amend, suspend or terminate the Plan. To
the extent necessary to comply with Applicable Laws, the Company shall obtain
shareholder approval of any Plan amendment in such a manner and to such a degree
as required.
(b) No Option may be granted during any suspension of the Plan or
after termination of the Plan.
(c) Any amendment, suspension or termination of the Plan (including
termination of the Plan under Section 12, above) shall not affect Options
already granted, and such Options shall remain in full force and effect as if
the Plan had not been amended, suspended or terminated, unless mutually agreed
otherwise between the Optionee and the Administrator, which agreement must be in
writing and signed by the Optionee and the Company.
14. Reservation of Shares.
---------------------
(a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
(b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
15. No Effect on Terms of Employment/Consulting Relationship. The Plan
--------------------------------------------------------
shall not confer upon any Optionee any right with respect to continuation of
employment or consulting relationship with the Company, nor shall it interfere
in any way with his or her right or the Company's right to terminate his or her
employment or consulting relationship at any time, with or without cause.
16. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under Applicable Laws. Any Option exercised
before shareholder approval is obtained shall be
<PAGE>
rescinded if shareholder approval is not obtained within the time prescribed,
and Shares issued on the exercise of any such Option shall not be counted in
determining whether shareholder approval is obtained.
17. Information to Optionees. The Company shall provide to each Optionee,
------------------------
during the period for which such Optionee has one or more Options outstanding,
copies of financial statements at least annually.
<PAGE>
Exhibit 10.3
FORM OF
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement"), dated as of __________, 199_, is
entered into by and between CHEAP TICKETS, INC., a Hawaii corporation (the
"Company"), and ______________ ("Executive"), with reference to the following
facts:
A. Executive is a founder and long-time employee of the Company and
currently serves as the Company's _________________________________________
_______.
B. In order to assure the continued employment of Executive, the Company
and Executive desire to enter into a severance arrangement in the event
Executive's employment with the Company is terminated, subject to the terms and
conditions set forth herein.
IN CONSIDERATION OF the foregoing facts, the parties hereby agree as
follows:
1. Definitions. Capitalized terms not otherwise defined herein shall have
-----------
the respective meanings ascribed to them below:
"Cause" means Executive during the course of employment with the
Company after the date hereof: (a) shall have acted or failed to act in a manner
constituting gross negligence or willful misconduct and shall have failed to
cure such act or omission within thirty (30) days after receiving notice thereof
by the Company, such notice specifying in reasonable detail the nature of the
act or omission in question; or (b) shall have been convicted of a felony crime
or a crime involving moral turpitude, and such conviction shall not be subject
of an appeal.
"Disability" means either (a) a mutually-agreed physician shall have
certified that Executive has a physical or mental disability making it
impossible for Executive to perform Executive's employment obligations on behalf
of the Company or (b) Executive shall have been prevented from properly
performing Executive's employment obligations on behalf of the Company by reason
of any physical or mental incapacity, in either case for a period of more than
ninety (90) consecutive days or one hundred twenty (120) days in the aggregate
in any twelve-month (12-month) period.
"Good Reason" means the occurrence of any of the following events,
provided any such event is not reasonably consented to by Executive: (a) there
shall have been an assignment to Executive of any duties materially inconsistent
with or which constitute a material change in Executive's position, duties,
responsibilities, or status with the Company, or a material change in
Executive's reporting responsibilities, title, or offices, or removal of
Executive from or failure to re-elect Executive to any of such positions, except
in connection with the termination of Executive for Cause or due to death or
Disability; (b) there shall have been a reduction by the Company in Executive's
annual salary then in effect; or (c) the Company shall have acted in any way
that would adversely affect Executive's participation in or materially reduce
Executive's benefit under any benefit plan of the Company in which Executive is
participating or would deprive Executive of any material fringe benefit enjoyed
by Executive, except those changes generally affecting similarly situated senior
executive officers of the Company.
<PAGE>
2. Severance. In the event Executive's employment with the Company is
---------
terminated either by the Company without Cause or by Executive for Good Reason,
the Company shall pay and provide to Executive severance in an amount equal to
the lesser of (a) twice the annual salary and benefits to which Executive
received during the twelve-month (12-month) period preceding the effective date
of such termination and (b) four hundred thousand dollars ($400,000), provided
that such four hundred thousand dollar ($400,000) limitation shall not apply in
the event the Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended. Such severance shall be payable and provided
for the period of twenty-four (24) months from the effective date of any such
termination, the monetary portion of which shall be payable in forty-eight (48)
equal semi-monthly installments. In the event Executive's employment with the
Company is terminated for any other reason, the Company shall not be required to
pay to Executive any severance hereunder.
3. Notices. All notices or other communications required or permitted
-------
hereunder shall be made in writing and shall be deemed to have been duly given
if delivered by hand or facsimile or mailed, postage prepaid, by certified or
registered mail, return receipt requested, and addressed as set forth below:
to the Company at: Cheap Tickets, Inc.
1440 Kapiolani Boulevard, Suite 800
Honolulu, Hawaii 96814
Attn: Chief Executive Officer
Fax: 808-945-7439
or to Executive at: [Name]
[Address]
[Fax No.]
Notice of change of address shall be effective only when done in accordance with
this Section.
4. Entire Agreement. The terms of this Agreement is intended by the
----------------
parties to be the final expression of their agreement with respect to the
employment of Executive by the Company and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement shall constitute the complete and exclusive statement of terms
relating to the subject matter hereof and thereof and that no extrinsic evidence
whatsoever may be introduced in any arbitration, judicial, administrative or
other legal proceeding involving this Agreement.
5. Amendments; Waivers. This Agreement may not be modified, amended, or
-------------------
terminated except by an instrument in writing, signed by Executive and by a duly
authorized representative of the Company other than Executive. By an instrument
in writing similarly executed, either party may waive compliance by the other
party with any provision of this Agreement that such other party was or is
obligated to comply with or perform; provided, however, that such waiver shall
not operate as a waiver of, or estoppel with respect to, any other or subsequent
failure. No failure to exercise and no delay in exercising any right, remedy, or
power hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, or power hereunder preclude any other or
further exercise thereof or the exercise of any other right, remedy, or power
provided herein or by law or in equity.
<PAGE>
6. Severability; Enforcement. If any provision of this Agreement, or the
-------------------------
application thereof to any person, place, or circumstance, shall be held by an
arbitrator or a court of competent jurisdiction to be invalid, unenforceable, or
void, the remainder of this Agreement and such provisions as applied to other
persons, places, and circumstances shall remain in full force and effect.
7. Governing Law; Conciliation and Arbitration.
-------------------------------------------
7.1 Governing Law. The validity, interpretation,
-------------
enforceability, and performance of this Agreement shall be governed by and
construed in accordance with the law of the State of Hawaii, without giving
effect to its conflict of laws rules.
7.2 Arbitration.
-----------
(a) In the event of any dispute, controversy or claim arising out of
or relating in any manner to the employment or termination of Executive, or any
provision of this Agreement, or the interpretation, enforceability, performance,
breach, termination or validity hereof or thereof, including, without
limitation, this Section 7.2 (a "Dispute"), the parties shall attempt, in good
faith, to amicably resolve the Dispute. Either party may give the other party
written notice of any Dispute not resolved in the normal course of business.
(b) Except as specifically stated in Sections 7.2(a), all Disputes
shall be resolved by arbitration. Disputes shall include, but are not limited
to, contract (express or implied) and tort claims of all kinds, as well as all
claims based on any federal, state, or local law, statute, or regulation,
excepting only claims under applicable workers' compensation law and
unemployment insurance claims. By way of example and not in limitation of the
foregoing, Disputes shall include any claims arising under Title VII of the
Civil Rights Act of 1964, the Age Discrimination in Employment Act, the
Americans with Disabilities Act, as well as any claims asserting wrongful
termination, breach of contract, breach of the covenant of good faith and fair
dealing, negligent or intentional infliction of emotional distress, negligent or
intentional misrepresentation, negligent or intentional interference with
contract or prospective economic advantage, defamation, invasion of privacy, and
claims related to disability. Arbitration shall be final and binding upon the
parties and shall be the exclusive remedy for all Disputes. THE PARTIES HEREBY
WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO ANY DISPUTE.
(c) Arbitration of Disputes shall be in accordance with the Employment
Dispute Resolution Rules of the American Arbitration Association ("AAA
Employment Rules"), except as provided otherwise in this Agreement. Arbitration
shall be initiated by providing written notice to the other party with a
statement of the claim(s) asserted, the facts upon which the claim(s) are based,
and the remedy sought. The burden of proof in any arbitration shall be allocated
as provided by applicable law, unless otherwise specified in this Agreement.
Either party may bring an action in court to compel arbitration under this
Agreement and to enforce an arbitration award. Otherwise, neither party shall
initiate or prosecute any lawsuit or administrative action in any way related to
any Dispute. All arbitration hearings under this Agreement shall be conducted in
Honolulu, Hawaii. The Federal Arbitration Act shall govern the interpretation
and enforcement of this Section 7.2.
<PAGE>
(d) All Disputes shall be decided by a single arbitrator. The
arbitrator shall be selected by mutual agreement of the parties within thirty
(30) days of the effective date of the notice initiating the arbitration. If
the parties cannot agree on an arbitrator, then the complaining party shall
notify the AAA and request selection of an arbitrator in accordance with the AAA
Employment Rules. The arbitrator shall have only such authority to award
equitable relief, damages, costs, and fees as a court would have for the
particular claim(s) asserted. The fees and expenses of any arbitration
(including the fees and expenses of the arbitrator, attorneys and expert
witnesses) shall be paid by the losing party, as identified by the arbitrator.
The arbitrator shall have exclusive authority to resolve all Disputes,
including, but not limited to, any claim or allegation that all or any part of
this Agreement is void or unenforceable.
(e) All proceedings and all documents prepared in connection with any
Dispute shall be confidential and, unless otherwise required by law, the subject
matter thereof shall not be disclosed to any person other than the parties to
the proceedings, their counsel, witnesses and experts, the arbitrator, and, if
involved, the court and court staff. All documents filed with the arbitrator or
with a court shall be filed under seal. The parties shall stipulate to all
arbitration and court orders necessary to effectuate fully the provisions of
this subsection concerning confidentiality.
7.3 Counterparts. This Agreement may be signed in multiple
------------
counterparts, each of which shall be deemed an original but all of which
together shall be deemed one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Severance Agreement as
of the date first written above.
CHEAP TICKETS, INC.,
a Hawaii corporation
By
-------------------------
Title
-------------------------
---------------------------------
[NAME OF EXECUTIVE]
<PAGE>
Exhibit 10.4
FORM OF
INDEMNIFICATION AGREEMENT
THIS AGREEMENT by and between Cheap Tickets, Inc., a Delaware corporation
(the "Company"), and ____________________ (the "Indemnitee") is entered into
effective as of January ___, 1999.
WHEREAS, it is essential to the Company to retain and attract as directors
and officers the most capable persons available;
WHEREAS, Indemnitee is a director/officer of the Company;
WHEREAS, the Certificate of Incorporation, as amended, and the Bylaws, as
amended, of the Company require the Company to indemnify and advance expenses
to its directors to the fullest extent permitted by law and authorize the
Company to indemnify and advance expenses to its officers to the fullest extent
permitted by law;
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued service to
the Company in an effective manner and Indemnitee's reliance on the aforesaid
Certificate of Incorporation and Bylaws, and in part to provide Indemnitee with
specific contractual assurance that the protection promised by such Certificate
of Incorporation and Bylaws will be available to Indemnitee (regardless of,
among other things, any amendment to or revocation of such Certificate of
Incorporation and Bylaws or any change in the composition of the Company's Board
of Directors or acquisition transaction relating to the Company), and in order
to induce Indemnitee to continue to provide services to the Company as a
director or officer thereof, the Company wishes to provide in this Agreement for
the indemnification of and the advancing of expenses to Indemnitee to the
fullest extent (whether partial or complete) permitted by law and as set forth
in this Agreement, and, to the extent insurance is maintained, for the continued
coverage of Indemnitee under the Company's directors' and officers' liability
insurance policies.
NOW, THEREFORE, in consideration of the premises and of Indemnitee
continuing to serve the Company directly or, at its request, with another
enterprise, and intending to be legally bound hereby, the parties hereto agree
as follows:
1. Certain Definitions:
(a) Change in Control: shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 20% or more of
the total voting power represented by the Company's then outstanding Voting
Securities, or (ii) during any period of two consecutive
<PAGE>
years, individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation, other than
a merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company (in one transaction or a series of
transactions) of all or substantially all of the Company's assets.
(b) Expense: include attorneys' fees and all other costs, expenses and
obligations paid or incurred in connection with investigating, defending, being
a witness in or participating in (including on appeal), or preparing to defend,
be a witness in or participate in any Proceeding relating to any Indemnifiable
Event.
(c) Indemnifiable Event: any event or occurrence that takes place either
prior to or after the execution of this Agreement, related to the fact that
Indemnitee is or was a director or an officer of the Company, or while a
director or officer is or was serving at the request of the Company as a
director, officer, employee, trustee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise, or
by reason of anything done or not done by Indemnitee in any such capacity.
(d) Potential Change in Control: shall be deemed to have occurred if (i)
the Company enters into an agreement or arrangement, the consummation of which
would result in the occurrence of Change in Control; (ii) any person (including
the Company) publicly announces an intention to take or to consider taking
actions which if consummated would constitute Change in Control; (iii) any
person, other than a trustee or other fiduciary holding securities under an
employee benefit plan of the company acting in such capacity or a corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
who is or becomes the beneficial owner, directly or indirectly, of securities of
the Company representing 10% or more of the combined voting power of the
Company's then outstanding Voting Securities, increases his beneficial ownership
of such securities by 5% or more over the percentage so owned by such person on
the date hereof; or (iv) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
(e) Proceeding: any threatened, pending or completed action, suit or
proceeding, or any inquiry, hearing or investigation, whether conducted by the
Company or any other party, that Indemnitee in good faith believes might lead to
the institution of any such action, suit or proceeding, whether civil, criminal,
administrative, investigative or other.
<PAGE>
(f) Reviewing Party: any appropriate person or body consisting of a member
or members of the Company's Board of Directors or any other person or body
appointed by the Board (including the special, independent counsel referred to
in Section 3) who is not a party to the particular Proceeding with respect to
which Indemnitee is seeking Indemnification.
(g) Voting Securities: any securities of the Company which vote generally
in the election of directors.
2. Agreement to Indemnify. (a) In the event Indemnitee was, is or becomes a
party to or witness or other participant in, or is threatened to be made a party
to or witness or other participant in, a Proceeding by reason of (or arising in
part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee to
the fullest extent permitted by law, as soon as practicable, but in any event no
later than thirty days after written demand is presented to the Company, against
any and all Expenses, judgments, fines, penalties and amounts paid in settlement
(including all interest, assessments and other charges paid or payable in
connection with or in respect of such Expenses, judgments, fines, penalties or
amounts paid in settlement) of such Proceeding and any federal, state, local or
foreign taxes imposed on the Indemnitee as a result of the actual or deemed
receipt of any payments under this Agreement (including the creation of the
Trust). Notwithstanding anything in this Agreement to the contrary and except
as provided in Section 5, prior to a Change in Control Indemnitee shall not be
entitled to indemnification pursuant to this Agreement in connection with any
Proceeding initiated by Indemnitee against the Company or any director or
officer of the Company unless the Company has joined in or consented to the
initiation of such Proceeding. If so requested by Indemnitee, the Company shall
advance (within ten business days of such request) any and all Expenses to
Indemnitee (an "Expense Advance"); provided, however, that such Expenses shall
be advanced only upon delivery to the Company of an undertaking by or on behalf
of the Indemnitee to repay such amount if it is ultimately determined that
Indemnitee is not entitled to be indemnified by the Company.
(b) Notwithstanding the foregoing, (i) the obligations of the Company under
Section 2(a) shall be subject to the condition that the Reviewing Party shall
not have determined (in a written opinion, in any case in which the special,
independent counsel referred to in Section 3 hereof is involved) that Indemnitee
would not be permitted to be so indemnified under applicable law, and (ii) the
obligation of the Company to make an Expense Advance pursuant to Section 2(a)
shall be subject to the condition that, if, when and to the extent that the
Reviewing Party determines that Indemnitee would not be permitted to be so
indemnified under applicable law, the Company shall be entitled to be reimbursed
by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts
theretofore paid; provided, however, that if Indemnitee has commenced legal
proceedings in a court of competent jurisdiction to secure a determination that
Indemnitee should be indemnified under applicable law, any determination made by
the Reviewing Party that Indemnitee would not be permitted to be indemnified
under applicable law shall not be binding and Indemnittee shall not be required
to reimburse the Company for any Expense Advance until a final judicial
determination is made with respect thereto (as to which all rights of appeal
therefrom have been exhausted or lapsed). Indemnitee's obligation to reimburse
the Company for Expense Advances shall be unsecured and no interest shall be
charged thereon.
<PAGE>
If there has not been a Change in Control, the Reviewing Party shall be selected
by the Board of Directors, and if there has been such a Change in Control (other
than a Change in Control which has been approved by a majority of the Company's
Board of Directors who were directors immediately prior to such Change in
Control), the Reviewing Party shall be the special, independent counsel referred
to in Section 3 hereof. If there has been no determination by the Reviewing
Party or if the Reviewing Party determines that Indemnitee substantively would
not be permitted to be indemnified in whole or in part under applicable law,
Indemnitee shall have the right to commence litigation in any court in the
States of California or Delaware having subject matter jurisdiction thereof and
in which venue is proper seeking an initial determination by the court or
challenging any such determination by the Reviewing Party or any aspect thereof,
and the Company hereby consents to service of process and to appear in any such
proceeding. Any determination by the Reviewing Party otherwise shall be
conclusive and binding on the Company and Indemnitee. Expenses shall be
advanced, however, only upon delivery to the Company of an undertaking by or on
behalf of the Indemnitee to repay such amount if it is ultimately determined
that Indemnitee is not entitled to be indemnified by the Company.
3. Change in Control. The Company agrees that if there is a Change in Control
of the Company (other than a Change in Control which has been approved by a
majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control), then with respect to all matters thereafter
arising concerning the rights of Indemnitee to indemnity payments and Expense
Advances under this Agreement or any other agreement or under applicable law or
the Company's Certificate of Incorporation or Bylaws now or hereafter in effect
relating to indemnification for Indemnifiable Events, the Company shall seek
legal advice only from special, independent counsel selected by Indemnitee and
approved by the Company (which approval shall not be unreasonably withheld), and
who has not otherwise performed services for the Company or the Indemnitee
(other than in connection with such matters) within the last five years. Such
independent counsel shall not include any person who, under the applicable
standards of professional conduct then prevailing, would have a conflict of
interest in representing either the Company or Indemnitee in an action to
determine Indemnitee's rights under this Agreement. Such counsel, among other
things, shall render its written opinion to the Company and Indemnitee as to
whether and to what extent the Indemnitee would be permitted to be indemnified
under applicable law. The Company agrees to pay the reasonable fees of the
special, independent counsel referred to above and to indemnify fully such
counsel against any and all expenses (including attorneys' fees), claims,
liabilities and damages arising out of or relating to this Agreement or the
engagement of special, independent counsel pursuant hereto.
4. Establishment of Trust. In the event of a Potential Change in Control, the
Company shall, upon written request by Indemnitee, create a Trust for the
benefit of the Indemnitee and from time to time upon written request of
Indemnitee shall fund such Trust in an amount sufficient to satisfy any and all
Expenses reasonably anticipated at the time of each such request to be incurred
in connection with investigating, preparing for and defending any Proceeding
relating to an indemnifiable event and any and all judgments, fines, penalties
and settlement amounts of any and all Proceedings relating to an Indemnifiable
Event from time to time actually paid or claimed, reasonably anticipated or
proposed to be paid. The amount or amounts to be deposited in the Trust
pursuant to the foregoing funding obligation shall be determined by the
<PAGE>
Reviewing Party, in any case in which this special, independent counsel referred
to above is involved. The terms of the Trust shall provide that upon a Change
in Control (i) the Trust shall not be revoked or the principal thereof invaded,
without the written consent of the Indemnitee, (ii) the Trustee shall advance,
within ten business days of a request by the Indemnitee, any and all Expenses to
the Indemnitee (and the Indemnitee hereby agrees to reimburse the Trust under
the circumstances under which the Indemnitee would be required to reimburse the
Company under Section 2(b) of this agreement), (iii) the Trust shall continue to
be funded by the Company in accordance with the funding obligation set forth
above, (iv) the Trustee shall promptly pay to the Indemnitee all amounts for
which the Indemnitee shall be entitled to indemnification pursuant to this
Agreement or otherwise, and (v) all unexpended funds in such Trust shall revert
to the Company upon a final determination by the Reviewing Party or a court of
competent jurisdiction, as the case may be, that the Indemnitee has been fully
indemnified under the terms of this Agreement. The Trustee shall be chosen by
the Indemnitee. Nothing in this Section 4 shall relieve the Company of any of
its obligations under this Agreement. All income earned on the assets held in
the Trust shall be reported as income by the Company for federal, state, local
and foreign tax purposes.
5. Indemnification for Expenses Incurred In Enforcing this Agreement. The
Company shall indemnify Indemnitee against any and all-expenses (including
attorneys' fees), and, if requested by Indemnitee, shall (within ten business
days of such request) advance such expenses to Indemnitee, which are incurred by
Indemnitee in connection with any claim asserted against or action brought by
Indemnitee for (i) indemnification or advance payment of Expenses by the Company
under this Agreement or any other agreement or under applicable law or the
Company's Certificate of Incorporation or Bylaws now or hereafter in effect
relating to indemnification for Indemnifiable Events and/or (ii) recovery under
any directors' and officers' liability insurance policies maintained by the
Company, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, advance expense payment or insurance recovery,
as the case may be.
6. Partial Indemnity. If Indemnitee is entitled under any provision of this
Agreement to indemnification by the Company for some or a portion of the
Expenses, judgments, fines, penalties and amounts paid in settlement of a
Proceeding but not, however, for all of the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled. Moreover, notwithstanding any other provision of this
Agreement to the extent that Indemnitee has been successful on the merits or
otherwise in defense of any or all Proceedings relating in whole or in part to
an Indemnifiable Event or in defense of any issue or matter therein, including
dismissal without prejudice, Indemnitee shall be indemnified against all
Expenses incurred in connection therewith.
7. Defense to Indemnification, Burden of Proof and Presumptions. It shall be a
defense to any action brought by the Indemnitee against the Company to enforce
this Agreement (other than an action brought to enforce a claim for expenses
incurred in defending a Proceeding in advance of its final disposition where the
required undertaking has been tendered to the Company) that the Indemnitee has
not met the standards of conduct that make it permissible under the Delaware
General Corporation Law for the Company to indemnify the Indemnitee for the
amount claimed.
<PAGE>
In connection with any determination by the Reviewing Party or otherwise as to
whether the Indemnitee is entitled to be indemnified hereunder, the burden of
proving such a defense shall be on the Company. Neither the failure of the
Company (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action by the Indemnitee that indemnification of the claimant is proper under
the circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual determination
by the Company (including its Board of Directors, independent legal counsel, or
its stockholders) that the Indemnitee had not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
Indemnitee has not met the applicable standard of conduct. For purposes of this
Agreement, the termination of any claim, action, suit or proceeding, by
judgment, order, settlement (whether with or without court approval) or
conviction, or upon a plea of nolo contendere, or its equivalent, shall not
create a presumption that Indemnitee did not meet any particular standard of
conduct or have any particular belief or that a court has determined that
indemnification is not permitted by applicable law.
8. Non-exclusivity. The rights of the Indemnitee hereunder shall be in
addition to any other rights Indemnitee may have under the Company's Certificate
of Incorporation or Bylaws or the Delaware General Corporation Law or otherwise.
To the extent that a change in the Delaware General Corporation Law (whether by
statute or judicial decision) permits greater indemnification by agreement than
would be afforded currently under the Company's Certificate of Incorporation and
Bylaws and this Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change.
9. Liability Insurance. To the extent the Company maintains an insurance
policy or policies providing directors' and officers' liability insurance,
Indemnitee shall be covered by such policy or policies, in accordance with its
or their terms, to the maximum extent of the coverage available for any Company
director or officer.
10. Period of Limitations. No legal action shall be brought and no cause of
action shall be asserted by or on behalf of the Company or any affiliate of the
Company against Indemnitee, Indemnitee's spouse, heirs, executors or personal or
legal representatives after the expiration of two years from the date of accrual
of such cause of action, or such longer period as may be required by state law
under the circumstances, and any claim or cause of action of the Company or its
affiliate shall be extinguished and deemed released unless asserted by the
timely filing of a legal action within such period; provided, however, that if
any shorter period of limitations is otherwise applicable to any such cause of
action, such shorter period shall govern.
11. Amendment of this Agreement. No supplement modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
<PAGE>
12. Subrogation. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
13. No Duplication of Payment. The Company shall not be liable under this
Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Bylaw or otherwise) of the amounts otherwise
indemnifiable hereunder.
14. Settlement of Claims. The Company shall not be liable to indemnify
Indemnitee under this Agreement for any amounts paid in settlement of any action
or claim effected without the Company's written consent. The Company shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Indemnitee without Indemnitee's written consent. Neither the
Company nor the Indemnitee will unreasonably withhold their consent to any
proposed settlement. The Company shall not be liable to indemnify the
Indemnitee under this Agreement with regard to any judicial award if the Company
was not given a reasonable and timely opportunity, at its expense, to
participate in the defense of such action.
15. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Company, spouses, heirs, and personal and legal
representatives. The Company shall require and cause any successor (whether
direct or indirect by purchase, merger, consolidation or otherwise) to all,
substantially all, or a substantial part, of the business and/or assets of the
Company, by written agreement in form and substance satisfactory to the
Indemnitee, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession had taken place. This Agreement shall continue in effect
regardless of whether Indemnitee continues to serve as a director or officer of
the Company or of any other enterprise at the Company's request.
16. Severability. The provisions of this Agreement shall be severable in the
event that any of the provisions hereof (including any provision within a single
section, paragraph or sentence) is held by a court of competent jurisdiction to
be invalid, void or otherwise unenforceable, and the remaining provisions shall
remain enforceable to the fullest extent permitted by law. Furthermore, to the
fullest extent possible, the provisions of this agreement (including, without
limitation, each portion of this Agreement containing any provision held to be
invalid, void or otherwise unenforceable, that is not itself invalid, void or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
17. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such State without giving effect to the
principles of conflicts of laws.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the _____ day of January, 1999.
COMPANY:
By: ___________________________________________
Name:__________________________________________
Title:_________________________________________
INDEMNITEE:
_______________________________________________
[NAME OF INDEMNITEE]
<PAGE>
Exhibit 10.5
THE COMMERCE TOWER
OFFICE LEASE
by and between
TOSEI SHOJI CO., LTD.,
a Japan corporation
and
CHEAP TICKETS, INC.,
a Hawaii corporation
<PAGE>
THE COMMERCE TOWER
OFFICE LEASE
THIS LEASE made this 2nd day of July, 1995, by and between TOSEI SHOJI
CO., LTD., a Japan corporation, whose principal place of business and post
office address in the State of Hawaii is at 1440 Kapiolani Boulevard, Suite
1000, Honolulu, Hawaii 96814 (the "Landlord"), and CHEAP TICKETS, INC., a Hawaii
corporation, whose principal place of business and post office address is at
_____________________________________________________________________________
______________________________________(the "Tenant");
W I T N E S S E T H:
- - - - - - - - - -
That Landlord, in consideration of the rent herein reserved and of the
covenants herein contained and on the part of Tenant to be observed and
performed and upon and subject to the terms and conditions hereinafter set
forth, does hereby lease unto Tenant, and Tenant does hereby lease from
Landlord, that certain office space (the "Premises") located in the building
known as The Commerce Tower (the "Building") located at 1440 Kapiolani
Boulevard, Honolulu, Hawaii. The Building shall include such other structures
as may now exist on the land on which the Building is located and the common
areas, improvements and facilities thereon or which may in the future be
constructed thereon (the "Property").
I. Specific Conditions of the Lease.
--------------------------------
The following subparagraphs constitute all of the specific conditions
of this Lease as referred to elsewhere in this Lease:
(A) Suite No. 800, consisting of approximately ten thousand one
hundred fifty-eight (10,158) rentable square feet of floor area
on the eighth floor as indicated on the floor plan attached
hereto as Exhibit "A" and made a part hereof for all purposes.
(B) (1) Tenant's Pro Rata Share of Operating Expenses (hereinafter
defined), subject to modification as provided in paragraph 9
of Section III of this Lease: Eight and two thousand three
hundred eighty-two ten thousandths percent (8.2382%).
(2) Tenant's Proportionate Share of Common Office Expenses
(hereinafter defined) of the Building, subject to
modification as provided in paragraph 9 of Section III of
this Lease: Eight and nine thousand nine hundred seventy-
three ten-thousandths percent (8.9973%).
(C) The term of this Lease shall be five (5) years and three (3)
months (the "Term"), commencing on the date on which Tenant's
improvements are completed (the "Commencement Date"), and ending
on midnight of the last day of the sixty-third (63rd) month (the
"Termination Date") following such Commencement Date, unless
sooner terminated as herein provided.
<PAGE>
(D) Monthly Base Rent shall be as shown below:
Period Monthly Base Rent
------ -----------------
(1) For the period commencing $9,751.68
on the Commencement Date
and ending on Termination Date.
Paragraphs (D)(2) through (D)(5) of Section I of this Lease, and all
references in this Lease to said paragraphs, are hereby deleted.
Landlord and Tenant agree that the Monthly Base Rent for the Premises
is conclusively established in the amounts set forth above,
irrespective of the actual number of square feet of floor area of the
Premises.
(E) (1) Tenant's share of initial estimated monthly Operating
Expenses as provided in paragraph 9 of Section III of this
Lease: $6,224.04.
(2) Tenant's share of initial estimated Common Office Expenses
as provided in paragraph 9 of Section III of this Lease:
$2,668.49.
(F) Amount of Security Deposit: $19,421.11
(G) Uses to be made of Premises: Travel related and general
administrative office.
(H) Tenant's address for notice if other than the Premises:
________________________________________________________________
(I) Number of parking stalls for automobiles to be rented to Tenant:
Three (3) reserved and seventeen (17) unreserved stalls for a
total of twenty (20) parking stalls at prevailing rates.
Two (2) of the three (3) reserved parking stalls shall be free
for the original term of this Lease.
Landlord shall make additional parking stalls available for
rental by Tenant at the Landlord's prevailing rates if additional
parking stalls are required by Tenant.
(J) Additional Terms and Conditions: Notwithstanding the provisions
set forth elsewhere in this Lease, Landlord and Tenant agree as
follows:
(1) Landlord's Improvements. Landlord, at Landlord's expense
shall provide building standard "turn-key" improvements
according to Exhibit "A".
In addition, Landlord shall provide:
(a) Basic quality millwork in the workroom, lunchroom and
computer room;
(b) Raised flooring in the supervisor's office;
<PAGE>
(c) Wood flooring in the reception area and two executive
offices;
(d) Three (3)-ton auxiliary air conditioning unit in the
computer room; and
(e) Four (4) additional VAV boxes for better air
conditioning capacity.
The final construction costs shall be approved by Landlord.
(2) Option to Renew. Tenant shall have and is hereby given the
option to extend the term of this Lease for an additional
five (5) year period upon all the same terms and conditions
as herein contained by serving notice thereof upon Landlord
at least six (6) months before the expiration of the
original Term. Upon the service of said notice, this Lease
shall be extended upon all its terms and conditions for such
additional five (5) year period without the necessity of the
execution of any further instrument or documents; provided,
however, that if at either the date of expiration of the
original Term of this Lease or the date upon which Tenant
exercises such option, Tenant is in default beyond any grace
period herein provided in the performance of any of the
terms or provisions of this Lease, any such exercise of
Tenant's option to so extend the term of this Lease shall be
and become null and void.
If Tenant exercises the option to extend the term of this
Lease as hereinabove provided, the Monthly Base Rent for the
five (5) year extension period shall be ninety-five (95%)
percent of the fair market rental charged for premises
similar to the Premises in the Kapiolani Business District;
provided, however, that the Monthly Base Rent shall in no
event be lower than the Monthly Base Rent established for
the last month of the period immediately preceding the
extended term.
(3) First Opportunity to Lease. If at any time during the term
of this Lease, any of the remaining spaces on the eighth
floor of the Building become available for lease, Landlord
shall notify Tenant of the availability of such space for
lease and the terms and conditions upon which Landlord
wishes to lease such space; provided, however, that the
expiration of the term for the demise of such space shall be
concurrent with the then remaining term of this Lease, the
monthly base rent per square foot for such space shall be
the same as the Monthly Base Rent then being charged under
this Lease, and Landlord shall provide building standard
"turn-key" improvements for such space equivalent to
Landlord's Improvements under this Lease; provided, further,
that notwithstanding anything contained herein to the
contrary, such space shall be occupied and used only by
Tenant, and Tenant shall not, for a period of six (6) months
from the commencement of the term of this Lease for such
additional space, sublease, assign or allow any other person
to occupy or use such space, or any portion thereof. Tenant
shall have the right within thirty (30) days after receipt
of Landlord's written notification to lease such space on
the
<PAGE>
terms and conditions set forth in Landlord's written
notification. If Tenant shall not so elect within said
thirty (30) day period, Landlord may then lease the premises
to any other person, on terms and conditions established by
Landlord in its sole discretion. Said terms and conditions
shall not necessarily be limited to the terms and conditions
set forth in Landlord's written notification.
(4) Tenant Moving Allowance. Landlord shall, on execution of
this Lease by Landlord and Tenant, provide Tenant with a
Tenant Moving Allowance of TWENTY-EIGHT THOUSAND AND NO/100
DOLLARS ($28,000.00) for moving to and establishing Tenant's
operations in the Premises and such Tenant Moving Allowance
shall be credited to Tenant's Monthly Base Rent due and
payable on the seventh (7th) consecutive month following the
Commencement Date and thereafter.
(5) Rent Abatement. Notwithstanding anything herein to the
contrary Landlord specifically agrees as follows:
(A) For the period commencing on the Commencement Date and
ending at midnight of the third (3rd) consecutive month
thereafter, the payment of Monthly Base Rent, Common Office
Expenses and Operating Expenses shall be abated.
(B) For the period commencing on the fourth (4th)
consecutive month following the Commencement Date and ending
on the sixth (6th) consecutive month thereafter, Monthly
Base Rent shall be abated; Tenant shall, however, be
required to pay Tenant's Proportionate Share of Common
Office Expenses and Tenant's Pro Rata Share of Common
Operating Expenses.
(6) Confidentiality. Tenant acknowledges that the economic
terms of this Lease, which include, but are not limited to
rent, tenant improvement allowances, Tenant's moving
allowance and improvements provided by the Landlord,
constitute information (collectively, the "Information")
which is either non-public, confidential or proprietary, or
a combination thereof. Tenant agrees that the Information
will be kept confidential and will not, without Landlord's
prior written consent, be disclosed by Tenant, in any manner
whatsoever, in whole or in part. Tenant agrees to transmit
the Information only to its insurance agents, attorneys,
employees and lenders who need to know the Information for
the purpose of evaluating this Lease and who are informed by
Tenant of the confidential nature of the Information.
Tenant will be responsible for any breach of this
confidentiality provision by its insurance agents,
attorneys, employees or lenders and will save, indemnify,
defend and hold Landlord harmless from and against any loss
or liability suffered by Landlord by reason of Tenant's
breach of this confidentiality provision.
(7) Paragraph 31 of Section III. of the Lease is hereby amended
to read as follows:
<PAGE>
31. Nonliability of Landlord. Landlord shall not be liable
------------------------
for any damage either to person or property sustained
by Tenant or by other persons due to the Building, or any
part thereof, or any appurtenances thereof, becoming out of
repair, or due to any act or neglect of any tenant or
occupant of said Building, or of any other person, except
where such damage is caused by the grossly negligent or
willful actions of Landlord. This provision shall apply
especially (but not exclusively) to damage caused by water,
steam, sewage, illuminating gas, sewer gas, utilities
shortages or stoppages, odors or termites or the negligent
accumulation of combustible materials, accessories and
supplies, and shall apply equally whether such damage is
caused by the act or neglect of other tenants, occupants or
janitors of said Building, or of any other persons, and
whether such damage is caused or occasioned by anything or
circumstances above-mentioned or referred to, or by any
other thing or circumstance, whether of a like or of a
wholly different nature; provided, however, that this
provision shall not apply to any damage caused by the
grossly negligent or willful actions of Landlord. If any
such damage shall be caused by any act or neglect of Tenant,
Landlord may, at its option, repair such damage, whether
caused to the Building, or to tenants thereof, and Tenant
shall thereupon reimburse Landlord for the total cost of
such damage both to the Building and/or to the tenants
thereof. Tenant further agrees that all personal property
upon the Premises shall be at the sole risk of Tenant and
that Landlord shall not be liable for any loss, injury or
damage thereto or theft thereof.
(8) Paragraphs 58 and 60 of Section III. of the Lease are hereby
deleted in their entirety.
(9) Notwithstanding the provisions of Exhibit "C" of the Lease,
Tenant shall have access to the Premises on a twenty-four
hour per day, seven-day per week basis.
In the event of any conflict between the provisions of this paragraph
(J) and any other provisions in Section I. (Specific Conditions), Section II.
(Exhibits) or Section III. (General Conditions), the provisions of this
paragraph (J) shall prevail.
II. Exhibits.
--------
The following exhibits, which are attached hereto, are hereby made a
part of this Lease:
(A) Exhibit "A": Floor Plan.
(B) Exhibit "B": Tenant's Construction Obligations.
(C) Exhibit "C": Rules and Regulations.
(D) Exhibit "D": Intentionally Omitted.
The General Conditions of Lease attached hereto as Section III of this
Lease, together with all exhibits, are made a part hereof for all purposes.
<PAGE>
As provided in paragraph 53 of Section III of this Lease, this Lease
constitutes the entire agreement between Landlord and Tenant and, without
limiting the generality of the foregoing, specifically supersedes any prior
Offer to Lease between Landlord and Tenant.
(J) (10) In the event Tenant notifies Landlord that Tenant needs the
remaining space or spaces on the eighth floor for purposes of expansion,
Landlord shall relocate the remaining tenant or tenants on the eighth floor at
the Landlord's expense within six months of said notification. Provided,
Landlord shall relocate the remaining tenants on the eighth floor only if
Landlord is able to relocate the remaining tenants to suitable office space in
the Premises.
(J) (11) In the event Tenant exercises its right to take the remaining
space or spaces on the eighth floor for purposes of expansion during the first
thirty (30) months of the Lease, Landlord shall provide building standard turn-
key improvements, monthly base rent shall be as specified in 1(D) (1) in the
Lease and the lease for the expansion space shall be co-terminus with the Lease.
In the event Tenant exercises its right to take the remaining
space or spaces on the eighth floor for purposes of expansion during
the last thirty-three (33) months of the Lease, Landlord shall provide
building standard turn-key improvements, monthly base rent shall be at
fair market value and the lease for the expansion space shall be co-
terminus with the Lease.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the date first above written.
TOSEI SHOJI CO., LTD.,
a Japan corporation
By /s/ Shigeo Hone
--------------------------------------
Shigeo Hone
Its Attorney-In-Fact
Landlord
CHEAP TICKETS, INC.,
a Hawaii corporation
By /s/ Michael J. Hartley
--------------------------------------
Its
Tenant
<PAGE>
III. GENERAL CONDITIONS OF OFFICE LEASE
1. Standard Services. Landlord shall furnish Tenant with electric
-----------------
current for lighting and normal use during normal business hours, common
restroom facilities and supplies, air conditioning during normal business hours,
janitorial service and refuse collection for Tenant's Premises five (5) days per
week, insurance for common areas, elevator service, reasonable window washing
for the exterior of the Building and lighting equipment replacement, guard
service for the Building, and common area maintenance. If any extraordinary or
additional property or services other than those required to be provided by
Landlord to Tenant under this Lease shall be provided by Landlord to Tenant at
the request of Tenant or for the benefit of Tenant, Tenant shall pay Landlord
for such extraordinary or additional property or services. Without limiting the
generality of the foregoing, if Tenant wishes to install nonstandard fixtures,
Tenant is responsible for providing replacement lamps.
2. Common Area Maintenance. Landlord will use reasonable efforts to
-----------------------
maintain the public and common areas of the Building, such as stairs, lobbies,
corridors and restrooms, in good order and condition except for any damage
occasioned by the act or omission of Tenant or Tenant's employees or agents and
except as is otherwise provided herein.
3. Monthly Base Rent. For the period commencing on the Commencement
-----------------
Date to and including the Termination Date provided for in paragraph (C) of
Section I of this Lease, Tenant shall pay to Landlord, in lawful United States
currency, the Monthly Base Rent in the amounts set forth in paragraph (D) of
Section I of this Lease. Monthly Base Rent for the period, if applicable, set
forth in paragraphs (D)(4) and (5) of Section I of this Lease, shall be subject
to adjustment as provided in paragraph 4 of this Section III. Should the Term
commence or terminate on a day other than the first (1st) day of a calendar
month, then the Monthly Base Rent for that fractional month shall be calculated
by dividing the Monthly Base Rent by thirty (30) and multiplying that result by
the number of days remaining in said fractional month or multiplying that result
by the number of days from the beginning of the month up to and including the
date of termination, whichever the case may be. All payments of rent after the
first payment shall be paid at the office of Landlord, or such other place as
shall be designated in writing by Landlord, without notice on or before the
first (1st) day of each and every month during the Term or any extension
thereof.
4. Adjustment of Monthly Base Rent. The Monthly Base Rent for each
-------------------------------
of the periods, if any, indicated in paragraphs (D)(4) and (5) of Section I of
this Lease, shall be negotiated and determined by written agreement of Landlord
and Tenant; provided, however, that in the event that Landlord and Tenant shall
be unable to agree on such Monthly Base Rent for any such period at least three
(3) months prior to the date of commencement of such period, such Monthly Base
Rent shall be determined by a single appraiser in the event that the parties
agree upon the appointment of such an appraiser, otherwise by three (3)
impartial appraisers selected as follows: Landlord and Tenant shall each select
an appraiser and give written notice promptly thereof to the other party, and if
either party shall fail to do so within twenty (20) days after written notice
has been given to such party by the other of such selection, the party who has
named an appraiser shall have the right to apply to any judge of the Circuit
Court of the First Judicial Circuit of the State of Hawaii for the selection and
appointment of an appraiser for the party so failing to appoint an appraiser.
The two (2) appraisers thus appointed (in either manner) shall select and
appoint a third appraiser within fifteen (15) days after the second appraiser
shall have been appointed. In the event that said two (2) appraisers fail or
neglect to appoint the third of them, either party may, upon the expiration of
ten (10) days after the mailing of written notice to the other party, have the
third appraiser appointed by any judge of said court. All of said appraisers
shall be neutral and recognized real estate appraisers and shall also be members
of the American Institute of Real Estate Appraisers (MAI) or the American
Society of Appraisers
<PAGE>
(SRPA or SREA) or any successor organization. The single appraiser or three (3)
appraisers so appointed shall thereupon proceed to determine said rental, based
on the then fair monthly rental value for the Premises, exclusive of any
fixtures, alterations, additions or improvements installed or made by Tenant.
The decision of said single appraiser or, if there shall be three (3) appraisers
the decision of the majority of them, shall be final, conclusive and binding
upon the parties. In the event the appraiser or appraisers shall render their
decision after the commencement of the year for which rent is being determined,
rent shall be payable at the rate in effect for the previous year until their
decision is rendered, but the new rent established by such appraisal shall
become effective retroactively to the commencement of said year for which rent
is being determined and shall be payable immediately on the determination of
such rent, together with interest thereon at the rate of twelve percent (12%)
per annum from the date such payments would have been due until actually paid in
full. Notwithstanding anything to the contrary herein, the negotiated or
arbitrated rentals for any such period shall in no event be less than the rent
for the period immediately preceding. If Landlord and Tenant are unable to agree
on rent and if such rent shall be fixed by appraisal, Tenant shall pay all costs
of such appraisal, including, without limitation, the appraisers' fees and the
reasonable attorneys' fees of Landlord.
5. Quiet Enjoyment. Landlord agrees that upon payment of the rent
---------------
herein provided for, and upon the observance and performance by Tenant of the
covenants hereinafter contained and on the part of Tenant to be observed and
performed, subject to the provisions of this Lease, and any underlying mortgage
on Landlord's estate, Tenant shall peaceably hold and enjoy the Premises for the
Term.
6. Conveyance Tax; General Excise Tax. Tenant shall pay any
----------------------------------
conveyance tax imposed by the State of Hawaii and execute, at Landlord's
request, such affidavits and other documentation as may be necessary or proper
in connection therewith. Tenant shall also pay to Landlord as additional rent,
together with each payment of rental, real property taxes and other charges
payable by Tenant hereunder, which are subject to the State of Hawaii general
excise tax on gross income, as the same may be amended, and all other similar
taxes imposed upon Landlord with respect to rental or other payments in the
nature of a gross receipts tax, sales tax, privilege tax or the like, excluding
federal or state net income taxes, whether imposed by the United States, State
of Hawaii or City and County of Honolulu, an amount (presently 4.167% of each
such payment) which when added to such rental or other payment shall yield to
Landlord after deduction of all such tax payable by Landlord with respect to all
such payments a net amount which Landlord would have realized from such payment
had no such tax been imposed.
7. Tenant's Pro Rata and Proportionate Shares.
------------------------------------------
(a) As used in this Lease, Tenant's "Pro Rata Share" of Operating
Expenses shall mean the percentage set forth in paragraph (B)(1) of Section I of
this Lease. Tenant's initial Pro Rata Share has been computed by Landlord based
on Landlord's estimate of the ratio, which the Rentable Area of Tenant's
Premises bears to the total Rentable Area of the Building. Tenant hereby agrees
to be bound by such computation notwithstanding errors in measurement (provided
that such errors shall not cause Tenant's Pro Rata Share to be five percent (5%)
more or less than Tenant's Pro Rata Share after taking such errors into
account). "Rentable Area" of a floor shall be computed by measuring to the
inside finished surface of the dominant portion of the permanent outer Building
walls where it intersects the finished floor, excluding any major vertical
penetrations of the floor. No deductions shall be made for columns and
projections necessary to the Building. The Rentable Area of the Premises shall
be computed by multiplying the Usable Area of the Premises by the quotient of
the division of the Rentable Area of the floor by the Usable Area of the floor.
"Usable Area" of a premises shall mean that area of the premises computed by
measuring to the finished surface of the office side of corridor and other
permanent walls of the premises, to the center of partitions that separate the
premises from adjoining Usable Areas not leased by Tenant, and to the inside
finished surface of the
<PAGE>
dominant portion of the permanent outer Building walls. No deductions shall be
made for columns and projections necessary to the Building. Parking areas shall
be excluded. For purposes of this Lease, the Rentable Area and Usable Area shall
be computed in accordance with the American National Standard Method for
Measuring Floor Area in Office Buildings, ANSI Z65.1-1980. The Rentable Area and
Usable Area are subject to adjustment from time to time to correct errors in
measurement (which errors result in Tenant's Pro Rata Share being more than five
percent (5%) more or less than Tenant's Pro Rata Share after taking such errors
into account) or if changes are made to the Building, and Tenant's Pro Rata
Share shall be adjusted accordingly.
(b) As used in this Lease, Tenant's "Proportionate Share" of
janitorial services, refuse collection and electricity furnished to the Office
Areas of the Building (collectively, the "Common Office Expenses") shall mean
the percentage set forth in paragraph (B)(2) of Section I of this Lease.
Tenant's Proportionate Share has been computed by Landlord based on the ratio
which the Rentable Area of Tenant's Premises bears to the total Rentable Area of
all premises other than those being leased to tenants on the ground floor of the
Building. Tenant agrees to be bound by Landlord's computations of Tenant's
Proportionate Share notwithstanding errors in measurement (provided that such
errors shall not cause Tenant's Proportionate Share to be five percent (5%) more
or less than Tenant's Proportionate Share after taking such errors into
account). For purposes of this Lease, the "Office Areas" of the Building shall
mean and include all areas of the Building other than the premises being leased
to tenants on the ground floor of the Building and other than the ground floor
lobby area and ground floor restrooms.
8. Parking; Utilities. Landlord shall make available to Tenant for
------------------
rental in the Building's parking facility the number of unreserved parking
stalls set forth in paragraph (I) of Section I of this Lease. Tenant shall rent
such stalls pursuant to the terms and conditions of a separate parking agreement
to be entered into by Tenant and Landlord or by such parking lot operator as
Landlord may designate in Landlord's sole discretion, and the fee charged for
Tenant's use of such parking stalls shall be established by Landlord or the
parking lot operator from time to time in accordance with the prevailing market
rate. Tenant agrees to comply with such rules and regulations as shall be
adopted by Landlord or the parking lot operator from time to time. Tenant shall
have the right to rent a lesser number of parking stalls than the number set
forth in paragraph (I) of Section I by notifying Landlord or the parking lot
operator in writing; however, if Tenant rents such lesser number and
subsequently requires the stalls previously relinquished, Tenant agrees that
Tenant's right to rent the relinquished stalls shall be subject to availability.
Tenant will make all arrangements for and pay for all telephone
service and other utilities and services used by Tenant on or with respect to
the Premises which are not provided under Landlord's standard services and
Tenant shall pay for such charges prior to such charges becoming delinquent.
9. Operating Expenses and Common Office Expenses. Tenant will pay to
---------------------------------------------
Landlord in advance on the first (1st) day of each month throughout the Term, in
accordance with monthly billings rendered to Tenant by Landlord, but subject to
annual adjustment as hereinafter set forth, Tenant's Pro Rata Share of the
Operating Expenses and Tenant's Proportionate Share of Common Office Expenses
for the Building and real property of which the Premises are a part.
It is understood and agreed that the monthly billings referred to in
this Lease shall be on an estimated basis. If the aggregate payments made by
Tenant for Operating Expenses and Common Office Expenses for any Lease Year
(hereinafter defined) exceed Tenant's Pro Rata Share of Operating Expenses and
Tenant's Proportionate Share of Common Office Expenses for
<PAGE>
such Lease Year, such excess shall, at Landlord's option, be applied as a credit
against future payments to be made by Tenant for Operating Expenses and Common
Office Expenses. Landlord shall notify Tenant in writing as soon as practicable
after the end of such Lease Year of such credit and the amount so credited or
refund such amount to Tenant. If the aggregate payments made by Tenant for the
Operating Expenses and Common Office Expenses with respect to any such Lease
Year are less than the sum of Tenant's Pro Rata Share of Operating Expenses and
Tenant's Proportionate Share of Common Office Expenses Tenant shall pay the
amount of such deficiency to Landlord within ten (10) days after written demand
by Landlord. In the event that this Lease is terminated prior to the end of a
Lease Year, the adjustment above will be made to apply as of the date of
termination of this Lease and any excess paid by Tenant shall be refunded by
Landlord to Tenant within thirty (30) days after the determination thereof at
the end of the Lease Year. Any deficiency owed by Tenant shall be paid as set
forth in this Lease. For the purpose of determining increases in Operating
Expenses and in Common Office Expenses payable by Tenant, the calculation shall
be based on a full Lease Year and Tenant's Pro Rata Share of Operating Expenses
or Proportionate Share of Common Office Expenses, as the case might be, computed
as herein set forth shall be deemed to have accrued uniformly during such Lease
Year; provided, that Landlord shall have the right to allocate between or among
as many Lease Years as it determines to be reasonable, in its sole judgment, the
costs incurred in making extraordinary repairs. If any part of the Building is
not fully occupied and used during any Lease Year, then for the purpose of the
calculations to be made under this paragraph 9, the Operating Expenses and
Common Office Expenses, both estimated and actual for such Lease Year, as the
case might be, shall be adjusted by adding amounts and items of Operating
Expenses and Common Office Expenses which would normally have been incurred if
the Building had been fully occupied and used during such Lease Year, as the
case might be, as estimated by Landlord. Tenant's Pro Rata Share of the
Operating Expenses and Tenant's Proportionate Share of Common Office Expenses
shall be based on an assumed full occupancy.
For purposes of this paragraph 9, the term "Operating Expenses" means
any and all expenses which shall be incurred or paid on account of the
operation, cleaning, maintenance, repair, safety, management and security of the
Building or the Property. Operating Expenses shall also include, without
limiting the generality of the foregoing, real property taxes and any
assessments or charges made under any betterment or improvement law or otherwise
attributable to the Building, the costs of utilities, automated control systems,
heating, elevators, air conditioning, trash disposal, repair and maintenance,
replacement, landscaping, janitorial services for the ground floor lobby area,
line painting, fees for permits and licenses, maintenance and repair of lighting
fixtures and equipment (including the replacement of bulbs and tubes), guard
service, the cost of management contracts or the cost of equivalent management
services, supplies, wages and salaries of employees used in maintenance and
general operations (as distinguished from the cost of management contracts or
equivalent management services aforesaid), and payroll taxes (and similar
governmental charges) with respect thereto, the acquisition cost (rental fees
and/or purchase price, or in lieu of a purchase price, the annual depreciation
allocable thereto) of all supplies, tools, machines and equipment used in
operation and maintenance, audit and bookkeeping expenses, legal fees and
expenses, financing expenses relating to operation and management, insurance
(including fire and extended coverage, vandalism and malicious mischief,
difference in conditions coverage, public liability and property damage and
worker's compensation insurance customarily carried by owners of first class
office buildings), taxes upon or measured by Landlord's gross income to the
extent that such taxes have not already been recovered in paragraph 6 of this
Section III (but excluding taxes upon or measured by Landlord's net income), the
costs and expenses of any contest by appropriate legal proceedings of the amount
or validity of any such taxes, charges or other assessments, personal property
taxes, if any, and the cost of alterations, additions and capital improvements
required by any laws, codes, regulations or ordinances now or hereafter in
effect or made by Landlord to reduce energy requirements or which would have the
effect of reducing the expenses which would otherwise be included in Operating
Expenses (amortized over their
<PAGE>
reasonable life with interest at the rate usually charged Landlord for borrowing
on the amount of such cost, or, if Landlord is prohibited by law from charging
interest at such rate, at the rate of one percent (1%) per month). The Operating
Expenses shall not include capital expenditures (except the costs of certain
capital improvements as above mentioned), depreciation on real property or
financing expenses related to the construction of the Building.
For purposes of this paragraph 9, "Lease Year" shall be a period of
twelve (12) consecutive calendar months, with the initial Lease Year commencing
on the first (1st) day of such month as shall be established by Landlord, in
Landlord's sole discretion, and each succeeding Lease Year commencing on the
anniversary thereof.
10. Other Taxes and Fees. In addition to the rental provided
--------------------
hereunder, Tenant agrees to pay all license fees and all taxes and assessments
and increases in taxes and assessments levied and assessed by any government
body by virtue of (a) any special improvements or assessments, (b) Tenant using
and conducting its business or operation on the Premises, (c) the employment of
agents, employees or other third parties, or (d) the bringing onto, or keeping
of personal property or chattels of whatsoever nature on the Premises. The
foregoing is intended to bind Tenant to pay, and to promptly discharge, all
taxes, assessments and/or levies, together with related interest and penalties,
whether assessed by federal or state authority or any political subdivision
thereof, directly or indirectly related to its business, improvements,
functioning, employment, assets, existence, sales, entertainment or the like.
Tenant specifically agrees to reimburse Landlord for any increase in ad valorem
taxes resulting from use of fixtures or improvements by Tenant which Landlord
becomes obligated to pay.
11. Laws and Ordinances; Indemnity. Tenant shall, during the whole
------------------------------
of said Term, keep the Premises in a strictly safe, clean and sanitary condition
and observe and perform all laws and ordinances applicable to the Building and
improvements now or hereafter erected on the Premises, all laws, ordinances,
rules and regulations relating to health and sanitation for the time being
applicable to the Premises and will indemnify, defend and hold harmless
Landlord, its partners, employees, agents, successors and assigns from and
against all claims, actions, suits, damages, costs and expenses, including
attorneys' fees by whomsoever brought or made by reason of the nonobservance or
nonperformance of said laws, ordinances, rules, regulations and requirements or
of this covenant and will reimburse Landlord for attorneys' fees and for all
other costs which Landlord may incur in connection with the defense of any such
claims. Tenant's obligations hereunder and under the provisions of paragraph 17
of this Section III shall expressly include, without limitation, compliance with
the provisions of the Americans with Disabilities Act, 42 U.S.C. Section 12101
et seq., applicable to Tenant.
- ------
12. Hazardous Materials; Indemnity. Tenant will keep and maintain
------------------------------
the Premises in compliance with, and shall not cause or permit the Premises or
the Building to be in violation of, any Hazardous Materials Laws (hereinafter
defined), and shall not use, generate, manufacture, treat, handle, refine,
produce, process, store, discharge, release, dispose of or allow any Hazardous
Materials (hereinafter defined) in, on or under the Premises or the Building in
violation of any Hazardous Materials Laws. Tenant shall indemnify, defend and
hold harmless Landlord, its partners, employees, agents, successors and assigns
from and against any loss, damage, cost, expense or liability, direct or
indirect, arising out of or attributable to the violation of any Hazardous
Materials Laws or the unlawful use, generation, manufacture, treatment,
handling, refining, production, processing, storage, release, threatened
release, discharge, disposal or presence of Hazardous Materials in, on or under
the Premises or the Building, including, without limitation, all foreseeable and
unforeseeable consequential damages, the costs of any required or necessary
repair, clean up or detoxification of the Premises or of the Building, and the
preparation and implementation of any closure, remedial or other required plans.
In addition to the foregoing, Tenant shall immediately advise Landlord, in
writing, if Tenant at any
<PAGE>
time becomes aware of any violation of any Hazardous Materials Laws or of any
claim made pursuant to any Hazardous Materials Laws in respect of the Premises
or the Building.
For purposes of this Lease, the term "Hazardous Materials Laws" means
and includes all federal, state or local laws, ordinances or regulations, now or
hereafter in effect, relating to environmental conditions, industrial hygiene or
Hazardous Materials on, within, under or about the Premises or the Building,
including, without limitation, Chapter 342J of the Hawaii Revised Statutes, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. Section 9601, et seq., the Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901, et seq., the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1251, et seq., the Clear Air Act, 42 U.S.C. Section 7401,
et seq., the Toxic Substances Control Act, 15 U.S.C. Sections 2601 through 2629,
the Safe Drinking Water Act, 42 U.S.C. Section 300f through 300j, and any
similar federal, state or local laws or ordinances and the regulations now or
hereafter adopted, published and/or promulgated pursuant thereto.
As used in this Lease, the term "Hazardous Materials" means and
includes any and all radioactive materials, asbestos, organic compounds known as
polychlorinated biphenyls, chemicals known to cause cancer or reproductive
toxicity, pollutants, contaminants, hazardous wastes, toxic substances, and any
and all other substances or materials defined as or included in the definition
of "hazardous substances", "hazardous wastes", "hazardous materials" or "toxic
substances" under, or for the purposes of, the Hazardous Materials Laws.
13. Interruption or Curtailment of Services. The interruption or
---------------------------------------
curtailment of services or utilities to be furnished by Landlord hereunder, if
the same results from causes beyond Landlord's reasonable control, shall not
constitute constructive eviction and shall not entitle Tenant to the abatement
of rent or to any other claims against Landlord; but in the case of such
interruption or curtailment, Landlord shall take all reasonable steps to restore
the interrupted or curtailed utilities or services.
14. Use. Tenant will use the Premises only for the purposes set
---
forth in paragraph (G) of Section I of this Lease and for no other purposes,
except as consented to in writing by Landlord, which consent shall be in
Landlord's sole discretion.
In addition, Tenant shall not use or occupy said Premises for the
purpose of storing junk, scrap or other offensive materials; and will not make
or suffer any strip or waste or unlawful, improper or offensive use of said
Premises; nor shall Tenant use or permit said Premises or any part thereof to be
used in any manner or for any purpose which will increase the then existing rate
of insurance upon the Building of which the Premises are a part, or cause a
cancellation of any insurance policy covering said Building, or any part
thereof, nor shall Tenant sell, store or permit to be kept, used or sold in or
about said Premises any article which may be prohibited by any policy or
policies of fire insurance applicable to the Premises and to the activities
therein permitted. Tenant shall use and occupy said Premises in a careful, safe
and proper manner. Any increase in premiums or surcharges or damages resulting
from any such prohibited use shall be paid by Tenant to Landlord; provided,
however, that the foregoing shall not apply to increases in premiums or
purchases which are attributable to inflation or other price increases unrelated
to the activities of Tenant. Tenant shall, at Tenant's sole cost and expense,
comply with all requirements of all county, municipal, state and federal
authorities now in force, or which may hereafter be in force, pertaining to the
Premises, and shall faithfully observe in the use of the Premises all municipal
ordinances and state and federal statutes now in force or which may hereafter be
in force.
15. Inspection; Access. Tenant will permit Landlord and its
------------------
employees and agents, at all reasonable times during said Term, to enter the
Premises and examine the state of repair and condition thereof, and Tenant will
repair and make good (within thirty (30) days of
<PAGE>
receipt of written notice by Tenant) all defects which Tenant is obligated to do
under the terms of this Lease and of which notice shall be given by Landlord, as
set forth in paragraph 18 of this Section III. Without in any manner obligating
Landlord to do so, Tenant will also permit Landlord and Landlord's agents to
have access to the Premises at all reasonable times for the purpose of making
repairs, posting such notices as it may deem necessary for Landlord's protection
or for the protection of the Premises, for the purpose of repossessing the
Premises as herein provided and/or for the purpose of showing the Premises to
prospective tenants, purchasers, mortgagees and/or others, and Landlord shall
not be liable for damages resulting to Tenant from such exercise of the right of
entry, and the rent stipulated hereunder shall not abate during the period of
such entry, nor shall Tenant be entitled to maintain a setoff or counterclaim
for damages against Landlord by reason of loss or interruption of business of
Tenant because of the prosecution of any such repairs. During the last ninety
(90) days of the Term, Landlord shall have the right to place and maintain in or
upon the Premises in one (1) or more conspicuous places "For Rent", "For Lease"
and/or "For Sale" signs.
Landlord, Tenant and all other tenants in the Building of which the
Premises are a part, and their respective guests, invitees and employees, shall
have ingress to and egress from all common public areas of said Building;
provided, however, that Landlord shall have the right to regulate and control
such guests, invitees and employees with respect to such access and the days and
hours of access, and all common areas and facilities not within the Premises,
which Tenant may be permitted to use and occupy, are to be used and occupied
under a revocable license, and if the amount of such areas shall be diminished,
Landlord shall not be subject to any liability nor shall Tenant be entitled to
any compensation or diminution or abatement of rent, nor shall such diminution
of such areas be deemed constructive or actual eviction. Landlord shall not be
liable to Tenant for any inconvenience, interferences, annoyance, loss or damage
resulting from work done in or upon the Premises or any portion of the Premises
or adjacent grounds.
Tenant agrees that if Landlord during the Term hereby demised shall be
required by the City and County of Honolulu, the State of Hawaii, by any other
governmental authority to repair, alter, remove, reconstruct or improve any part
of the Premises or of said Building then such repair, alteration, removal,
reconstruction or improvement may be made by and at the expense of Landlord and
shall not in any way affect the obligations or covenants of Tenant herein
contained, and Tenant hereby waives all claims for damages or abatement of rent
because of such work.
16. Tenant's Construction and Bond. Tenant shall, at its cost, in
------------------------------
accordance with plans and specifications therefor first approved in writing by
Landlord, construct and install such improvements and fixtures and provide such
equipment and do all other things required to complete the Premises in a
finished condition ready for the conduct of Tenant's business at the Premises.
In performing such initial construction and installation and any further
construction or installation, Tenant shall strictly comply with the requirements
of Exhibit "B", and Tenant will, before commencing any such construction, obtain
Landlord's approval of Tenant's contractor and show evidence satisfactory to
Landlord that Tenant has sufficient current funds to pay for the entire cost of
construction and post with Landlord a contract performance and labor and
material payment bond or bonds with corporate surety satisfactory to Landlord in
the penal sum equal to one hundred percent (100%) of the cost of construction,
guaranteeing the completion thereof free from any mechanics' or materialmen's
lien. Tenant agrees that Tenant's contractor shall be a union contractor and
must possess good labor relations. Tenant's initial construction and any
further construction or alterations shall strictly comply with all applicable
laws, ordinances, codes and regulations and Tenant shall furnish to Landlord a
true copy of Tenant's building permit for such construction or alterations prior
to the commencement of such work. All fixtures installed by Tenant will be new
or completely reconditioned.
<PAGE>
Any violation of the foregoing provisions shall be considered a
material default of this Lease.
17. Indemnity. Tenant will indemnify, defend and hold harmless
---------
Landlord, its partners, employees, agents, successors and assigns from and
against all claims and demands for loss or damage, including property damage,
personal injury and wrongful death, arising out of or in connection with the use
or occupancy of said Premises by Tenant or any other person claiming by, through
or under Tenant, or any accident or fire on said Premises or any adjacent
sidewalk or any nuisance made or suffered thereon caused by Tenant's negligence,
or any failure by Tenant to keep said Premises or sidewalk in a safe condition,
or any failure by Tenant to comply and conform with all laws, statutes,
ordinances and regulations of the United States, (including, without limitation,
the Americans with Disabilities Act) the State of Hawaii and the City and County
of Honolulu now or hereafter in force, or arising from any default by Tenant in
the performance of any of the covenants, conditions or provisions of this Lease,
will resist and defend at Tenant's expense any such claim by counsel
satisfactory to Landlord, and will reimburse Landlord for all of Landlord's
costs and expenses, including reasonable attorneys' fees with respect to any
attachment, judgment, suit, lien, charge or encumbrance whatsoever against said
Premises made or suffered by Tenant.
18. Acceptance and Maintenance of Premises.
--------------------------------------
(a) Tenant, by Tenant's execution of this Lease, shall be
conclusively deemed to have accepted the Premises as being in good, safe,
tenantable and sanitary order, condition and repair.
(b) Tenant shall, at Tenant's sole cost and expense, keep the
Premises and every part thereof in good condition and repair, excepting only
ordinary wear and tear and unavoidable damage not required to be insured
against, and excepting structural repairs which shall be the responsibility of
Landlord. Tenant hereby waives all rights to make repairs at the expense of
Landlord as provided by any law, statute or ordinance now or hereafter in
effect. Damage to all glass of the Premises (other than glass which is part of
the exterior of the Building) shall be at the risk of Tenant; any such glass
broken during the Term shall be promptly replaced by Tenant at the expense of
Tenant. Tenant will not damage or deface the walls, floors or ceilings, nor
damage or obstruct hallways or other common areas, nor commit any act which may
damage the structural parts of the Building. Tenant shall not add, disturb or in
any way change any plumbing or wiring without first obtaining the written
consent of Landlord. All damage or injury done to the Premises by Tenant, or by
any persons who may be in or upon the Premises with the consent of Tenant, shall
be paid for by Tenant and Tenant shall pay for all damage to the Building caused
by Tenant's misuse of the Premises or the appurtenances thereto. All repairs to
the Premises necessary to maintain the Premises in a tenantable and good
condition shall be done by or under the direction of Landlord and at Tenant's
expense, except as is otherwise specifically provided herein. Tenant shall pay
for the replacement of doors of the Premises which are cracked or broken.
Landlord may make any alterations or improvements which Landlord may deem
necessary for the preservation, safety or improvement of the Premises or the
Building. It is specifically understood and agreed that Landlord has made no
promises to alter, remodel, improve, repair, decorate or paint the Premises, or
any part thereof, and that no representations respecting the condition of the
Premises or the Building of which the Premises are a part have been made by
Landlord to Tenant.
Notwithstanding anything herein to the contrary, any diminution or
shutting off of light or air by any structure which may be erected adjacent to
the Building of which the Premises are a part, whether by Landlord or others,
and any dust, noise, vibration or other similar disturbance caused by the
construction of other tenant improvements during the initial lease-up period of
the Building and during any change in tenancy of any premises within the
Building,
<PAGE>
shall not affect this Lease or impose any liability on Landlord or be construed
as a constructive eviction or grounds for-the reduction of rent.
19. Liability Insurance. Tenant will procure at its own expense and
-------------------
keep in force during the entire Term: (a) a policy of comprehensive general
liability insurance (Owners', Landlords' and Tenants' Public Liability
Insurance) with minimum limits of not less than ONE MILLION AND NO/100 DOLLARS
($1,000,000.00) arising out of each occurrence with a TWO MILLION AND NO/100
DOLLARS ($2,000,000.00) general aggregate limit. Said policy or policies shall
be with an insurance company or companies authorized to do business in the State
of Hawaii, shall name Landlord, Landlord's mortgagee or Tenant's mortgagee and
the manager of the Building as additional assureds, and shall cover the entire
Premises and the areas appurtenant thereto, including the sidewalks upon which
the Premises abut; and a current certificate of said policy or policies shall be
deposited with Landlord, together with evidence of payment of the premium
thereon. The limits of said policies shall be increased in accordance with such
limits as Landlord may establish from time to time with due regard to prevailing
prudent business practices and as reasonably adequate for Landlord's protection.
Said insurance shall contain a provision that it will not be cancelled or
substantially modified without giving Landlord thirty (30) days' written notice
prior to the effective date of the proposed cancellation or modification.
20. Insurance on Fixtures and Equipment. Tenant shall procure at its
-----------------------------------
own expense and, during the entire Term, keep in full force and effect insurance
on Tenant's fixtures and equipment in the Premises, in the full insurable value
thereof, against fire and extended coverage risks including protection against
vandalism, malicious mischief and ceiling sprinkler leakage protection, and in
time of war, against war damage to the extent such governmental insurance is
obtainable at reasonable cost, in an amount as near as practicable to the full
replacement cost of such improvements, in the joint names of Landlord, Tenant,
any mortgagee of Landlord's and/or Tenant's interest hereunder and such other
parties as Landlord may specify as their interests may appear. Tenant shall
deposit a current certificate of said insurance with Landlord, and said
insurance shall contain a provision that it will not be cancelled or
substantially modified without giving Landlord thirty (30) days' written notice
prior to the effective date of the proposed cancellation or modification.
21. Waiver of Subrogation. The parties release each other, and their
---------------------
respective authorized representatives, from any claims for damage to any person
or to the Premises and to the fixtures, personal property, Tenant's
improvements, and alterations of either Landlord or Tenant in or on the Premises
that are caused by or result from risks insured against under any insurance
policies carried by the parties and in force at the time of any such damage.
Each party shall cause each insurance policy obtained by it to provide
that the insurance company waives all right of recovery by way of subrogation
against either party in connection with any damage covered by any such policy.
Neither party shall be liable to the other for any damage caused by fire or any
of the risks insured against under any insurance policy required by this Lease.
If any insurance policy cannot be obtained with a waiver of subrogation, or is
obtainable only by the payment of an additional premium charge above that
charged by insurance companies issuing policies without waiver of subrogation,
the party undertaking to obtain the insurance shall notify the other party of
this fact. The other party shall have a period of ten (10) days after receiving
the notice either to place the insurance with a company that is reasonably
satisfactory to the other party and that will carry the insurance with a waiver
of subrogation, or to agree to pay the additional premium if such a policy is
obtainable at additional cost. If the insurance cannot be obtained or the party
in whose favor a waiver of subrogation is desired refuses to pay the additional
premium charged, the other party shall be relieved of the obligation to obtain a
waiver of subrogation rights with respect to the particular insurance involved.
<PAGE>
22. Risk of Loss. The storage and/or presence of all goods, wares,
------------
merchandise or other property of Tenant or anyone claiming by, through or under
Tenant on the Premises shall be at Tenant's or such other owner's sole risk, and
Landlord shall not be responsible for any loss or damage from fire, smoke or
water damage, from bursting, overflowing or leaking of water, gas, sewer or
steam pipes, from radio interference, electrical surges, outages or spikes, from
the kind or character of electricity or utilities furnished to the Premises,
from any interruption or curtailment of utilities or services, or from any
fixtures, appliances or devices to the same, or from electric wires, fixtures,
appliances or devices or from odors or from any cause whatsoever.
23. Waste and Nuisance. Tenant will keep the Premises in a strictly
------------------
clean, safe, neat and sanitary condition and will not commit or suffer to be
committed any waste upon or of the Premises, or any nuisance or other act or
omission which disturbs the quiet enjoyment of any other tenant in the Building
of which the Premises are a part, and Tenant will not use any apparatus,
machinery or device which causes substantial noise or vibration or which
overloads the floor of the Premises. Tenant will immediately abate any nuisance
or said other act or omission upon demand of Landlord. Tenant shall not waste
or permit the waste of water drawn through fixtures on or about the Premises.
24. Signs. Tenant shall not erect, install, paint or inscribe on any
-----
exterior door, wall or window, or on any marquee or roof, or affix to the
exterior surface of the Building or the Premises, any signs, lettering or
placards or advertising media without the prior written consent of Landlord. In
the event that the written consent of Landlord is secured, Tenant shall pay all
permit and license fees which may be required to be paid for the erection and
maintenance of any and all such signs, and provided that such signs shall be
legally permitted to be installed. Tenant shall indemnify and save Landlord
harmless from and against any and all losses, damages, claims, suits or actions
for any damage or injury to persons or property caused by the erection and
maintenance of such signs or parts thereof, and insurance coverage for any such
sign shall be included in the public liability policy which Tenant is required
to keep in force pursuant to paragraph l9 of this Section III.
25. Attorneys' Expenses. Tenant will pay to Landlord on demand all
-------------------
costs and expenses, including reasonable attorneys' fees, incurred by Landlord
in enforcing any of the covenants herein contained, in remedying any breach
thereof by Tenant, in recovering possession of the Premises, in collecting any
delinquent rent, taxes or other charges hereunder payable by Tenant, or in
connection with any litigation commenced by or against Tenant (other than
condemnation proceedings) to which Landlord without any fault on its part shall
be made a party. In case Landlord, without any fault of Landlord, is made a
party to any litigation commenced by or against Tenant, then Tenant shall pay
all costs and expenses, including reasonable attorneys' fees, incurred or
imposed on Landlord by or in connection with such litigation.
26. Assigning and Subletting.
------------------------
(a) Tenant shall not, without complying with the provisions of
subparagraph (b) below and without obtaining the prior written consent of
Landlord pursuant to subparagraph (c) below and paragraph 48 of this Section
III, assign, mortgage, pledge or otherwise encumber this Lease or any interest
herein, or sublet the Premises or any part thereof. The term "sublet" shall
include, without limitation, any use of the Premises by any party other than
Tenant and the term "assign" shall include, without limitation, any sale of all
or part of the Premises, by agreement of sale or otherwise. Any of the
foregoing acts without complying with subparagraph (b) below and without
obtaining such consent shall be void and constitute a default under this Lease.
Any change in ownership of the majority of shares of the stock of Tenant (if
Tenant if a corporation), as such majority ownership existed as of the date of
this Lease, or any change in the identity of a majority of the general partners
of Tenant (if Tenant is a partnership),
<PAGE>
as the identity of such majority existed as of the date of this Lease, shall be
deemed to be an assignment or transfer of this Lease within the meaning of this
paragraph. No assignment, mortgage, pledge, encumbrance or subletting shall be
permitted to be made by Tenant if there is any default by Tenant under this
Lease.
(b) Tenant shall, in connection with any assignment of all or
part of Tenant's interest in the Lease or sublease of all or part of the
Premises, pay to Landlord the following:
(l) Fifty percent (50%) of the amount of any premiums, sums
or other consideration payable to Tenant as a result of any assignment of this
Lease.
(2) Fifty percent (50%) of any premiums, and fifty percent
(50%) of the amount by which any rent or other amounts payable to Tenant as a
result of any sublease exceed the rent and other sums payable by Tenant
hereunder with respect to the space to be subleased.
(c) Tenant shall obtain the prior written consent of Landlord to
any assignment, mortgage, pledge or encumbrance of this Lease or any interest
herein, or to any sublease of all or part of the Premises. The agreement by
Tenant to pay the amounts required under subparagraph (b) above shall be a
condition precedent to obtaining Landlord's consent; however, payment of such
amounts shall not entitle Tenant to demand such consent, the granting or
withholding of which shall be governed by the provisions of paragraph 48 of this
Section III.
27. Continuing Liability. No permitted assignment, mortgage, pledge,
--------------------
encumbrance or sublease of Tenant's interest in the Premises shall in any way
release Tenant from any liability or responsibility assumed by Tenant under this
Lease.
28. Subordination of Lease; Estoppel Certificates. In the event any
---------------------------------------------
mortgagee shall elect to have this Lease prior to or subordinate to its
mortgage, then and in such event, upon such mortgagee notifying Tenant to that
effect, this Lease shall have priority over or be subordinate to the lien of
such mortgage. Tenant covenants and agrees, in the event any proceedings are
brought for the foreclosure of, or in the event of exercise of the power of sale
under, any mortgage heretofore or hereafter made by Landlord covering the
Premises (and which may or may not also cover other premises), whether or not
this Lease is terminated by such foreclosure or sale, that Tenant will, upon
request by the purchaser, attorn to the purchaser upon any foreclosure or sale
and recognize such purchaser as the landlord under this Lease, it being the
intent hereof that if this Lease should be terminated by such foreclosure or
sale, this Lease shall, upon request by the purchaser, be reinstated as a lease
between the purchaser and Tenant, it being nevertheless understood that such
purchaser shall not be liable for any act or omission of a prior landlord nor be
subject to any offsets or defenses which Tenant may have against any prior
landlord. Tenant, upon request of any party in interest, shall execute such
instrument or instruments as shall be requested to carry out the requirements of
this paragraph within thirty (30) days after receipt by Tenant of written
request therefor; provided, however, that Tenant shall not be required to
effectuate such subordination, nor shall Landlord be authorized to effect such
subordination on behalf of Tenant, unless the mortgagee named in such mortgage
shall first agree in writing, for the benefit of Tenant, that so long as Tenant
is not in default under any of the provisions, covenants or conditions of this
Lease on the part of Tenant to be kept and performed, that neither this Lease
nor any of the rights of Tenant hereunder shall be terminated or modified or be
subject to termination or modification, nor shall Tenant's possession of the
Premises be disturbed or interfered with, by an action or proceeding to
foreclose said mortgage. In the event that Tenant fails to respond to such
written request within thirty (30) days, Landlord shall have the right to
execute such instruments on behalf of Tenant. Tenant hereby constitutes
Landlord as
<PAGE>
Tenant's true and lawful attorney-in-fact, coupled with an interest, for
purposes of the execution of the foregoing instruments.
Within fifteen (15) days of presentation, Tenant shall execute,
acknowledge and deliver to Landlord (a) any subordination or non-disturbance
agreement or other instrument that Landlord may require to carry out the
provisions of this paragraph, (b) any agreement for attornment to a purchaser
upon foreclosure, and (c) any estoppel certificate requested by Landlord from
time to time in the standard form of any mortgagee or purchaser certifying in
writing, if such is the case, that Tenant is in occupancy, that this Lease is
unmodified and in full force and effect or that if there have been modifications
that the same is in full force and effect as modified and stating the
modifications, and the dates to which the rent and other charges shall have been
paid, that there shall be no rental offsets or claims and certifying such
matters as such mortgagee or purchaser may reasonably require.
29. Plumbing Facilities. Tenant will not use or permit to be used
-------------------
the plumbing facilities in the Premises, or such facilities located within the
demised area or such other area as may be assigned for use by Tenant or its
employees, for any purpose other than that for which they are constructed nor
throw or place, or permit to be thrown or placed, any foreign substance of any
kind therein, and the expense of breakage, stoppage or damage resulting from
Tenant's failure to keep this covenant shall be borne by Tenant.
30. Eminent Domain. If the whole or any substantial part of the
--------------
Premises shall be required, taken or condemned for any public use by any
authority having the power of eminent domain, this Lease shall at once terminate
and Landlord shall be entitled to receive and retain all compensation for the
taking thereof. Tenant shall, however, have the right to claim and recover from
the condemning authority only, and not from Landlord, such compensation as may
be separately awarded or recovered by Tenant in its own right for or on account
of any and all damage to Tenant's business or to its improvements or fixtures,
stock in trade or equipment, or expense caused to Tenant by the necessity of
removing the foregoing items from the Premises, but in no event shall Tenant's
compensation reduce the amount of compensation payable to Landlord.
31. Nonliability of Landlord. Landlord shall not be liable for any
------------------------
damage either to person or property sustained by Tenant or by other persons due
to the Building, or any part thereof, or any appurtenances thereof, becoming out
of repair, or due to any act or neglect of any tenant or occupant of said
Building, or of any other person. This provision shall apply especially (but
not exclusively) to damage caused by water, steam, sewage, illuminating gas,
sewer gas, utilities shortages or stoppages, odors or termites or the negligent
accumulation of combustible materials, accessories and supplies, and shall apply
equally whether such damage is caused by the act or neglect of other tenants,
occupants or janitors of said Building, or of any other persons, and whether
such damage is caused or occasioned by anything or circumstances above-mentioned
or referred to, or by any other thing or circumstance, whether of a like or of a
wholly different nature. If any such damage shall be caused by any act or
neglect of Tenant, Landlord may, at its option, repair such damage, whether
caused to the Building, or to tenants thereof; and Tenant shall thereupon
reimburse Landlord for the total cost of such damage both to the Building and/or
to the tenants thereof. Tenant further agrees that all personal property upon
the Premises shall be at the sole risk of Tenant and that Landlord shall not be
liable for any loss, injury or damage thereto or theft thereof.
32. Disposition of Fixtures on Surrender. On the last day of the
------------------------------------
Term hereby demised or on sooner termination thereof as provided in this Lease,
Tenant will peaceably and quietly leave and surrender and deliver up to Landlord
possession of the Premises together with all other improvements upon or
belonging to the same, by whomsoever made, in good repair, order and condition
except as otherwise expressly provided herein and Tenant shall surrender all
<PAGE>
keys for the Premises to Landlord at the place then fixed for the payment of
rent, and shall inform Landlord of all combinations on locks, safes and vaults,
if any, in the Premises; provided, however, that if there is no default on the
part of Tenant at the termination of this Lease, Tenant may remove all trade
fixtures and equipment installed by Tenant on the express condition that Tenant
replaces and repairs all damage to said Premises caused by or resulting from the
removal of said trade fixtures and equipment.
If Tenant shall fail to remove all effects from said Premises upon
termination of this Lease for any cause whatsoever, Landlord may, at its option,
remove the same in any manner that Landlord shall choose, and store said effects
without liability to Tenant for loss thereof, and Tenant agrees to pay Landlord
on demand any and all expenses incurred in such removal, including court costs
and attorneys' fees and storage charges on such effects for any length of time
the same shall be in Landlord's possession, or Landlord may, at its option,
without notice, sell said effects, or any of the same, at private sale and
without legal process, for such price as Landlord may obtain and apply the
proceeds of such sale to payment of any amounts due under this Lease from Tenant
to Landlord and for the expense incident to the removal and sale of said
effects.
33. Liquidated Damages. If Tenant shall, at the expiration or other
------------------
termination of this Lease, fail to yield up possession to Landlord, Landlord
shall have the option to require Tenant to pay, and Tenant shall pay as
liquidated damages for each day possession is withheld, an amount equal to
double the amount of the daily rent computed on the thirty-day-month basis.
34. Holding Over. Any holding over after the expiration of said
------------
Term, with the consent of Landlord, shall be construed to be a tenancy from
month to month at the then current fair market rental for the Premises and shall
otherwise be on the terms and conditions herein specified, so far as applicable.
35. Destruction of Premises. In the event of a partial or total
-----------------------
destruction of the Premises from any cause whatsoever, Landlord shall promptly
cause the same to be rebuilt or repaired unless, in Landlord's sole discretion,
Landlord determines that it would be uneconomical or impossible to rebuild or
repair the same, in which event this Lease shall terminate as of the date of
such destruction upon written notice given by Landlord to Tenant of its
intention not to rebuild or repair, such notice to be given within sixty (60)
days from the date of such destruction. In the event of such termination,
Tenant shall forthwith surrender the Premises and shall be relieved of all
liability accruing after the date of termination, and Landlord shall have no
further liability or obligation hereunder. If such destruction occurs and this
Lease is not so terminated by Landlord, this Lease shall remain in full force
and effect and Landlord and Tenant waive the provisions of any law to the
contrary. Landlord's obligations under this paragraph 35 shall in no event
exceed the scope of the original construction of the Building of which the
Premises are a part. Tenant agrees that during any period of reconstruction or
repair of the Premises and/or said Building, Tenant shall continue the operation
of Tenant's business in the Premises to the extent reasonably practicable from
the standpoint of good business.
36. Abatement of Rent. The monthly rent payable hereunder shall be
-----------------
abated proportionately during any period in which, by reason of any damage or
destruction of the Premises, there is substantial interference with the
operation of the business of Tenant in the Premises, having regard to the extent
to which Tenant may be required to discontinue its business in the Premises;
provided, however, that the foregoing abatement shall not apply to any
interference caused by dust, noise, vibration or other similar disturbance
caused by the construction of other tenant improvements during the initial
lease-up period of the Building and during any change in tenancy of any premises
within the Building, nor to any stoppage or shortage of utilities or services.
Such abatement shall continue for the period commencing with
<PAGE>
such destruction or damage and ending with the completion by Landlord of such
work or repair and/or reconstruction as Landlord is obligated to do.
37. Security Deposit. Tenant, contemporaneously with the execution
----------------
of this Lease, has deposited with Landlord the sum set forth in paragraph (F) of
Section I of this Lease, the receipt of which is hereby acknowledged by
Landlord. Said deposit shall be held by Landlord, without liability for
interest, as security for the faithful performance by Tenant of all of the
terms, covenants and conditions of this Lease by said Tenant to be kept and
performed during the Term hereof. Said deposit may be commingled with other
funds of Landlord.
In the event of the failure of Tenant to keep and perform any of the
terms, covenants and conditions of this Lease to be kept and performed by
Tenant, then at the option of Landlord, Landlord may appropriate and apply said
entire deposit, or so much thereof as may be necessary, to compensate Landlord
for all loss or damage sustained or suffered by Landlord due to such breach on
the part of Tenant. Should the entire deposit, or any portion thereof, be so
appropriated or so applied by Landlord for the payment of overdue rent or other
sum due and payable by Tenant hereunder, then Tenant shall, upon the written
demand of Landlord, forthwith remit to Landlord a sufficient amount in cash to
restore said security to the original sum deposited, and Tenant's failure to do
so within five (5) days after receipt of such demand shall constitute a breach
of this Lease. Should Tenant comply with all of the terms, covenants and
conditions and promptly pay all of the rental herein provided for as it falls
due, and all other sums payable by Tenant hereunder, said deposit shall be
returned in full to Tenant at the end of the Term, or upon the earlier
termination of this Lease.
Landlord may deliver the funds deposited hereunder by Tenant to the
purchaser of Landlord's interest in the Premises in the event that such interest
is sold, and thereupon Landlord shall be discharged from any further liability
with respect to such deposit; provided, however, that the purchaser shall agree
to assume Landlord's obligations hereunder with respect to said deposit.
38. Nonwaiver. The acceptance of rent by Landlord shall not be
---------
deemed a waiver by Landlord of any breach by Tenant of any term, covenant or
condition herein contained, nor of Landlord's right to declare and enforce a
forfeiture for any such breach, and failure of Landlord to insist upon strict
performance of any term, covenant or condition herein shall not be construed as
a waiver of any subsequent breach of the same nor of any other term, covenant or
condition.
The waiver by Landlord of any default or breach of any of the
provisions, covenants or conditions hereof on the part of Tenant to be kept and
performed shall not be a waiver of any preceding or subsequent breach of the
same or any other provision, covenant or condition contained herein.
39. Default and Rights of Landlord on Default. This Lease is made
-----------------------------------------
upon the condition that, (a) if Tenant shall fail to pay said rent or any part
thereof or any other charges hereunder when due, whether the same shall or shall
not have been legally demanded, or (b) if Tenant shall fail to observe or
perform any of the other covenants herein contained and on Tenant's part to be
observed and performed, and such default shall continue for ten (10) days after
written notice thereof has been given to Tenant, or (c) if Tenant shall become
bankrupt or make an assignment for the benefit of creditors or abandon the
Premises, or (d) if any mechanics' or materialmen's lien shall attach to the
Premises or Landlord's or Tenant's estate or interest therein or (e) if this
Lease or any estate or interest of Tenant hereunder shall be sold under any
attachment or execution, Landlord may in any such event at once re-enter the
Premises or any part thereof in the name of the whole and, upon or without such
entry, at its option either continue this Lease in force or terminate this
Lease. Landlord may expel and remove from the
<PAGE>
Premises Tenant and any persons claiming by, through or under Tenant and their
effects without being deemed guilty of any trespass or becoming liable for any
loss or damage occasioned thereby, all without service of notice or legal
process and without prejudice to any other remedy or right of action, including
summary possession, which Landlord may have for arrears of rent or for the same
or any preceding or other breach of contract. No act by Landlord shall terminate
this Lease other than a written notice that Landlord has elected to terminate
this Lease. During the period Tenant is in default, Landlord may enter the
Premises and relet them or any part of them to third parties for Tenant's
account. Tenant shall be liable immediately to Landlord for all costs Landlord
incurs in reletting the Premises, including, without limitation, brokers'
commissions, expenses of remodeling the Premises required by the reletting,
attorneys' fees and like costs, and Tenant shall remain liable for any
deficiency between the rents received by reason of such reletting and the rents
due hereunder, which deficiency Tenant shall pay monthly as the same may accrue.
If Landlord elects to cancel the Lease, Landlord shall have the right to recover
from Tenant unpaid rent when due plus all damages resulting from Tenant's
default, including all costs and attorneys' fees plus the worth of the rental of
the balance of the Term over the reasonable rental value of the Premises for the
remainder of the Term, which sum shall be immediately payable to Landlord by
Tenant. Following any default, if Landlord shall bring an action for summary
possession, then Tenant hereby agrees to submit irrevocably to the jurisdiction
of the District Court of the First Circuit of the State of Hawaii and said
District Court shall have the exclusive jurisdiction to decide Landlord's action
for summary possession. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
Any property removed by Landlord may be stored in any public warehouse
or elsewhere at the cost and for the account of Tenant, and Landlord shall not
be responsible for the care or safekeeping thereof, and Tenant hereby waives any
and all claims for loss, destruction, damage or injury which may be occasioned
by any of the aforesaid acts.
Upon the occurrence of a default under this Lease, if the Premises or
any part thereof are then sublet under a sublease to which Landlord has
consented, Landlord, in addition to any other remedies provided in this Lease or
provided by law, may at its option collect directly from such sublessee all
rents becoming due to Tenant under such sublease and apply such rent against any
sums due to Landlord from Tenant under this Lease, and no such collection shall
be construed to constitute a novation or release of Tenant from the further
performance of Tenant's obligations under this Lease.
40. Right to Issue a New Lease to a Third Party. Should Landlord
-------------------------------------------
elect to re-enter and take possession of the Premises, as hereinbefore provided,
or should Landlord take possession pursuant to legal proceedings or pursuant to
any notice provided for by law, Landlord may either terminate this Lease, or
Landlord may from time to time without terminating this Lease make such
alterations and repairs as may be necessary to grant another lease to a third
party for the use of said Premises or any part thereof for such term or terms
(which may be for a term extending beyond the Term of this Lease) and at such
rent and upon such other terms and conditions as Landlord in its sole discretion
may deem advisable; upon each such granting of a new lease all rent received by
Landlord from said third party shall be applied, first, to the payment of any
indebtedness other than rent due and unpaid hereunder from Tenant to Landlord;
second, to the payment of any costs and expenses incurred in issuing a new
lease, including brokerage fees, attorneys' fees and costs of such alterations
and repairs; third, to the payment of rent due and unpaid hereunder; and the
residue, if any, shall be held by Landlord and applied in payment of future rent
as the same may become due and payable hereunder. If such rent received from
said third party during any month is less than that required to be paid during
that month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord
before the end of such month. No such re-entry or taking possession of the
Premises by Landlord shall be construed as an election on its part to terminate
this Lease unless a written notice of such intention is given to
<PAGE>
Tenant or unless the termination thereof is decreed by a court of competent
jurisdiction. Notwithstanding the issuance of a new lease to a third party
without termination, Landlord may at any time thereafter elect to terminate this
Lease for such previous breach. Should Landlord at any time terminate this Lease
for any breach, in addition to any other remedies it may have, Landlord may
recover from Tenant all damages Landlord may incur by reason of such breach,
including the cost of recovering the Premises, reasonable attorneys' fees, and
including the worth at the time of such termination of the excess, if any, of
the amount of rent and charges equivalent to rent reserved in this Lease for the
remainder of the stated Term over the then reasonable rental value of the
Premises for the remainder of the stated Term, all of which amounts shall be
immediately due and payable from Tenant to Landlord. In determining the rent
which would be payable by Tenant hereunder, subsequent to default, the rent for
the unexpired Term shall be computed prorata upon the basis of the average
aggregate rent paid or payable for the rental period of this Lease in which the
default occurred.
41. Interest on Past Due Amounts. Any amounts owing by Tenant to
----------------------------
Landlord under the terms of this Lease shall carry interest from the date the
same become due until paid at the rate of one percent (1%) per month and said
interest shall be considered as a part of the rental payable hereunder;
provided, however, that nothing contained herein shall be construed as
authorizing Tenant to make payments of all sums required hereunder in other than
a timely fashion.
42. Late Charge. Tenant acknowledges that late payment by Tenant to
-----------
Landlord of rent will cause Landlord to incur costs not contemplated by this
Lease, the exact amount of such costs being extremely difficult and
impracticable to fix. Such costs include, without limitation, processing
accounting charges and late charges that may be imposed on Landlord by the terms
of any note secured by any mortgage covering the Premises. Therefore, if any
installment of rent due from Tenant is not received by Landlord when due, Tenant
shall pay to Landlord an additional sum of five percent (5%) of the overdue rent
as a late charge. The parties agree that this late charge represents a fair and
reasonable estimate of the costs that Landlord will incur by reason of late
payment by Tenant. Acceptance of any late charge shall not constitute a waiver
of Tenant's default with respect to the overdue amount, or prevent Landlord from
exercising any of the rights and remedies available to Landlord.
43. Notice. In every case where under the provisions of this Lease
------
it shall be necessary or desirable for Landlord to give to or serve upon Tenant
any notice or demand, it shall be sufficient either (i) to deliver or cause to
be delivered to Tenant a written or printed copy of such notice or demand; or
(ii) to send a written or printed copy of said notice or demand by mail, postage
prepaid addressed to Tenant at the Premises; or (iii) to leave a written or
printed copy of said notice or demand at the Premises, or to post the same upon
the door leading into said Premises. All notices to be given to Landlord under
this Lease shall be in writing and delivered in person or sent by registered or
certified mail to Landlord at its offices at the address specified on the first
page hereof, or to such other address as Landlord may designate in writing.
44. Waiver of Jury Trial and Counterclaims. The parties hereto shall
--------------------------------------
and they hereby do waive trial by jury in any action, proceeding or counterclaim
brought by either of the parties hereto against the other on any matters
whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises,
and/or any claim of injury or damage. In the event Landlord commences any
proceedings for nonpayment of rent or other charges payable by Tenant hereunder,
Tenant will not interpose any counterclaim of whatever nature or description in
any such proceedings. This shall not, however, be construed as a waiver of
Tenant's right to assert such claims in any separate action or actions brought
by Tenant.
<PAGE>
45. Definitions. As used herein the terms "Landlord" and "Tenant"
-----------
shall include the respective parties and their heirs, legal and personal
representatives, successors and assigns; the liability of Tenant, if more than
one (1), shall be joint and several; pronouns wherever used herein should be
construed to include the plural or singular or both; the use of any gender shall
include all genders as the context may reasonably require; and each of the terms
"or" and "and" has the meaning of the other or both where the subject matter,
sense and connection require such construction.
46. Applicable Law. This Lease shall be governed and construed in
--------------
accordance with the laws of the State of Hawaii.
47. Binding Effect. This Lease shall be binding upon and inure to
--------------
the benefit of the parties hereto and their respective successors and permitted
assigns.
48. Landlord's Consent. Whenever consent or approval of Landlord is
------------------
required by the terms of this Lease, requests for consent or approval must be
made in writing. Tenant will reimburse Landlord for reasonable architect's,
engineer's and attorney's fees and other expenses actually incurred by Landlord
in connection with the giving of each and every consent or approval required
under this Lease; provided, however, that Landlord may without further reason
withhold approval of any alterations, additions and improvements if the plans
and specifications therefor are not acceptable to the architect or engineer (if
any) retained by Landlord to review the same; and provided, further, Landlord
may, as a condition of giving any consent to an assignment of this Lease or any
interest herein or to a sublease of all or part of the Premises, require, in
addition to the payment required under subparagraph 26(b) of this Section III,
personal and complete financial information, personal guaranties, or other
information relevant to the transaction for which consent is being sought. The
remedy for any claim based upon unreasonable or unlawful withholding of consent
or approval shall be limited to appropriate injunctive or declaratory relief.
Neither party shall be liable for damages resulting from unreasonable or
unlawful withholding of consent or approval but the prevailing party in any
lawsuit seeking such declaratory or injunctive relief shall be entitled to an
award of reasonable attorneys' fees and court costs.
49. Excuse of Landlord's Performance. Anything in this Lease to the
--------------------------------
contrary notwithstanding, providing such cause is not due to the willful act or
gross neglect of Landlord, Landlord shall not be deemed in default with respect
to the performance of any of the terms, covenants and conditions of this Lease
if the same shall be due to any strike, lockout, civil commotion, war-like
operation, invasion, rebellion, hostilities, military or usurped power,
sabotage, governmental regulations or controls, inability to obtain any
material, service or financing, through act of God or other cause beyond the
control of Landlord.
50. Recordation. Tenant agrees that neither this Lease nor any
-----------
memorandum hereof shall be recorded.
51. Time of Essence. Time and performance hereof are of the essence
---------------
of this Lease.
52. Renewal. Landlord shall have no obligation to extend or renew
-------
this Lease upon termination or to enter into another lease of the Premises with
Tenant upon termination of this Lease. Upon termination of this Lease, Landlord
may lease the Premises to whoever Landlord chooses for the operation therein of
a business that is the same as or different from that operated by Tenant in the
Premises.
53. Entire Agreement. The provisions of this Lease constitute, and
----------------
are intended to constitute, the entire agreement between Landlord and Tenant.
No terms, conditions,
<PAGE>
warranties, promises or undertakings of any nature whatever, express or implied,
exist between Landlord and Tenant except as herein expressly set forth.
54. Sale By Landlord. In the event of a sale or conveyance by
----------------
Landlord of the Building and the land of which the Premises are a part, the same
shall operate to release Landlord from any future liability upon any of the
covenants or conditions, express or implied, herein contained in favor of
Tenant, and in such event Tenant agrees to look solely to the successor in
interest of Landlord in and to this Lease, and the successor in interest of
Landlord shall have the right, in its sole discretion, to change the name of the
Building at any time. Except as is otherwise provided in this paragraph 54,
this Lease shall not be affected by any such sale, and Tenant agrees to attorn
to the purchaser or assignee.
55. Joint and Several Obligations. In any case where this Lease is
-----------------------------
signed by more than one (1) person, the obligations hereunder shall be joint and
several.
56. Accord and Satisfaction. No payments by Tenant or receipt by
-----------------------
Landlord of a lesser amount than the monthly rent herein stipulated shall be
deemed to be other than on account of the earliest stipulated rent, nor shall
any endorsement or statement on any check or any letter accompanying any check
or payment as rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such rent or pursue any other remedy provided for in this Lease.
57. Rules and Regulations. Tenant shall comply with the rules and
---------------------
regulations attached hereto as Exhibit "C" and made a part hereof for all
purposes and with such other and further reasonable rules and regulations as
Landlord may prescribe which, in Landlord's sole judgment, are required for the
reputation, safety, care or cleanliness of the building or the Premises, or the
operations and maintenance thereof and the equipment therein, or for the comfort
of Tenant and other tenants of the Building. On delivery of a copy of such
amendments and additional rules and regulations to Tenant, Tenant shall
thereafter comply with said rules and regulations, and a violation of any of
said rules and regulations shall constitute a default by Tenant under this
Lease. All such rules and regulations are of the essence hereof without which
this Lease would not have been entered into by Landlord.
58. Landlord's Right to Relocate. Landlord reserves the right to
----------------------------
relocate Tenant to a substantially equivalent area in the Building. In such
event, the provisions of this Lease shall apply to the substitute premises to
the same effect as if originally described in this Lease. For purposes of this
paragraph 58, the term "substantially equivalent area" shall mean an area which
is not more than ten percent (10%) larger or smaller than the floor area of the
original Premises. Upon Landlord's request, Tenant shall immediately execute an
appropriate amendment reflecting any such substitution.
59. Location of Common Areas; Changes to Common Areas; Additional
-------------------------------------------------------------
Facilities. Landlord shall have the right to make changes in the common areas
- ----------
and any part thereof including, without limitation, changes in the location and
relocation of driveways, entrances, exits, vehicular parking spaces, the
direction of flow of traffic, the setting apart of prohibited areas, the
exclusion of employee parking therefrom as Landlord may deem necessary and
advisable for the proper and efficient operation and maintenance of the common
areas, and in particular, the vehicular parking areas for the convenience of the
suppliers, business invitees and customers of all tenants of the Building and
removing areas from the common areas and improving the same for particular
tenants. Notwithstanding the above, the foregoing is not intended to entitle
Landlord to effect changes in the location of common areas which materially and
adversely affect access to or visibility of the Premises, except temporarily
during periods of construction. Landlord at all times during the Term shall
have sole and exclusive jurisdiction and control of the common areas and each
and every part thereof and may, at its option, at any
<PAGE>
time and from time to time exclude and restrain any person or persons from the
use or occupancy thereof, excepting Tenant, its subtenants, licensees,
concessionaires, suppliers, business invitees and customers. Nothing herein
contained shall affect the right of Landlord at any time or from time to time to
remove any unauthorized person or persons from said common areas or to restrain
the use of any of said common areas by any unauthorized person or persons.
Without limiting the generality of the foregoing, Landlord shall have
the right to add additional parking, Office and retail areas (the "Facilities")
to the Building by constructing such Facilities on adjacent property owned by
Landlord. In the event that such additional Facilities are added to the
Building, Tenant's Pro Rata Share of Operating Expenses and Tenant's
Proportionate Share of Common Office Expenses shall be adjusted to take into
account the additional Rentable Area of the Building, and the Operating Expenses
and Common Office Expenses shall also take into account the addition of the
Facilities to the Building; provided, however, that the cost of construction of
such Facilities, the depreciation of such Facilities, and financing expenses
related to the construction of such Facilities shall not be considered Operating
Expenses or Common Office Expenses. Tenant agrees to accept the inconvenience
of noise, dust and other disturbances from the construction of such Facilities;
provided, however, that Landlord shall use reasonable efforts to minimize such
inconvenience.
60. Guaranty. If Tenant is a corporation, partnership or other
--------
business entity, it is understood and acknowledged that Landlord would not have
entered into this Lease, but for the delivery to Landlord of a guaranty of this
Lease in the form attached hereto as Exhibit "D" and made a part hereof for all
purposes, which is hereby incorporated by reference into and made a part of this
Lease.
61. No Party Deemed Drafter. The parties agree that neither party
-----------------------
shall be deemed to be the drafter of this Lease and in the event this Lease is
ever construed by a court of law, such court shall not construe this Lease or
any provision hereof against either party as the drafter of this Lease.
END OF GENERAL CONDITIONS
<PAGE>
EXHIBIT "A"
[Diagram Description: The floor plan of the 8th floor of
The Commerce Tower at 1440 Kapiolani Boulevard, Honolulu, Hawaii.]
<PAGE>
EXHIBIT "B"
TENANT'S CONSTRUCTION OBLIGATIONS
Construction and Improvements By Tenant
---------------------------------------
A. General Obligations of Tenant: Tenant shall construct Tenant's
-----------------------------
improvements in the Premises in compliance with paragraph 16 of Section III of
the Lease and Section B of this Exhibit. Tenant shall also submit to Landlord a
true copy of the construction contract(s) with Tenant's contractor(s) prior to
the start of construction.
B. Interior Finishes:
-----------------
1. Floor Coverings. Standard floor covering shall be commercial
---------------
quality carpet, and shall not be affixed to the floor in any manner except by a
tack strip, paste or other materials which may be easily removed with water.
The use of cement or other similar adhesive materials is expressly prohibited.
The method of affixing the floor covering to the floor shall be specified in the
plans and specifications submitted to Landlord for Landlord's written approval.
The expense of repairing any damage or removing any floor covering affixed to
the Premises in violation of this provision, shall be borne by the Tenant.
Requests for non-standard floor coverings shall be submitted to the Landlord for
Landlord's written approval.
2. Base. A base material (e.g., vinyl, wood) shall be used on
----
all walls and partitions.
3. Interior Partitions. Partitions shall be constructed of
-------------------
metal stud and drywall or other similar forms of construction material in
accordance with the Uniform Building Code. Non-rated partitions are allowed
within the Premises and shall be installed by Tenant in accordance with building
standards established by Landlord. Request for non-standard interior partitions
shall be submitted to Landlord for Landlord's written approval. Partitions
meeting the interior face of the glazed external Building wall or column shall
terminate only at the centerline of window mullions or columns. Tenant shall
install, to the extent the same have not already been installed, the studs for
all demising walls separating Tenant's premises from other premises on multi-
tenant floors. Tenant will be responsible for one-half (1/2) of the cost of
installing the studs for Tenant's demising walls or, if Tenant is only required
to install the studs for one (1) demising wall, Tenant shall be responsible for
the entire cost of installation of such studs.
4. Interior Doors. Interior doors and frames within the
--------------
Premises shall be specified by Landlord, and purchased and installed by Tenant.
5. Finish Hardware. Butt hinges, lock sets, latch sets and knob
---------------
sets for interior doors within the Premises shall be specified by Landlord, and
purchased and installed by Tenant.
6. Lighting Pattern. Lighting pattern shall conform to the task
----------------
lighting orientation and design as established by Landlord.
7. Office/Store Furniture and Fixtures. All furniture and
-----------------------------------
fixtures exposed to public view must be new or fully reconditioned and suitable
for use within a building of the location and character of the Building. Design
of furniture, fixtures, equipment and interiors to allow for acceptable view
through Tenant entries/storefronts shall be reviewed and approved by Landlord.
<PAGE>
8. Concrete Floors. Holes for electrical and telephone services
---------------
or chases may be cut through concrete floor slabs only with the prior written
approval of and under the direction of Landlord and Landlord's consultants. All
floor penetrations shall be by core drilling only, and not by jack hammering.
All floor penetrations shall be grouted with an expanding concrete grout to
assure a water tight seal. Tenant shall be liable for any damage caused by the
floor penetration to all space below during and after construction.
9. Concrete Walls. Chases and holes shall not be cut in any
--------------
concrete wall or column without the prior written approval of and under the
direction of Landlord and Landlord's consultants.
<PAGE>
EXHIBIT "C"
RULES AND REGULATIONS
RULES AND REGULATIONS: These rules and regulations have been adopted for
---------------------
the purpose of insuring order and safety on the Property and to maintain the
rights of Tenant and Landlord. Landlord reserves the right to modify,
supplement or rescind any of these rules for the safety, care and cleanliness of
the Property and for the preservation of good order therein. Landlord may waive
any one (1) or more of these rules and regulations for the benefit of any
particular Tenant or tenants, but no such waiver by Landlord shall be construed
as a waiver of such rules and regulations in favor of any other Tenant or
tenants, nor prevent Landlord from thereafter enforcing any such rules and
regulations against any or all of the tenants of the Property. Each tenant
shall be liable for injury or damage caused by the infraction of any of these
rules by it, its employees, agents or invitees, and Landlord may repair such
damage, charging the cost of the same to such tenant, which amount shall be
added to rent due for the ensuing month. These rules and regulations are in
addition to, and shall not be construed to in any way modify or amend, in whole
or in part, these terms, covenants, agreements and conditions of any lease of
premises on the Property.
Access: Office areas will be open from 7:00 a.m. to 6:00 p.m. weekdays and
------
8:00 a.m. to 1:00 p.m. Saturdays. On Sundays, holidays and after regular open
hours, access to the office areas without proper and acceptable identification
may be refused.
Closing Premises: Each Tenant shall see that his demised Premises are
----------------
securely locked and will exercise caution to insure that all water faucets and
powered equipment are shut off before Tenant or Tenant's employees leave the
Property, so as to prevent waste or damage.
Common Rooms: Rooms used in common by Tenant and Landlord, if any, shall
------------
be subject to regulations adopted by Landlord.
Dedication - Prevention Of: Landlord reserves the right to close off any
--------------------------
and all of the plazas, promenades and sidewalks of the Property for twenty-four
(24) hours once every five (5) years to prevent dedication.
Deliveries and Service Area: Only hand trucks equipped with rubber tires
---------------------------
and sideguards will be permitted on the Property. All deliveries shall only be
brought through the service entrance of the Property. All deliveries requiring
exclusive use of an elevator shall be scheduled through the Management Office
and in any event such use will not be permitted without the use of elevator
protective padding and such use will not be permitted between the hours of 7:30
a.m. 8:30 a.m., 11:30 a.m.-1:30 p.m. and 3:30-5:00 p.m.
Heavy Items: All carrying in or out of freight, packages or bulky matter
-----------
of any description must take place only during hours selected by Landlord and
then only with prior notice to and approval by Landlord. No object beyond the
rated capacity of elevators shall be brought on the Property. Landlord shall
have the right to prescribe the location of heavy objects and if considered
necessary, the means to distribute the weight thereof (to no more than fifty
(50) pounds per square foot unless written approval is granted by the Landlord).
All costs incurred will be charged to Tenant. Any damage to the Property caused
by any such Tenant or its contractor, delivery or moving service, will be
repaired at such Tenant's expense.
Directories: The Tenant directories are provided for displaying the name
-----------
and location of each Tenant. A charge will be made for the initial listing and
for each name added to or other change to Tenant's name. The initial listing
and all such additions or changes will require
<PAGE>
Landlord's approval. Tenant shall provide Landlord with a written request for
any additions or changes to the directory.
Electrical Air-Conditioning Systems: No Tenant shall alter the standard
-----------------------------------
building lighting or air-conditioning system or install any special wiring or
abnormal power consuming equipment without written approval of Landlord. If
air-conditioning and/or power is used out of normal operating hours or there is
abnormal consumption thereof, the tenant involved shall pay on demand a
reasonable charge. The air-conditioning system will operate without additional
charge to Tenant during regular open hours.
After Hours Services: Air conditioning service is available for Tenant
--------------------
after normal open hours. Landlord shall make an extraordinary charge for the
after-hours services which shall be based on the rate schedule or energy
agreement in effect for such services or on the actual premium cost of providing
such services, including the cost of labor and fringe benefits for required
operating personnel, electricity at the per kilowatt hour rate applicable to the
Property, water and sewerage at the posted rate, supplies and materials, if any,
and any other direct premium costs associated with providing such services in
situations where no rate schedule has been set or energy agreement has been
entered into.
Janitorial Service: No one other than those approved in writing by
------------------
Landlord shall be permitted to perform any janitorial service on the Property.
Janitorial service, if supplied by Landlord, shall not include shampooing or
spotcleaning of carpets, cleaning of mini blinds, nor movement of furniture.
Landlord shall not be responsible for any loss of or damage to any Tenant's
property by the janitor, its employees or any other person performing janitorial
services.
Keys and Locks: No locks other than those provided by Landlord shall be
--------------
placed on any doors without the written consent of the Landlord. Two (2) keys
per lock will be furnished to Tenant by Landlord. Lock cylinders and keys shall
be changed by Landlord at Tenant's expense upon receipt of written request from
Tenant. All keys will be surrendered upon termination of Lease. Janitors and
contract cleaners will be provided with a passkey to Tenant's premises unless
Tenant declines in writing and thereby understands that Landlord will not be
responsible for providing janitorial services and emergency access to that
demised area. All requests for duplication of keys will be submitted to the
building manager.
Obstruction of Common Area: All common areas will be used only for ingress
--------------------------
and egress to the demised premises. Landlord retains the right to control and
prevent access onto the property by any and all persons other than those persons
having a legal right to ingress and egress from the demised premises. Only
persons authorized by Landlord will be permitted in areas housing mechanical,
electrical or equipment of any kind, or the roof.
Animals: No animals or pets are allowed on the Property or in the demised
-------
premises at any time, except for Seeing Eye dogs.
Bicycles, Mopeds and Motorcycles: Bicycles, mopeds and motorcycles are to
--------------------------------
be parked only in those areas so designated within the parking garage structure.
Removal of Property: Each Tenant shall deliver a list of any fixtures or
-------------------
improvements in the premises which the Tenant desires to remove from the
Property, and the list must be approved in writing by the Landlord before any
such fixture or improvements is removed.
Repairs/Alterations/Additions to Premises: Prior to commencement of
-----------------------------------------
construction for any repair, alterations or additions to the Premises, Tenant
shall submit to Landlord in writing for Landlord's written approval the
following: 1) Work Description; 2) Work Schedule; 3) Names of Architect, General
Contractor and any Sub-Contractors; 4) Working Drawings and
<PAGE>
Specifications; 5) Copy of Performance Bond and Insurance Certificate (by
Contractor); and 7) Copy of Completion Bond (by Tenant). Tenant shall also
provide Landlord with lien releases upon request. Only contractors approved by
Landlord shall be permitted to carry out any repairs, alterations or additions
within the Premises and/or on the Property.
Maintenance Requests: The requirements of a Tenant will be attended to
--------------------
only upon application by such Tenant to Landlord. Landlord's employees will not
perform any work outside of regular duties unless under special instructions
from the Landlord or its authorized agent.
Window Displays: Tenant will not use any method or type of display or
---------------
window advertising without Landlord's prior written approval which shall only be
given if the proposals are considered by Landlord to be consistent with the
character of the Property.
Signs, Screens and Awnings: No notice or advertisement visible from the
--------------------------
exterior of the Property or premises will be permitted without prior written
approval of Landlord. All graphics, curtains, blinds, shades or screens visible
from the exterior of the Property or any premises demised, where permitted,
shall conform to the standards as specified by Landlord from time to time. In
the event of the violation of this rule by any Tenant, Landlord may remove same
without any liability, and may charge the expense incurred thereby to the Tenant
involved.
Holidays: The following holidays shall be observed by the Property. The
--------
Property will be secured, a security officer will be on duty, and air
conditioning and other services will not be provided on such days.
New Year's Day
Memorial Day
Independence Day
Labor Day
Thanksgiving Day
Christmas Day
The above listed holidays may be changed from time to time and the
designated holidays shall be based on the predominant practice in the business
community as determined by Landlord.
Solicitors: Landlord reserves the right to eject from the Property, any
----------
solicitors, canvassers or peddlers and any other class of persons who, in the
judgment of Landlord, are annoying or interfering with any of Tenant's or
Landlord's operations or who are otherwise undesirable. Canvassing, peddling,
soliciting and distribution of any written materials on the Property are
prohibited and each Tenant shall cooperate to prevent the same.
Trash: Each Tenant shall store all its trash and garbage for removal by
-----
janitors within the interior of its demised premises. No material, rubbish or
debris shall be placed in trash boxes or receptacles if such materials are of
such nature as to emit an offensive odor or be in violation of any law or
ordinance governing disposal of same. All Tenant construction debris shall be
removed from Premises and the Property by Tenant, its contractors or its
employees.
Use: Except with prior written consent of Landlord, no Tenant shall
---
conduct any business other than that specifically provided for in its lease. No
Tenant shall permit its demised premises to be used in a manner offensive or
objectionable to the other Tenants or Landlord. No cooking shall be done or
permitted in the Premises nor shall Tenant cause or permit any unusual or
objectionable odors to be produced upon or permeate from its Premises. No
Tenant shall at any time bring, allow or keep upon the Premises any flammable,
combustible or explosive fluid,
<PAGE>
chemical or substance in such quantities as may endanger or imperil the demised
premises or any other premises or the property or lives of other persons. No
Tenant shall make or permit to be made any unreasonable vibration, unseemly
noise or disturb or interfere with occupants of this or adjoining buildings or
premises or those having business with them whether by the use of any business
machines and other equipment, musical instruments, radio or television sets,
phonographs, signing or the making of any disturbing sounds. The Premises shall
not be used for lodging or sleeping.
Violations: Landlord shall not be responsible to any Tenant for the non-
----------
observance or violation of any rules and regulations by any other Tenant or
other person. Tenant shall be deemed to have read these rules and regulations
and to have agreed to abide by them as a condition to its occupancy of the space
leased.
Washrooms: The lavatory facilities and other water apparatus shall not be
---------
used for any purpose other than that for which they were constructed. The
expense to repair any breakage, stoppage or damage resulting from the violation
of this rule shall be borne by the Tenant whose employees or visitors shall have
caused the expense.
Water: Water will be supplied by the Landlord for drinking and toilet
-----
purposes only.
Windows and Doors: No windows, glass doors or any other light sources that
-----------------
reflect into the lobbies or other places of the Property shall be obstructed or
covered except in a manner approved in writing by Landlord.
END OF RULES AND REGULATIONS
<PAGE>
EXHIBIT "D"
[Intentionally Omitted]
<PAGE>
AMENDMENT OF COMMERCE TOWER OFFICE LEASE
(CHEAP TICKETS, INC.)
This AMENDMENT OF COMMERCE TOWER OFFICE LEASE is made this 14th day of
June, 1996 by and between TOSEI PROPERTIES, INC., a Hawaii corporation, whose
principal place of business and post office address is at 1440 Kapiolani
Boulevard, Suite 1000, Honolulu, Hawaii 96813 ("Landlord") and CHEAP TICKETS,
INC., a Hawaii corporation, whose principal place of business and post office
address is at 1440 Kapiolani Boulevard, Suite 800, Honolulu, Hawaii 96813
("Tenant");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Tenant and Landlord herein entered into an unrecorded
Commerce Tower Office Lease dated July 2, 1995 (the "Lease"), covering office
space identified as Suite No. 800 consisting of approximately ten thousand one
hundred fifty-eight (10,158) rentable square feet of floor area (the "Original
Premises") located on the eighth floor of the building known as The Commerce
Tower (the "Building");
WHEREAS, Landlord and Tenant are desirous of providing for the rental
to Tenant of additional premises in the spaces identified as Suite Nos. 810, 825
and 828 and consisting of approximately one thousand sixty-eight (1,068)
rentable square feet (the "810 Additional Premises"), eight hundred sixty-five
(865) rentable square feet (the "825 Additional Premises") and one thousand two
hundred two (1,202) rentable square feet (the "828 Additional Premises" and,
collectively with the "810 Additional Premises" and the "828 Additional
Premises," the "Additional Premises");
NOW, THEREFORE, in consideration of the premises, and in consideration
of the covenants and conditions contained herein, Landlord and Tenant hereby
agree as follows:
1. Definitions. Capitalized terms not otherwise defined herein
shall have the meanings ascribed to such terms in the Lease.
2. Additional Premises. (a) For the period commencing from and
after the Effective Date hereinafter defined and ending on the Termination Date
provided for in the Lease, Landlord does hereby demise and lease the Additional
Premises unto Tenant, and Tenant does hereby lease and hire the Additional
Premises from Landlord. For purposes of this Amendment, the Effective Date
shall be the date on which Landlord relocates the existing tenants from the 825
Additional Premises and the 828 Additional Premises and completes building
standard "turn-key" improvements for all of the Additional Premises built to the
same standard as Tenant's existing premises.
Subject to subparagraph 2(b) below, the Additional Premises shall,
from and after the Effective Date, be added to the Premises demised under the
Lease, shall be leased by Landlord to Tenant for a term commencing on the
Effective Date and ending on the Termination Date, and shall be subject to all
of the terms, covenants and provisions of the Lease, except as is expressly
provided for herein.
(b) Anything herein to the contrary notwithstanding, Landlord and
Tenant agree as follows with respect to the lease of the Additional Premises:
(1) The lease by Landlord to Tenant of the Additional Premises
is expressly made contingent on Landlord reaching an agreement satisfactory to
Landlord for the
<PAGE>
relocation of the existing tenants from the 825 Additional Premises and the 828
Additional Premises to comparable premises in the Building.
(2) If, on or before the expiration of sixty (60) days from the
execution of this Amendment by Landlord and Tenant, Landlord fails to agree with
the existing tenants on the terms and conditions for relocation of such tenants
from the 825 Additional Premises and the 828 Additional Premises, neither
Landlord nor Tenant shall have any obligation with respect to the lease of the
Additional Premises hereunder.
(3) Landlord shall make reasonable efforts to reach satisfactory
agreements with the existing tenants of the 825 Additional Premises and the 828
Additional Premises.
3. Monthly Rent for Additional Premises. Monthly Base Rent for the
Additional Premises from and after the Effective Date shall be $3,009.60 per
month.
4. Operating Expenses and Common Office Expenses. Tenant's Pro Rata
Share of Operating Expenses and Tenant's Proportionate Share of Common Office
Expenses with respect to the Additional Premises shall be 2.5425% and 2.7768%,
respectively.
On the Effective Date, Tenant's Pro Rata Share of Operating Expenses
and Tenant's Proportionate Share of Common Office Expenses under the Lease shall
be increased by the applicable percentages set forth above.
5. Conveyance Tax; General Excise Tax. Tenant shall, pursuant to
paragraph 6 of Section III. of the Lease, be responsible for the payment of any
conveyance tax imposed by the State of Hawaii with respect to the Additional
Premises provided for herein and shall also be responsible for the Hawaii
general excise tax and all other similar gross receipts taxes payable under said
paragraph 6.
6. Security Deposit. Tenant shall deposit, on each applicable
Effective Date, $6,014.85 as a security deposit for the Additional Premises.
7. Option to Renew; First Opportunity to Lease. The provisions of
(J)(2) ("Option to Renew") of Section I. of the Lease shall, on the demise of
each Additional Premises to Tenant, also be applicable to such Additional
Premises. The provisions of (J)(3) ("First Opportunity to Lease") of Section I.
of the Lease shall, on the demise of the Additional Premises, be deleted from
the Lease.
8. Parking Stalls. For the period commencing from and after the
Effective Date herein defined and ending on the Termination Date provided for in
the Lease, Landlord and Tenant hereby agree that Paragraph (I) of Section I. of
the Lease is hereby amended in its entirety to read as follows:
(I) Number of parking stalls for automobiles to be rented to
Tenant: Three (3) reserved and twenty-three (23) unreserved
stalls for a total of twenty-six (26) parking stalls at
prevailing rates.
Two (2) of the three (3) reserved parking stalls shall be
free for the original term of this Lease.
Landlord shall make additional parking stalls available for
rental by Tenant at the Landlord's prevailing rates if
additional parking stalls are required by Tenant.
<PAGE>
9. Ratification of Lease. Except as further modified hereunder, said
Lease is hereby ratified, confirmed and approved and shall remain in full force
and effect.
10. Counterparts. This Amendment of Commerce Tower Office Lease may
be executed in several counterparts, each of which shall be deemed an original,
but all of which shall constitute one and the same instrument. In addition,
this Amendment of Commerce Tower Office Lease may contain more than one
counterpart of the signature page and this Amendment of Commerce Tower Office
Lease may be executed by the affixing of the signatures of each of the parties
to one of such counterpart signature pages; and all of such counterpart
signature pages shall be read as though one, and they shall have the same force
and effect as though all of the signers had signed a single signature page.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment of
Commerce Tower Office Lease (Cheap Tickets, Inc.) on the day and year first
above written.
TOSEI PROPERTIES, INC.,
a Hawaii corporation
By /s/ Shigeo Hone
-----------------------------------
Name: Shigeo Hone
-----------------------------------
Title: Attorney-in-Fact
-----------------------------------
Landlord
CHEAP TICKETS, INC.,
a Hawaii corporation
By /s/ Tammy Ishibashi
-----------------------------------
Name: Tammy Ishibashi
-----------------------------------
Title: Treasurer
-----------------------------------
Tenant
<PAGE>
SECOND AMENDMENT OF COMMERCE TOWER OFFICE LEASE
(CHEAP TICKETS, INC.)
This SECOND AMENDMENT OF LEASE is made this 9th day of October, 1997, by
and between TOSEI PROPERTIES, INC., a Hawaii corporation, whose principal place
of business and post office address is at 1440 Kapiolani Boulevard, Suite 1000,
Honolulu, Hawaii 96814 ("Landlord") and CHEAP TICKETS, INC., a Hawaii
corporation, whose principal place of business and post office address is at
1440 Kapiolani Boulevard, Suite 800, Honolulu, Hawaii 96814 ("Tenant");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Tenant and Landlord herein entered into an unrecorded Commerce
Tower Office Lease, dated July 02, 1995 (the "Lease"), as amended by Amendment
Of Lease dated June 14, 1996, covering certain premises (the "Original Premises"
and "Additional Premises), located in the building known as The Commerce Tower
(the "Building"); and
WHEREAS, the parties hereto are desirous of further amending the Lease for
the rental to Tenant of additional premises more particularly described herein;
NOW, THEREFORE, in consideration of the premises, and in consideration of
the covenants contained herein, Landlord and Tenant hereby agree as follows:
1. Definitions. Capitalized terms not otherwise defined herein shall
have the meanings ascribed to such terms in the Lease.
2. 1225 Additional Premises. Suite 1225. For the period commencing from
and after the date on which this Second Amendment of Commerce Tower
Office Lease is fully executed (hereinafter referred to as the "Suite
1225 Commencement Date") and ending on the Termination Date provided
for in the Lease, Landlord does hereby demise and lease unto Tenant,
and Tenant does hereby lease and hire from Landlord, Suite 1225,
consisting of approximately three thousand eighty-eight (3,088)
rentable square feet of floor area on the twelfth (12th) floor, as
indicated on the floor plan attached hereto as Exhibit "A", and made a
part hereof for all purposes (hereinafter referred to as the " 1225
Additional Premises"). The 1225 Additional Premises shall, from and
after the Suite 1225 Commencement Date, be added to the premises
demised under the Lease and shall be subject to all of the terms,
covenants and provisions of the Lease, except as is expressly provided
for herein.
3. Monthly Base Rent for Additional Premises. For the period commencing
from and after the Suite 1225 Commencement Date and up to and
including the Termination Date, Tenant agrees to pay to Landlord, as
Monthly Base Rent for 1225 Additional Premises, the sum of THREE
THOUSAND ONE HUNDRED EIGHTEEN AND 88/100 DOLLARS ($3,118.88).
4. Operating Expenses and Common Office Expenses.
A. Tenant's Pro Rata Share of Operating Expenses (as that term is
defined in the Lease) with respect to the 1225 Additional
Premises, subject to modification as provided in Paragraph 9 of
Section III of the Lease, is two and five thousand twenty-six ten
thousandths percent (2.5026%). Tenant
<PAGE>
shall pay with respect to the 1225 Additional Premises, Tenant's
share of estimated monthly Operating Expenses in the sum of ONE
THOUSAND NINE HUNDRED SEVENTY-TWO AND 97/100 DOLLARS ($1,972.97)
for the building fiscal year ending April 30, 1998.
B. Tenant's Pro Rata Share of Common Office Expenses (as that term
is defined in the Lease) with respect to the 1225 Additional
Premises, subject to modification in Paragraph 9 of Section III
of the Lease, is two and seven thousand three hundred thirty-
eight ten thousandths percent (2.7338%). Tenant shall also pay,
with respect to the 1225 Additional Premises, Tenant's share of
estimated monthly Common Office Expenses in the sum of EIGHT
HUNDRED SIXTY-TWO AND 30/100 DOLLARS ($862.30) for the building
fiscal year ending April 30, 1998.
5. Rent Abatement. For the period from the Suite 1225 Commencement Date
through February 28, 1998, the payment of Monthly Base Rent, Operating
Expenses and Common Office Expenses due in connection to 1225
Additional Premises shall be abated.
6. Security Deposit. Tenant shall deposit $6,202.20 as a security deposit
for the 1225 Additional Premises.
7. General Excise Tax. Tenant shall also pay to Landlord as additional
rent, together with each payment of rental, real property taxes and
other charges payable by Tenant under the Lease with respect to the
1225 Additional Premises, all amounts payable with respect to general
excise taxes, as provided in Paragraph 6 of Section III of the Lease.
8. Option to Renew; First Opportunity to Lease. The provisions of (J)(2)
("Option to Renew") of Section I. of the Lease shall also be
applicable to the 1225 Additional Premises. If at any time during the
term of this Lease, any of the remaining spaces on the twelfth (12')
floor of the Building become available for lease, Landlord shall give
written notice to Tenant of the availability of such space for lease
and Tenant will have five (5) business days to submit a written
proposal to Landlord to lease said premises.
9. Tenant Improvements. 1225 Additional Premises shall be leased in "as-
is" condition and all the improvements to be made to 1225 Additional
Premises shall be the sole responsibility of Tenant subject to
Landlord's approval of the plans and specifications of the
improvements.
10. Temporary Space. If deemed necessary, the Landlord shall permit Tenant
to occupy suite 1120 until suite 1225 is reasonably ready for
occupancy or November 30, 1997, whichever shall occur first. Tenant
shall pay no gross rent for suite 1120 during this temporary occupancy
of said suite. Tenant may occupy suite 1120 upon the full signature of
the Second Amendment of Commerce Tower Office Lease and Landlord's
receipt of the Security Deposit and Certificate of Insurance required
under the Lease. Landlord reserves the right to show suite 1120 to
prospective tenants during Tenant's temporary occupancy.
11. Parking Stalls. For the period commencing from and after the Suite
1225 Commencement Date herein defined and ending on the Termination
Date provided for in the Lease, Landlord and Tenant hereby agree that
Paragraph (I) of Section I. of the Lease is hereby amended in its
entirety to read as follows:
<PAGE>
(I) Number of parking stalls for automobiles to be rented to Tenant:
Three (3) reserved and twenty-nine (29) unreserved stalls for a
total of thirty-two (32) parking stalls at prevailing rates.
Two (2) of the three (3) reserved parking stalls shall be free
for the original term of this Lease.
Landlord shall make additional parking stalls available for
rental by Tenant at the Landlord's prevailing rates if additional
parking stalls are required by Tenant.
12. Ratification of Lease. Except as set forth herein, the Lease shall
continue in full force and effect in accordance with its terms with
respect to the remaining property under the Lease.
IN WITNESS WHEREOF, the parties hereto have executed these presents on the
day and year first above written.
TOSEI PROPERTIES, INC.
a Hawaii corporation
By: /s/ Shigeo Hone
------------------------------------------
Shigeo Hone
"Landlord"
CHEAP TICKETS, INC.
a Hawaii corporation
By: /s/ Michael J. Hartley
-----------------------------------------
Its
"Tenant"
<PAGE>
EXHIBIT "A"
-----------
FLOOR PLAN
[Diagram Description: The floor plan of the 12th floor of
The Commerce Tower at 1440 Kapiolani Boulevard, Honolulu, Hawaii.]
<PAGE>
Exhibit 10.6
1440 Kapiolani Boulevard
Honolulu, Hawaii
SUBLEASE
by and between
LEVI STRAUSS & CO.,
a Delaware corporation,
as "Sublandlord"
and
CHEAP TICKETS INC.,
a Hawaii corporation
as "Subtenant"
dated as of June 1, 1998
<PAGE>
SUMMARY OF TERMS
Parties/Date: This Sublease, by and between LEVI STRAUSS & CO., a Delaware
corporation ("Sublandlord"), and CHEAP TICKETS INC., a
Hawaii corporation ("Subtenant"), is dated, for reference
purposes only, the 1st day of June, 1998. This Sublease is
subject to the Office Lease by and between Tosei Properties,
Inc., a Hawaii corporation (as successor-in-interest to
Tosei Shoji Co., Ltd., a Japan corporation), as Landlord,
and Levi Strauss & Co., as Tenant, dated November 9, 1995
(the "Master Lease"), a copy of which is attached as
Exhibit A.
Premises: The space designated as Suite 920 at 1440 Kapiolani
Boulevard, Honolulu, Hawaii, consisting of approximately
2,854 rentable square feet.
Commencement Date: June 1, 1998.
Term: Twenty-Nine (29) months and fourteen (14) days, terminating
on November 14, 2000.
Base Rent: $ 4,709.10 per month, subject to adjustment in accordance
with Paragraph 3 of the Sublease.
Use: General office and otherwise as provided in the Master
Lease.
<PAGE>
OFFICE BUILDING
SUBLEASE
(Honolulu, HI)
THIS IS A SUBLEASE ("Sublease") dated as of June 1, 1998 made by and
between LEVI STRAUSS & CO., a Delaware corporation ("Sublandlord"), and CHEAP
TICKETS INC., a Hawaii corporation ("Subtenant").
Recitals
A. Sublandlord is the tenant under that certain Office Lease dated
November 9, 1995 (the "Master Lease"), pursuant to which Tosei Properties, Inc.,
a Hawaii corporation (as successor-in-interest to Tosei Shoji Co., Ltd., a Japan
corporation) ("Master Landlord"), leased to Sublandlord premises in the City of
Honolulu, Hawaii, in an office building commonly known as 1440 Kapiolani
Boulevard, more particularly described in the Master Lease (the "Premises").
B. A copy of the Master Lease is attached hereto as Exhibit A and by this
reference incorporated herein. Any capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to them in the Master Lease.
C. Subtenant desires to sublease from Sublandlord the Premises, subject to
the terms of the Master Lease and this Sublease.
D. For and in consideration of the covenants and agreements of the parties
hereinafter set forth, Sublandlord agrees to sublease to Subtenant, and
Subtenant agrees to sublease from Sublandlord, the Premises (as hereinafter
defined) upon all of the terms and conditions set forth herein.
1. PREMISES
Sublandlord subleases to Subtenant on the terms and conditions of this
Sublease, the Premises, designated as Suite 920 in the Building and comprised of
approximately 2,854 rentable square feet.
Subtenant shall also have the right to lease parking spaces in the
Building's parking facility at market rental rates, as provided in Section III.7
of the Master Lease.
2. TERM
2.1 Sublease Term. The term of this Sublease (the "Sublease Term") shall
-------------
commence as of June 1, 1998 (the "Commencement Date"), and shall end on November
14, 2000, the date that the Term of the Master Lease expires or is otherwise
terminated (the "Termination Date"), unless terminated sooner in accordance with
the provisions of this Sublease.
2.2 Holding Over. Subtenant shall have no right to retain possession of
------------
the Premises or any portion thereof beyond the expiration or earlier termination
of this Sublease. In the event that Subtenant holds possession of the Premises
after the expiration or termination of the Sublease Term, then, at Sublandlord's
election, in addition to all other rights and remedies available as a result of
any such holding over, Tenant shall become a month-to-month tenant upon all of
the terms specified in this Sublease, except that Base Rent shall be paid in an
amount equal to two hundred percent (200%) of the Base Rent payable for the
period immediately preceding such holdover.
<PAGE>
3. RENT
3.1 Minimum Base Rent. Subtenant shall pay to Sublandlord as minimum
-----------------
monthly rent ("Base Rent"), without deduction, setoff, notice, or demand, at the
address of Sublandlord set forth in Section 17 below, or at any other place
Sublandlord designates by notice to Subtenant, the sum of Four Thousand Seven
Hundred Nine and 10/l00ths Dollars ($4,709.10) per month, in advance on the
first day of each month of the Sublease Term. If the Sublease Term begins or
ends on a day other than the first or last day of a month, the rent for any
partial months shall be prorated on a per diem basis.
3.2 Additional Rent. In addition to Base Rent, Subtenant shall pay to
---------------
Sublandlord (i) any increases in Common Office Expenses and Operating Expenses
(each as defined in the Master Lease) allocable to the Premises over the amount
of such Common Office Expenses and Operating Expenses charged by Master Landlord
with respect to the Premises as of the date of this Sublease and (ii) as
provided in Section III.5 of the Master Lease, the State of Hawaii general
excise tax on gross income with respect to payments made by Subtenant hereunder,
which excise tax is presently equal to 4.166%) (collectively, "Additional
Rent"). Additional Rent shall be paid by Subtenant to Sublandlord within ten
(10) days after receipt of Sublandlord's invoice therefor.
3.3 Definition of Rent. As used herein, the term "Rent" shall mean,
------------------
collectively, Base Rent and Additional Rent. All payments of Rent required
under this Sublease shall be in lawful money of the United States or by check
drawn on a commercial banking institution chartered in the United States, with
immediately available funds made payable to Sublandlord or such other payee as
Sublandlord shall designate in writing to Subtenant.
4. LATE CHARGE AND INTEREST
4.1 Damage to Sublandlord for Late Payment. The late payment of any
--------------------------------------
Rent will cause Sublandlord to incur additional costs, including the cost to
maintain in full force the Master Lease, administration and collection costs,
and processing and accounting expenses. The parties have agreed that Sublandlord
should be reimbursed for such additional costs incurred on account of any late
payment by Subtenant, notwithstanding that the damage Sublandlord will suffer in
such event is difficult to ascertain in advance. Accordingly, the parties have
agreed that the late charge and interest payments described in Sections 4.2 and
4.3 below constitute a reasonable estimate of the damage that Sublandlord will
suffer in the event of Subtenant's failure to pay the Rent in a timely fashion.
4.2 Late Charge. If Sublandlord has not received any installment of Rent
-----------
within five (5) days after that amount is due, Subtenant shall pay to
Sublandlord five percent (5%) of the delinquent amount. If a late charge becomes
payable hereunder for any three (3) installments of Rent within any twelve (12)
month period, the Rent shall automatically become payable quarterly in advance.
<PAGE>
4.3 Interest. In addition to the payment of a late charge pursuant to
--------
Section 4.2 above, all delinquent amounts of Rent shall bear interest from the
date the amount was due until paid in full at an interest rate (the "Applicable
Interest Rate") equal to one percent (1%) per month; provided, however, in no
event shall the Applicable Interest Rate exceed the maximum interest rate
permitted by law that may be charged under these circumstances.
5. SECURITY DEPOSIT
Subtenant has deposited with Sublandlord the sum of Four Thousand Seven
Hundred Three and 10/l00ths Dollars ($4,703.10) as security for Subtenant's
faithful performance of Subtenant's obligations under this Sublease (the
"Security Deposit"). If Subtenant fails to pay Rent or other charges when due
under this Sublease, or fails to perform any obligations under this Sublease,
Sublandlord may use any portion of the Security Deposit for the payment of any
such Rent or other amount then due and unpaid, for the payment of any other sum
for which Sublandlord may become obligated because of Subtenant's default or
breach, or for any loss sustained by Sublandlord as a result of Subtenant's
default or breach. If Sublandlord uses any portion of the Security Deposit,
Subtenant will, within ten (10) days after written demand by Sublandlord,
restore the Security Deposit to the full amount originally deposited.
Subtenant's failure to do so shall constitute a default under this Sublease.
Sublandlord shall not be required to keep the Security Deposit separate from its
general accounts, and shall have no obligation or liability for payment of
interest on the Security Deposit. If Sublandlord assigns its interest in this
Sublease, Sublandlord shall deliver to its assignee as much of the Security
Deposit as Sublandlord then holds. Within thirty (30) days after the Sublease
Term has expired or Subtenant has vacated the Premises, whichever occurs last,
and provided that Subtenant is not then in default under this Sublease, the
Security Deposit, or as much as remains that has not been applied by
Sublandlord, shall be returned to Subtenant or to the last assignee, if any, of
Subtenant's interest under this Sublease.
6. USE OF PREMISES
6.1 Permitted Use. The Premises shall be used and occupied only for
-------------
general office purposes and for any other lawful use that is also expressly
permitted by the Master Lease.
6.2 Acceptance: Prohibited Uses. Subtenant accepts the Premises in its
---------------------------
existing, "as is" condition, by its occupancy and subject to all applicable
laws, ordinances, rules, regulations, orders, restrictions of record, and
requirements ("Applicable Laws"), with which Subtenant shall comply at its sole
cost as they relate to Subtenant's use or occupancy of the Premises or to
improvements, alterations or installations made to the Premises by or for
Subtenant (as approved pursuant to Section 13 below), or to the operation of
Subtenant's business. Subtenant acknowledges that Sublandlord shall have no
obligation whatsoever to provide any improvements or repairs to the Premises.
Subtenant shall keep and maintain the Premises and every part and component
thereof in good repair and in a good and safe condition throughout the term of
this Sublease. Subtenant shall not commit, or suffer to be committed, any waste
upon the
<PAGE>
Premises, or any nuisance or other act or thing which may disturb the quiet
enjoyment of Sublandlord or any other tenant or occupant in or around the
Master Premises. Subtenant shall not place any loads upon the floor, walls, or
ceiling which endanger the structure of the Premises or the Master Premises.
Subtenant shall not use or permit the Premises to be used in violation of any
Applicable Laws, including, without limitation, any laws regarding the use,
transport, handling, generation or storage of Hazardous Materials (as
hereinafter defined).
Subtenant agrees that it shall not use, generate, store or dispose of any
Hazardous Material on, under, about or within the Premises in violation of any
Applicable Laws. Subtenant agrees to protect, defend, indemnify and hold
Sublandlord and its officers, directors, affiliates, agents, stockholders,
employees, successors and assigns harmless against any and all losses,
liabilities, claims and/or costs (including, without limitation, reasonable
attorneys' fees and costs) arising from any breach of the covenants contained in
this Section 6.2. If Subtenant causes or permits the release of any Hazardous
Materials on or about the Premises, then Subtenant shall immediately report such
release to Sublandlord, and shall immediately remove, cleanup, abate and dispose
of such Hazardous Materials in accordance with all Applicable Laws pertaining
thereto. As used herein, the term "Hazardous Material" shall mean any hazardous
or toxic substance, material or waste, including without limitation any material
or substance which is (i) dangerous or injurious to health, whether alone or in
combination with other materials or substances, (ii) regulated, designated or
defined as a hazardous or toxic waste, substance or material under any federal,
state, or local law, rule, order or regulation, (iii) asbestos or asbestos
containing materials, (iv) explosive or radioactive substances or materials or
(v) petroleum or petroleum byproducts.
The covenants and obligations of this Section 6.2 shall survive the
expiration or earlier termination of this Sublease.
6.3 Acts Affecting Insurance Coverage. Subtenant shall not commit any
---------------------------------
acts on the Premises, nor use or permit the Premises to be used in any manner
that will increase the existing rates for or cause the cancellation of any fire,
liability, or other insurance policy insuring the Premises or the Master
Premises.
7. INCORPORATION OF MASTER LEASE TERMS
All applicable terms and conditions of the Master Lease are incorporated
into and made a part of this Sublease as if Sublandlord were the landlord,
Subtenant the tenant, and the Premises the Master Premises, except for the
following, which shall not be included herein and shall be superseded by the
terms of this Sublease: Sections I.(C), I.(D), I.(E), I.(F), I.(H), I.(J)(l),
I.(J)(3), I.(J)(4), and I.(J)(5); and Sections III.3, III.5, III.8 and III.30.
Subtenant assumes and agrees to perform the tenant's obligations under the
Master Lease during the Sublease Term to the extent that these obligations are
applicable to the Premises. As between Sublandlord and Subtenant, in the event
of damage to or condemnation of the Premises, all insurance or condemnation
proceeds or awards received by Sublandlord under the Master Lease shall be
deemed the property of Sublandlord, and Sublandlord shall have no obligation to
rebuild or restore the Premises. Subtenant shall not commit or suffer any act or
omission that will violate any of the provisions of the Master Lease.
<PAGE>
8. SUBTENANT'S INSURANCE
Subtenant shall procure at its expense and keep in force during the term of
this Sublease a Comprehensive General Liability policy of insurance providing
single limit coverage in an amount not less than two million dollars
($2,000,000) arising out of each occurrence. Subtenant shall maintain workers'
compensation insurance for Subtenant's employees as required by the laws of the
State of Hawaii. Subtenant shall either by separate policy or by endorsement to
a policy already carried, maintain insurance coverage on all of Subtenant's
furniture, fixtures and personal property in, on, or about the Premises for its
full insurable value against fire and extended coverage risks, including
protection against vandalism, malicious mischief and ceiling sprinkler leakage
protection. All insurance to be carried by Subtenant shall be primary to and
not contributory with any similar insurance carried by Sublandlord, and shall
name Sublandlord and Master Landlord (and Master Landlord's mortgagee --
provided that Master Landlord notifies Subtenant of the identity of its
mortgagee) and the manager of the Building as additional insureds. Insurance
required hereunder shall be in financially capable and sound companies duly
licensed to transact business in the State of Hawaii and which carry a minimum
rating of "A" by A.M. Best. Prior to entering the Premises, Subtenant shall
cause to be delivered to Sublandlord and to Master Landlord certified copies of
policies of such insurance or certificates evidencing the existence and amounts
of such insurance with the insureds clauses as required by this Sublease. No
such policy shall be cancelable or subject to modification except after thirty
(30) days' prior written notice to Sublandlord and Master Landlord.
9. SUBTENANT'S PERSONAL PROPERTY
Subtenant shall be responsible, at its sole cost and expense, for insuring
its trade fixtures, equipment, furniture, furnishings and other personal
property located on or about the Premises (collectively, "Subtenant's Personal
Property") and for paying all taxes charged or assessed against Subtenant's
Personal Property. Sublandlord shall have no liability for, and Subtenant shall
indemnify and defend Sublandlord from and against, any damage to Subtenant's
Personal Property, and/or for any lien, claim, loss cost or expense that arises
out of or is related to Subtenant's Personal Property.
10. TRANSFERS
Subtenant shall not assign this Sublease or further sublet or otherwise
transfer, encumber, mortgage or hypothecate all or any part of the Premises or
any interest in the Premises or this Sublease without the prior written consent
of Sublandlord, which Sublandlord may withhold in its sole and absolute
discretion.
11. INDEMNITY
Subtenant shall protect, defend, indemnify and hold Sublandlord and its
officers, directors, affiliates, agents, stockholders, employees, successors and
assigns harmless from and against any and all damages, losses, claims,
liabilities and costs (including reasonable attorneys' fees) arising out of,
from or in connection with (i) Subtenant's use or occupancy of the Premises,
(ii) any injury to persons or damage to property occurring in, on or about the
Premises during the Sublease Term, or (iii) any act or omission of Subtenant or
its agents, contractors, employees, or
<PAGE>
invitees, (iv) any breach or default by Subtenant under this Sublease, including
the failure of Subtenant to pay or perform any liability or obligation of
Sublandlord under the Master Lease which has been incorporated herein as a
liability or obligation required to be performed by Subtenant. The obligations
of Subtenant hereunder shall survive the expiration or earlier termination of
this Sublease. Notwithstanding Sublandlord's negligence or breach of this
Sublease, Sublandlord shall under no circumstances be liable for injury to
Subtenant's business or for any loss of income or profit therefrom.
12. MASTER LANDLORD OBLIGATIONS
Subtenant recognizes that Sublandlord is not in a position to render any of
the services or to perform any of the obligations required of Master Landlord
under the Master Lease. Accordingly, despite anything to the contrary set forth
herein, Subtenant agrees that performance by Sublandlord of its obligations
hereunder is conditioned upon performance by Master Landlord of its
corresponding obligations under the Master Lease, and that Sublandlord will not
be liable to Subtenant for any failure or default of Master Landlord under the
Master Lease. Notwithstanding anything to the contrary contained in this
Sublease, Sublandlord shall not be required to (A) provide any of the services
or construction to the Premises or the Master Premises that Master Landlord has
agreed to provide pursuant to the Master Lease (or as required by law), (B)
provide any utilities (including electricity) to the Premises or the Master
Premises that Master Landlord has agreed to furnish pursuant to the Master Lease
(or as required by law), (C) make any of the repairs that Master Landlord has
agreed to make pursuant to the Master Lease (or as required by law), or (D) take
any other action relating to the operation, maintenance, repair, alteration or
servicing of the Premises or the Master Premises that Master Landlord has agreed
to provide, furnish, make, comply with, or take, or cause to be provided,
furnished, made, complied with or taken under the Master Lease; and Sublandlord
shall not be deemed to have made to Subtenant, and shall have no liability or
obligations respecting, any representations or warranties of Master Landlord
under the Master Lease. In the event of a default by Master Landlord under the
Master Lease, then, following the receipt of the written request of Subtenant
specifying Master Landlord's default, Sublandlord shall exercise reasonable
diligence in attempting to cause Master Landlord to perform its obligations
under the Master Lease for the benefit of Subtenant; provided, however, that in
the event Master Landlord's default shall continue for ten (10) days after the
written request is received by Sublandlord, then such default by Master Landlord
shall be deemed to be a breach by Sublandlord under this Sublease unless
------
Sublandlord continues to exercise reasonable diligence in attempting to cause
Master Landlord to cure such default under the Master Lease. Notwithstanding
anything to the contrary set forth herein, Sublandlord's liability to Subtenant
shall not under any circumstances exceed the aggregate amount paid by Subtenant
to Sublandlord hereunder during the twelve (12) month period prior to the date
any claimed breach arises. Further, in no event shall Sublandlord be liable for
any incidental, indirect or consequential damages, including loss of profit or
revenues, of Subtenant.
13. ALTERATIONS
Subtenant shall not make any alteration, improvement or installation in or
to the Premises without in each instance obtaining the prior written consent of
Master Landlord and Sublandlord and otherwise complying with the applicable
terms and provisions of the Master Lease.
<PAGE>
14. REMEDIES FOR DEFAULT
If Subtenant defaults in the performance of its obligations hereunder
(including, without limitation, any obligation under the Master Lease which is
incorporated herein), and any such default continues beyond the notice and cure
periods applicable to such default, as specified in Section 34 of the Master
Lease, then, in addition to any other remedies that Sublandlord may have
pursuant to the terms of the Master Lease (as incorporated herein) and this
Sublease, Sublandlord may pursue any other remedy now or hereafter available to
Sublandlord under the laws and/or judicial decisions of the State of Hawaii.
15. ATTORNEYS' FEES
If either party commences an action against the other arising out of or in
connection with this Sublease (including any proceeding for declaratory relief),
the prevailing party shall be entitled to recover from the losing party
reasonable attorneys' fees, costs of suit, investigation costs and discovery
costs, including costs of appeal.
16. BROKERS
Sublandlord and Subtenant each warrant that they have not dealt with any
real estate broker, agent, finder or other person who may claim a brokerage fee
or other similar compensation in connection with this sublease transaction other
than CB Commercial Real Estate Group, Inc. ("CB"), which has represented
Sublandlord and whose brokerage fee shall be paid entirely by Sublandlord
pursuant to a separate written agreement between Sublandlord and CB.
Sublandlord and Subtenant each agree to indemnify, defend, and hold the other
harmless against any damages incurred as a result of the breach of the warranty
contained in this Section 16.
17. NOTICES
Any and all notices required or desired to be delivered hereunder shall be
in writing and shall be delivered by personal delivery, registered or certified
mail, return receipt requested, by overnight delivery via a recognized courier
service, or by telecopy or facsimile, and shall be deemed delivered (A) upon
receipt if personally delivered, (B) three (3) days after mailing if mailed, or
(C) upon receipt if sent by overnight delivery, telecopy or facsimile, and in
each case if addressed:
To Sublandlord: Levi Strauss & Co.
Global Real Estate
1155 Battery Street, IH1/2
San Francisco, CA 94111
Attn: Real Estate Manager
FAX: (415) 501-3960
To Subtenant: Cheap Tickets Inc.
1440 Kapiolani Boulevard #800
Honolulu, HI 96819
Attn: Mr. Michael Bartholomew
FAX: (808) 945-0610
Either party may by written notice to the other specify a different or
additional address for notice purposes.
<PAGE>
18. MISCELLANEOUS
18.1 Entire Agreement. This Sublease sets forth all the agreements
----------------
between Sublandlord and Subtenant concerning the Premises, and there are no
representations, warranties or agreements either oral or written other than as
set forth in this Sublease. This Sublease may be modified, amended or
supplemented only in writing and only if signed by each of the parties hereto.
Upon execution of this Sublease by Sublandlord, Subtenant and Master Landlord,
that certain letter agreement between Sublandlord and Subtenant, dated April 13,
1998 and captioned "Temporary license to use space," shall terminate and be of
no further force or effect.
18.2 Severability: Survival. A determination by a court of competent
----------------------
jurisdiction that any provision of this Sublease or any part thereof is illegal
or unenforceable shall not cancel or invalidate the remainder of such provision
or of this Sublease, which shall remain in full force and effect.
18.3 Time Of Essence. Time is of the essence in this Sublease.
---------------
18.4 Counterparts. This Sublease may be executed in counterparts and,
------------
when all counterparts are executed, the same shall constitute a single binding
instrument. This Sublease shall not be binding upon either party until executed
and delivered by both parties.
18.5 Successors and Assigns. Subject to the terms of Section 10 above,
----------------------
this Sublease shall be binding on and inure to the benefit of the parties to it,
their heirs, executors, administrators, successors in interest, and assigns.
18.6 Entry. Sublandlord reserves the right to enter the Premises at any
-----
reasonable time to inspect the Premises or the performance by Subtenant of the
terms and conditions of this Sublease, or to undertake such work of repair or
improvement as Sublandlord may need to perform. Notwithstanding the foregoing,
except in the case of emergency, Sublandlord agrees not to exercise such rights
of entry as respects the office portion of the Premises without reasonable
advance notice.
18.7 Submission of Agreement. Submission of this Sublease for Subtenant's
-----------------------
examination shall in no way be construed as a valid Sublease arrangement, nor as
giving Subtenant any occupancy or option rights to the Premises hereunder, and
this Sublease shall not be valid and binding unless and until it has been duly
executed and delivered by all parties hereto.
18.8 Authority. Subtenant hereby represents and warrants to Sublandlord
---------
that it has the proper authority and is empowered to execute and perform each of
its obligations under this Sublease, and that upon Subtenant's execution and
delivery of this Sublease, Subtenant shall be bound by this Sublease in
accordance with the terms hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
18.9 Consent of Master Landlord. This Sublease is conditioned upon the
--------------------------
receipt of the consent of the Master Landlord, as provided in the signature
block below.
IN WITNESS WHEREOF, the parties have executed this Sublease as of the date
first above written.
SUBTENANT: Cheap Tickets Inc. a Hawaii corporation
By: /s/ Michael J. Hartley
----------------------------------------
Name:
--------------------------------------
Its:
---------------------------------------
SUBLANDLORD: Levi Strauss & Co., a Delaware corporation
By: /s/ Susan Shipley
----------------------------------------
Name: Susan Shipley
--------------------------------------
Its: Vice President, Real Estate
---------------------------------------
CONSENT OF MASTER LANDLORD
--------------------------
The undersigned, the Master Landlord under the Master Lease, as
defined in the foregoing Sublease, hereby consents to the foregoing Sublease
upon its terms and conditions, provided that Master Landlord's consent to the
Sublease shall not constitute its consent or waiver of consent to any subsequent
sublease or sub-sublease of the Premises.
Tosei Properties, Inc.,
a Hawaii corporation
By: /s/ Shigeo Hone
----------------------------------------
Name:
--------------------------------------
Its:
---------------------------------------
<PAGE>
EXHIBIT A
---------
MASTER LEASE
THE COMMERCE TOWER
OFFICE LEASE
by and between
TOSEI SHOJI CO., LTD.,
a Japan corporation
and
LEVI STRAUSS & CO.,
a Delaware corporation
<PAGE>
THE COMMERCE TOWER
OFFICE LEASE
------------
THIS LEASE made this 9th day of November, 1995, by and between TOSEI SHOJI
CO., LTD., a Japan corporation, whose principal place of business and post
office address in the State of Hawaii is at 1440 Kapiolani Boulevard, Suite
1000, Honolulu, Hawaii 96814 (the "Landlord"), and LEVI STRAUSS & CO., a
Delaware corporation, whose principal place of business and post office address
is at 1155 Battery Street, San Francisco, California (the "Tenant");
W I T N E S S E T H:
- - - - - - - - - -
That Landlord, in consideration of the rent herein reserved and of the
covenants herein contained, does hereby lease unto Tenant, and Tenant does
hereby lease from Landlord, that certain office space (the "Premises") located
in the building known as The Commerce Tower (the "Building") located at 1440
Kapiolani Boulevard, Honolulu, Hawaii. The Building shall include such other
structures as may now exist on the land on which the Building is located and the
common areas, improvements and facilities thereon or which may in the future be
constructed thereon (the "Property").
I. Specific Conditions of the Lease.
--------------------------------
The following subparagraphs constitute all of the specific conditions
of this Lease as referred to elsewhere in this Lease:
(A) Suite No. 920, consisting of approximately two thousand five hundred
seventeen (2,517) usable square feet or two thousand eight hundred
fifty-four (2,854) rentable square feet of floor area on the ninth
(9th) floor as indicated on the floor plan attached hereto as Exhibit
"A" and made a part hereof for all purposes.
(B) (l) Tenant's initial Pro Rata Share of Operating Expenses
(hereinafter defined), subject to modification as provided in
paragraph 8 of Section III of this Lease: Two and three thousand
one hundred forty-six ten-thousandths percent (2.3146%). Landlord
confirms that the square footage of rentable area in the Building
used in all leases is 123,304 square feet.
(2) Tenant's Proportionate Share of Common Office Expenses
(hereinafter defined) of the Building, subject to modification as
provided in paragraph 8 of Section III of this Lease: Two and
five thousand two hundred seventy-nine ten-thousandths percent
(2.5279%). Landlord confirms that the total square footage of
rentable area of all premises other than those being leased to
tenants on the ground floor of the Building used in all leases is
112,901 square feet.
(C) The term of this Lease shall be five (5) years (the "Term"),
commencing on the earlier of: (i) the 15th day of November, 1995, or
(ii) upon Tenant's possession of the Premises (the "Commencement
Date"), and ending at midnight on the fifth (5th) anniversary (the
"Termination Date") following such Commencement Date, unless sooner
terminated as herein provided.
<PAGE>
(D) Monthly Base Rent shall be as shown below:
Period Monthly Base Rent
------ -----------------
(1) For the period commencing $3,139.40
on the Commencement Date
and ending on the
Termination Date.
Paragraphs (D)(2) through (D)(5) of Section I of this Lease, and all
references in this Lease to said paragraphs, are hereby deleted.
Landlord and Tenant agree that the Monthly Base Rent for the Premises
is conclusively established in the amounts set forth above,
irrespective of the actual number of square feet of floor area of the
Premises.
Notwithstanding the preceding, Tenant shall be entitled to a free rent
period of two and one half months, beginning on the Commencement Date
and continuing thereto, during which Tenant shall not be required to
pay to Landlord the Monthly Base Rent.
(E) (l) Tenant's share of initial estimated monthly Operating Expenses as
provided in paragraph 8 of Section III of this Lease: ONE
THOUSAND SEVEN HUNDRED FORTY-EIGHT AND 70/100 DOLLARS
($1,748.70).
(2) Tenant's share of initial estimated monthly Common Office
Expenses as provided in paragraph 8 of Section III of this Lease:
SEVEN HUNDRED FORTY-NINE AND 74/l00 DOLLARS ($749.74).
(F) Amount of Security Deposit: none.
(G) Uses to be made of Premises: general office lease, including the sale
of samples of Tenant's products to Tenant's employees whose principal
office is located at the Premises.
<PAGE>
(H) Tenant's address for notice in addition to the Premises: None.
With Copies to:
Levi Strauss & Co. and Kane, Russell, Coleman & Logan, P.C.
1155 Battery Street 3700 Thanksgiving Tower
San Francisco, CA 94111 1601 Elm Street
Attn: Director of Real Estate Dallas, TX 75201 -7207
Attn: Gordon B. Russell, Esq.
(I) Tenant shall have the right, but not the obligation to rent one (1)
parking stall per 500 square feet of leased space at the then
prevailing rates.
(J) Additional Terms and Conditions: Notwithstanding the provisions set
forth elsewhere in this Lease, Landlord and Tenant agree as follows:
(1) Option to Extend. Tenant shall have and is hereby given the
option to extend the term of this Lease for an additional five
(5) year period upon all the same terms and conditions as herein
contained by serving notice thereof upon Landlord at least six
(6) months before the expiration of the original Term. Upon the
service of said notice, this Lease shall be extended upon all its
terms and conditions for such additional five (5) year period
(other than Monthly Base Rent, which will be established in the
manner provided below) without the necessity of the execution of
any further instrument or documents; provided, however, that if
at either the date of expiration of the original Term of this
Lease or the date upon which Tenant exercises such option, Tenant
is in default beyond any grace period herein provided in the
performance of any of the terms or provisions of this Lease, any
such exercise of Tenant's option to so extend the term of this
Lease shall be and become null and void.
If Tenant exercises the option to extend the term of this Lease
as hereinabove provided, the Monthly Base Rent for the five (5)
year extension period shall not exceed ninety-five (95%) percent
of the rental charged for premises similar to the Premises in the
Kapiolani Business District; provided, however, that the Monthly
Base Rent shall in no event be lower than the Monthly Base Rent
established for the last month of the period immediately
preceding the extended term. Landlord shall provide Tenant with
Landlord's estimate of the Monthly Base Rent for the Premises at
least seven (7) months before the expiration of the original
Term. If Landlord and Tenant are unable to agree on such rental
charged for similar premises at least three (3) months prior to
the date of commencement of such period, such Monthly Base Rent
shall be determined by a single appraiser in the event that the
parties agree upon the appointment of such an appraiser,
otherwise by three (3) impartial appraisers selected as follows:
Landlord and Tenant shall each select an appraiser and give
written notice promptly thereof to the other party, and
<PAGE>
if either party shall fail to do so within twenty (20) days after
written notice has been given to such party by the other of such
selection, the party who has named an appraiser shall have the
right to apply to any judge of the Circuit Court of the First
Judicial Circuit of the State of Hawaii for the selection and
appointment of an appraiser for the party so failing to appoint
an appraiser. The two (2) appraisers thus appointed (in either
manner) shall select and appoint a third appraiser within fifteen
(15) days after the second appraiser shall have been appointed.
In the event that said two (2) appraisers fail or neglect to
appoint the third of them, either party may, upon the expiration
of ten (10) days after the mailing of written notice to the other
party, have the third appraiser appointed by any judge of said
court. All of said appraisers shall be neutral and recognized
real estate appraisers and shall also be members of the Appraisal
Institute or any successor organization. The single appraiser or
three (3) appraisers so appointed shall thereupon proceed to
determine said rental, based on the then fair monthly rental
value for the Premises, exclusive of any fixtures, alterations,
additions or improvements installed or made by Tenant. The
decision of said single appraiser or, if there shall be three (3)
appraisers the decision of the majority of them, shall be final,
conclusive and binding upon the parties. In the event the
appraiser or appraisers shall render their decision after the
commencement of the year for which rent is being determined, rent
shall be payable at the rate in effect for the previous year
until their decision is rendered, but the new rent established by
such appraisal shall become effective retroactively to the
commencement of said year for which rent is being determined and
shall be payable immediately on the determination of such rent,
together with interest thereon at the rate of twelve percent
(12%) per annum from the date such payments would have been due
until actually paid in full. If Landlord and Tenant are unable to
agree on rent and if such rent shall be fixed by appraisal,
Tenant and Landlord shall each pay one-half (1/2) of all costs of
such appraisal, including, without limitation, the appraisers'
fees.
The foregoing option shall run only in favor of Levi Strauss &
Co. and any assignee which is a wholly-owned subsidiary, parent
corporation, or corporation the shares of which are owned by a
parent company of Tenant (an "Affiliate"), and is not otherwise
assignable in whole or in part. Said option shall terminate on
any assignment of this Lease by Tenant to a party other than an
Affiliate, whether in whole or in part.
(2) Nondisturbance Agreement. This Lease is conditioned on Landlord
obtaining an agreement from Landlord's mortgagee to the effect
that, so long as Tenant is not in default under any of the
provisions, covenants or conditions of this Lease on the part of
Tenant to be kept and performed, that the Lease shall be
recognized by Landlord's mortgagee, that neither this Lease nor
any of the rights of Tenant hereunder shall be terminated or
modified or be subject to termination or modification, but shall
remain in full force and effect, nor shall Tenant's possession of
the Premises be
<PAGE>
disturbed or interfered with, by an action or proceeding to
foreclose said mortgage. If Landlord fails to obtain such
agreement within thirty (30) days of date of execution of this
Lease, Tenant shall have the right, at Tenant's option, to cancel
this Lease by written notice to Landlord delivered within forty-
five (45) days of the date of execution of this Lease. If this
Lease is not so canceled, Landlord also agrees that Landlord
shall use reasonable efforts to obtain such agreement from the
present mortgagee as well as from future mortgagees of the
Building.
(3) Landlord's Work. Landlord, at Landlord's expense, shall provide
building standard "turn-key" improvements, specified in the space
planning attached hereto as Exhibit "A-1" and made a part hereof
for all purposes.
(4) Subleasing or Assignment. Paragraph 23 of Section III of the
Lease is hereby amended to read as follows:
(a) Tenant shall not, without obtaining the prior written consent
of Landlord not to be unreasonably withheld or delayed, assign,
mortgage, pledge or otherwise encumber this Lease or any interest
herein, or sublet the Premises or any part thereof. Any of the
foregoing acts without obtaining such consent shall be void and
constitute a default under this Lease. Any change in ownership of
the majority of shares of the stock of Tenant (if Tenant if a
corporation), as such majority ownership existed as of the date
of this Lease, or any change in the identity of a majority of the
general partners of Tenant (if Tenant is a partnership), as the
identity of such majority existed as of the date of this Lease,
shall be deemed to be an assignment or transfer of this Lease
within the meaning of this paragraph. The preceding sentence
shall not apply, however, if at the time of the execution of the
Lease, the outstanding voting shares of capital stock of Tenant
are listed on a recognized security exchange or over-the-counter
market. No assignment, mortgage, pledge, encumbrance or
subletting shall be permitted to be made by Tenant if there is
any default by Tenant under this Lease.
(b) Tenant shall, in connection with any assignment of all or
part of Tenant's interest in the Lease or sublease of all or part
of the Premises, pay to Landlord the following:
(1) Fifty percent (50%) of the amount by which any premiums,
sums or other consideration payable to Tenant as a result of
any assignment of this Lease exceeds the sum of any
reasonable brokerage commissions, reasonable escrow fees,
recording fees, conveyance taxes, and other costs reasonably
incurred in connection with any such assignment.
(2) Fifty percent (50%) of the amount by which the sum of
any premiums and any rent or other amounts payable to Tenant
as a result of any sublease exceeds the sum of rent and
other sums payable by Tenant hereunder with respect to the
space to be subleased and any reasonable brokerage
commissions, reasonable escrow fees, recording fees,
conveyance taxes, remodeling costs, rent concessions, and
other costs reasonably incurred in connection with any such
sublease.
<PAGE>
(c) Tenant shall obtain the prior written consent of Landlord to
any assignment, mortgage, pledge or encumbrance of this Lease or
any interest herein, or to any sublease of all or part of the
Premises. The agreement by Tenant to pay the amounts required
under subparagraph (b) above shall be a condition precedent to
obtaining Landlord's consent; however, payment of such amounts
shall not entitle Tenant to demand such consent, the granting or
withholding of which shall be governed by the provisions of
paragraph 42 of this Section III.
It is understood and agreed that, notwithstanding anything
contained herein, Tenant will have the absolute right to assign
this Lease or sublet its interest in all or a portion of the
Premises to any wholly-owned subsidiary, parent corporation or
corporation, the shares of which are owned by a parent company of
Tenant without Landlord's consent; provided, however, that any
such assignment or subletting shall not relieve Tenant from any
obligation or liability to Landlord under this Lease.
(5) Holdover. Tenant shall have the right to holdover beyond the
initial Lease term for a period of up to three (3) months at the
Monthly Base Rent, Operating Expenses Rent and Common Office
Expenses Rent for the period immediately preceding such holdover
period. Thereafter, Tenant will have the right to holdover for
up to an additional six (6) months at one hundred twenty-five
percent (125%) of the sum of such Monthly Base Rent, Operating
Expenses Rent and Common Office Expenses Rent.
(6) Confidentiality. Landlord, Tenant and their respective agents
agree to use reasonable efforts to keep the economic terms and
conditions of this Lease confidential; provided, however, that
each party shall have the right to transmit said terms and
conditions to its respective insurance agents, attorneys,
employees and lenders who need to have such information for the
purpose of evaluating or otherwise dealing with this Lease or
advising such party in connection with this Lease. In no event
shall Tenant's liability hereunder exceed the lesser of: (i)
Landlord's actual damages or (ii) the remaining unpaid rent
payable under this Lease.
In the event of any conflict between the provisions of this paragraph
(J) and any other provisions in Section I. (Specific Conditions), Section II.
(Exhibits) or Section III. (General Conditions), the provisions of this
paragraph (J) shall prevail.
<PAGE>
II. Exhibits.
--------
The following exhibits which are attached hereto are hereby made a
part of this Lease:
(A) Exhibit "A": Floor Plan.
(B) Exhibit "A-1": Turn-key Improvements
(C) Exhibit "B": Tenant's Construction Obligations.
(D) Exhibit "C": Rules and Regulations.
(E) Exhibit "D": Non Disturbance and Attornment Agreement.
(F) Exhibit "E": Parking Registration Card.
The General Conditions of Lease attached hereto as Section III of this
Lease, together with all exhibits, are made a part hereof for all purposes.
As provided in paragraph 47 of Section III of this Lease, this Lease
constitutes the entire agreement between Landlord and Tenant and, without
limiting the generality of the foregoing, specifically supersedes any prior
offer to lease between Landlord and Tenant.
The submission of this document for examination by Tenant or other
party does not constitute an offer to lease. This document shall become
effective only upon execution hereof by both Tenant and Landlord.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the date first above written.
TOSEI SHOJI CO., LTD.,
a Japan corporation
By /s/ Shigeo Hone
--------------------------------------------
Shigeo Hone
Its Attorney-In-Fact
Landlord
LEVI STRAUSS & CO.,
a Delaware corporation
By /s/ David Garrett
--------------------------------------------
Its Director of Global Real Estate
Tenant
<PAGE>
III. GENERAL CONDITIONS OF OFFICE LEASE
1. Standard Services. Landlord shall furnish Tenant with water for
-----------------
general use of tenancy, electric current for lighting and normal use during
normal business hours in a manner and to the extent deemed to be standard for
comparable first class office space in Honolulu, Hawaii, common restroom
facilities and supplies, air conditioning during normal business hours at such
temperatures and in such amounts as are considered to be standard for comparable
first class office space in Honolulu, Hawaii, air conditioning at least from
7:00 o'clock a.m. to 6:00 o'clock p.m., Monday through Friday and 8:00 o'clock
a.m. to 1:00 o'clock p.m. on Saturday, janitorial service and refuse collection
for Tenant's Premises five (5) days per week, insurance for common areas,
elevator service, reasonable window washing for the exterior of the Building and
lighting equipment replacement, guard service for the Building, and common area
maintenance. If any extraordinary or additional property or services other than
those required to be provided by Landlord to Tenant under this Lease shall be
provided by Landlord to Tenant at the request of Tenant or for the benefit of
Tenant, Tenant shall pay Landlord for such extraordinary or additional property
or services. Without limiting the generality of the foregoing, if Tenant wishes
to install nonstandard fixtures, Tenant is responsible for providing replacement
lamps. In no event shall computing equipment not customarily used in raised
floor space be subject to any such charges. Tenant will make all arrangements
for and pay for all services specially required by Tenant on or with respect to
the Premises which are not provided under Landlord's standard services and
Tenant shall pay for such services prior to such charges becoming delinquent.
2. Common Area Maintenance. Landlord will use reasonable efforts to
-----------------------
maintain the public and common areas of the Building, such as stairs, lobbies,
corridors and restrooms, roof, foundation, HVAC system, elevators, sprinkler
system and structural soundness of the exterior walls of the Building. Tenant
shall give immediate written notice to Landlord of the need for repairs, and
Landlord shall proceed to make same in good repair and condition except for any
damage occasioned by the act or omission of Tenant or Tenant's employees or
agents and except as is otherwise provided herein.
3. Monthly Base Rent. For the period commencing on the Commencement Date
-----------------
to and including the Termination Date provided for in paragraph (C) of Section I
of this Lease, Tenant shall pay to Landlord, in lawful United States currency,
the Monthly Base Rent in the amounts set forth in paragraph (D) of Section I of
this Lease. Notwithstanding the preceding sentence, Tenant shall be entitled to
a two and one-half (2-1/2) month period of free rent to which Tenant shall not
be required to pay to Landlord the Monthly Base Rent. Should the Term commence
or terminate on a day other than the first (1st) day of a calendar month, then
the Monthly Base Rent for that fractional month shall be calculated by dividing
the Monthly Base Rent by thirty (30) and multiplying that result by the number
of days remaining in said fractional month or multiplying that result by the
number of days from the beginning of the month up to and including the date of
termination, whichever the case may be. All payments of rent after the first
payment shall be paid at the office of Landlord, or such other place as shall be
designated in writing by Landlord, without notice on or before the first (1st)
day of each and every month during the Term or any extension thereof.
<PAGE>
4. Ouiet Enjoyment. Landlord agrees that upon payment of the rent herein
---------------
provided for, and upon the observance and performance by Tenant of the covenants
hereinafter contained and on the part of Tenant to be observed and performed,
subject to the provisions of this Lease, and any underlying mortgage on
Landlord's estate, Tenant shall peaceably and quietly hold and enjoy the
Premises for the Term of this Lease and any extension or renewal hereof.
5. Conveyance Tax; General Excise Tax. Tenant shall pay any conveyance
----------------------------------
tax imposed by the State of Hawaii and execute, at Landlord's request, such
affidavits and other documentation as may be necessary or proper in connection
therewith. Tenant shall also pay to Landlord as additional rent, together with
each payment of rental, real property taxes and other charges payable by Tenant
hereunder, which are subject to the State of Hawaii general excise tax on gross
income, as the same may be amended, and all other similar taxes imposed upon
Landlord with respect to rental or other payments made by Tenant under this
Lease if such tax is in the nature of a gross receipts tax, sales tax, privilege
tax or the like, excluding federal or state net income taxes, whether imposed by
the United States, State of Hawaii or City and County of Honolulu, an amount
(presently 4.167% of each such payment) which when added to such rental or other
payment shall yield to Landlord after deduction of all such tax payable by
Landlord with respect to all such payments a net amount which Landlord would
have realized from such payment had no such tax been imposed.
6. Tenant's Pro Rata and Proportionate Shares.
------------------------------------------
(a) As used in this Lease, Tenant's "Pro Rata Share" of Operating
Expenses shall mean the percentage set forth in paragraph (B)(1) of
Section I of this Lease. Tenant's initial Pro Rata Share has been computed
by Landlord based on the ratio which the Rentable Area of Tenant's Premises
bears to the total Rentable Area of the Building. "Rentable Area" of a
floor shall be computed by measuring to the inside finished surface of the
dominant portion of the permanent outer Building walls where it intersects
the finished floor, excluding any major vertical penetrations of the floor.
No deductions shall be made for columns and projections necessary to the
Building. The Rentable Area of the Premises shall be computed by
multiplying the Usable Area of the Premises by the quotient of the division
of the Rentable Area of the floor by the Usable Area of the floor. "Usable
Area" of a premises shall mean that area of the premises computed by
measuring to the finished surface of the office side of corridor and other
permanent walls of the premises, to the center of partitions that separate
the premises from adjoining Usable Areas not leased by Tenant, and to the
inside finished surface of the dominant portion of the permanent outer
Building walls. No deductions shall be made for columns and projections
necessary to the Building. Parking areas shall be excluded. For purposes of
this Lease, the Rentable Area and Usable Area shall be computed in
accordance with the American National Standard Method for Measuring Floor
Area in Office Buildings, ANSI Z65.1-1980. The Rentable Area and Usable
Area are subject to adjustment from time to time to correct errors in
measurement (which errors result. in Tenant's Pro Rata Share being more
than five percent (5%) more or less than Tenant's Pro Rata Share after
taking such errors into account) or if changes are made to the Building,
and Tenant's Pro Rata Share shall be adjusted accordingly.
(b) As used in this Lease, Tenant's "Proportionate Share" of janitorial
services, refuse collection and electricity furnished to the Office Areas
of the Building (collectively, the "Common Office Expenses") shall mean the
percentage set forth in paragraph
<PAGE>
(B)(2) of Section I of this Lease. Tenant's Proportionate Share has been
computed by Landlord based on the ratio which the Rentable Area of Tenant's
Premises bears to the total Rentable Area of all premises other than those being
leased to tenants on the ground floor of the Building. For purposes of this
Lease, the "Office Areas" of the Building shall mean and include all areas of
the Building other than the premises being leased to tenants on the ground floor
of the Building and other than the ground floor lobby area and ground floor
restrooms.
7. Parking; Utilities. Landlord shall make available to Tenant for
------------------
rental in the Building's parking facility the number of unreserved parking
stalls set forth in paragraph (I) of Section I of this Lease. Tenant shall rent
such stalls pursuant to the terms and conditions of a separate parking agreement
to be entered into by Tenant and Landlord or by such parking lot operator as
Landlord may designate in Landlord's sole discretion, and the fee charged for
Tenant's use of such parking stalls shall be established by the parking lot
operator on a uniform basis for all tenants of the Building from time to time in
accordance with the prevailing market rate. Tenant agrees to comply with such
rules and regulations as shall be adopted by Landlord or the parking lot
operator from time to time. Tenant shall have the right to rent a lesser number
of parking stalls than the number set forth in paragraph (I) of Section I by
notifying Landlord or the parking lot operator in writing; however, if Tenant
rents such lesser number and subsequently requires the stalls previously
relinquished, Tenant agrees that Tenant's right to rent the relinquished stalls
shall be subject to availability. The form of Parking Registration Card is
attached hereto as Exhibit "E".
Tenant will make all arrangements for and pay for all telephone service and
other utilities specially required by Tenant on or with respect to the Premises
which are not provided under Landlord's standard services and Tenant shall pay
for such charges prior to such charges becoming delinquent.
8. Operating Expenses and Common Office Expenses. Tenant will pay to
---------------------------------------------
Landlord in advance on the first (1st) day of each month throughout the Term, in
accordance with monthly billings rendered to Tenant by Landlord, but subject to
annual adjustment as hereinafter set forth, Tenants Pro Rata Share of the
Operating Expenses and Tenant's Proportionate Share of Common Office Expenses
for the Building and real property of which the Premises are a part.
It is understood and agreed that the monthly billings referred to in this
Lease shall be on an estimated basis. If the aggregate payments made by Tenant
for Operating Expenses and Common Office Expenses for any Lease Year
(hereinafter defined) exceed Tenant's Pro Rata Share of Operating Expenses and
Tenant's Proportionate Share of Common Office Expenses for such Lease Year, such
excess shall, be applied as a credit against future payments to be made by
Tenant for Operating Expenses and Common Office Expenses. Landlord shall notify
Tenant in writing within one hundred twenty (120) days after the end of such
Lease Year of such credit and the amount so credited or refund such amount to
Tenant. If the aggregate payments made by Tenant for the Operating Expenses and
Common Office Expenses with respect to any such Lease Year are less than the sum
of Tenant's Pro Rata Share of Operating Expenses and Tenant's Proportionate
Share of Common Office Expenses Tenant shall pay the amount of such deficiency
to Landlord within thirty (30) days after written demand by Landlord and upon
receipt of reasonable detail of the amount of such deficiency indicating
Tenant's proportional share thereof. In the event that this Lease is terminated
prior to the end of a Lease Year, the adjustment
<PAGE>
above will be made to apply as of the date of termination of this Lease and any
excess paid by Tenant shall be refunded by Landlord to Tenant within thirty (30)
days after the determination thereof at the end of the Lease Year. Any
deficiency owed by Tenant shall be paid as set forth in this Lease. For the
purpose of determining increases in Operating Expenses and in Common Office
Expenses payable by Tenant, the calculation shall be based on a full Lease Year
and Tenant's Pro Rata Share of Operating Expenses or Proportionate Share of
Common Office Expenses, as the case might be, computed as herein set forth shall
be deemed to have accrued uniformly during such Lease Year. Extraordinary
repairs shall be paid by Tenant who incurred or benefitted from such repairs.
If any part of the Building is not fully occupied and used during any Lease
Year, then for the purpose of the calculations to be made under this paragraph
8, the Operating Expenses and Common Office Expenses, both estimated and actual
for such Lease Year, as the case might be, shall be adjusted by adding amounts
and items of Operating Expenses and Common Office Expenses which would normally
have been incurred if the Building had been ninety-five percent (95%) occupied
and used during such Lease Year, as the case might be, as estimated by Landlord.
Tenant's Pro Rata Share of the Operating Expenses and Tenant's Proportionate
Share of Common Office Expenses shall be based on an assumed ninety-five percent
(95%) occupancy.
For purposes of this paragraph 8, the term "Operating Expenses" means any
and all expenses which shall be incurred or paid on account of the operation,
cleaning, maintenance, repair, safety, management and security of the Building
or the Property. Operating Expenses shall also include, without limiting the
generality of the foregoing, the following, provided that they are reasonably
incurred in connection with the operation, cleaning, maintenance, repair,
safety, management and security of the Building or the Property (excluding,
however, any expenses incurred in keeping the corporate books or records of the
Landlord): real property taxes and any assessments or charges made under any
betterment or improvement law or otherwise attributable to the Building, the
costs of utilities, automated control systems, elevators, air conditioning,
trash disposal, repair and maintenance, replacement, landscaping, janitorial
services for the ground floor lobby area, line painting, fees for permits and
licenses, maintenance and repair of lighting fixtures and equipment (including
the replacement of bulbs and tubes), guard service, the cost of management
contracts or the cost of equivalent management services, supplies, wages and
salaries of employees used in maintenance and general operations (as
distinguished from the cost of management contracts or equivalent management
services aforesaid), and payroll taxes (and similar governmental charges) with
respect thereto, the acquisition cost (rental fees and/or purchase price, or in
lieu of a purchase price, the annual depreciation allocable thereto) of all
supplies, tools, machines and equipment used in operation and maintenance, audit
and bookkeeping expenses, legal fees and expenses, financing expenses relating
to operation and management, insurance (including fire and extended coverage,
vandalism and malicious mischief, difference in conditions coverage, public
liability and property damage and worker's compensation insurance customarily
carried by owners of first class office buildings), taxes described in paragraph
5 of this Section III to the extent that such taxes have not already been
recovered in said paragraph 5 (but excluding taxes upon or measured by
Landlord's net income), the costs and expenses of any contest by appropriate
legal proceedings of the amount or validity of any such taxes, charges or other
assessments, personal property taxes, if any, and the cost of alterations,
additions and capital improvements required by any laws, codes, regulations or
ordinances now or hereafter in effect or made by Landlord to reduce energy
requirements or which would have the effect of reducing the expenses which
<PAGE>
would otherwise be included in Operating Expenses (amortized over their
reasonable life with interest at the rate usually charged Landlord for borrowing
on the amount of such cost, or, if Landlord is prohibited by law from charging
interest at such rate, at the rate of one percent (1%) per month). The Operating
Expenses shall not include capital expenditures (except the costs of certain
capital improvements as above mentioned), depreciation on real property or
financing expenses related to the construction of the Building.
For purposes of this paragraph 8, "Lease Year" shall be a period of twelve
(12) consecutive calendar months, with the initial Lease Year commencing on the
first (1st) day of such month as shall be established by Landlord, in Landlord's
sole discretion, and each succeeding Lease Year commencing on the anniversary
thereof.
9. Other Taxes and Fees. In addition to the rental provided hereunder,
--------------------
Tenant agrees to pay all license fees and all taxes and assessments and
increases in taxes and assessments levied and assessed by any government body by
virtue of (a) any special improvements or assessments (provided that said
improvements or assessments may be payable in installments, Tenant shall be
obligated only to pay its Pro Rata Share of such installments which would become
due during the Term), (b) Tenant using and conducting its business or operation
on the Premises, (c) the employment of agents, employees or other third parties
by Tenant, or (d) the bringing onto, or keeping of personal property or chattels
of whatsoever nature on the Premises by Tenant. The foregoing is intended to
bind Tenant to pay, and to promptly discharge, all taxes, assessments and/or
levies, together with related interest and penalties, whether assessed by
federal or state authority or any political subdivision thereof, directly or
indirectly related to its business, improvements, functioning, employment,
assets, existence, sales, entertainment or the like. Tenant specifically agrees
to reimburse Landlord for any increase in ad valorem taxes resulting from use of
fixtures or improvements by Tenant which Landlord becomes obligated to pay.
10. Laws and Ordinances; Indemnity. Tenant shall, during the whole of
------------------------------
said Term, keep the Premises in a strictly safe, clean and healthful condition
and observe and perform all laws and ordinances applicable to the Building and
improvements now or hereafter erected on the Premises, all laws, ordinances,
rules and regulations applicable to the Premises. Without limiting the
generality of the foregoing, Tenant shall also comply with all obligations
imposed by applicable law and regulations on the generation and storage by
Tenant on the Premises or disposal by Tenant of any substances or materials
defined as or included in the definition of "hazardous substances", "hazardous
wastes", "hazardous materials" or "toxic substances" under, or for the purposes
of, any federal, state or local laws or ordinances and regulations now or
hereafter adopted, published and/or promulgated pursuant thereto. Landlord
shall be responsible for and shall cause the Building to comply with all laws,
statutes, ordinances, and rules including the provisions of the Americans with
Disabilities Act, 42 U.S.C. Section 12101 et seq., as amended.
11. Interruption or Curtailment of Services. The interruption or
---------------------------------------
curtailment of services or utilities to be furnished by Landlord hereunder, if
the same results from causes beyond Landlord's reasonable control, shall not
constitute constructive eviction and shall not entitle Tenant to the abatement
of rent or to any other claims against Landlord; but in the case of such
interruption or curtailment, Landlord shall take all reasonable steps to restore
the interrupted or curtailed utilities or services.
<PAGE>
12. Use. Tenant will use the Premises only for the purposes set forth in
---
paragraph (G) of Section I of this Lease and for no other purposes, except as
consented to in writing by Landlord, which consent shall not be unreasonably
withheld.
In addition, Tenant shall not use or occupy said Premises for the purpose
of storing junk, scrap or other offensive materials; and will not make or suffer
any strip or waste or unlawful, improper or offensive use of said Premises; nor
shall Tenant use or permit said Premises or any part thereof to be used in any
manner or for any purpose which will increase the then existing rate of
insurance upon the Building of which the Premises are a part, or cause a
cancellation of any insurance policy covering said Building, or any part
thereof, nor shall Tenant sell, store or permit to be kept, used or sold in or
about said Premises any article which may be prohibited by any policy or
policies of fire insurance applicable to the Premises and to the activities
therein permitted. Tenant shall use and occupy said Premises in a careful, safe
and proper manner. Any increase in premiums or surcharges or damages resulting
from any such prohibited use shall be paid by Tenant to Landlord; provided,
however, that the foregoing shall not apply to increases in premiums or
purchases which are attributable to inflation or other price increases unrelated
to the activities of Tenant. Tenant shall, at Tenant's sole cost and expense,
comply with all requirements of all county, municipal, state and federal
authorities now in force, or which may hereafter be in force, pertaining to the
Premises, and shall faithfully observe in the use of the Premises all municipal
ordinances and state and federal statutes now in force or which may hereafter be
in force.
13. Inspection; Access. Tenant will permit Landlord and its employees and
------------------
agents, at all reasonable times during said Term, to enter the Premises and
examine the state of repair and condition thereof. Each party will repair and
make good (within thirty (30) days of receipt of written notice by the other
party) all defects which such party is obligated to do under the terms of this
Lease and of which notice shall be given by the other party. Without in any
manner obligating Landlord to do so, Tenant will also permit Landlord and
Landlord's agents to have access to the Premises at all reasonable times for the
purpose of making repairs, posting such notices as it may deem necessary for
Landlord's protection or for the protection of the Premises, for the purpose of
repossessing the Premises as herein provided and/or for the purpose of showing
the Premises to prospective tenants, purchasers, mortgagees and/or others, and,
provided that the exercise of such right of entry does not unreasonably
interfere with the operation of Tenant's business on the Premises, Landlord
shall not be liable for damages resulting to Tenant from such exercise of the
right of entry, and the rent stipulated hereunder shall not abate during the
period of such entry, nor shall Tenant be entitled to maintain a setoff or
counterclaim for damages against Landlord by reason of loss or interruption of
business of Tenant because of the prosecution of any such repairs. Landlord
covenants and agrees that it will limit the interference with Tenant's business
as much as practicable. Landlord agrees to give Tenant not less than forty-
eight (48) hours' notice of the exercise of such right of entry, except in the
case of an emergency. During the last ninety (90) days of the Term, Landlord
shall have the right to place and maintain in or upon the Premises in one (1) or
more conspicuous places "For Rent", "For Lease" and/or "For Sale" signs.
<PAGE>
Landlord, Tenant and all other tenants in the Building of which the
Premises are a part, and their respective guests, invitees and employees, shall
have ingress to and egress from all common public areas of said Building;
provided, however, that Landlord shall have the right to regulate and control
such guests, invitees and employees with respect to such access and the days and
hours of access, and all common areas and facilities not within the Premises,
which Tenant may be permitted to use and occupy, are to be used and occupied
under a revocable license, and if the amount of such areas shall be diminished,
Landlord shall not be subject to any liability nor shall Tenant be entitled to
any compensation or diminution or abatement of rent, nor shall such diminution
of such areas be deemed constructive or actual eviction. Landlord shall not be
liable to Tenant for any inconvenience, interferences, annoyance, loss or damage
resulting from work done in or upon the Premises or any portion of the Premises
or adjacent grounds unless the same causes unreasonable interference to the
operation of Tenant's business in the Premises.
Tenant agrees that if Landlord during the Term hereby demised shall be
required by the City and County of Honolulu, the State of Hawaii, or by any
other governmental authority to repair, alter, remove, reconstruct or improve
any part of the Premises or of said Building then such repair, alteration,
removal, reconstruction or improvement may be made by and at the expense of
Landlord and shall not in any way affect the obligations or covenants of Tenant
herein contained, and Tenant hereby waives all claims for damages or abatement
of rent because of such work.
14. Tenant's Construction and Bond. In the event that Tenant does any
------------------------------
construction at the Premises, then Tenant shall, at Tenant's cost, in accordance
with plans and specifications therefor first approved in writing by Landlord,
construct and install such additional improvements and fixtures (over and above
Landlord's "turn-key" improvements) and provide such equipment and do all other
things required to complete the Premises in a finished condition ready for the
conduct of Tenant's business at the Premises. In performing such initial
construction and installation and any further construction or installation,
Tenant shall strictly comply with the requirements of Exhibit "B", and Tenant
will, before commencing any such construction, obtain Landlord's approval of
Tenant's contractor and show evidence satisfactory to Landlord that Tenant has
sufficient current funds to pay for the entire cost of construction. Tenant's
initial construction and any further construction or alterations shall strictly
comply with all applicable laws, ordinances, codes and regulations and Tenant
shall furnish to Landlord a true copy of Tenant's building permit for such
construction or alterations prior to the commencement of such work. All fixtures
installed by Tenant will be new or completely reconditioned. Tenant shall save,
indemnify, defend and hold Landlord harmless from any claim for mechanic's or
materialmen's liens attaching to the Premises or Landlord's or Tenant's estate
or interest therein by reason of Tenant's construction (excluding Landlord's
"turn-key" improvements).
15. Indemnity. Tenant will indemnify, defend and hold harmless Landlord,
---------
its partners, employees, agents, successors and assigns from and against all
claims and demands for loss or damage, including property damage, personal
injury and wrongful death, arising out of or in connection with the use or
occupancy of said Premises by Tenant or any other person claiming by, through or
under Tenant, or any accident or fire on said Premises or any nuisance made or
suffered thereon caused by Tenant's negligence, or any failure by Tenant to keep
said Premises, or any failure by Tenant to comply and conform with all laws,
statutes, ordinances and regulations of the United States, (including, without
limitation, the Americans with Disabilities
<PAGE>
Act) the State of Hawaii and the City and County of Honolulu now or hereafter in
force, or arising from any default by Tenant in the performance of any of the
covenants, conditions or provisions of this Lease, will resist and defend at
Tenant's expense any such claim by counsel satisfactory to Landlord, and will
reimburse Landlord for all of Landlord's costs and expenses, including
reasonable attorneys' fees with respect to any attachment, judgment, suit, lien,
charge or encumbrance whatsoever against said Premises made or suffered by
Tenant.
16. Acceptance and Maintenance of Premises.
--------------------------------------
(a) Tenant, by Tenant's execution of this Lease, shall be
conclusively deemed to have accepted the Premises in "As-Is" condition.
(b) Tenant shall, at Tenant's sole cost and expense, keep the
Premises and every part thereof in good condition and repair, excepting only
ordinary wear and tear and unavoidable damage not required to be insured
against, and excepting structural repairs which shall be the responsibility of
Landlord. Tenant hereby waives all rights to make repairs at the expense of
Landlord as provided by any law, statute or ordinance now or hereafter in
effect. Damage to all glass of the Premises (other than glass which is part of
the exterior of the Building) shall be at the risk of Tenant and any such glass
broken during the Term shall be promptly replaced by Tenant at the expense of
Tenant. Tenant will not damage or deface the walls, floors or ceilings, nor
damage or obstruct hallways or other common areas, nor commit any act which may
damage the structural parts of the Building. Tenant shall not add, disturb or in
any way change any plumbing or wiring without first obtaining the written
consent of Landlord. All damage or injury done to the Premises by Tenant, or by
any persons who may be in or upon the Premises with the consent of Tenant, shall
be paid for by Tenant, and Tenant shall also pay for all damages to the Building
caused by Tenant's misuse of the Premises or the appurtenances thereto. All
repairs to the Premises necessary to maintain the Premises in a tenantable and
good condition shall be done by or under the direction of Landlord and at
Tenant's expense, except as is otherwise specifically provided herein. Tenant
shall pay for the replacement of doors of the Premises which are cracked or
broken. Landlord may make any alterations or improvements which Landlord may
deem necessary for the preservation, safety or improvement of the Premises or
the Building. Except as is set forth in Exhibit "A-1" or as is set forth herein,
it is specifically understood and agreed that Landlord has made no promises to
alter, remodel, improve, repair, decorate or paint the Premises, or any part
thereof, and that no representations respecting the condition of the Premises or
the Building of which the Premises are a part have been made by Landlord to
Tenant.
Notwithstanding anything herein to the contrary, any diminution or shutting
off of light or air by any structure which may be erected adjacent to the
Building of which the Premises are a part, whether by Landlord or others, and
any dust, noise, vibration or other similar disturbance caused by the
construction of other tenant improvements during the initial lease-up period of
the Building and during any change in tenancy of any premises within the
Building, shall not affect this Lease or impose any liability on Landlord or be
construed as a constructive eviction or grounds for the reduction of rent.
<PAGE>
17. Liability Insurance. Tenant will procure at its own expense and keep
-------------------
in force during the entire Term: a policy of comprehensive general liability
insurance with minimum limits of not less than TWO MILLION AND NO/100 DOLLARS
($2,000,000.00) arising out of each occurrence. Said policy or policies shall be
with an insurance company or companies authorized to do business in the State of
Hawaii, shall name Landlord, Landlord's mortgagee or Tenant's mortgagee and
(provided that Landlord notifies Tenant of the identity of the same) the manager
of the Building as additional assureds, and shall cover the entire Premises and
a current certificate of said policy or policies shall be deposited with
Landlord. Said insurance shall contain a provision that it will not be cancelled
or substantially modified without giving Landlord thirty (30) days' written
notice prior to the effective date of the proposed cancellation or modification.
18. Insurance on Fixtures and Equipment. Tenant shall procure at its own
-----------------------------------
expense and, during the entire Term, keep in full force and effect insurance on
Tenant's fixtures and equipment in the Premises, in the full insurable value
thereof, against fire and extended coverage risks including protection against
vandalism, malicious mischief and ceiling sprinkler leakage protection, in the
joint names of Landlord, Tenant, any mortgagee of Landlord's and/or Tenant's
interest hereunder and such other parties as Landlord may specify as their
interests may appear. Tenant shall deposit a current certificate of said
insurance with Landlord, and said insurance shall contain a provision that it
will not be cancelled or substantially modified without giving Landlord thirty
(30) days' written notice prior to the effective date of the proposed
cancellation or modification.
Each party shall cause each insurance policy obtained by it to provide that
the insurance company waives all right of recovery by way of subrogation against
either party in connection with any damage covered by any such policy. Neither
party shall be liable to the other for any damage caused by fire or any of the
risks insured against under any insurance policy required by this Lease.
19. Waste and Nuisance. Tenant will keep the Premises in a strictly
------------------
clean, safe, neat and sanitary condition and will not commit or suffer to be
committed any waste upon or of the Premises, or any nuisance or other act or
omission which disturbs the quiet enjoyment of any other tenant in the Building
of which the Premises are a part, and Tenant will not use any apparatus,
machinery or device which causes substantial vibration or which overloads the
floor of the Premises. Tenant will immediately abate any nuisance or said other
act or omission upon demand of Landlord.
20. Risk of Loss. The storage and/or presence of all goods, wares,
------------
merchandise or other property of Tenant or anyone claiming by, through or under
Tenant on the Premises shall be at Tenant's or such other owner's sole risk, and
Landlord shall not be responsible for any loss or damage from fire, smoke or
water damage, from bursting, overflowing or leaking of water, gas, sewer or
steam pipes, from radio interference, electrical surges, outages or spikes, from
the kind or character of electricity or utilities furnished to the Premises,
from any interruption or curtailment of utilities or services, or from any
fixtures, appliances or devices to the same, or from electric wires, fixtures,
appliances or devices or from odors or from any cause whatsoever, except where
such loss or damage is caused by the negligent or willful actions of Landlord.
<PAGE>
21. Signs. Tenant shall not erect, install, paint or inscribe on any
-----
exterior door, wall or window, or on any marquee or roof, or affix to the
exterior surface of the Building or the Premises, any signs, lettering or
placards or advertising media without the prior written consent of Landlord. In
the event that the written consent of Landlord is secured, Tenant shall pay all
permit and license fees which may be required to be paid for the erection and
maintenance of any and all such signs, provided that such signs shall be legally
permitted to be installed. Tenant shall indemnify and save Landlord harmless
from and against any and all losses, damages, claims, suits or actions for any
damage or injury to persons or property caused by the erection and maintenance
of such signs or parts thereof, and insurance coverage for any such sign shall
be included in the public liability policy which Tenant is required to keep in
force pursuant to paragraph 17 of this Section III.
22. Attorneys' Expenses. Landlord and Tenant agree that in the event of
-------------------
litigation, the prevailing party will pay to the other party on demand all costs
and expenses, including reasonable attorneys' fees, incurred by the prevailing
party in enforcing any of the covenants herein contained, in remedying any
breach thereof by Tenant, in recovering possession of the Premises, in
collecting any delinquent rent, taxes or other charges hereunder payable by
Tenant, or in connection with any litigation. In case Landlord, without any
fault of Landlord, is made a party to any litigation commenced by or against
Tenant, then Tenant shall pay all costs and expenses, including reasonable
attorneys' fees, incurred or imposed on Landlord by or in connection with such
litigation.
23. Assigning and Subletting.
------------------------
(a) Tenant shall not, without obtaining the prior written consent of
Landlord, assign, mortgage, pledge or otherwise encumber this Lease or any
interest herein, or sublet the Premises or any part thereof. The term "sublet"
shall include, without limitation, any use of the Premises by any party other
than Tenant and the term "assign" shall include, without limitation, any sale of
all or part of the Premises, by agreement of sale or otherwise. Any of the
foregoing acts without obtaining such consent, shall be void and constitute a
default under this Lease. Any change in ownership of the majority of shares of
the stock of Tenant (if Tenant if a corporation), as such majority ownership
existed as of the date of this Lease, or any change in the identity of a
majority of the general partners of Tenant (if Tenant is a partnership), as the
identity of such majority existed as of the date of this Lease, shall be deemed
to be an assignment or transfer of this Lease within the meaning of this
paragraph. The preceding sentence shall not apply, however, if at the time of
the execution of the Lease, the outstanding voting shares of capital stock of
Tenant are listed on a recognized security exchange as over-the-counter market.
No assignment, mortgage, pledge, encumbrance or subletting shall be permitted to
be made by Tenant if there is any default by Tenant under this Lease.
(b) Tenant shall, in connection with any assignment of all or part of
Tenant's interest in the Lease or sublease of all or part of the Premises, pay
to Landlord the following:
(1) Fifty percent (50%) of the amount by which any premiums, sums
or other consideration payable to Tenant as a result of any
assignment of this Lease exceeds the sum of any the reasonable
brokerage commissions, reasonable escrow fees, recording fees,
conveyance taxes, and other costs reasonably incurred in
connection with any such assignment.
<PAGE>
(2) Fifty percent (50%) of the amount by which the sum of any
premiums and any rent or other amounts payable to Tenant as a
result of any sublease exceeds the sum of rent and other sums
payable by Tenant hereunder with respect to the space to be
subleased and any reasonable brokerage commissions, reasonable
escrow fees, recording fees, conveyance taxes, and other costs
reasonably incurred in connection with any such sublease.
(c) Tenant shall obtain the prior written consent of Landlord to any
assignment, mortgage, pledge or encumbrance of this Lease or any interest
herein, or to any sublease of all or part of the Premises. The agreement by
Tenant to pay the amounts required under subparagraph (b) above shall be a
condition precedent to obtaining Landlord's consent; however, payment of such
amounts shall not entitle Tenant to demand such consent, the granting or
withholding of which shall be governed by the provisions of paragraph 42 of this
Section III.
It is understood and agreed that, notwithstanding anything contained
herein, Tenant will have the absolute right to assign the Lease or sublet its
interest in all or a portion of the Premises to any wholly-owned subsidiary,
parent corporation or corporation, the shares of which are owned by a parent
company of Tenant without Landlord's consent; provided, however, that any such
assignment or subletting shall not relieve Tenant from any obligation or
liability to Landlord under the Lease.
24. Continuing Liability. No permitted assignment, mortgage, pledge,
--------------------
encumbrance or sublease of Tenant's interest in the Premises shall in any way
release Tenant from any liability or responsibility assumed by Tenant under this
Lease; provided, however, that this Lease shall not constitute an assumption of
any of Landlord's obligations under any assignment, mortgage, pledge,
encumbrance or sublease of Tenant's interest in the Premises.
25. Subordination of Lease; Estoppel Certificates. In the event any
---------------------------------------------
mortgagee shall elect to have this Lease prior to or subordinate to its
mortgage, then and in such event, upon such mortgagee notifying Tenant to that
effect, this Lease shall have priority over or be subordinate to the lien of
such mortgage. Tenant, upon request of any party in interest, shall execute such
instrument or instruments as shall be requested to carry out the requirements of
this paragraph within thirty (30) days after receipt by Tenant of written
request therefor; provided, however, that Tenant shall not be required to
effectuate such subordination, nor shall Landlord be authorized to effect such
subordination on behalf of Tenant, unless the mortgagee named in such mortgage
shall first agree in writing, for the benefit of Tenant, that so long as Tenant
is not in default under any of the provisions, covenants or conditions of this
Lease on the part of Tenant to be kept and performed, that neither this Lease
nor any of the rights of Tenant hereunder shall be terminated or modified or be
subject to termination or modification, nor shall Tenant's possession of the
Premises be disturbed or interfered with, by an action or proceeding to
foreclose said mortgage. In the event that Tenant fails to respond to such
written request within thirty (30) days, Landlord shall have the right to
execute such instruments on behalf of Tenant. Tenant hereby constitutes Landlord
as Tenant's true and lawful attorney-in-fact, coupled with an interest, for
purposes of the execution of the foregoing instruments.
<PAGE>
Within fifteen (15) days of presentation, Tenant shall execute, acknowledge
and deliver to Landlord (a) any subordination or non-disturbance agreement or
other instrument that Landlord may require to carry out the provisions of this
paragraph, (b) any agreement for attornment to a purchaser upon foreclosure, and
(c) any estoppel certificate requested by Landlord from time to time in the
standard form of any mortgagee or purchaser certifying in writing, if such is
the case, that Tenant is in occupancy, that this Lease is unmodified and in full
force and effect or that if there have been modifications that the same is in
full force and effect as modified and stating the modifications, and the dates
to which the rent and other charges shall have been paid, that there shall be no
rental offsets or claims and certifying such matters as such mortgagee or
purchaser may reasonably require.
26. Plumbing Facilities. Tenant will not damage or overload the plumbing
-------------------
facilities in the Premises.
27. Eminent Domain. If the whole or any substantial part of the Premises
--------------
shall be required, taken or condemned for any public use by any authority having
the power of eminent domain, this Lease shall at once terminate and Landlord
shall be entitled to receive and retain all compensation for the taking thereof.
Tenant shall, however, have the right to claim and recover from the condemning
authority only, and not from Landlord, such compensation as may be separately
awarded or recovered by Tenant in its own right for or on account of any and all
damage to Tenant's business or to its improvements or fixtures, stock in trade
or equipment, or expense caused to Tenant by the necessity of removing the
foregoing items from the Premises, but in no event shall Tenant's compensation
reduce the amount of compensation payable to Landlord.
28. Nonliability of Landlord. Landlord shall not be liable for any damage
------------------------
either to person or property sustained by Tenant or by other persons due to the
Building, or any part thereof, or any appurtenances thereof, becoming out of
repair, or due to any act or neglect of any tenant or occupant of said Building,
or of any other person, except where the same is caused by the willful or
negligent actions of Landlord. This provision shall apply especially (but not
exclusively) to damage caused by water, steam, sewage, illuminating gas, sewer
gas, utilities shortages or stoppages, odors or termites or the negligent
accumulation of combustible materials, accessories and supplies, and shall apply
equally whether such damage is caused by the act or neglect of other tenants,
occupants or janitors of said Building, or of any other persons, and whether
such damage is caused or occasioned by anything or circumstances above-mentioned
or referred to, or by any other thing or circumstance, whether of a like or of a
wholly different nature, except where the same is caused by the willful or
negligent actions of Landlord. If any such damage shall be caused by any act or
neglect of Tenant, Landlord may, at its option, repair such damage, whether
caused to the Building, or to tenants thereof, and Tenant shall thereupon
reimburse Landlord for the total cost of such damage both to the Building and/or
to the tenants thereof. Tenant further agrees that all personal property upon
the Premises shall be at the sole risk of Tenant and that Landlord shall not be
liable for any loss, injury or damage thereto or theft thereof.
<PAGE>
29. Disposition of Fixtures on Surrender. On the last day of the Term
------------------------------------
hereby demised or on sooner termination thereof as provided in this Lease,
Tenant will peaceably and quietly leave and surrender and deliver up to Landlord
possession of the Premises together with all other improvements upon or
belonging to the same, by whomsoever made, in good repair, order and condition
except as otherwise expressly provided herein and Tenant shall surrender all
keys for the Premises to Landlord at the place then fixed for the payment of
rent, and shall inform Landlord of all combinations on locks, safes and vaults,
if any, in the Premises; provided, however, that if there is no default on the
part of Tenant at the termination of this Lease, Tenant may remove all trade
fixtures and equipment installed by Tenant on the express condition that Tenant
replaces and repairs all damage to said Premises caused by or resulting from the
removal of said trade fixtures and equipment.
If Tenant shall fail to remove all effects from said Premises upon
termination of this Lease for any cause whatsoever, Landlord may, at its option,
remove the same in any manner that Landlord shall choose, and store said effects
without liability to Tenant for loss thereof, and Tenant agrees to pay Landlord
on demand any and all expenses incurred in such removal, including court costs
and attorney's fees and storage charges on such effects for any length of time
the same shall be in Landlord's possession, or Landlord may, at its option,
without notice, sell said effects, or any of the same, at private sale and
without legal process, for such price as Landlord may obtain and apply the
proceeds of such sale to payment of any amounts due under this Lease from Tenant
to Landlord and for the expense incident to the removal and sale of said
effects.
30. Holding Over. Except as is otherwise provided in paragraph (J)(5) of
------------
Section I. of this Lease, if Tenant holds over without the consent of Landlord,
Landlord shall have the option to require Tenant to pay, for each day possession
is withheld, an amount equal to double the amount of the daily rent computed on
the thirty-day-month basis. Any holding over after the expiration of said Term,
with the consent of Landlord, shall be construed to be a tenancy from month to
month at the then current fair market rental for the Premises and shall
otherwise be on the terms and conditions herein specified, so far as applicable.
31. Destruction of Premises. In the event of a partial or total
-----------------------
destruction of the Premises from any cause whatsoever, Landlord shall promptly
cause the same to be rebuilt or repaired unless, in Landlord's sole discretion,
Landlord determines that it would be uneconomical or impossible to rebuild or
repair the same, in which event this Lease shall terminate as of the date of
such destruction upon written notice given by Landlord to Tenant of its
intention not to rebuild or repair, such notice to be given within sixty (60)
days from the date of such destruction. In the event of such termination, Tenant
shall forthwith surrender the Premises and shall be relieved of all liability
accruing after the date of termination, and Landlord shall have no further
liability or obligation hereunder. If such destruction occurs and this Lease is
not so terminated by Landlord, this Lease shall remain in full force and effect
and Landlord and Tenant waive the provisions of any law to the contrary.
Landlord's obligations under this paragraph 31 shall in no event exceed the
condition of the Building on the date hereof. Tenant agrees that during any
period of reconstruction or repair of the Premises and/or said Building, Tenant
shall continue the operation of Tenant's business in the Premises to the extent
reasonably practicable from the standpoint of good business.
<PAGE>
32. Abatement of Rent. The monthly rent payable hereunder shall be abated
-----------------
proportionately during any period in which, by reason of any damage or
destruction of the Premises, there is substantial interference with the
operation of the business of Tenant in the Premises, having regard to the extent
to which Tenant may be required to discontinue its business in the Premises;
provided, however, that the foregoing abatement shall not apply to any
interference caused by dust, noise, vibration or other similar disturbance
caused by the construction of other tenant improvements during the initial
lease-up period of the Building and during any change in tenancy of any premises
within the Building, nor to any stoppage or shortage of utilities or services.
Such abatement shall continue for the period commencing with such destruction or
damage and ending with the completion by Landlord of such work or repair and/or
reconstruction as Landlord is obligated to do.
33. Nonwaiver. The acceptance of rent by Landlord shall not be deemed a
---------
waiver by Landlord of any breach by Tenant of any term, covenant or condition
herein contained, nor of Landlord's right to declare and enforce a forfeiture
for any such breach, and failure of Landlord to insist upon strict performance
of any term, covenant or condition herein shall not be construed as a waiver of
any subsequent breach of the same nor of any other term, covenant or condition.
The waiver by Landlord of any default or breach of any of the provisions,
covenants or conditions hereof on the part of Tenant to be kept and performed
shall not be a waiver of any preceding or subsequent breach of the same or any
other provision, covenant or condition contained herein.
34. Default and Rights of Landlord on Default. This Lease is made upon
-----------------------------------------
the condition that, (a) if Tenant shall fail to pay said rent or any part
thereof or any other charges hereunder when due, whether the same shall or shall
not have been legally demanded, or (b) if Tenant shall fail to observe or
perform any of the other covenants herein contained and on Tenant's part to be
observed and performed, and such default shall continue for twenty (20) days
after written notice thereof has been given to Tenant, or (c) if Tenant shall
become bankrupt or make an assignment for the benefit of creditors or abandon
the Premises, or (d) if any mechanics' or materialmen's lien shall attach to the
Premises or Landlord's or Tenant's estate or interest therein and such lien is
not stayed or removed within fifteen (15) days after the same has attached, or
(e) if this Lease or any estate or interest of Tenant hereunder shall be sold
under any attachment or execution, Landlord may in any such event at once re-
enter the Premises or any part thereof in the name of the whole and, upon or
without such entry, at its option either continue this Lease in force or
terminate this Lease. Landlord may expel and remove from the Premises Tenant and
any persons claiming by, through or under Tenant and their effects without being
deemed guilty of any trespass or becoming liable for any loss or damage
occasioned thereby, all without service of notice or legal process and without
prejudice to any other remedy or right of action, including summary possession,
which Landlord may have for arrears of rent or for the same or any preceding or
other breach of contract. No act by Landlord shall terminate this Lease other
than a written notice that Landlord has elected to terminate this Lease. During
the period Tenant is in default, Landlord may enter the Premises and relet them
or any part of them to third parties for Tenant's account. Tenant shall be
liable immediately to Landlord for all costs Landlord incurs in reletting the
Premises, including, without limitation, brokers' commissions, attorneys' fees
and like costs, and Tenant shall remain liable for any deficiency between the
rents received by reason of such reletting and the rents due hereunder, which
deficiency Tenant shall pay monthly as the same may accrue. If Landlord elects
to cancel the Lease, Landlord shall have the right to recover from Tenant unpaid
rent when due plus all damages resulting from Tenant's default, which damages
shall include costs and attomeys' fees
<PAGE>
plus the amount by which the present worth of the rental for the balance of the
Term exceeds the reasonable rental value of the Premises for the remainder of
the Term, which sum shall be immediately payable to Landlord by Tenant.
Following any default, if Landlord shall bring an action for summary possession,
then Tenant hereby agrees to submit irrevocably to the jurisdiction of the
District Court of the First Circuit of the State of Hawaii and said District
Court shall have the exclusive jurisdiction to decide Landlord's action for
summary possession. No remedy or election hereunder shall be deemed exclusive
but shall, wherever possible, be cumulative with all other remedies at law or in
equity.
Any property removed by Landlord may be stored in any public warehouse or
elsewhere at the cost and for the account of Tenant, and Landlord shall not be
responsible for the care or safekeeping thereof, and Tenant hereby waives any
and all claims for loss, destruction, damage or injury which may be occasioned
by any of the aforesaid acts.
Upon the occurrence of a default under this Lease, if the Premises or any
part thereof are then sublet under a sublease to which Landlord has consented,
Landlord, in addition to any other remedies provided in this Lease or provided
by law, may at its option collect directly from such sublessee all rents
becoming due to Tenant under such sublease and apply such rent against any sums
due to Landlord from Tenant under this Lease, and no such collection shall be
construed to constitute a novation or release of Tenant from the further
performance of Tenant's obligations under this Lease.
35. Interest on Past Due Amounts. Any amounts owing by Tenant to Landlord
----------------------------
under the terms of this Lease shall carry interest from the date the same become
due until paid at the rate of one percent (1%) per month and said interest shall
be considered as a part of the rental payable hereunder; provided, however, that
nothing contained herein shall be construed as authorizing Tenant to make
payments of all sums required hereunder in other than a timely fashion.
36. Late Charge. If any installment of rent due from Tenant is not
-----------
received by Landlord when due, Tenant shall pay to Landlord an additional sum of
five percent (5%) of the overdue rent as a late charge. The parties agree that
this late charge represents a fair and reasonable estimate of the costs that
Landlord will incur by reason of late payment by Tenant. Acceptance of any late
charge shall not constitute a waiver of Tenant's default with respect to the
overdue amount, or prevent Landlord from exercising any of the rights and
remedies available to Landlord.
37. Notice. In every case where under the provisions of this Lease it
------
shall be necessary or desirable for Landlord to give to or serve upon Tenant any
notice or demand, it shall be sufficient either (i) to deliver or cause to be
delivered to Tenant a written or printed copy of such notice or demand; or (ii)
to send a written or printed copy of said notice or demand by mail, postage
prepaid addressed to Tenant at the Premises; or (iii) to leave a written or
printed copy of said notice or demand at the Premises, or to post the same upon
the door leading into said Premises. All notices to be given to Landlord under
this Lease shall be in writing and delivered in person or sent by registered or
certified mail to Landlord at its offices at the address specified on the first
page hereof, or to such other address as Landlord may designate in writing.
<PAGE>
38. Waiver of Jury Trial. The parties hereto shall and they hereby do
--------------------
waive trial by jury in any action, proceeding or counterclaim brought by either
of the parties hereto against the other on any matters whatsoever arising out of
or in any way connected with this Lease, the relationship of Landlord and
Tenant, Tenant's use or occupancy of the Premises, and/or any claim of injury or
damage.
39. Definitions. As used herein the terms "Landlord" and "Tenant" shall
-----------
include the respective parties and their heirs, legal and personal
representatives, successors and assigns; the liability of Tenant, if more than
one (1), shall be joint and several; pronouns wherever used herein should be
construed to include the plural or singular or both; the use of any gender shall
include all genders as the context may reasonably require; and each of the terms
"or" and "and" has the meaning of the other or both where the subject matter,
sense and connection require such construction.
40. Applicable Law. This Lease shall be governed and construed in
--------------
accordance with the laws of the State of Hawaii.
41. Binding Effect. This Lease shall be binding upon and inure to the
--------------
benefit of the parties hereto and their respective successors and permitted
assigns.
42. Landlord's Consent. Whenever consent or approval of Landlord is
------------------
required by the terms of this Lease, requests for consent or approval must be
made in writing. Tenant will reimburse Landlord for reasonable architects',
engineers' and attorneys' fees and other expenses actually incurred by Landlord
in connection with the giving of each and every consent or approval required
under this Lease; provided, however, that Landlord may without further reason
withhold approval of any alterations, additions and improvements if the plans
and specifications therefor are not acceptable to the architect or engineer (if
any) retained by Landlord to review the same; and provided, further, Landlord
may, as a condition of giving any consent to an assignment of this Lease or any
interest herein or to a sublease of all or part of the Premises, require, in
addition to the payment required under subparagraph 23(b) of this Section III,
personal and complete financial information, personal guaranties, or other
information relevant to the transaction for which consent is being sought. The
remedy for any claim based upon unreasonable or unlawful withholding of consent
or approval shall be limited to appropriate injunctive or declaratory relief.
Neither party shall be liable for damages resulting from unreasonable or
unlawful withholding of consent or approval but the prevailing party in any
lawsuit seeking such declaratory or injunctive relief shall be entitled to an
award of reasonable attorneys' fees and court costs.
43. Excuse of Landlord's Performance. Anything in this Lease to the
--------------------------------
contrary notwithstanding, providing such cause is not due to the willful act or
gross neglect of Landlord, Landlord shall not be deemed in default with respect
to the performance of any of the terms, covenants and conditions of this Lease
if the same shall be due to any strike, lockout, civil commotion, war-like
operation, invasion, rebellion, hostilities, military or usurped power,
sabotage, governmental regulations or controls, inability to obtain any
material, service or financing, through act of God or other cause beyond the
control of Landlord.
<PAGE>
44. Recordation. Tenant agrees that neither this Lease nor any memorandum
-----------
hereof shall be recorded.
45. Time of Essence. Time and performance hereof are of the essence of
---------------
this Lease.
46. Renewal. Landlord shall have no obligation to extend or renew this
-------
Lease upon termination or to enter into another lease of the Premises with
Tenant upon termination of this Lease. Upon termination of this Lease, Landlord
may lease the Premises to whoever Landlord chooses for the operation therein of
a business that is the same as or different from that operated by Tenant in the
Premises.
47. Entire Agreement. The provisions of this Lease constitute, and are
----------------
intended to constitute, the entire agreement between Landlord and Tenant. No
terms, conditions, warranties, promises or undertakings of any nature
whatsoever, express or implied, exist between Landlord and Tenant except as
herein expressly set forth.
48. Sale By Landlord. In the event of a sale or conveyance by Landlord
----------------
of the Building and the land of which the Premises are a part, the same shall
operate to release Landlord from any future liability upon any of the covenants
or conditions, express or implied, herein contained in favor of Tenant, and in
such event Tenant agrees to look solely to the successor in interest of Landlord
in and to this Lease, and the successor in interest of Landlord shall have the
right, in its sole discretion, to change the name of the Building at any time.
Except as is otherwise provided in this paragraph 48, this Lease shall not be
affected by any such sale, and Tenant agrees to attorn to the purchaser or
assignee.
49. Joint and Several Obligations. In any case where this Lease is signed
-----------------------------
by more than one (1) person, the obligations hereunder shall be joint and
several.
50. Accord and Satisfaction. No payments by Tenant or receipt by Landlord
-----------------------
of a lesser amount than the monthly rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated rent, nor shall any endorsement
or statement on any check or any letter accompanying any check or payment as
rent be deemed an accord and satisfaction, and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
rent or pursue any other remedy provided for in this Lease.
51. Rules and Regulations. Tenant shall comply with the rules and
---------------------
regulations attached hereto as Exhibit "C" and made a part hereof for all
purposes and with such other and further reasonable rules and regulations as
Landlord may prescribe which, in Landlord's sole judgment, are required for the
reputation, safety, care or cleanliness of the Building or the Premises, or the
operations and maintenance thereof and the equipment therein, or for the comfort
of Tenant and other tenants of the Building. On delivery of a copy of such
amendments and additional rules and regulations to Tenant, Tenant shall
thereafter comply with said rules and regulations, and a violation of any of
said rules and regulations shall constitute a default by Tenant under this
Lease. All such rules and regulations are of the essence hereof without which
this Lease would not have been entered into by Landlord.
<PAGE>
52. Location of Common Areas; Changes to Common Areas; Additional
-------------------------------------------------------------
Facilities. Landlord shall have the right to make changes in the common areas
- ----------
and any part thereof including, without limitation, changes in the location and
relocation of driveways, entrances, exits, vehicular parking spaces, the
direction of flow of traffic, the setting apart of prohibited areas, the
exclusion of employee parking therefrom as Landlord may deem necessary and
advisable for the proper and efficient operation and maintenance of the common
areas, and in particular, the vehicular parking areas for the convenience of the
suppliers, business invitees and customers of all tenants of the Building and
removing areas from the common areas and improving the same for particular
tenants. Notwithstanding the above, the foregoing is not intended to entitle
Landlord to effect changes in the location of common areas which materially and
adversely affect access to or visibility of the Premises, except temporarily
during periods of construction. Landlord at all times during the Term shall have
sole and exclusive jurisdiction and control of the common areas and each and
every part thereof and may, at its option, at any time and from time to time
exclude and restrain any person or persons from the use or occupancy thereof,
excepting Tenant, its subtenants, licensees, concessionaires, suppliers,
business invitees and customers. Nothing herein contained shall affect the right
of Landlord at any time or from time to time to remove any unauthorized person
or persons from said common areas or to restrain the use of any of said common
areas by any unauthorized person or persons.
Without limiting the generality of the foregoing, Landlord shall have the
right to add additional parking, office and retail areas (the "Facilities") to
the Building by constructing such Facilities on adjacent property owned by
Landlord. Tenant agrees to accept the inconvenience of noise, dust and other
disturbances from the construction of such Facilities; provided, however, that
Landlord shall use reasonable efforts to minimize such inconvenience.
53. No Party Deemed Drafter. The parties agree that neither party shall
-----------------------
be deemed to be the drafter of this Lease and in the event this Lease is ever
construed by a court of law, such court shall not construe this Lease or any
provision hereof against either party as the drafter of this Lease.
END OF GENERAL CONDITIONS
<PAGE>
EXHIBIT "A"
[Diagram Description: The office plan of Suite 920 of the 9th floor of The
Commerce Tower at 1440 Kapiolani Boulevard, Honolulu, Hawaii.]
<PAGE>
EXHIBIT "A-1"
[Diagram Description: Specifications to 2-Station Door-Answering Intercom.]
<PAGE>
EXHIBIT "B"
TENANT'S CONSTRUCTION OBLIGATIONS
Construction and Improvements by Tenant. This is a turn-key lease.
---------------------------------------
However, in the event that Tenant should do any construction hereunder:
A. General Obligations of Tenant: Tenant shall construct Tenant's
-----------------------------
improvements in the Premises in compliance with paragraph 14 of Section III of
the Lease and Section B of this Exhibit. Tenant shall also submit to Landlord a
true copy of the construction contract(s) with Tenant's contractor(s) prior to
the start of construction.
B. General Provisions: Tenant shall secure Landlord's written approval of
------------------
all designs, plans, materials, methods of installation, specifications and
contracts ("Plans") for any additional work to be performed by Tenant. Landlord
shall approve or disapprove the Plans within five (5) days following its receipt
thereof. Landlord shall not unreasonably withhold, delay or condition its
approval of the Plans. Tenant's finish work and any additional work shall be
subject to Landlord's approval and acceptance, and shall be approved and
accepted if built substantially in accordance with plans or specifications
therefor previously approved by Landlord.
<PAGE>
EXHIBIT "C"
RULES AND REGULATIONS
RULES AND REGULATIONS: These rules and regulations have been adopted for
---------------------
the purpose of insuring order and safety on the Property and to maintain the
rights of Tenant and Landlord. Landlord reserves the right to modify, supplement
or rescind any of these rules for the safety, care and cleanliness of the
Property and for the preservation of good order therein. Landlord may waive any
one (1) or more of these rules and regulations for the benefit of any particular
tenant or tenants, but no such waiver by Landlord shall be construed as a waiver
of such rules and regulations in favor of any other tenant or tenants, nor
prevent Landlord from thereafter enforcing any such rules and regulations
against any or all of the tenants of the Property. Each tenant shall be liable
for injury or damage caused by the infraction of any of these rules by it, its
employees, agents or invitees, and Landlord may repair such damage, charging the
cost of the same to such tenant, which amount shall be added to rent due for the
ensuing month. These rules and regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, these terms,
covenants, agreements and conditions of any lease of premises on the Property.
In the event of any conflict between any term or provision of the Lease, the
rules and regulations set forth below shall control.
Access: Office areas will be open to the public from 7:00 a.m. to 6:00
------
p.m. weekdays and 8:00 a.m. to 1:00 p.m. Saturdays. On Sundays, holidays and
after regular open hours, access to the office areas without proper and
acceptable identification may be refused.
Closing Premises: Each tenant shall see that his demised Premises are
----------------
securely locked and will exercise caution to insure that all water faucets and
powered equipment are shut off before tenant or tenant's employees leave the
Property, so as to prevent waste or damage.
Common Rooms: Rooms used in common by Tenant and Landlord, if any, shall
------------
be subject to regulations adopted by Landlord.
Dedication - Prevention Of: Landlord reserves the right to close off any
--------------------------
and all of the plazas, promenades and sidewalks of the Property for twenty-four
(24) hours once every five (5) years to prevent dedication.
Deliveries and Service Area: Only hand trucks equipped with rubber tires
---------------------------
and sideguards will be permitted on the Property. All deliveries shall only be
brought through the service entrance of the Property. All deliveries requiring
exclusive use of an elevator shall be scheduled through the Management Office
and in any event such use will not be permitted without the use of elevator
protective padding and such use will not be permitted between the hours of 7:30
a.m.-8:30 a.m., 11:30 a.m.-1:30 p.m. and 3:30-5:00 p.m.
Heavy Items: All carrying in or out of freight, packages or bulky matter
-----------
of any description must take place only during hours selected by Landlord and
then only with prior notice to and approval by Landlord. No object beyond the
rated capacity of elevators shall be brought on the Property. Landlord shall
have the right to prescribe the location of heavy objects and if considered
necessary, the means to distribute the weight thereof (to no more than fifty
(50) pounds per square foot unless written approval is granted by the Landlord).
All costs incurred will be charged to Tenant. Any damage to the Property caused
by any such tenant or its contractor, delivery or moving service, will be
repaired at such tenant's expense. Any delivery made by UPS, Federal Express or
any other similar overnight delivery service shall not be deemed to be delivery
of a heavy item.
<PAGE>
Directories: The tenant directories are provided for displaying the name
-----------
and location of each tenant. A charge will be made for the initial listing and
for each name added to or other change to Tenant's name; provided, however, that
such charge for the initial listing and for any change to Tenant's name shall
not exceed $100 or $100 in any one occurrence. The initial listing and all such
additions or changes will require Landlord's approval. Tenant shall provide
Landlord with a written request for any additions or changes to the directory.
Electrical Air-Conditioning Systems: No tenant shall alter the standard
-----------------------------------
building lighting or air-conditioning system or install any special wiring or
abnormal power consuming equipment without written approval of Landlord. If air-
conditioning and/or power is used out of normal operating hours or there is
abnormal consumption thereof, the tenant involved shall pay on demand a
reasonable charge. The air-conditioning system will operate without additional
charge to Tenant during regular open hours.
After Hours Services: Air conditioning service is available for Tenant
--------------------
after normal open hours. Landlord shall make an extraordinary charge for the
after-hours services which shall be based on the rate schedule or energy
agreement in effect for such services or on the actual premium cost of providing
such services, including the cost of labor and fringe benefits for required
operating personnel, electricity at the per kilowatt hour rate applicable to the
Property, water and sewerage at the posted rate, supplies and materials, if any,
and any other direct premium costs associated with providing such services in
situations where no rate schedule has been set or energy agreement has been
entered into.
Janitorial Service: No one other than those approved in writing by
------------------
Landlord shall be permitted to perform any janitorial service on the Property.
Janitorial service, if supplied by Landlord, shall not include shampooing or
spotcleaning of carpets, cleaning of mini blinds, nor movement of furniture.
Except in the event of Landlord's gross negligence, Landlord shall not be
responsible for any loss of or damage to any tenant's property by the janitor,
its employees or any other person performing janitorial services.
Keys and Locks: No locks other than those provided by Landlord shall be
--------------
placed on any doors without the written consent of the Landlord. Two (2) keys
per lock will be furnished to Tenant by Landlord. Lock cylinders and keys shall
be changed by Landlord at Tenant's expense upon receipt of written request from
Tenant. All keys will be surrendered upon termination of Lease. Janitors and
contract cleaners will be provided with a passkey to Tenant's premises unless
Tenant declines in writing and thereby understands that Landlord will not be
responsible for providing janitorial services and emergency access to that
demised area. All requests for duplication of keys will be submitted to the
building manager.
Obstruction of Common Area: All common areas will be used only for ingress
--------------------------
and egress to the demised premises. Landlord retains the right to control and
prevent access onto the property by any and all persons other than those persons
having a legal right to ingress and egress from the demised premises. Only
persons authorized by Landlord will be permitted in areas housing mechanical,
electrical or equipment of any kind, or the roof.
<PAGE>
Animals: No animals or pets are allowed on the Property or in the demised
-------
premises at any time, except for Seeing Eye dogs.
Bicycles, Mopeds and Motorcycles: Bicycles, mopeds and motorcycles are to
--------------------------------
be parked only in those areas so designated within the parking garage structure.
Removal of Property: Each tenant shall deliver a list of any fixtures or
-------------------
improvements in the premises which the tenant desires to remove from the
Property, and the list must be approved in writing by the Landlord before any
such fixture or improvements is removed.
Repairs/Alterations/Additions to Premises: Only contractors approved by
-----------------------------------------
Landlord shall be permitted to carry out any repairs, alterations or additions
within the Premises and/or on the Property.
Maintenance Requests: The requirements of a tenant will be attended to
--------------------
only upon application by such tenant to Landlord. Landlord's employees will not
perform any work outside of regular duties unless under special instructions
from the Landlord or its authorized agent.
Window Displays: Tenant will not use any method or type of display or
---------------
window advertising without Landlord's prior written approval which shall only be
given if the proposals are considered by Landlord to be consistent with the
character of the Property.
Signs, Screens and Awnings: No notice or advertisement visible from the
--------------------------
exterior of the Property or premises will be permitted without prior written
approval of Landlord. All graphics, curtains, blinds, shades or screens visible
from the exterior of the Property or any premises demised, where permitted,
shall conform to the standards as specified by Landlord from time to time. In
the event of the violation of this rule by any tenant, Landlord may remove same
without any liability, and may charge the expense incurred thereby to the tenant
involved.
Holidays: The following holidays shall be observed by the Property. The
--------
Property will be secured, a security officer will be on duty, and air
conditioning and other services will not be provided on such days.
New Year's Day
Memorial Day
Independence Day
Labor Day
Thanksgiving Day
Christmas Day
The above listed holidays may be changed from time to time and the
designated holidays shall be based on the predominant practice in the business
community as determined by Landlord.
<PAGE>
Solicitors: Landlord reserves the right to eject from the Property, any
----------
solicitors, canvassers or peddlers and any other class of persons who, in the
judgment of Landlord, are annoying or interfering with any of Tenant's or
Landlord's operations or who are otherwise undesirable. Canvassing, peddling,
soliciting and distribution of any written materials on the Property are
prohibited and each tenant shall cooperate to prevent the same.
Trash: Each tenant shall store all its trash and garbage for removal by
-----
janitors within the interior of its demised premises. No material, rubbish or
debris shall be placed in trash boxes or receptacles if such materials are of
such nature as to emit an offensive odor or be in violation of any law or
ordinance governing disposal of same. All Tenant construction debris shall be
removed from Premises and the Property by Tenant, its contractors or its
employees.
Use: No tenant shall at any time bring, allow or keep upon the Premises
---
any flammable, combustible or explosive fluid, chemical or substance in such
quantities as may endanger or imperil the demised premises or any other premises
or the property or lives of other persons.
Violations: Landlord shall not be responsible to any tenant for the non-
----------
observance or violation of any rules and regulations by any other tenant or
other person. Tenant shall be deemed to have read these rules and regulations
and to have agreed to abide by them as a condition to its occupancy of the space
leased.
Washrooms: The lavatory facilities and other water apparatus shall not be
---------
used for any purpose other than that for which they were constructed.
Water: Water will be supplied by the Landlord for drinking and toilet
-----
purposes only
Windows and Doors: No windows, glass doors or any other light sources that
-----------------
reflect into the lobbies or other places of the Property shall be obstructed or
covered except in a manner approved in writing by Landlord.
END OF RULES AND REGULATIONS
<PAGE>
EXHIBIT "D"
NONDISTURBANCE AND ATTORNMENT AGREEMENT
---------------------------------------
THIS AGREEMENT made this 18th day of December, 1995, by and between THE
BANK OF TOKYO, LTD., a Japan corporation, through its Ningyocho office, whose
Honolulu agency address is at Suite 2110, Davies Pacific Center, 841 Bishop
Street, Honolulu, Hawaii 96813 ("Mortgagee"), and TOSEI SHOZI CO., LTD., also
known as TOSEI SHOJI CO., LTD., a Japan corporation, whose mailing address in
the State of Hawaii is at 1440 Kapiolani Boulevard, Suite 1000, Honolulu, Hawaii
96814 ("Landlord"), and LEVI STRAUSS & CO., a Delaware corporation, whose
principal place of business and post office address is at 1155 Battery Street,
San Francisco, CA ("Tenant");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Mortgagee is the holder of (i) that certain Real Property
First Mortgage, Security Agreement and Financing Statement, dated October 31,
1991, made by and between the Landlord, as mortgagor, in favor of the Mortgagee,
as mortgagee, recorded in the Office of the Assistant Registrar of the Land
Court of the State of Hawaii as Land Court Document No. 1889508, as amended by
that certain Amendment to Real Property First Mortgage, Security Agreement and
Financing Statement, dated September 16, 1994, made by and between the Landlord,
as mortgagor, in favor of the Mortgagee, as mortgagee, recorded in said Office
as Land Court Document No. 2211466, (ii) that certain Real Property Second
Mortgage, Security Agreement and Financing Statement, dated October 21, 1992,
made by and between the Landlord, as mortgagor, in favor of the Mortgagee, as
mortgagee, recorded in said Office as Land Court Document No. 1965633, (iii)
that certain Third Mortgage, Security Agreement and Financing Statement, dated
April 4, 1995, made by and between the Landlord, as mortgagor, in favor of the
Mortgagee, as mortgagee, recorded in said Office as Land Court Document No.
2229647, all of which mortgages, as amended, cover the property described in
Exhibit "A" attached thereto, and all of which mortgages, as amended
(collectively, the "Mortgage"), are noted oh Transfer Certificate of Title No.
276,853 (the "Property"); and
WHEREAS, the landlord and the Tenant entered into an unrecorded office
lease dated November 9, 1995 (the "Lease"), covering certain space within the
Commerce Tower Building located on the Property; and
WHEREAS, the Mortgagee and the Tenant have requested of and granted to each
other the agreements hereinafter stated and desire to evidence said agreements
in writing;
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, and other good and valuable consideration, the receipt
whereof is hereby acknowledged, the parties hereto agree as follows:
A. Nondisturbance and Attornment Agreement. So long as the Tenant is not
---------------------------------------
in default under the Lease in the payment of rent or in the observance or
performance of any of the terms, covenants or conditions of the Lease on the
Tenant's part to be observed and performed:
<PAGE>
1. The Tenant's possession of the leased premises and the Tenant's
rights and privileges under the Lease, or any extensions or renewals thereof
which may be effected in accordance with any option therefor in the Lease, shall
not be diminished or interfered with by the Mortgagee, and the Tenant's
occupancy of such premises shall not be disturbed by the Mortgagee for any
reason whatsoever during the term of the Lease or any such extensions or
renewals thereof;
2. The Mortgagee will not join the Tenant as a party defendant in any
action or proceeding for the purpose of terminating the Landlord's interest and
estate under the Lease because of any default under the Mortgage;
3. In the event of foreclosure of the Mortgage or conveyance of the
mortgaged property in lieu of foreclosure, the mortgaged property shall be
conveyed subject to the Lease and this Agreement, and the Tenant shall attorn to
the purchaser of the mortgaged property at the foreclosure sale or to the
transferee of the mortgaged property in lieu of foreclosure, as the case might
be, whether such purchaser be the Mortgagee or a third party and the Tenant
shall be obligated to such purchaser to perform all of the Tenant's obligations
under the Lease, and the Tenant shall have no right to terminate the Lease by
reason of the foreclosure of the Mortgage or conveyance in lieu of foreclosure,
so long as the Tenant's peaceable and quiet use and possession of the leased
premises shall not be disturbed by reason thereof. Such purchaser or transferee
shall be bound to the Tenant under all of the terms, covenants and conditions of
the Lease, and the Tenant shall, from and after such purchaser's or transferee's
succession to the interest of the Landlord under the Lease, have the same
remedies against such purchaser or transferee for the breach of any agreement
contained in the Lease that the Tenant might have had under the Lease against
the Landlord if such purchaser or transferee had not succeeded to the interest
of the Landlord; PROVIDED, HOWEVER, that such purchaser or transferee shall not
be (i) liable for any act or omission prior thereto of the Landlord or the
Landlord's successors and assigns; (ii) subject to any offsets or defenses which
the Tenant might have had against any prior landlord (including the Landlord);
(iii) bound by any rental which the Tenant might have paid to the Landlord more
than thirty (30) days in advance of its due date, except any prepayment in the
nature of security for the performance by the Tenant of its obligations under
the Lease; or (iv) bound by any amendment or modification of the Lease made
without the Mortgagee's consent;
4. The Tenant will not, without the prior written consent of the
Mortgagee, pay to the Landlord any rental under the Lease more than thirty (30)
days in advance of its due date;
5. To the extent that the Lease or any law or regulation shall entitle
the Tenant to notice of any mortgage, this Agreement shall constitute such
notice to the Tenant with respect to the Mortgage and any and all other
mortgages which may hereafter be affected by this Agreement;
6. The obligations of the Mortgagee under this Agreement will not
extend to any subsequent modification of the Lease made without the prior
written consent of the Mortgagee;
<PAGE>
7. In the event of the termination of the Lease on account of the
bankruptcy of the Landlord or other cause, then the Lease shall remain in full
force and effect as a direct lease between the Mortgagee or such nominee and the
Tenant; and the rights and obligations between the Mortgagee or such nominee and
the Tenant shall otherwise be the same as if the Mortgagee or such nominee were
the purchaser of the mortgaged property upon foreclosure sale in accordance with
the preceding paragraph 3. The Tenant shall execute such further instruments as
may be reasonably requested to ratify, reconfirm or otherwise evidence the
continuance in effect of the Lease as a direct lease from the holder of the
Lease.
B. Amendment. This Agreement constitutes the full and complete
---------
understanding between the parties with respect to the subject matter hereof and
may be amended only by a writing signed by each of the parties hereto.
C. Successors and Assigns. The agreements herein contained shall bind and
----------------------
inure to the benefit of the successors in interest and assigns of the parties
hereto and, without limiting such, the agreement of the Mortgagee shall
specifically be binding upon any purchaser of said property at a sale
foreclosing the Mortgage.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused the execution hereof as
of the day and date first above written.
LEVY STRAUSS & CO.,
a Delaware corporation
By /s/ David Garrett
------------------------------------------
Its Director of Global Real Estate
By
------------------------------------------
Its
Tenant
THE BANK OF TOKYO, LTD., a Japan corporation
NINGYO CHO OFFICE
By /s/ Nagao Yamashita
------------------------------------------
Its General Manager, Nagao Yamashita
By
------------------------------------------
Its
Mortgagee
<PAGE>
EXHIBIT "E"
NAME:_____________________________ PHONE Business:____________________________
Home:____________________________
COMPANY NAME:_____________________ VEHICLE INFO-Make:_________________________
GATECARD INFO-Card #:_____________ Color:________________________
Deposit Amt:_____________ Lic #:________________________
MONTHLY CHARGE: $_________________
- -------------------------------------------------------------------------------
MONTH AMT PASS INITIALS MONTH AMT PASS INITIALS
DATE PAID NO.___ DATE PAID NO.___
===============================================================================
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
Exhibit 10.7
LEASE AGREEMENT
BETWEEN
AIRPORT CENTER ASSOCIATES LIMITED PARTNERSHIP,
A CONNECTICUT LIMITED PARTNERSHIP, AS LESSOR,
AND
CHEAP TICKETS, INC., A HAWAII CORPORATION, AS LESSEE
6151 West Century Boulevard
Suite 1200
Los Angeles, California 90045
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into as of this 19th day of
January, 1994, which date is for reference purposes only, by and between Lessor
and Lessee hereinafter named.
SUMMARY OF BASIC LEASE PROVISIONS
- ---------------------------------
The following is a summary of certain terms contained in this Lease,
which terms are more fully set forth in subsequent Articles hereof.
A. Lessor: Airport Center Associates Limited Partnership, a
Connecticut Limited Partnership
B. Lessee: Cheap Tickets, Inc., a Hawaii corporation
C. Lease Term: One Hundred Twenty-Three (123) months
D. Security Deposit: $8,972.30
E. Permitted Use: General Office
F. Basic Rental: $8,972.30 per month
G. CPI Adjustment: N/A
H. Option to Re-Lease: One five (5) year option to re-lease
I. Lessee Improvement and Moving Allowance: $250,900
J. Parking Spaces: Seventy-seven (77) unreserved and three (3)
reserved parking spaces.
DEFINITIONS
- -----------
The following definitions and basic provisions shall be construed in
conjunction with and limited by the references thereto in other provisions of
this Lease:
(a) "Office Premises": Suite No. 1200 in the building located at 6151
West Century Boulevard, Los Angeles, California 90045 (the "Building"),
containing approximately 9,545 rentable square feet, such premises being shown
and outlined on the plan attached hereto as Exhibit "A". The land upon which the
Building is located (the "Property"), together with the Building and related
facilities and appurtenances, shall hereinafter be collectively referred to as
the "Project."
"Storage Premises": That certain storage premises located in the
basement of the Building containing approximately 1,000 square feet, the exact
location of which shall be determined by Lessor. The Office Premises and
Storage Premises are hereinafter collectively referred to as the "Demised
Premises".
(b) "Lease Term": A period of one hundred twenty-three (123) months
commencing on the date which is two (2) months after the substantial completion
of the Work
<PAGE>
(as defined in the Work Letter Agreement [the "Work Letter"] attached hereto as
Exhibit "D") (the "Commencement Date"), as the same may thereafter be extended
pursuant to the terms of this Lease. Upon the request of Lessor, Lessee agrees
to (i) execute a certificate confirming the Commencement Date in the form of
that attached hereto as Exhibit "D" and (ii) deliver same to Lessor within ten
(10) days after Lessor's request.
(c) "Basic Rental": A total monthly amount equal to the sum of (i)
$100 for the Storage Premises), plus (ii) $8,972.30 (for the Office Premises)
shall be payable to Lessor at the office of Leasor (or at such other place as
Lessor may from time to time designate in writing), each such payment to be made
in advance on the firat (1st) day of each month during the Lease Term. All
rental payments shall be paid to the order of Lessor without notice, offset,
reduction or abatement, subject to adjustment as set forth in this Lease.
If the Lease Term shall commence upon a day other than the first day
of a calendar month, the first (1st) month of the Lease Term shall be a
fractional calendar month and the succeeding months of the Lease Term shall
begin on the first (1st) day of each calendar month thereafter. In such event,
Lessee shall pay, upon the Commencement Date, the fixed monthly rent described
in the foregoing clause (c). At the commencement of the next month of the Lease
Term in which Lessee is obligated to pay Basic Rental hereunder, Lessee shall
pay the fixed monthly rent described in the aforementioned clause (c) prorated
on a per diem basis with respect to the first fractional calendar month of the
Lease Term. All rental payments thereafter will be for a full calendar month
and will be in the amount as specified in clause (c) above.
(d) Intentionally Omitted.
(e) "Security Deposit": $3,959.20, which amount is currently being
held by Lessor as a security deposit for Lessee's lease of that certain office
space commonly known as "Suite 830", located at the 9841 Building (as defined in
Article 36 below) pursuant to the terms of that certain Lease Agreement dated
September, 1992, by and between Lessor and Lessee, shall continue to be
retained. In addition, $5,013.10 shall be paid by Lessee to Lessor concurrently
with Lessee's execution of this Lease as additional security for the faithful
performance and observance by Lessee of all of the terms, covenants, conditions,
provisions and agreements of this Lease.
(f) "Parking Rights": Lessee shall be permitted, upon payment by
Lessee of the then prevailing per car Parking Rental Rate (as the same may be
fixed from time to time) within the parking structure of the Building, or upon
the payment of such other rate as may be provided herein, to park in designated
standard size passenger automobiles in seventy-seven (77) unreserved parking
spaces and three (3) reserved parking spaces in the parking structure of the
Building.
(g) "Parking Rental Rate": A total monthly charge, applicable to all
tenants in the Building having parking rights in the parking structure of the
Building, equal to the per car parking rates established by Lessor for the
particular type of parking space provided to Lessee within the parking
structure. Lessor reserves the right to alter such Building "Parking Rental
Rate" at its sole discretion, and in such event the "Parking Rental Rate", for
purposes of this Lease, shall be such altered rate. Notwithstanding the
foregoing, the per-car parking rates established for the first seventy-seven
(77) unreaerved parking spaces and three (3) reserved parking spaces leased
hereunder during the initial Lease Term shall be as follows: (i) $22 per
unreserved parking space per month, and (ii) $70 per reserved parking space per
month; provided, however, that all of the foregoing parking spaces shall be free
of charge during the first five (5) months of the Lease Term.
<PAGE>
(h) "Common Areas": The term "common areas" as used in this Lease
shall mean all areas and facilities around the Demised Premises and within the
exterior boundaries of the Property which are provided and designated from time
to time by Lessor for the general use and convenience of Lessee and other
tenants of the Building and their respective employees and invitees. Common
areas include, without limitation, the lobby area, walkways, parking facilities,
landscaped areas, sidewalks, service quarters, hallways, restrooms (if not part
of the Demised Premises), stairways, elevators (except elevators which may be
reserved for the exclusive use of one or more tenants), walls, fire stairs,
telephone and electric closets, aisles, truck docks, service areas, lobbies and
all other common and service areas of the Property and Building or any other
area of the Project intended for such use. Floors wholly occupied by Lessee
shall not have any facilities which would be used in common with other tenants,
except for fire stairs, shafts and similar installations. Lessee, its employees
and invitees shall have the nonexclusive right to use the common areas along
with others entitled to use same, subject to Lessor's rights and duties as
hereinafter set forth. Without Lessee's consent and without liability to Lessee,
Lessor shall have the right to do the following:
(i) Establish and enforce reasonable rules and regulations
concerning the maintenance, management, use and operation of the common areas;
(ii) Temporarily close any of the common areas for maintenance,
alteration or improvement purposes;
(iii) Select, appoint and/or contract with any person for the
purpose of operating and maintaining the common areas; and
(iv) Change the size, use, shape or nature of any of the common
areas
Lessor shall use reasonable efforts to minimize any interference with Lessee's
use of the Demised Premises and Lessor shall not materially restrain Lessee's
access to the Demised Premises and the parking facilities resulting from
Lessor's exercise of such rights.
(i) "Option to Re-Lease": Provided at the time of the exercise of the
option and at the time the option period is to commence no uncured default
exists under this Lease, Lessee shall have the option to re-lease the Demised
Premises for an additional sixty (60) months (the "Extended Lease Term") upon
the same terms and conditions as are set forth in this Lease (other than the
amount of Basic Rental) by giving Lessor written notice of such intention at
least six (6) months prior to the expiration of the Lease Term. In the event
Lessee exercises its option to re-lease the Demised Premises pursuant to this
provision, Basic Rental for the Demised Premises during the Extended Lease Term
shall be set annually, as of the beginning of the Extended Lease Term and on
each anniversary thereof, at a rate equivalent to ninety-five percent (95%) of
the Prevailing Rate, as defined below. Notwithstanding the foregoing, in no
event shall Basic Rental payable in any year during the Extended Lease Term be
less than the Basic Rental payable in the immediately preceding year.
(j) "Prevailing Rate": The term "Prevailing Rate" shall mean the
annual amount per square foot that a willing, comparable tenant would pay and a
willing, comparable landlord of a substantially comparable first-class office
building in the LAX Airport/Century Boulevard Office Market area would accept
for a sixty (60) month lease term, at arm's length, considering any tenant
concessions then being offered on comparable space to prospective new tenants.
(i) Within thirty (30) days ("Outside Agreement Date") following
the date exercises the Option to Re-Lease, Lessee and Lessor shall use their
reasonable best efforts in good faith and with due diligence to agree upon the
Prevailing Rate. If Lessor and
<PAGE>
Lessee are unable to so agree upon the Prevailing Rate by the Outside Agreement
Date, then either party may elect to have the matter submitted to binding
arbitration. Not later than fifteen (15) business days after either party has
elected to proceed with arbitration, each party shall appoint an arbitrator,
notify the other party of such appointment and the identity of the appointee.
Each appointee shall have been active over the five (5) year period ending on
the date of such appointment in the appraisals of first-class office buildings
in Southern California. The decision of the arbitrators shall be limited solely
to the issue of whether Lessor's or Lessee's submitted Prevailing Rate is
closest to the actual Prevailing Rate determined by the arbitrators, taking into
account the requirements provided above.
(ii) Not later than fifteen (15) business days after each party
has selected an arbitrator, the two selected arbitrators shall select a third
arbitrator with the qualifications and restrictions stated in clause (i) above.
If no arbitrator is selected within such (15) day period, either party may
petition the Superior Court with appropriate jurisdiction to appoint such third
arbitrator, with the qualifications and restrictions set forth in clause (i)
above.
The arbitration shall be conducted in Los Angeles,
California, under the provisions of the commercial arbitration rules of the
American Arbitration Association and Title 9 of Part 3 of the California Code of
Civil Procedure, including, without limiting the generality of the foregoing,
C.C.P. Section 1283.5, which is expressly made applicable to any arbitration
hereunder. The judgment rendered on the award by the arbitrator(s) may be
entered in any court having jurisdiction thereof.
(iii) The three (3) selected arbitrators, after reviewing such
relevant submissions as each of the parties hereto may make, shall within thirty
(30) days of the appointment of the third arbitrator determine whether Lessor's
or Lessee's estimate of the Prevailing Rate is closer to the Prevailing Rate
determined by the arbitrators. The decision of the majority of the three
arbitrators shall be binding upon Lessor and Lessee. If either Lessor or Lessee
fails to appoint an arbitrator within fifteen (15) days after the Outside
Agreement Date, the arbitrator timely appointed by one of them shall reach a
decision, notify Lessor and Lessee thereof, and such decision shall be binding
upon Lessor and Lessee. Each party shall be responsible for the costs, charges
and fees of its respective appointee, and the parties shall share equally in the
costs, charges and fees of the third arbitrator.
GRANTING CLAUSE; STORAGE PREMISES
- ---------------------------------
(a) In consideration of the obligation of Lessee to pay rent as herein
provided and in consideration of the other terms, covenants and conditions
hereof, Lessor hereby demises and leases to Lessee, and Lessee hereby takes from
Lessor, the Demised Premises to have and to hold the same for the Lease Term
specified herein, all upon the terms and conditions set forth in this Lease.
(b) Subject to any other terms and conditions of this Lease which
relate to the Demised Premises and expressly conflict with this section, the
following shall govern the use of the Storage Premises by Lessee and set forth
Lessor's and Lessee's rights with respect thereto:
(i) Lessee represents that it has inspected the Storage Premises
or expressly waives its right to inspect and hereby accepts the Storage Premises
"as is and with all faults".
(ii) Lessor is to provide no services, including water, heat or
air-conditioning, whatsoever with respect to the Storage Premises, except that
Lessor shall provide lighting in the Storage Premises and the use of the freight
elevator service.
<PAGE>
(iii) Lessee agrees that Lessee has sole knowledge of the items to
be stored in the Storage Premises and agrees that Lessor has no responsibility
for such items. Accordingly, Lessee agrees that Lessor shall not be responsible
for keeping any records or inventory of the property stored in the Storage
Premises and agrees that Lessee shall purchase and be responsible for payment of
all insurance necessary to protect against risk of destruction or loss of the
items stored in the Storage Premises. In addition Lessee agrees that it shall be
solely responsible for and shall relieve and hereby holds Lessor harmless from
all liability by reason of any damage or loss to person or property arising out
of, related to or in connection with the Storage Premises, from any cause
whatsoever except the negligence or willful misconduct of Lessor. Lessee shall
be solely responsible for securing the Storage Premises by any reasonable means
and Lessee shall provide a key to allow Lessor access in an emergency.
SERVICES BY LESSOR
- ------------------
Lessor agrees to furnish Lessee while occupying the Demised Premises
the following services:
(a) Hot and cold water at those points of supply provided for general
use of tenantry.
(b) Air conditioning, heat and electric current (for lighting and
fractional horsepower machines only) during reasonable hours of generally
recognized business days, as determined by Lessor in such quantity and of such
quality as Lessor determines in its sole judgment is reasonably necessary for
Lessee's comfortable use and enjoyment of the Office Premises. Lessee shall keep
and cause to be kept closed all window coverings when necessary because of the
sun's position, and Lessee shall also at all times cooperate fully with Lessor
and abide by all regulations and requirements which Lessor may prescribe for the
proper functioning and protection of the heating, ventilation and air
conditioning systems. If any heat generating machine, excess lighting or
equipment used in the Office Premises affects the temperature otherwise
maintained by the air conditioning system, Lessor may install supplementary air
conditioning units in the Office Premises, and the cost thereof (including, but
not limited to, the cost of installation, separate utility metering, operation
and maintenance thereof) shall be paid by Lessee to Lessor upon demand by
Lessor. Notwithstanding the foregoing, (i) HVAC for the Office Premises will be
provided during the following hours: (A) with the exception of generally
recognized State and Federal holidays, from 8:00 a.m. to 6:00 p.m., Monday
through Friday, and 9:00 a.m. to 1:00 p.m. on Saturday ("Business Hours"), and
(B) on an after Business Hours basis upon request by Lessee; provided that
Lessee shall be responsible for all costs incurred by Lessor in connection with
providing HVAC to the Office Premises after Business Hours (without any
administrative fee or profit increment to Lessor); and (ii) Lessee shall be
responsible for all utility costs incurred in connection with the HVAC Unit (as
defined in the Work Letter).
(c) Elevator service in common with other tenants for ingress to and
egress from the Demised Premises (provided that such service shall specifically
include the use of one (1) passenger elevator).
(d) Reasonable janitorial and cleaning services as may in the judgment
of Lessor be reasonably required.
(e) Electrical lighting for public areas and special service areas of
the Building in the manner and to the extent deemed by Lessor to be standard.
Failure to any extent to furnish, or any stoppage of, these defined
services, resulting from causes beyond control of Lessor or from any cause,
shall not render Lessor liable in any respect for damages to either person or
property, nor be construed as an eviction of Lessee
<PAGE>
or work an abatement of rent, nor relieve Lessee from fulfillment of any
covenant or agreement hereof. Should any equipment or machinery break down or
for any cause cease to function properly, Lessor shall use reasonable diligence
to repair same promptly, but Lessee shall have no claim for rebate of rent or
damages on account of any interruptions in service occasioned thereby or
resulting therefrom.
This Lease is conditioned upon faithful performance by Lessee of the
following agreements, covenants, rules and regulations, herein set out and
agreed to by Lessee.
PAYMENTS
- --------
1. Lessee shall pay all rents and sums provided to be paid by Lessee
hereunder at the times and in the manner herein provided. The obligation of
Lessee to pay Basic Rental is an independent covenant, and no act or
circumstance, whether constituting a breach of covenant by Lessor or not, shall
release Lessee of the obligation to pay rent.
REPAIRS BY LESSEE
- -----------------
2. Lessee will, at Lessee's own cost and expense, keep the Demised
Premises and all other improvements to the extent covered by this Lease in sound
condition and good repair, and shall repair or replace any damage or injury done
to the Building or any part thereof by Lessee or Lessee's agents, employees,
invitees and visitors, and if Lessee fails to make such repair or replacements
promptly, or within 15 days of occurrence, and to the satisfaction of Lessor,
Lessor may at its option make such repair or replacement, and Lessee shall repay
the cost thereof to Lessor on demand. Lessee waives all right to make repairs at
the expense of Lessor, or to deduct the cost thereof from the rent. Lessee also
waives any and all rights and benefits of Sections 1941 and 1942 of the Civil
Code of California and any similar law, statute or ordinance now or hereafter in
effect. It is hereby understood and agreed that Lessor has no obligation to
alter, remodel, improve, repair, decorate or paint the Demised Premises or any
part thereof, except as specified in Articles 9, 16 and 42 below, and that no
representations relating to the condition of the Demised Premises or the
Building have been made by Lessor (or any employee or agent thereof) to Lessee
except as may be specifically set forth in this Lease. Lessee will not commit or
allow any waste or damage to be committed on any portion of the Demised
Premises, and shall at the termination of this Lease by lapse of time or
otherwise, deliver up said premises to Lessor in as good condition as at date of
possession, ordinary wear and tear excepted, and upon such termination of this
Lease Lessor shall have the right to re-enter and resume possession of the
Demised Premises.
ASSIGNMENT OR SUBLETTING
- ------------------------
3. Lessee will not sell, mortgage, transfer, or assign this Lease, or
allow same to be assigned by operation of law or otherwise, or sublet the
Demised Premises, or any part thereof, or use or permit same to be used for any
other purpose than stated in the use clause hereof without the written consent
of Lessor, which such consent will not be unreasonably withheld. Notwithstanding
the foregoing, in the event Lessee desires to assign or sublet the Demised
Premises, Lessee shall provide Lessor with not less than one hundred twenty
(120) days written notice of Lessee's request, specifying in detail any and all
terms of such assignment or sublease. Lessee shall submit the following
information with a written request for Lessor's consent to any assignment,
sublease or other transfer: (i) all transfer and related documents, (ii)
financial statements, (iii) business, credit and personal references and
history, and (iv) such other information as Lessor may reasonably request
relating to the proposed transfer and the parties involved therein. In
determining whether to grant such consent, Lessor may consider various factors
including, but not limited to, the following: (a) business criteria relating to
the proposed transferee's background, experience, reputation, general operating
ability and ability to perform
<PAGE>
Lease obligations, and potential for succeeding in its business, (b) financial
criteria relating to the proposed transferee's financial responsibility, credit
rating and capitalization, (c) the identity and personal characteristics of the
proposed transferee and its invitees and guests, (d) the nature of the proposed
use and business of the proposed transferee, including its consistency with
Lessee's use of the Demised Premises hereunder, and (e) whether the proposed
transferee or its business is subject to compliance with additional requirements
of the law (including regulations) commonly known as the "Americans with
Disabilities Act" beyond those requirements which are applicable to Lessee.
Without limiting the generality of the foregoing, Lessor hereby reserves the
right to condition any such consent upon Lessor's determination that (i) the
proposed transferee is at least as financially and morally responsible as Lessee
then is, or was upon the execution hereof, whichever is greater, and (ii) the
proposed transferee shall use the Demised Premises in compliance with the terms
of this Lease. Notwithstanding any provision in this Lease to the contrary,
Lessee shall not enter into any proposed assignment, sublease or other transfer
of any interest herein or in the Demised Premises which would result in (a)
detraction from the character or image of the Building or diminution in the
value thereof, (b) the Demised Premises being occupied by more than two (2)
tenants, or (c) a breach by Lessor of any then-existing exclusive right in favor
of any other tenant of the Building, any loan obligation or agreement, any
covenants, conditions and restrictions of record, or any insurance policy. The
discovery of the fact that any financial statement relied upon by Lessor in
giving its consent to a sale, mortgage, transfer, assignment or subletting was
materially false shall, at Lessor's election, render Lessor's said consent null
and void. Lessor reserves the right to cancel and terminate this Lease within
thirty (30) days upon receipt of the above notice from Lessee of its request to
assign or sublet the Demised Premises (unless Lessee proposes a sublease of a
portion of the Demised Premises, in which event Lessor may terminate this Lease
as to such portion). Such termination shall be effective as of the proposed
effective date of the proposed assignment or sublease. In the event Lessor
consents to an assignment or sublease of the Demised Premises, which assignment
or sublease results in rental payments in excess of the monthly payments due and
owing under the terms of this Lease Agreement, such excess rental payments shall
be deemed to be rental payments due and owing Lessor. Any sale, hypothecation,
transfer, assignment or subletting which is not in compliance with the
provisions of this Article shall be voidable by Lessor and shall, at the option
of Lessor, constitute a default under this Lease. Lessor's acceptance of rent
directly from any subtenant, assignee or other transferee shall not be construed
as Lessor's approval or consent thereto nor Lessor's agreement to accept the
attornment of any subtenant in the event of any termination of this Lease. In no
event shall Lessor's consent to an assignment or subletting be construed as (i)
relieving Lessee from the obligation to obtain Lessor's express written consent
to any further assignment or subletting or (ii) releasing Lessee from any
liability or obligation hereunder whether or not then accrued, and Lessee shall
continue to be fully, jointly and severally liable hereunder. As a further
condition to Lessor's consent to any subleasing, assignment or other transfer of
part or all of Lessee's interest in the Demised Premises (i) Lessee shall be
required to pay to Lessor as additional rent Lessor's costs incurred in
connection with its review and/or execution thereof, including Lessor's
reasonable attorney's fees and a minimum processing fee of Two Hundred Fifty
Dollars ($250.00), (ii) any sublessee of part or all of Lessee's interest in the
Demised Premises shall agree that in the event Lessor gives such sublessee
notice that Lessee is in default under this Lease, such sublessee shall
thereafter make all sublease or other payments directly to Lessor, which
payments will be received by Lessor without any liability whether to honor the
sublease or otherwise (except to credit such payments against sums due under
this Lease), and such sublessee shall agree to attorn to Lessor, or its
successors and assigns, at its request should this Lease be terminated for any
reason, except that in no event shall Lessor or its successors or assigns be
obligated to accept such attornment; and (iii) Lessor may require that Lessee
not then be in default under this Lease in any respect. In the event that Lessee
files any type of petition in bankruptcy or has same filed against it and Lessor
does not elect to terminate this Lease or is deemed to have waived its right to
terminate this Lease, and in the event that the trustee or receiver appointed by
the bankruptcy court attempts to assume this Lease and thereupon assign it to a
third party, the Lessor shall have the right to
<PAGE>
terminate this Lease within thirty (30) days upon gaining knowledge of such
attempted assumption and assignment, or upon being given written notice of same
by Lessee, whichever is later. In the event Lessor does not elect to terminate
this Lease, all monies or other consideration payable or otherwise to be
delivered in connection with such assignment shall be paid or delivered to
Lessor, shall be and remain the exclusive property of Lessor and shall not
constitute property of Lessee or of the estate of Lessee within the meaning of
the Bankruptcy Code, 11 U.S.C. 101 et seq. (the "Bankruptcy Code"). Any and all
monies or other consideration constituting Lessor's property under the preceding
sentence not paid or delivered to Lessor shall be held in trust for the benefit
of Lessor and shall be promptly paid to or turned over to Lessor. If Lessee
proposes to assign this Lease pursuant to the provisions of the Bankruptcy Code
to any person or entity who shall have made a bona fide offer to accept an
assignment of this Lease on terms acceptable to Lessee, then notice of such
proposed assignment setting forth (i) the name and address of such person, (ii)
all of the terms and conditions of such offer, and (iii) the adequate assurance
to be provided by Lessee to assure such person's future performance under the
Lease including, without limitation, the assurance referred to in Section 365 of
the Bankruptcy Code, or any such successor or substitute legislation or rule
thereto, shall be given to Lessor by Lessee no later than twenty (20) days after
receipt by Lessee, but in any event no later than ten (10) days prior to the
date that Lessee shall make application to a court of competent jurisdiction for
authority and approval to enter into such assignment and assumption. Lessor
shall thereupon have the prior right and option, to be exercised by notice to
Lessee given at any time prior to the effective date of such proposed
assignment, to accept an assignment of this Lease upon the same terms and
conditions and for the same consideration, if any, as the bona fide offer made
by such person, less any brokerage commissions which may be payable out of the
consideration to be paid by such person for the assignment of this Lease. Any
person or entity to which this Lease is assigned pursuant to the provisions of
the Bankruptcy Code shall be deemed without further act or deed to have assumed
all of the obligations arising under this Lease on and after the date of such
assignment. Any such assignee shall upon demand execute and deliver to Lessor an
instrument confirming such assumption.
If Lessee is a corporation, an unincorporated association or a
partnership, any cumulative transfer, assignment or hypothecation of any stock
or interest in such corporation, association or partnership greater than twenty-
five percent (25%) thereof, or any cumulative transfer, assignment or
hypothecation (other than in the ordinary course of business) of any assets of
such corporation, association or partnership greater than twentyfive percent
(25%) thereof, shall be deemed an assignment within the meaning and provisions
of this Section and shall be subject to the provisions hereof; provided,
however, that the foregoing shall not apply to corporations, fifty percent (50%)
or more of the stock of which is traded through a national or regional exchange
or over-the-counter.
ALTERATIONS, ADDITIONS, AND IMPROVEMENTS
- ----------------------------------------
4. Lessee will not make or allow to be made any alterations,
additions, or improvements in or to the Demised Premises without the written
consent of Lessor before performance; such consent will not be unreasonably
withheld, but Lessor may impose, as a condition of such consent, such
requirements as Lessor may deem reasonable, including, without limiting the
generality of the foregoing, requirements as to the manner in which the time or
times at which, and the contractor by whom such work shall be done. Such
alterations, additions, or improvements when made to the Demised Premises by
Lessee shall be surrendered to Lessor and become the property of Lessor upon
termination in any manner of this Lease, but this clause shall not apply to
movable non-attached fixtures or furniture of Lessee, provided, however, if
prior to termination of this Lease, or within fifteen (15) days thereafter,
Lessor so directs by written notice to Lessee, Lessee shall promptly remove such
alterations, additions, or improvements, which were placed in or on the Demised
Premises by Lessee and which are designated in such notice and shall repair any
damage occasioned by such removal and in default thereof Lessor
<PAGE>
may effect said removals and repairs at Lessee's expense. All work with respect
to alterations, additions, and improvements must be done in a good and
workmanlike manner and diligently prosecuted to completion to the end that the
improvements on the Demised Premises shall at all times be a complete unit
except during the period of work. Any alterations, additions, or improvements
desired by Lessee shall be in accordance with plans and specifications approved
in advance by Lessor. Furthermore, any such alterations, additions, and
improvements shall be performed and done strictly in accordance with the laws,
regulations, codes ordinances and other governmental requirements relating
thereto, and with the requirements of all carriers of insurance on the Demised
Premises and the Board of Underwriters, Fire Rating Bureau, or similar
organization. Lessee shall obtain at its sole cost and expense all required
licenses and permits. In performing the work of any such alterations, additions
or improvements, Lessee shall have the work performed in such a manner so as not
to obstruct the access to the Building or any other tenant. Before commencing
any such work or construction in or about the Demised Premises, Lessee shall
notify Lessor in writing of the expected date of commencement thereof. Lessor
shall have the right at any time and from time to time to post and maintain on
the Demised Premises such notices as Lessor deems necessary to protect the
Demised Premises and Lessor from the liens of mechanics, laborers, materialmen,
suppliers or vendors. If any mechanic lien is filed against the Demised Premises
or the real estate of which the Demised Premises form a part, which lien
concerns the Lessee and/or the Demised Premises, Lessee shall cause same to be
discharged within ten (10) days after the lien is filed by Lessee paying or
bonding over said lien.
Notwithstanding the foregoing, Lessor's approval of the plans,
specifications and/or working drawings for Lessee's alterations, additions
and/or improvements shall create no responsibility or liability on the part of
Lessor for their completeness, design sufficiency or compliance with all laws,
rules and regulations of governmental agencies or authorities.
LEGAL USE AND VIOLATIONS OF INSURANCE COVERAGE; HAZARDOUS MATERIALS
- -------------------------------------------------------------------
5. (a) Violations of Insurance Coverage. Lessee will not occupy
or use, nor permit any portion of the Demised Premises to be occupied or used
for any business or purpose which is unlawful in part or in whole or deemed to
be disreputable in any manner, or extra hazardous on account of fire, nor permit
anything to be done which will in any way increase the rate of fire insurance on
the Building or contents, and in the event that, by reason of acts of Lessee,
there shall be any increase in rate of insurance on the Building or contents
created by Lessee's acts or conduct of business, then Lessee hereby agrees to
pay such increase. Lessee will not commit or suffer the commission of any waste
in or about the Demised Premises. Nor will Lessee use or occupy the Demised
Premises or permit the same to be used for any purpose whatsoever other than the
Permitted Use defined herein.
(b) Hazardous Materials. Lessee hereby represents, warrants and
covenants that Lessee's business operations in the Demised Premises do not and
will not involve the use, storage or generation of "Hazardous Materials" (as
defined below). Lessee shall not cause or permit any Hazardous Material to be
brought upon, stored, manufactured, generated, blended, handled, recycled,
disposed of, used or released on, in, under or about the Demised Premises and/or
Project by Lessee or its agents, employees, contractors, subcontractors,
subtenants, assigns or invitees (collectively, "Lessee's Parties") and Lessee
shall keep, operate and maintain the Demised Premises in compliance with all,
and shall not permit the Demised Premises to be in violation of any, federal
(including, but not limited to, the Comprehensive Environmental Response Claim
and Liability Act of 1980, 42 U.S.C. (S) 9601 et seq.), state or local
environmental, health and/or safety related law, decision of any court of law,
ordinance, rule, regulation, code, order, directive, guideline, permit or permit
condition currently existing
<PAGE>
and as amended, enacted, issued or adopted in the future which is applicable to
the Demised Premises (collectively, "Environmental Laws").
Without limiting in any way Lessee's obligations under any other
provision of this Lease, Lessee and its successors and assigns shall indemnify,
protect, defend and hold Lessor, its partners, officers, directors,
shareholders, employees, agents, lenders, contractors and each of their
respective successors and assigns (collectively, the "Indemnified Parties")
harmless from any and all claims, judgments, damages, penalties, enforcement
actions, taxes, fines, remedial actions, liabilities, losses, costs and expenses
(including, without limitation, actual attorneys' fees, litigation, arbitration
and administrative proceeding costs, expert and consultant fees and laboratory
costs) including, without limitation, diminution in the value of the Project or
any portion thereof, damages for the loss of the Project, damages arising from
any adverse impact on the marketing of space in the Project, and sums paid in
settlement of claims, which arise during or after the Lease Term in whole or in
part as a result of the presence or suspected presence of any Hazardous
Material, in, on, under or about the Demised Premises or the Project and/or
other properties due to Lessee's or Lessee's Parties' activities, or failure to
act, on or about the Project. Without limiting the foregoing, if any Hazardous
Material is found in, on, under or about the Demised Premises or the Project at
any time during or after the Lease Term, the presence of which was caused by
Lessee and/or Lessee's Parties, Lessee shall, at its sole cost and expense,
promptly take all actions as are necessary to return the Project to the
condition existing prior to the introduction or release of such Hazardous
Material in accordance with applicable Environmental Laws and Lessor's prior
written approval.
For purposes of this Lease, the term "Hazardous Material" means any
chemical, substance, material, controlled substance, object, condition, waste or
combination thereof which is or may be hazardous to human health or safety or to
the environment due to its radioactivity, ignitability, corrosiveness,
reactivity, explosiveness, toxicity, carcinogenicity, infectiousness or other
harmful or potentially harmful properties or effects, including, without
limitation, petroleum and petroleum products, asbestos, radon, polychlorinated
biphenyls (PCBs) and all of those chemicals, substances, materials, controlled
substances, objects, conditions, wastes or combinations thereof which are now or
become in the future listed, defined or regulated in any manner by any
Environmental Law based upon, directly or indirectly, such properties or
effects.
LAWS AND REGULATIONS
- --------------------
6. Lessee will maintain the Demised Premises in a clean and healthful
condition and, at Lessee's expense, comply with all laws, ordinances, orders,
directions, requirements, rules, and regulations (state, federal, county,
municipal, and other agencies or bodies having any jurisdiction thereof) with
reference to use, conditions, or occupancy of the Demised Premises.
INDEMNITY, LIABILITY AND LOSS OR DAMAGE AND EXCULPATION
- -------------------------------------------------------
7. By moving into the Demised Premises or taking possession thereof,
Lessee accepts the Demised Premises as suitable for the purposes for which the
same are leased and accepts the Building and each and every appurtenance
thereof, and Lessee by said acts waives any and all defects therein.
Lessor shall not be liable to Lessee or Lessee's Parties for any
injury to person, loss or damage to property, or for loss or damage to Lessee's
business, occasioned by or through the acts or omissions of Lessor or any other
person, or by any other cause whatsoever except Lessor's gross negligence or
willful wrong to the extent Lessor is not prevented by law from contracting
against such liability. Lessee and its successors and assigns shall indemnify
<PAGE>
Lessor and save it harmless from all suits, actions, damages, liability and
expense in connection with loss of life, bodily or personal injury or property
damage arising from or out of any occurrence in, upon, at or from the Demised
Premises or the occupancy or use by Lessee of the Demised Premises or any part
thereof, if occasioned wholly or in part by any action or omission of Lessee
and/or Lessee's Parties. If Lessor shall without fault on its part, be made a
party to any action commenced by or against Lessee, Lessee shall protect and
hold Lessor harmless and shall pay all costs, expenses, and reasonable
attorney's fees. The provisions of this Section shall survive the expiration or
termination of this Lease with respect to any claims or liability arising from
events occurring prior to such expiration or termination.
If Lessor shall be an individual, joint venture, tenancy in common,
co-partnership, limited partnership, unincorporated association, or other
unincorporated aggregate of individuals and/or entities or a corporation, Lessee
shall look only to such Lessor's estate and property in the Building (or the
proceeds thereof) and, where expressly so provided in the Lease, to offset
against the rents payable under the Lease, for the satisfaction of Lessee's
remedies for the collection of a judgment (or other judicial process) requiring
the payment of money by Lessor in the event of any default by Lessor under the
Lease, and no other property or assets of such Lessor or any partner, member,
officer or director thereof, disclosed or undisclosed shall be subject to levy,
execution or other enforcement procedure for the satisfaction of Lessee's
remedies under or with respect to the Lease, the relationship of Lessor and
Lessee hereunder or Lessee's use or occupancy of the Demised Premises.
BUILDING RULES AND REGULATIONS
- ------------------------------
8. Lessee and Lessee's agents, employees, and invitees will comply
fully with all requirements of the Building Rules and Regulations which are
attached as Exhibit "B" and made a part hereof as though fully set out herein.
Lessor shall at all times have the right to change such Rules and Regulations or
to amend them in such reasonable manner as may be deemed advisable for safety,
care and cleanliness of the Demised Premises and for the preservation of good
order therein, all of which Rules and Regulations, changes and amendments, will
be forwarded to Lessee in writing and shall be carried out and observed by
Lessee. Lessor shall not be responsible for the nonobservance of, or
noncompliance with, any of said rules and regulations by any other lessee or
occupant of the Building.
ENTRY FOR REPAIRS AND INSPECTION
- --------------------------------
9. Lessee will permit Lessor or owner, or their officers, agents, and
representatives, the right to enter into and upon all parts of the Demised
Premises, at all reasonable hours to post notices of non-responsibility, to
inspect same or clean or make repairs or alterations or additions as Lessor may
deem necessary, and Lessee shall not be entitled to any abatement or reduction
of rent by reason thereof. In the event of an emergency, Lessee hereby grants to
Lessor the right to enter the Demised Premises at any time. In addition, Lessee
shall permit Lessor or Lessor's agent and any other person authorized by the
same to enter the Demised Premises during the last six months of the Lease Term
for the purpose of exhibiting the Demised Premises to prospective lessees.
Lessee hereby waives any claim for damages for any injury or inconvenience to or
interference with Lessee's business, any loss of occupancy or quiet enjoyment of
the Demised Premises, and any other loss occasioned thereby, except to the
extent arising from the gross negligence or willful misconduct of Lessor.
Lessor shall also have the right at any time, without same
constituting an actual or constructive eviction and without incurring any
liability to Lessee therefor, to change the arrangement and/or location of
entrances or passageways, doors and doorways, and corridors, elevators, stairs,
toilets or other public parts of the Building, provided that Lessor shall use
<PAGE>
reasonable efforts to minimize any interference with Lessee's use of and access
to the Demised Premises resulting from the foregoing.
NUISANCE
- --------
10. Lessee will conduct its business, and control its agents,
employees, invitees and visitors in such a manner as not to create any nuisance,
interfere with, annoy, or disturb other tenants or Lessor in the management of
the Building.
EMINENT DOMAIN AND FORCE MAJEURE
- --------------------------------
11. (a) If the whole of the Demised Premises, or so much thereof as
to render the balance thereof unusable by Lessee for the conduct of Lessee's
business, is taken under power of eminent domain, or sold, transferred or
conveyed in lieu thereof, this Lease shall automatically terminate as of the
date of such condemnation, or as of the date possession is taken by the
condemning authority, whichever is later. If any substantial part of the
Building excluding the Demised Premises shall be taken or appropriated under the
power of eminent domain or sold, transferred or conveyed in lieu thereof, Lessor
may, by serving written notice upon Lessee within thirty (30) days thereafter,
immediately terminate this Lease. No award for any partial or entire taking
shall be apportioned and Lessee hereby releases any claim to and assigns to
Lessor any award which may be made in such taking or condemnation, together with
any and all rights of Lessee now or hereafter arising in or to the same or any
part thereof, provided, however, that nothing contained herein shall be deemed
to give Lessor any interest in, or to require Lessee to assign to Lessor, any
award made to Lessee for Lessee's leasehold estate or for the taking of personal
property and fixtures belonging to Lessee and removable by Lessee at the
expiration of the term hereof as provided hereunder or for the interruption of,
or damage to Lessee's business. In the event of a partial taking, or a sale,
transfer or conveyance in lieu thereof, which does not result in an automatic
termination of this Lease, pursuant to the foregoing, the rent shall be
apportioned according to the ratio that the part of the Demised Premises
remaining usable by Lessee bears to the total area of the Demised Premises.
Notwithstanding anything to the contrary contained in this Article, if the
temporary use or occupancy of any part of the Demised Premises shall be taken or
appropriated under the power of eminent domain or sold, transferred or conveyed
in lieu thereof during the term of this Lease, this Lease shall be and remain
unaffected by such taking, appropriation or conveyance and Lessee shall continue
to pay in full all rent payable hereunder by Lessee during the term of this
Lease; in the event of any such temporary taking, appropriation or conveyance,
Lessee shall be entitled to receive that portion of any award which represents
compensation for loss of the use or occupancy of the Demised Premises during the
term of this Lease, and Lessor shall be entitled to receive the balance of such
award. To the extent that it is inconsistent with the above, each party hereto
hereby waives the provisions of Section 1265.130 of the California Code of Civil
Procedure allowing either party to petition a court to terminate this Lease in
the event of a partial taking of the Demised Premises.
(b) Lessor shall not be liable or responsible for any loss or
damage to any property or person occasioned by theft, fire, act of God, public
enemy, injunction, riot, strike, insurrection, war, court order, requisition or
order of a government body or authority, or other matter beyond the control of
Lessor or for any damage or inconvenience which may arise through repair or
alteration of any part of the Building or failure to make any such repairs, or
from any cause whatever, unless caused solely by Lessor's gross negligence.
LIEN FOR RENT
- -------------
12. In consideration of mutual benefits arising by virtue of this
Lease, Lessee does hereby mortgage unto Lessor all property of Lessee now or
hereinafter placed in or upon the
<PAGE>
Demised Premises (except such part of Lessee's property or merchandise as may be
exchanged, replaced or sold from time to time in the ordinary course of
operations or trade, including airline tickets and the proceeds received by
Lessee from the sale of such tickets), and such property is hereby subjected to
a lien in favor or Lessor and shall be and remain subject to such lien of Lessor
for payment of all rents and other sums agreed to be paid by Lessee herein. Said
lien shall be in addition to and cumulative of the Lessor's lien provided by
law. As additional security for Lessee's performance and satisfaction of each
and every one of its duties and obligations under this Lease, Lessee does hereby
assign and grant to Lessor a security interest under the California Commercial
Code in and to Lessee's right, power and authority during the continuance of
this Lease, to receive the rents, issues, profits or other payments received
under any sublease or other transfer of part or all of Lessee's interest in the
Demised Premises, reserving unto Lessee the right prior to any default hereunder
to collect and retain said rents, issues and profits as they become due and
payable, except that nothing contained herein shall be construed to alter the
provisions of Article 3 above. Upon any such default, Lessor shall have the
right at any time thereafter, without notice (except as may be provided for
herein), either in person, by agent or receiver to be appointed by a court, to
enter and take possession of the Demised Premises and collect such rents,
issues, profits or other payments, including without limitation those past due
and unpaid, and apply same, less costs and expenses of collection, including
without limitation reasonable attorneys' fees upon any indebtedness secured
hereby and in such order as Lessor may determine.
ABANDONMENT
- -----------
13. If the Demised Premises are abandoned or vacated by Lessee,
Lessor shall have the right, but not the obligation, to: (a) relet same for the
remainder of the period covered hereby; and if the rent received through such
reletting is not at least equal to the rent provided hereunder, Lessee shall pay
and satisfy any deficiencies between the amount of rent called for and that
received through reletting and all expenses incurred by any such reletting,
including but not limited to the cost of renovating, altering and decorating for
a new occupant, and/or (b) provide for the storage of any personal property
remaining in the Demised Premises without liability of any kind or nature for
the cost of storage or the return of the personal property to Lessee or take
title to the abandoned personal property which title shall pass to Lessor under
this lease as a Bill of Sale without additional payment or credit from Lessor to
Lessee. Notwithstanding the foregoing, during the last ninety (90) days of the
term of this Lease if Lessee removes a substantial portion of Lessee's property
or Lessee has been in physical absence for ten (10) days it shall constitute a
vacation and Lessor may enter the Demised Premises for purposes of renovating,
altering and decorating the Demised Premises for occupancy at the end of the
term by a new tenant without in any way affecting Lessee's obligation to pay
rent and comply with all other terms and conditions of this Lease.
HOLDING OVER
- ------------
14. In case of holding over by Lessee after expiration or termination
of this Lease, Lessee will pay as monthly rental consideration for the entire
holdover period two (2) times the Basic Rental payable in the last month of the
Lease Term, and will pay all attorney's fees and expenses incurred by Lessor in
enforcing its rights hereunder. No holding over by Lessee after the terms of
this Lease, either with or without the consent and acquiescence of Lessor, shall
operate to extend this Lease for a longer period than one month; and holding
over with the consent of Lessor in writing shall thereafter constitute this
contract a Lease from month to month. Furthermore, holding over shall cause any
and all options and rights of first refusal or other preferential rights of
Lessor to lapse and to be of no further force or effect. The foregoing
provisions of this Article 14 are in addition to and do not affect Lessor's
right of re-entry or any other rights of Lessor hereunder or as otherwise
provided by law.
<PAGE>
ATTORNEY'S FEES
- ---------------
15. In the event Lessee defaults in the performance of any of the
terms, covenants, agreements or conditions contained in this Lease and Lessor
places the enforcement of this Lease or any part hereof, or the collection of
any rent due or to become due hereunder, or recovery of the possession of the
Demised Premises, in the hands of an attorney, or files suit upon the same,
Lessee agrees to pay Lessor reasonable attorney's fees, and payment of the same
shall be secured in like manner as is herein provided as to all remedies which
may be invoked by Lessor to secure payment of rent.
DAMAGE OR DESTRUCTION
- ---------------------
16. (a) In the event the Demised Premises or the Building are
damaged by any peril, the following terms and conditions shall govern:
(i) In the event of total destruction of the Building, this
Lease shall automatically be terminated as of the date of such casualty.
(ii) In the event of partial destruction of the Building, or
of total or partial destruction of the Demised Premises, Lessor shall be
responsible for repairing such damage and restoring the Building or the Demised
Premises, to the extent of the insurance proceeds available therefor and except
in the circumstances hereinafter provided, and this Lease shall not be affected
but shall continue in full force and effect. If the Demised Premises or the
Building are damaged and (a) the repair or restoration thereof, in Lessor's
opinion, cannot be completed within one hundred twenty (120) days of
commencement of repair or restoration (without payment of overtime or other
premiums) using standard working methods and procedures; or (b) the repair or
restoration is not covered by insurance, or the estimated cost thereof exceeds
the insurance proceeds available for repair or restoration plus any amount which
Lessee is obligated or elects to pay for such repair or restoration; or (c) the
estimated cost of repair or restoration of the Demised Premises or Building
exceeds fifty percent (50%) of the full replacement cost of the Building; or (d)
the Building cannot be restored except in a substantially different structural
or architectural form than existed before the damage and destruction; or (e)
Lessor cannot obtain all of the necessary governmental approvals and permits to
perform such repair and/or restoration at a reasonable cost and on reasonable
conditions, Lessor shall have the option to either terminate this Lease or to
repair or restore the Demised Premises or the Building. In the event that Lessor
elects to terminate this Lease, Lessor shall give notice to Lessee within sixty
(60) days after the occurrence of such damage, terminating this Lease as of the
date of the damage. In the event such notice is given, this Lease shall expire
and all interest of Lessee in the Demised Premises shall terminate on the date
specified in the notice, and the rent shall be paid up to the date of
termination. Lessor shall refund to Lessee the rent theretofore paid for any
period of time subsequent to such date. If Lessor elects to continue the Lease
and restore the Demised Premises, Lessor shall, within a reasonable time after
the conclusion of said sixty (60) days after the occurrence of such damage,
enter and make repairs to restore the Demised Premises to substantially the
condition as existed prior to the date of such occurrence.
(b) Upon any termination of this Lease under any of the
provisions of this Article 16, the parties shall be released thereby, without
further obligation to the other, from the date possession of the Demised
Premises is surrendered to Lessor, except for items which have theretofore
accrued and are then unpaid.
(c) Unless the damage or destruction is caused by the negligence
of Lessee, or its employees, agents, invitees or visitors, in the event Lessor
repairs or restores as herein provided, the rental to be paid under this Lease
shall be abated proportionately in the ratio which the Lessee's use of said
Demised Premises has been impaired from the date of such partial
<PAGE>
destruction of the Building or of the Demised Premises until such portion of the
Demised Premises is again usable.
(d) In the event of partial destruction of the Demised Premises or the
Building due to any cause other than a peril covered by available insurance, if
Lessee is not obligated to, or does not elect to, pay for repair and restoration
of same, Lessor may elect to terminate this Lease.
(e) It is hereby acknowledged that if Lessor is obligated to, or
elects to repair or restore as herein provided, Lessor shall be obligated to
make repairs or restoration only to the structural portions of said Building and
said Demised Premises and the repair and restoration of items such as paneling,
decoration, railings, floor coverings, alterations, additions, fixtures or
improvements installed on the Demised Premises by or at the request of Lessee
shall be the obligation of Lessee. Lessee understands that Lessor will not
carry insurance of any kind on Lessee's furniture, furnishings, fixtures,
equipment or other personal property, that Lessor shall not be obligated to
repair any damage thereto or replace the same, that Lessor shall not be required
to repair any injury or damage by any cause, or to make any repairs or
replacement of any property insured in the Demised Premises by Lessee, and that
in the event of damage to the same the rental obligations of Lessee shall
continue without abatement or reduction.
(f) Notwithstanding anything to the contrary contained in this Article
16, Lessor shall not have any obligation whatsoever to repair or restore the
Demised Premises when the damage resulting from any casualty covered under this
Article 16 occurs during the last twelve (12) months of the term of this Lease;
provided, however, that Lessor shall give Lessee notice of such intent within
thirty (30) days of the occurrence of such casualty, whereupon this Lease shall
terminate effective as of the date of such casualty and Lessor shall refund to
Lessee the rent theretofore paid for any period of time subsequent to such date.
(g) Following damage or destruction, the party responsible for repair
and replacement of the damaged property shall forthwith repair and rebuild the
damaged or destroyed property and shall diligently pursue such repair and
rebuilding to completion. The completion of the repair of all such damages is
subject to reasonable delays resulting from survey of such damage, obtaining
plans and letting contracts for repairs, adjustment or insurance loss, strikes,
labor difficulties, unavailability of material, or other causes beyond the
control of the party obligated to make such repairs.
(h) Notwithstanding anything herein to the contrary, in the event the
holder of any indebtedness secured by a mortgage or deed of trust covering the
Demised Premises requires that the insurance proceeds from insurance held by
Lessor be applied to such indebtedness, then Lessor shall have the right to
deliver written notice to Lessee terminating this Lease.
(i) The provisions contained in this Lease shall supersede any
contrary laws now or hereafter in effect relating to damage or destruction,
including California Civil Code Sections 1932 and 1933.
(j) In the event Lessor elects to repair or restore the Demised
Premises and/or the Building, and Lessee is unable to occupy the Demised
Premises during the period of such repair or restoration work (the "Repair
Period"), Lessor shall use its best efforts, at no cost to Lessor, to locate
temporary premises within the general vicinity of the Building for Lessee to
occupy during the Repair Period.
<PAGE>
INSURANCE
- ---------
17. (a) Lessee's Insurance. From and after Tenant's occupancy of
the Demised Premises, Lessee shall carry and maintain, at its own expense, the
following types, amounts and forms of insurance:
(1) Lessee agrees to carry a broad form comprehensive policy
of public liability insurance covering the Demised Premises in an amount of not
less than $2,000,000 combined single limit personal injury, broad form property
damage, and contractual liability insurance with companies satisfactory to
Lessor in the name of Lessee (with Lessor and, if requested by Lessor, any
mortgagee, trust deed holder, ground Lessor or secured party with an interest in
this Lease and/or the Building named as additional insureds in the policy or by
endorsement). The amounts of such insurance required hereunder shall be subject
to adjustment from time to time as requested by Lessor based upon Lessor's
determination as to the amounts of such insurance generally required at such
time for comparable tenants, premises and buildings in the general geographical
location of the Building or as requested by any ground Lessor or lender with an
interest in the Building or property on which the Building is situated.
(2) Lessee shall carry and maintain a policy or policies of
property insurance in the name of Lessee (with Lessor and, if requested by
Lessor, any mortgagee, trust deed holder, ground Lessor or secured party with an
interest in this Lease and/or the Building named as loss payee) covering
Lessee's leasehold improvements and any property of Lessee at the Demised
Premises and providing protection against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief,
special extended peril (all risk) and sprinkler leakage, in an amount equal to
at least one hundred percent (100%) of the replacement cost thereof from time to
time (including, without limitation, cost of debris removal) with an agreed
amount endorsement. Any proceeds from such insurance shall be used for the
repair or replacement of the property damaged or destroyed, unless this Lease is
terminated pursuant to the provisions hereof. If the Demised Premises are not
repaired or restored following damage or destruction, Lessor shall receive and
retain any proceeds from such insurance allocable to Lessee's leasehold
improvements.
(3) Lessee shall carry and maintain a policy or policies of
workers' compensation and employers' liability insurance in compliance with all
applicable laws.
(4) Lessee shall carry and maintain such other policies of
insurance (including, without limitation, business interruption or rental income
insurance) in connection with the Demised Premises as Lessor may from time to
time require.
All of the policies required to be obtained by Lessee pursuant to the
provisions of this Article 17 shall be issued by companies (licensed to do
business in California), and shall be in form and content, acceptable to Lessor.
Without limiting the generality of the foregoing, any deductible amounts under
said policies shall be subject to Lessor's approval. Each policy shall
designate Lessor as an additional insured or loss payee, subject to the
foregoing, and shall provide full coverage in the amounts set forth herein.
Although named as an additional insured, Lessor shall be entitled to recover
under said policies for any loss occasioned to it, its servants, agents and
employees, by reason of the negligence of Lessee. Lessee shall, prior to
delivery of the Demised Premises by Lessor to Lessee, provide Lessor with copies
of and certificates for all insurance policies. All insurance policies shall
provide that they may not be modified or cancelled until after thirty (30) days'
written notice to Lessor and to any other additional insureds thereunder.
Lessee shall, at least thirty (30) days prior to the expiration of any of such
policies, furnish Lessor with a renewal or binder therefor. Lessee may carry
insurance under a so-called "blanket" policy, provided that such policy provides
that the amount
<PAGE>
of insurance required hereunder shall not be prejudiced by other losses covered
thereby. All insurance policies carried by Lessee shall be primary with respect
to, and non-contributory with, any other insurance available to Lessor. If
Lessee fails to carry any insurance policy required hereunder or to furnish
copies thereof and certificates therefor pursuant hereto, Lessor may, upon
notice (unless such policy has lapsed), obtain such insurance, and Lessee shall
reimburse Lessor for the costs thereof with the next monthly rental payments due
hereunder.
Lessee shall pay any increases in insurance premiums relating to
the Building to the extent that any such increase is specified by the insurance
carrier as being caused by Lessee's acts or omissions or use or occupancy of the
Demised Premises.
(b) Lessor's Insurance. Throughout the Lease Term, Lessor shall
maintain insurance covering the Project and Lessor's ownership and operation
thereof in such types and amounts as it deems necessary or desirable in its sole
discretion, which may include, without limitation, liability, property damage
and/or loss of rental income coverage. Such insurance shall be for the sole
benefit of Lessor and under its sole control.
TRANSFER OF LESSOR'S RIGHTS
- ---------------------------
18. Lessor shall have the right to transfer and assign, in whole or
in part, all and every feature of its rights and obligations hereunder and in
the Building and property referred to herein. Such transfers or assignments may
be either to a corporation, trust company, individual, or group of individuals,
and howsoever made are to be in all ways respected and recognized by Lessee. If
Lessor sells or transfers all or any portion of the Building including the
Demised Premises, Lessor shall, upon consummation of such sale or transfer, be
released from any liability relating to obligations or covenants thereafter to
be performed or observed under this Lease, and in such event Lessee agrees to
look solely to Lessor's successor-in-interest with respect to such liability.
Lessor may transfer or credit any security deposit or prepaid rent to Lessor's
successor-in-interest, and upon such transfer Lessor shall be discharged from
any further liability therefor.
DEFAULT CLAUSE
- --------------
19. In the event: (a) Lessee fails to pay any amount when and as same
becomes payable in accordance with the provisions of this Lease; (b) Lessee
fails to comply with any other term, provision, condition, or covenant of this
Lease or any of the Rules and Regulations now or hereafter established for the
government of the Building; (c) any petition is filed by or against Lessee under
any section or chapter of the Bankruptcy Reform Act of 1978, as amended, or
under any similar law or statute of the United States or of any state thereof;
(d) Lessee becomes insolvent, admits in writing the inability to pay its debts
as they become due or makes a transfer in fraud of creditors; (e) Lessee makes
an assignment for benefit of creditors; (f) a receiver or trustee is appointed
for Lessee or any of the assets of Lessee; or (g) Lessee fails to deliver to
Lessor (i) any subordination agreement required pursuant to the terms of
paragraph 32 below, or (ii) any estoppel certificate required pursuant to the
terms of paragraph 29 below; (h) Lessee vacates all or a substantial portion of
the Demised Premises; (i) Lessor discovers that any financial statement given to
Lessor by any assignee of Lessee, or any successor in interest of Lessee, was
materially false, then in any of such events Lessor shall have the option to
terminate this Lease and/or do any one or more of the following without any
notice or demand, in addition to and not in limitation of any other remedy
permitted by law or by this Lease:
(1) Take immediate possession of the Demised Premises, but if
Lessee shall fail to vacate the Demised Premises, Lessor may, without notice and
without prejudice to any other remedy Lessor may have, enter upon and take
possession of the Demised Premises and expel or remove Lessee and its effects,
without being liable to prosecution or any claim for
<PAGE>
damages therefor, and Lessee agrees to indemnify Lessor for all loss, damage,
and expense, including reasonable attorney's fees, which Lessor may suffer by
reason thereof.
(2) Recover from Lessee the worth at the time of award of the sum
of the following aggregate amounts: (a) the unpaid rent and charges equivalent
to rent earned as of the date of termination of this Lease, (b) the amount by
which the unpaid rent and charges equivalent to rent which would have been
earned after the date of termination of this Lease until the time of the award
exceeds the amount of such rental loss that Lessee proves could have been
reasonably avoided, (c) the amount by which the unpaid rent for the balance of
the term hereof after the time of the award exceeds the amount of such rental
loss that Lessee proves could have been reasonably avoided, (d) all costs
incurred by Lessor in retaking possession of the Demised Premises and restoring
them to good order and condition, (e) all costs, including without limitation
brokerage commissions, advertising costs, and restoration and remodeling costs,
incurred by Lessor in reletting the Demised Premises, and (f) any other amount,
including without limitation attorneys' fees, necessary to compensate Lessor for
the detriment proximately caused by Lessee's failure to perform its obligations
under this Lease or which, in the ordinary course of things, would be likely to
result therefrom. The "time of award" as used herein shall be the date upon
which the judgment in any action brought by Lessor against Lessee by reason of
such default is entered or such earlier date as the court may determine. The
"worth at the time of award" of the amounts referred to in subparagraphs (2)(a)
and (2)(b) of this Article 19 shall be computed by allowing interest at the
Interest Rate (as defined in Article 40 herein), but not less than the legal
rate. The "worth at the time of award" of the amount referred to in subparagraph
(2)(c) of this Article 19 shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%) per annum. Lessee agrees that such charges shall be
recoverable by Lessor under California Code of Civil Procedure Section 1174(b)
or any similar, successor or related provision of law. Lessee waives the
provisions of California Code of Civil Procedure Section 1174(c) and California
Civil Code Section 1951.7 or any similar, successor, or related provision of law
providing for Lessee's right to satisfy any judgment in order to prevent a
forfeiture of this Lease or requiring Lessor to deliver written notice to Lessee
of any reletting of the Demised Premises.
(3) To remove, at Lessee's sole risk, any and all personal
property in the Demised Premises and place such in a public or private warehouse
or elsewhere at the sole cost and expense and in the name of Lessee. Any such
warehouser shall have all of the rights and remedies provided by law against
Lessee as owner of such property. If Lessee shall not pay the cost of such
storage within thirty (30) days following Lessor's demand, Lessor may, subject
to the provisions of applicable law, sell any or all such property at a public
or private sale in such manner and at such times and places as Lessor deems
proper, without notice to or demand upon Lessee. Lessee waives all claims for
damages caused by Lessor's removal, storage or sale of the property and shall
indemnify and hold Lessor free and harmless from and against any and all loss,
cost and damage, including without limitation court costs and attorneys' fees.
Lessee hereby irrevocably appoints Lessor as Lessee's attorney-in-fact, coupled
with an interest, with all rights and powers necessary to effectuate the
provisions of this subparagraph.
(4) Maintain Lessee's right to possession and bring an action or
actions from time to time against Lessee, in any court of competent
jurisdiction, for all rental and other sums due or becoming due under this
Lease, including all damages and costs proximately caused thereby,
notwithstanding Lessee's abandonment or vacation of the Demised Premises or
other acts of Lessee, as permitted by Section 1951.4 of the California Civil
Code or any successor, related or similar provision of law. Such remedy may be
exercised by Lessor without prejudice to its right thereafter to terminate this
Lease in accordance with the other provisions contained in this Article 19.
<PAGE>
(5) Cause a receiver to be appointed in any action against Lessee
and to cause such receiver to take possession of the Demised Premises and to
collect the rents derived therefrom. The foregoing shall not constitute an
election by Lessor to terminate this Lease unless specific notice of such intent
is given.
(6) Relet the Demised Premises and receive the rent therefor, and
in such event, Lessee shall pay Lessor the cost of renovating, repairing and
altering the Demised Premises for a new tenant or tenants and any deficiency
that may arise by reason of such reletting, on demand, at the address of Lessor
specified herein or hereunder, provided, however, the failure or refusal of
Lessor to relet the Demised Premises shall not release or affect Lessee's
liability for rent or for damages and such rent and damages shall be paid by
Lessee on the dates specified herein.
(7) Lessor may, as agent of Lessee, do whatever Lessee is
obligated to do by the provisions of this Lease and may enter the Demised
Premises, by force if necessary, without being liable to prosecution or any
claim for damages therefor, in order to accomplish this purpose. Lessee agrees
to reimburse Lessor immediately upon demand for any expenses which Lessor may
incur in thus effecting compliance with this Lease on behalf of Lessee, and
Lessee further agrees that Lessor shall not be liable for any damages resulting
to Lessee from such action, whether caused by the negligence of Lessor or
otherwise.
Pursuit of any of the foregoing remedies shall not preclude
pursuit of any of the other remedies herein provided or any other remedies
provided at law or in equity.
To the extent permitted by law, Lessee waives all provisions of,
and protection under, any decisions, statutes, rules, regulations and other laws
of the State of California to the extent same are inconsistent and in conflict
with specific terms and provisions hereof.
CROSS-DEFAULTS
- --------------
20. In the event Lessee or Lessee's subsidiary or affiliate, shall
have other leases for other premises in the Building, any default by Lessee
under such other leases shall be deemed to be a default herein and Lessor shall
be entitled to enforce all rights and remedies as provided for a default herein.
BINDING EFFECT
- --------------
21. This Lease shall inure to the benefit of the successors and
assigns of Lessor, and with the written consent of Lessor first had and
obtained, but not otherwise, to the benefit of the heirs, executors and/or
administrators, successors and assigns of Lessee.
REMEDIES
- --------
22. No act or thing done by Lessor or its agents during the term
hereof shall be deemed an acceptance of a surrender of the Demised Premises, and
no agreement to accept a surrender of the Demised Premises shall be valid unless
made in writing and signed by Lessor. The mention in this Lease of any
particular remedy shall not preclude Lessor from any other remedy Lessor might
have, either in law or in equity, nor shall the waiver of or redress for any
violation of any covenant or condition in this Lease contained or any of the
Rules and Regulations attached hereto or hereafter adopted by Lessor, prevent a
subsequent act, which would have originally constituted a violation, from having
all the force and effect of an original violation. The receipt by Lessor of rent
with knowledge of the breach of any covenant in this Lease contained shall not
be deemed a waiver of such breach. The failure of Lessor to enforce
<PAGE>
any of the Rules and Regulations attached hereto, or hereafter adopted, against
Lessee and/or any other tenant in the Building shall not be deemed a waiver.
Waiver of said Rules of Regulations by Lessor shall be in writing and signed by
Lessor.
LEASE EFFECTIVE UPON EXECUTION
- ------------------------------
23. Delivery of this Lease, duly executed by Lessee, constitutes an
offer to lease the Demised Premises as herein set forth, and under no
circumstances shall such delivery be deemed to create an option or reservation
to lease the Demised Premises for the benefit of Lessee. This Lease shall only
become effective and binding upon execution hereof by Lessor and delivery of a
signed copy to Lessee.
QUIET POSSESSION
- ----------------
24. Lessor hereby covenants that Lessee, upon paying rent as herein
reserved and performing all covenants and agreements herein contained on part of
Lessee, shall and may peacefully and quietly have, hold and enjoy the Demised
Premises.
IMPROVEMENTS
- ------------
25. If any improvements are made with respect to the Demised Premises
at the Lessee's expense or under any agreement with the Lessee whereby the
Lessee is given an allowance or rent reduction in exchange for Lessor's
agreement to install or allow to be installed lease improvements such as by way
of example but not limitation, wall coverings, floor coverings or carpet,
paneling, doors and hardware, any and all of such improvements shall become the
property of the Lessor and shall in no event be removed by Lessee.
26. Intentionally Omitted.
CONDITION OF PREMISES
- ---------------------
27. Lessee acknowledges that neither Lessor nor any agent of Lessor
have made any representation or warranty with respect to the Demised Premises or
the Building or with respect to the suitability of either for the conduct of
Lessee's business or profession.
SURRENDER OF DEMISED PREMISES
- -----------------------------
28. Lessee shall, upon the expiration or sooner termination of the
term hereof, surrender to Lessor the Demised Premises, and all repairs, changes,
alterations, additions and improvements thereto, in good order, condition and
repair, ordinary wear and tear excepted, clean and free of debris; provided,
however, that Lessor may, upon the installation or performance of any of such
changes, alterations, additions and improvements, require that Lessee remove
same upon such expiration or termination, in which event Lessee shall so remove
same at its sole cost and expense. Lessee shall, upon the expiration or sooner
termination of the term hereof, and at Lessee's sole cost and expense, remove
all movable furniture, equipment, signs and other personal property belonging to
Lessee placed in the Demised Premises solely at Lessee's expense. Lessee shall
immediately, at its sole cost and expense, repair any damage caused by the
removal of any property.
ESTOPPEL CERTIFICATE
- --------------------
29. Lessee shall at any time and from time to time, within ten (10)
days after written notice from Lessor, execute, acknowledge and deliver to
Lessor a statement in writing substantially in the form attached hereto as
Exhibit "C" and hereby made a part hereof, certifying
<PAGE>
that this Lease is unmodified and in full force and effect (or, if modified,
stating the nature of such modification and certifying that this Lease, as so
modified, is in full force and effect), the dates to which the rental and other
charges, if any, are paid in advance and the amount of Lessee's security
deposit, if any, and acknowledging that there are not, to Lessee's knowledge,
any uncured defaults, on the part of Lessor hereunder, and that there are no
events or conditions then in existence which, with the passage of time or notice
or both, would constitute a default on the part of Lessor hereunder, or
specifying such defaults, events or conditions, if any are claimed. It is
expressly understood and agreed that any such statement may be relied upon by
any prospective purchaser or encumbrancer of all or any portion of the Building
or the Project. Lessee's failure to deliver such statement within such time
shall, at the option of Lessor, constitute a default under this Lease and, in
any event, shall be conclusive upon Lessee that this Lease is in full force and
effect without modification except as may be represented by Lessor in any such
certificate prepared by Lessor and delivered to Lessee for execution.
SIGNS
- -----
30. (a) Lessee will not place or suffer to be placed or maintained on
any exterior door, wall or window of the Demised Premises any sign, awning or
canopy, or advertising matter or other thing of any kind, and will not place or
maintain any decoration, lettering or advertising matter on the glass of any
window or door of the Demised Premises without first obtaining Lessor's prior
written approval and consent in each instance. Lessee further agrees to maintain
any such sign, awning, canopy, decoration, lettering, advertising matter or
other thing as may be approved, in good condition at all times.
(b) Subject to the written approval of Lessor and all
governmental or regulatory agencies which may have jurisdiction over the Demised
Premises, Lessee is hereby granted the right to illuminated eyebrow signage to
be located on the first level parapet on the exterior of the easterly side of
the southern corner of the Building, said signage to be approximately one and
one-half (1-1/2) feet in height and six (6) feet in length (the exact dimensions
to be further subject to the approval of Lessor's Building administrator).
Lessor shall be solely responsible for all costs incurred in connection with the
initial installation of said signage, provided that Lessee shall be solely
responsible for all costs associated with maintaining, operating, lighting and
otherwise repairing said signage. At the expiration or earlier termination of
this Lease, Lessee shall remove said signage, at its sole cost and expense, and
repair any damage to the Building or otherwise caused by said removal.
All costs incurred by Lessor in connection with the installation
of said signage shall reduce the remaining Allowance (as defined in the Work
Letter).
PERSONAL PROPERTY TAXES
- -----------------------
31. With respect to Lessee's fixtures, furnishings, equipment and all
other personal property located in the Demised Premises, Lessee shall pay prior
to delinquency all taxes, license fees and other charges assessed against or
levied upon such property and when possible shall cause the same to be assessed
and billed separately from the property of Lessor, but if same shall be assessed
and taxed with the property of Lessor, Lessee shall pay to Lessor its share of
such taxes within ten (10) days after Lessor's delivery to Lessee of a statement
in writing setting forth the amount of such taxes applicable to Lessee's
property. In addition Lessee shall pay promptly when due all taxes imposed upon
Lessee's rents, gross receipts, charges and business operations.
<PAGE>
SUBORDINATION
- -------------
32. Lessee hereby subordinates this Lease and all rights of Lessee
hereunder to any mortgage or mortgages, ground lease or vendor's lien, or
similar instruments which now are or which may from time to time be placed upon
the Demised Premises covered by this Lease, and such mortgage or mortgages,
ground lease or liens or other instruments shall be superior to and prior to
this Lease. Notwithstanding the foregoing, Lessor shall have the right to
subordinate or cause to be subordinated any such mortgage or mortgages, ground
lease or vendor's lien to this Lease. Lessee further covenants and agrees that
if the mortgagee or other lien holder acquired the Demised Premises as a
purchaser at any such foreclosure sale (any such mortgagee or other lienholder
or purchaser at the foreclosure sale being each hereinafter referred to as the
"Purchaser at Foreclosure"), Lessee shall thereafter, but only at the option of
the Purchaser at Foreclosure, as evidenced by the written notice of its election
given to Lessee within a reasonable time thereafter, remain bound by novation or
otherwise to the same effect as if a new and identical Lease between the
Purchaser at Foreclosure, as Lessor, and Lessee, as tenant, had been entered
into for the remainder of the term of the Lease in effect at the institution of
the foreclosure proceedings. Lessee agrees to execute any instrument or
instruments which may be deemed necessary or desirable further to effect the
subordination of this Lease to each such mortgage, lien or instrument or to
confirm any election to continue the Lease in effect in the event of
foreclosure, as above provided. Lessee hereby irrevocably appoints Lessor as its
special attorney-in-fact to execute and deliver any document or documents
provided for herein for and in the name of Lessee. Such power, being coupled
with an interest, is irrevocable. If, in connection with the obtainment of
financing for the Building, the lender requests reasonable modifications hereto
as a condition to the furnishing of such financing, Lessee shall not
unreasonably withhold or delay its consent thereto, provided that such
modifications do not materially increase the obligations of Lessee hereunder or
materially adversely affect Lessee's rights hereunder.
SEVERABILITY CLAUSE
- -------------------
33. If any clause or provision of this Lease is illegal, invalid, or
unenforceable under present or future laws effective during the term of this
Lease, then and in that event, it is the intention of the parties hereto that
the remainder of this Lease shall not be affected thereby, and it is also the
intention of the parties to this Lease that in lieu of each clause or provision
that is illegal, invalid or unenforceable, there be added as a part of this
Lease a clause or provision as similar in terms to such illegal, invalid or
unenforceable clause or provision as may be possible and be legal, valid and
enforceable; provided, however, that if in Lessor's reasonable judgment the
invalidation or voiding of any such provision or provisions would materially
frustrate the reasonable expectations of the parties hereto in entering into
this Lease, then Lessor may terminate this Lease and release Lessee from
prospective liability hereunder upon sixty (60) days' advance written notice.
The caption of each paragraph hereof is added as a matter of convenience only
and shall be considered to be of no effect in the construction of any provision
or provisions of this Lease.
SECURITY DEPOSIT
- ----------------
34. The Security Deposit shall be increased proportionally (a) upon
determination of the rentable area of the Demised Premises, to correspond to any
resultant increase in the initial Basic Rental amount, and (b) from time to time
thereafter to correspond to any increases in Basic Rental. Upon the occurrence
of any event of default by Lessee, Lessor may, from time to time, without
prejudice to any other remedy use the Security Deposit paid to Lessor by Lessee
as herein provided to the extent necessary to make good any arrears of rent and
any other damage, injury, expense or liability caused to Lessor by such event of
default. If any portion of said deposit is so used or applied, Lessee shall,
within five (5) days after written
<PAGE>
demand therefor, deposit cash with Lessor in an amount sufficient to restore the
Security Deposit to its original amount. Lessor shall not be required to keep
the Security Deposit separate from its general funds and Lessee shall not be
entitled to interest on the Security Deposit. Lessee shall not grant anyone a
security interest of any kind in such Security Deposit and no such security
agreement shall be binding on Lessor. If Lessee shall fully and faithfully
perform every provision of this Lease to be performed by it, the Security
Deposit, or any balance thereof remaining, shall be returned to Lessee at the
expiration of the Lease Term and upon Lessee's vacation of the Demised Premises.
Such Security Deposit shall not be considered an advance payment of rental or a
measure of Lessor's damage in case of default by Lessee.
In the event Lessor should have good cause to doubt the full and
faithful performance of every provision of this Lease by Lessee, Lessor shall
have the right to demand that Lessee post an additional Security Deposit in an
amount to be reasonably determined by Lessor. Upon the showing by Lessee that
this full and faithful performance is no longer in doubt, the additional
Security Deposit shall be returned to Lessee.
WAIVER OF SUBROGATION
- ---------------------
35. Lessee hereby waives all right of subrogation by any insurance
company issuing policies carried by Lessee with respect to the Demised Premises,
Lessee's fixtures, personal property, or leasehold improvements, or Lessee's
business.
ADJUSTMENT OF RENTAL
- --------------------
36. (a) Operating Expenses:
(1) The term "Operating Expenses" shall mean all costs of
management, operation, security and maintenance of the Project, all accrued and
based on a calendar year period, as determined by generally accepted accounting
principles, including by way of illustration but not limitation, the following
costs and expenses:
(A) All costs and expenses of utilities furnished to the
Building and/or the Project including, without limitation, all costs and
expenses attributable to supply of electrical service, water and sewage service,
natural gas, cable television or other electronic or microwave signal reception,
telephone service or other communication, steam, heat, cooling, or any other
service which is now or in the future considered a utility furnished to the
Building and/or the Project;
(B) All costs and expenses for insurance obtained by
Lessor, labor and supplies, license, permit and inspection fees, all assessments
and special assessments due to deed restrictions, declarations and/or owners
associations which accrue against the Project, the cost of compensation
(including contributions and premiums towards fringe benefits, unemployment,
disability and worker's compensation insurance, as well as employment taxes and
similar governmental charges) with respect to all persons who perform duties in
connection with management, landscaping (including, without limitation,
irrigating, trimming, mowing, fertilizing, seeding and replacing plants),
janitorial, painting, window washing and general cleaning services, garbage and
refuse removal, security services, and any other services related to the
operation, maintenance or repair of the Project (as well as the cost of all
personal property equipment used in conjunction therewith), costs of clean-up
and removal of Hazardous Materials and any fines and penalties imposed by reason
of the existence of Hazardous Materials on, in or about the Project, the fair
market rental value of the Project management office, management fees, legal
services and accounting expenses; and
<PAGE>
(C) All costs and expenses for (i) audit fees and
accounting services incurred in the preparation of statements referred to in
this Lease and financial statements, and in the computation of the rents and
charges payable by tenants of the Project, and (ii) the improvements, repairs or
replacements to the Project or the equipment or machinery used in connection
with the Project; including, but not limited to, all costs and expenses, and a
reasonable allowance for depreciation (or amortization), related to (x) items
intended to result in costs savings, (y) common area interior floor and wall
coverings and resurfacing and common area window treatments, and (z) Required
Alterations (as defined below). For purposes of the immediately preceding
sentence, "Required Alterations" shall mean any changes, alterations or
improvements to the common or the Building or any other portion of the Project
(including, but not limited to, electrical, mechanical or other systems or
components) which Lessor is required to make pursuant to any applicable rule,
regulation or law. Notwithstanding the foregoing, (I) any such capital costs
which are properly charged to a capital account shall not be included in
Operating Expenses in a single year but shall instead be amortized over their
useful lives, as determined by Lessor (in its reasonable discretion), and only
the annual amortization amount shall be included in the Operating Expenses for a
particular year, and (II) any costs related to Required Alterations shall be
fully included in Operating Costs in the year in which such charges accrue, or
in such year as Lessor pays such charges, as Lessor shall elect.
(2) It is agreed that the Basic Rental provided for herein
includes Lessee's share of Operating Expenses. If the amount of such Operating
Expenses for the Project exceed, in any calendar year after 1994, the amount of
Operating Expenses for the Calendar Year 1994 ("Base Year Operating Expenses"),
Lessee shall pay its share of the excess in the same manner and with the same
intent as stated throughout Article 36. It is further agreed that if the actual
Operating Expenses for the Project for any calendar year after 1994 exceed the
estimated Operating Expenses for the Project for such year, as set forth in
Article 36(a)(4) below, Lessee shall pay Lessor without reduction or setoff,
within ten (10) days of billing, Lessee's share of such excess as additional
rental.
(3) If the amount of actual Operating Expenses for the
Project for the immediately preceding year is less than the estimated Operating
Expenses for such year, Lessor shall credit Lessee with Lessee's share of such
amount and shall reimburse Lessee by deducting, monthly, from its estimated
payments for the current year, one-twelfth (1/12) of such share.
(4) It is further agreed and understood that approximately
January 1st of each calendar year or as soon thereafter as the information can
be obtained, Lessor shall estimate the Operating Expenses for the current
calendar year. Lessor shall notify Lessee of such calculations and effective
each January 1st, during the Lease Term and on the first (1st) day of each of
the succeeding eleven (11) months of each calendar year, Lessee shall pay Lessor
one-twelfth (1/12) of its share of the estimated Operating Expenses for the
current year.
(b) Taxes: It is agreed that the Basic Rental provided for herein
includes the Lessee's share of all "Real Property Taxes". "Real Property Taxes."
"Real Property Taxes" shall include (i) any form of tax or assessment, license
fee, license tax, tax or excise on rent or any other levy, charge, expense or
imposition made or required by any federal, state, county, city, district or
other political subdivision on any interest of Lessor and/or Lessee in the
Demised Premises, the Building, or the remainder of the Project, including
without limitation, the underlying real property and appurtenances and any tax,
fee or assessment charged in lieu thereof; (ii) any fee for services
charged by any governmental agency or quasigovernmental agency for any services
such as fire protection, street, sidewalk and road maintenance, refuse
collection, school systems or other services provided or formerly provided to
property owners and residents within the general area of the Project at no cost
or minimal cost; (iii) any
<PAGE>
governmental impositions allocable to or measured by the area of the Demised
Premises or the amount of any rent payable under this Lease, including, without
limitation, any tax on gross receipts or any excise tax or other charges levied
by any federal, state, county, city, district or other governmental agency or
political subdivision with respect to rent or upon or with respect to the
possession, leasing, operation, maintenance, alteration, repair, use or
occupancy of the Demised Premises or any portion thereof; (iv) any impositions
by any governmental agency on this Lease transaction or charge with respect to
any document to which Lessee is a party creating or transferring an interest or
an estate in the Demised Premises; and (v) any increase in any of the foregoing
based upon construction of improvements on the Project or changes in ownership
(as defined in the California Revenue and Taxation Code) of the Property. Real
Property Taxes shall not include taxes on Lessor's net income including state
franchise taxes or any inheritance, estate or gift taxes. If the amount of Real
Property Taxes exceed, in any calendar year after 1994, the amount of Real
Property Taxes for the calendar year 1994 ("Base Year Tax Costs"), Lessee shall
pay its share of the excess in the same manner and with the same intent as
stated throughout Article 36.
(c) Lessee's share of the Operating Expenses and Real Property
Taxes ("Lessee's Proportionate Share") is 4.223%, which percentage is a
reasonable approximation of the percentage that the rentable square footage of
the Demised Premises bears to the total rentable square footage in the Building.
Operating Expenses and Taxes shall be computed separately.
(d) If the average occupancy of the Building in any calendar year
is less than ninety percent (90%), then the Operating Expenses and Taxes for
such year, including the base year, shall be adjusted to reflect the amounts
which would have been payable if the occupancy of the Building had been at an
average of ninety percent (90%).
(e) It is further agreed that the provisions of Article 36 shall
survive the termination of this Lease and be applicable to such portion of the
calendar year as this Lease was in effect.
(f) In no event shall any provision of this Article 36 result in
any reduction in the Basic Rental.
NET WORTH
- ---------
37. Lessee shall maintain at all times a net worth in excess of that
at the signing of this Lease. If at any time Lessee's net worth should not
exceed that amount, Lessee shall notify Lessor of this fact in writing.
DEFAULTS BY LESSEE ON THIRD PARTY AGREEMENT
- -------------------------------------------
38. Lessee shall not default on any of its covenants under any loan
agreements, with any lending, mortgage or financial institution. Nor shall
Lessee default on any loan or financial agreements with any third party wherein
there is an outstanding balance owed by Lessee. Lessee immediately shall advise
Lessor in writing if any such default by Lessee should occur.
SALE OF ASSETS
- --------------
39. Lessee shall not transfer any portion of his assets outside the
ordinary course of his business so that the effect causes Lessee to default
under Article 37 of this Lease.
<PAGE>
INTEREST AND LATE CHARGES AND IMPOUNDS
- --------------------------------------
40. Any amount not paid by Lessee to Lessor when due hereunder shall
bear interest at a rate (the "Interest Rate") equal to the lesser of (a) the
rate per annum announced from time to time by Citicorp, N.A. as its prime rate
(or, if such bank fails to announce such a rate, then the prime rate announced
by The Chase Manhattan Bank, N.A.) plus four (4) percentage points, or (b) the
maximum rate permitted by law, from the due date until paid, unless otherwise
specifically provided herein, but the payment of such interest shall not excuse
or cure any such failure by Lessee under this Lease. In addition to such
interest, if any amount is not paid within five (5) days after same is due, a
late charge equal to ten percent (10%) of such amount shall be assessed, which
late charge Lessee hereby agrees is a reasonable estimate of the damages Lessor
shall suffer as a result of Lessee's late payment, which damages include
Lessor's additional administrative and other costs associated with such late
payment. The parties agree that it would be impracticable and extremely
difficult to fix Lessor's actual damages in such event. Such interest and late
charges are separate and cumulative and are in addition to and shall not
diminish or represent a substitute for any or all of Lessor's rights or remedies
under any other provision of this Lease. If a late charge is payable hereunder,
whether or not collected, for any three (3) installments of Basic Rental during
any twelve (12) month period or any other monthly obligation of Lessee, then
Lessee shall pay to Lessor, if Lessor shall so request, in addition to any other
payments required under this Lease, a monthly advance installment, payable at
the same time as the monthly rent, as estimated by Lessor, for real property tax
and insurance expenses on the Demised Premises which are payable by Lessee under
the terms of this Lease. The fund above shall be established to insure payment
when due, before delinquency, of any or all such real property taxes and
insurance premiums. If the amounts paid to Lessor by Lessee under the provisions
of this paragraph are insufficient to discharge the obligations of Lessee to pay
such real property taxes and insurance premiums as the same become due, Lessee
shall pay to Lessor, upon Lessor's demand, such additional sums necessary to pay
such obligations. All moneys paid to Lessor under this paragraph may be
intermingled with other moneys of Lessor and shall not bear interest. In the
event of a default in the obligations of Lessee to perform under this Lease,
then any balance remaining from funds paid to Lessor under the provisions of
this paragraph may, at the option of the Lessor, be applied to the payment of
real property tax and insurance premiums.
RELOCATION OF LESSEE
- --------------------
41. In the event Lessor reasonably determines it is necessary in
order to accommodate a tenant in the Building occupying at least 30,000 rentable
square feet, Lessor shall have sole right, at Lessor's expense, to relocate
Lessee to comparable, reasonably similar space in the Building (provided in no
event shall such space be on a floor lower than the eighth (8th) floor of the
Building) upon giving Lessee ninety (90) days prior written notice, and this
Lease shall be deemed modified so as to eliminate the Demised Premises hereby
leased and to substitute therefor such other premises (and the rentable and
usable areas thereof). In such event, in all other respects, this Lease shall
remain in full force and effect according to its terms. In connection with the
foregoing, Lessor shall pay for all reasonable expenses incurred by Lessee in
connection with Lessee's relocation to other office space in the Building.
LESSEE IMPROVEMENTS
- -------------------
42. (a) Lessor shall cause the performance of the Work in the Office
Premises pursuant to the terms of the Work Letter.
(b) Lessor and Lessee shall mutually agree upon the general
contractor and subcontractors to perform the Work, provided that in the event of
a good faith disagreement as to the selection of said contractor and
subcontractors (which cannot be resolved within ten
<PAGE>
(10) days after either party notifies the other of its disagreement with the
other party's proposed selection(s)), Lessor's selection shall be final and
conclusive.
INABILITY TO PERFORM
- --------------------
43. This Lease and the obligations of Lessee hereunder shall not be
affected or impaired because Lessor is unable to fulfill any of its obligations
hereunder or is delayed in doing so, if such inability or delay is caused by
reason of strike or other labor troubles, or act of God, or any other cause
beyond the control of Lessor.
PARKING
- -------
44. Subject to applicable rules and regulations, Lessee shall have
parking rights hereunder with respect to such number of its employees'
automobiles in the parking facilities of the Building, and at such rental
rate(s) and upon auch other terms, as may be specified in subparagraphs (f) and
(g) of the Definitions Section. All of such parking rights shall be exercised by
Lessee throughout the entire term hereof. Said parking rights are for the
exclusive use of Lessee's officers and employees and Lessee may not sell,
assign, sublease or transfer any of its parking righta hereunder. Except as may
otherwise be specifically provided in said subparagraph (f) of the Definitions
Section or elsewhere in this Lease, Leasee shall not be entitled to any
designated, reaerved, assigned or valet parking hereunder. In addition to such
rights, Lessee and its invitees shall have the right to use in common with other
tenants of the Building and their invitees and the general public any portions
of the parking facilities of the Building designated for public use, subject to
the rates, rules and regulations, and any other charges, fees and taxes to be
collected by Lessor, for such parking facility use. Lessor reserves the right to
establish and alter, from time to time, all such rates, rules and regulations.
INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS
- ---------------------------------------------
45. This Lease contains all of the agreements of the parties hereto
with reapect to any matter covered or mentioned in this Lease, and no prior
agreement or understanding pertaining to any such matter shall be effective for
any purpose. No provision of this Lease may be amended or added to except by an
agreement in writing signed by the parties hereto or their respective successors
in interest. Any written addenda to this Lease, when signed or initialed by the
contracting parties, shall be deemed a part of this Lease to the same full
extent as if incorporated herein.
AUTHORITY
- ---------
46. If Lessee is a corporation, trust or partnership, each individual
executing this Lease on behalf of Leasee represents and warrants that he or she
is duly authorized to so execute and deliver this Lease. If Lessee is a
corporation, trust or partnership, it shall, within ten (l0) days after
execution of this Lease, deliver to Lessor satisfactory evidence of such
authority. If Lessee is a corporation, it shall, upon demand by Lessor, also
deliver to Lessor satisfactory evidence of (a) good standing in Lessee's state
of incorporation, and (b) qualification to do business in California.
BASIC RENTAL CREDIT
- -------------------
47. Provided Lessee is not in default under any of the terms,
covenants and conditions of the Lease, beyond any applicable cure periods,
Lessee shall be credited with the payment of Basic Rental with respect to the
Demised Premises in the amount $9,072.30 for months one (l) through three (3),
inclusive, of the Lease Term (collectively, the "Rent Credits"). No such Basic
Rental credit shall reduce the amount of additional rent which is otherwise
<PAGE>
payable by Lessee under this Lease. Lessee understands and agrees that the
foregoing rental credit is conditioned upon Lessee's not having wrongfully
terminated this Lease or Lessor not having terminated this Lease by reason of
Lessee's material default hereunder (each such termination, a "Trigger Event").
Accordingly, (a) upon the occurrence of any Trigger Event during any portion of
the rental credit period, the foregoing rental credit shall be null and void,
and all of the Basic Rental which, in the absence of such rental credit, would
have been payable during such period up to the date of the Trigger Event shall
become immediately due and payable by Lessee and Lessee shall pay Basic Rental
during the remainder of such rental credit period as such Basic Rental would
have become due and payable in the absence of such rental credit provision, and
(b) upon the occurrence of any Trigger Event after the rental credit period, all
Basic Rental which would have been payable during such rental credit period in
the absence of such rental credit shall become immediately due and payable by
Lessee.
LESSEE'S RIGHT TO CANCEL
- ------------------------
48. Lessee shall have a one-time right to terminate this Lease
effective on the last day of the sixtieth (60th) month of the Lease Term (the
"Cancellation Date"), provided (i) Lessee notifies Lessor in writing (the
"Cancellation Notice") of its exercise of its termination right no later than
the last day of the fifty-fourth (54th) month of the Lease Term, and (ii) Lessee
is not in material default under any of the terms and conditions of this Lease
as of either the date Lessor receives the Cancellation Notice or as of the
Cancellation Date. The Cancellation Notice must be sent to Lessor via certified
mail, return receipt requested, postage pre-paid or via recognized overnight
courier. If Lessee exercises the foregoing termination right, Lessee shall pay
to Lessor, on or before thirty (30) days prior to the Cancellation Date, an
amount equal to $145,000, which amount is hereby stipulated by the parties to
equal the unamortized fees and costs incurred by lessor in connection with
procuring Lessee with respect to the Demised Premises and preparing the Demised
Premises for Lessee's occupancy.
GENDER
- ------
49. Throughout this Lease the masculine gender shall be deemed to
include the feminine and the neuter, the singular shall be deemed to include the
plural, and vice versa.
ACCORD AND SATISFACTION
- -----------------------
50. No payment by Lessee or receipt by Lessor of a lesser amount than
that stipulated herein for rent, additional rent or any other charge shall be
deemed to be other than on account of the earliest stipulated rent, additional
rent or other charge then due, nor shall any endorsement or statement on a check
or letter accompanying any check or payment be deemed an accord and satisfaction
and Lessor may accept such check or payment without prejudice to Lessor's rights
to recover the balance of such rent, additional rent or other charges or pursue
any other remedy in this Lease, at law or in equity.
TIME OF ESSENCE
- ---------------
51. Time is of the essence with respect to the performance of every
provision of this Lease in which time of performance is a factor.
TIMING RE EXECUTION BY LESSEE
- -----------------------------
52. This Lease shall not be effective unless Lessee signs this Lease
within twenty-one (21) days from the date hereof.
<PAGE>
NON-DISCRIMINATION
- ------------------
53. Lessee covenants by and for itself, its successors and assigns,
and all persons claiming under or through them, and this Lease is made and
accepted upon and subject to the following conditions: That there shall be no
discrimination against or segregation of any person or group of persons, on
account of sex, marital status, age, race, color, religion, creed, national
origin or ancestry, in the leasing, subleasing, renting, transferring, use,
occupancy, tenure or enjoyment of the Demised Premises herein leased, nor shall
Lessee itself, or any person claiming under or through it, establish or permit
such practice or practices of discrimination or segregation with reference to
the selection, location, number, use or occupancy of tenants, lesseee,
sublessees, sub-tenants or vendees in the Demised Premises.
BROKERS
- -------
54. Lessor and Lessee each warrants that it has had no dealings with
any real estate broker or agent in connection with the negotiation of thia
Lease, excepting only Cushman & Wakefield of California, Inc. ("Lessor's
Broker"), and that he knows of no other real estate broker or agent who is or
might be entitled to a commission in connection with this Lease. Lessor shall
pay any commissions or fees that are payable to Lessor's Broker with respect to
this Lease in accordance with the provisions of a separate commission contract.
Lessor shall have no further or separate obligation for payment of commissions
or fees to any other real estate broker, finder or intermediary. Subject to the
foregoing, each party hereto shall indemnify and hold harmless the other party
hereto from and against any and all losses, damages, liabilities, costs and
expenses (including, but not limited to, reasonable attorneys' fees and related
costs) resulting from any claims that may be asserted against such other party
by any real estate broker, finder or intermediary arising from any act of the
indemnifying party in connection with this Lease.
CONSENT TO JURISDICTION
- -----------------------
55. This Lease ahall be governed by and interpreted, construed and
enforced in accordance with the laws of the State of California and the United
States of America (without regard to the conflicts of law rules of such state).
No conflicts of law rules of any state or country (including, without
limitation, California conflicts of law rules) shall be applied to result in the
application of any substantive or procedural laws of any state or country other
than California. All controversies, claims, actions or causes of action arising
between the parties hereto and/or their respective successors and assigns, shall
be brought, heard and adjudicated by the courts of the State of California, with
venue in the County of Loa Angeles. Each of the parties hereto hereby consents
to personal jurisdiction by the courts of the State of California in connection
with any auch controversy, claim, action or cause of action, and each of the
parties hereto consents to service of process by any means authorized by
California law and consents to the enforcement of any Judgment so obtained in
the courts of the State of California on the same terms and conditions as if
such controversy, claims, action or cause of action had been originally heard
and adjudicated to a final Judgment in such courts. Each of the parties hereto
further acknowledges that the laws and courts of California were freely and
voluntarily chosen to govern this Lease and to adjudicate any claims or disputes
hereunder.
AGENT POR SERVICE OF PROCESS
- ----------------------------
56. Lessee represents and warrants to Leasor that it presently has an
agent for service of process designated in Los Angeles at the following address:
6151 West Century Boulevard, Suite 1200, Los Angeles, California 90045. Lessee
shall continue to maintain an agent for service of process in Los Angeles during
the Lease Term, as same may be extended or renewed, and Lessee shall promptly
notify Lessor of any change in the designation and/or address of the agent for
service of process.
<PAGE>
NOTICES
- -------
57. Any notice required or permitted to be given hereunder by one
party to the other shall be deemed to be given when (i) personally served, or
(ii) deposited in the United States Mail, with sufficient postage prepaid,
addressed to the respective party to whom notice is intended to be given at the
following address of such party:
If to Lessor:
Realty Holdings of America
Attn: Mr. Jack Genede/Mr. Richard Ader
1370 Avenue of the Americas, Suite 3300
New York, New York 10019
cc: Cushman & Wakefield of California, Inc.
9841 Airport Boulevard, Suite 1510
Los Angeles, California 90045
If to Lessee:
Cheap Tickets, Inc.
738 Kaheka Street, Suite 301
Honolulu, Hawaii 96814
Attn: Mr. Mike Hartley
cc: Cheap Tickets, Inc.
6151 West Century Boulevard
Suite 1200
Los Angeles, California 90045
Either party hereto shall have the right to change the address or addresses to
which notices shall thereafter be sent by giving notice to the other party as
aforesaid.
CONFIDENTIALITY
- ---------------
58. This Lease and the covenants, obligations, conditions and other
terms contained herein, as well as all related documents and information
provided pursuant to the terms herein (collectively, the "Lease Documents and
Information") are confidential information. Lessee agrees to keep the Lease
Documents and Information strictly confidential and not to disclose such matters
to any other landlord, tenant, prospective tenant, broker or any other person,
except that Lessee may disclose such confidential information to Lessee's
financial, legal and space planning consultants. Without limiting the generality
of the foregoing, Lessee shall require such consultants, to similarly maintain
the Lease Documents and Information in strict confidence and shall prohibit such
consultants from making any public or private statements regarding same.
FIRST RIGHT OF OFFER
- --------------------
59. Lessee shall have the right, at any time during the Lease Term,
to notify Lessor in writing ("Lessee's Origination Notice") of Lessee's desire
to receive Lessor's Availability Notice(s) (defined below) in accordance with
the terms of this Article 59 for the immediately succeeding six (6) month period
commencing on the date of Lessee's Origination Notice. At the expiration of any
applicable six (6) month period, Lessee ahall have the right to deliver a new
Lessee's Origination Notice to Lessor for the ensuing six (6) month period. If
<PAGE>
during any particular six (6) month period after Lessor has received Lessee's
Origination Notice Lessor receives an acceptable and bonafide (as determined in
Lessor's sole discretion) written offer from a third party to lease any portion
of the eleventh (llth) floor of the Building (together and individually, the
"Expansion Space"), then prior to accepting such offer, Lessor shall notify
Leasee in writing of the availability of the offered Expanaion Space ("Lessor's
Availability Notice"); provided that Lessee's rights to such Expansion Space are
expressly subject and inferior to any right relating to the Expansion Space
previously granted to any other person or entity. Within five (5) business days
following Lessor's delivery of Lessor's Availability Notice to Lessee, Lessee
must deliver to Lessor its unmodified written acceptance of the Expansion Space
on the same terms and conditions as are contained in the Lease with respect to
the Demised Premises (including a rental rate equal to $.940 per rentable square
foot and a lease term which is co-terminus with the Lease Term for the Demised
Premises), except that (i) the tenant improvement allowance (including any
moving allowance which is a part thereof) and free rent with respect to the
Expansion Space shall respectively equal the Allowance and Rent Credits provided
by Lessor with respect to the Demised Premises, each multiplied by a fraction,
the numerator of which is the number of months remaining in the Lease Term as of
the commencement of the lease term with respect to the Expansion Space, and the
denominator of which is one hundred twenty (120); (ii) the number of unreserved
parking spaces provided to Lessee under this Lease shall be increased by the
product of (A) the number of rentable square feet contained in the Expansion
Space, multiplied by (B) .008 (and such spaces shall be at the rate set forth in
Paragraph (g) of the Definitions Section of this Lease during the remainder of
the initial Lease Term); (iii) Lessee's Proportionate Share shall be
proportionately increased based upon the additional square footage contained in
the Expansion Space; and (iv) the lease term with respect to the Expansion Space
shall commence on the earlier of the date Lessee first occupies the Expansion
Space or the substantial completion of the tenant improvement work to be
performed in the Expansion Space (which tenant improvement work shall be
mutually agreed upon by Lessor and Lessee and, except as otherwise set forth in
this Article 59, performed in accordance with the terms of the Work Letter).
Lessee's failure to timely deliver such unmodified written
acceptance to Lessor shall be deemed Lessee's disapproval of such offer. If
Lessee disapproves such offer, then (i) Lessor may (but is not obligated to)
lease the offered Expansion Space to such third party or to any other party upon
any terms, and (ii) this right of first refusal shall terminate and be of no
further force and effect as to the offered Expansion Space.
COMMON AREA IMPROVEMENTS.
- ------------------------
60. Lessor, at its sole cost and expense, agrees to perform the
following improvement work to the common areas on the twelfth (12th) floor of
the Building in accordance with Building standards and procedures: (i) install
Lessor's Building standard new carpeting in the area in front of the elevators
and in the hallway leading to the Demised Premises; and (ii) paint the interior
walls with one (1) coat of new paint, in a color to be selected by Lessor.
Lessor shall commence the foregoing improvement work after the date which is
thirty (30) days after the Commencement Date.
<PAGE>
IN WITNESS WHEREOF this Lease is entered into by the parties hereto on
the date and year first set forth above.
<TABLE>
<CAPTION>
LESSOR: LESSEE:
<S> <C>
Airport Center Associates Limited Partnership, CHEAP TICKETS, INC.,
a Connecticut Limited Partnership, a Hawaii corporation
By: DRAHCIR REALTY CORP. By: /s/ Michael J. Hartley
----------------------------
By /s/ Its: Vice President
----------------------------
Vice President By: /s/ Sandra T. Hartley
----------------------------
Dated: 3/31/94 Its: President
----------------------
Dated: 3-9-94
--------------------------
</TABLE>
<PAGE>
ADDENDUM TO LEASE
-----------------
This Addendum to Lease ("Addendum") is dated as of January 19, 1994, by and
between Airport Center Associates Limited Partnership, a Connecticut limited
partnership ("Lessor"), and Cheap Tickets, Inc., a Hawaii corporation
("Lessee"). In the event of any inconsistencies between the terms of this
Addendum and the terms of that certain Lease Agreement (the "Lease") of even
date herewith between Lessor and Lessee to which this Addendum is attached, the
terms of this Addendum shall govern and control. Pursuant to this Addendum, the
Lease is amended, modified and supplemented as follows:
1. Article 61 is hereby added to the Lease to read as follows in its
entirety:
"61. Early Occupancy. Lessee shall have the right to occupy the
---------------
Demised Premises for the period commencing on the substantial
completion of the Work and ending on the date which is the
Commencement Date (such period to be hereinafter referred to as the
"Early Occupancy Period"), in order to conduct its business operations
thereon. Lessee shall not be responsible for the payment of basic rent
or other additional rent during the Early Occupancy Period, but shall
be subject to all of the other terms and conditions of this Lease,
including but not limited to, those set forth in Articles 7, 17, 19
and 36."
<PAGE>
EXHIBIT "A"
[Diagram Description: The office plan of Suite No. 1200 of
the building at 6151 West Century Boulevard, Los Angeles, California.]
<PAGE>
EXHIBIT "B"
BUILDING RULES AND AGREED REGULATIONS
-------------------------------------
1. Lessee agrees to make a deposit, in an amount fixed by Lessor from
time to time, for each key issued by Lessor to Lessee for its offices, and upon
termination of this Lease to return all keys to Lessor.
2. Directories will be placed by Lessor, at its own expense, in
conspicuous places in the Building. No other directories shall be permitted
unless previously consented to by Lessor in writing.
3. Lessee will refer all contractors, contractor's representatives
and installation technicians, rendering any service to Lessee, to Lessor for
Lessor's supervision, approval, and control before performance of any
contractual service. This provision shall apply to all work performed in the
Building including installations of telephones, telegraph equipment, electrical
devices and attachments, and installations of any nature affecting floors,
walls, woodwork, trim, windows, ceilings, equipment or any other physical
portion of the Building.
4. Movement in or out of the Building of furniture or office
equipment, or dispatch or receipt by Lessee of any merchandise or materials
which require use of elevators or stairways, or movement through Building
entrances or lobby shall be restricted to hours designated by Lessor. All such
movement shall be under supervision of Lessor and in the manner agreed between
Lessee and Lessor by prearrangement before performance. Such prearrangement
initiated by Lessee will include determination by Lessor and subject to its
decision and control, as to the time, method, and routing of movement and as to
limitations imposed for safety or other concerns which may prohibit any article,
equipment or any other item from being brought into the Building. Lessee is to
assume all risk as to damage to articles moved and injury to persons or public
engaged or not engaged in such movement, including equipment, property, and
personnel or Lessor, if damaged or injured as a result of acts in connection
with carrying out this service for Lessee, from time of entering property to
completion of work, and Lessor shall not be liable for acts of any person
engaged in, or any damage or loss to any of said property or persons resulting
from any act in connection with such service performed for Lessee.
5. No signs, advertisements or notices shall be painted or affixed on
or to any windows or doors, or other parts of the Building, except of color,
size and style and in such places, as shall be first approved in writing by
Lessor. No nails, hooks or screws shall be driven or inserted in any part of the
Building, except by the Building maintenance personnel, nor shall any part be
defaced by Lessee. All signs will be contracted for by Lessor at the rate fixed
by Lessor from time to time, and Lessee will be billed and pay for such service
accordingly.
6. No portion of Lessee's area or any other part of the Building
shall at any time be used or occupied as sleeping or lodging quarters.
7. Lessee shall not place, install or operate in the Demised Premises
or in any part of the Building, any engine or machinery, or maintain, use or
keep any inflammable, explosive, or hazardous material without consent of
Lessor.
8. Lessor will not be responsible for lost or stolen personal
property, equipment, money, or jewelry from Lessee's area or public rooms
regardless of whether such loss occurs when the area is locked against entry or
not.
9. No birds or animals shall be brought into or kept in or about the
Building.
<PAGE>
10. Employees of Lessor shall not receive or carry messages for or to
Lessee or other person, nor contract with or render free or paid services to
Lessee's agents, employees, or invitees.
11. Lessor will not permit entrance to Lessee's offices by use of pass
keys controlled by Lessor to any person at any time without written permission
by Lessee, except employees, contractors, or service personnel directly
supervised by Lessor.
12. The entries, passages, doors, elevators, elevator doors, hallways
or stairways shall not be blocked or obstructed; no rubbish, litter, trash, or
material of any nature shall be placed, emptied or thrown into these areas; and
such areas shall not be used at any time except for ingress or egress by Lessee,
Lessee's agents, employees, invitees or visitors to or from the Demised
Premises.
13. Plumbing fixtures and appliances shall be used only for purposes
for which constructed, and no sweepings, rubbish, rags or other unsuitable
material shall be thrown or placed therein. Damage resulting to any such
fixtures or appliances from misuse by Lessee shall be repaired and replaced at
Lessee's sole cost and expense, and Lessor shall not in any case be responsible
therefor.
14. Lessee shall not do, or permit anything to be done in or about the
Building, or bring or keep anything therein, that will in any way increase the
rate of fire or other insurance on the Building, or on property kept therein, or
obstruct or interfere with the rights of, or otherwise injure or annoy, other
tenants, or do anything in conflict with the valid pertinent laws, rules or
regulations of any governmental authority.
15. Lessor desires to maintain the highest standards of environmental
comfort and convenience for the tenantry. It will be appreciated if any
undesirable conditions or lacks of courtesy or attention are reported directly
to the management.
16. The work of the janitor or cleaning personnel shall not be
hindered by Lessee after 5:30 p.m. and such work may be done at any time when
the offices are vacant; the windows doors, and fixtures may be cleaned at any
time. Lessee shall provide adequate waste and rubbish receptacles, cabinets,
book cases, map cases, etc., necessary to prevent unreasonable hardship to
Lessor in discharging its obligation regarding cleaning service.
17. Lessor shall have the right to determine and prescribe the weight
and proper position of any unusually heavy equipment including safes, large
files, etc., that are to be placed in the Building, and only those which in the
opinion of Lessor might not with reasonable probability do damage to the floors,
structure and/or freight elevator, may be moved into said Building. Any damage
occasioned in connection with the moving or installing of such aforementioned
articles in said Building or the existence of same in said Building shall be
paid for by Lessee, unless otherwise covered by insurance.
18. Lessor shall have the right to prohibit the use of the name of the
Building or any other publicity by Lessee, which, in Lessor's opinion, tends to
impair the reputation of the Building or its desirability for the executive
offices of Lessor or of other lessees, and, upon written notice from Lessor,
Lessee will refrain from or discontinue such publicity.
19. The Demised Premises shall not be used for lodging, sleeping, or
for any immoral or illegal purpose or for any purpose that will damage the
Demised Premises or the reputation thereof, or for any purpose other than that
specified in the Lease covering the Demised Premises.
<PAGE>
20. The Demised Premises shall not contain a stove, hot plate or
similar heating appliance. Notwithstanding the foregoing, a microwave, coffee
maker and toaster oven shall be allowed in the Demised Premises so long as the
same are separately electrically circuited.
21. The foregoing rules and regulations will be reasonably and not
arbitrarily enforced by Lessor.
<PAGE>
EXHIBIT "C"
GENERAL ELECTRIC CAPITAL CORPORATION
------------------------------------
TENANT'S ESTOPPEL CERTIFICATE
-----------------------------
PREMISES: 6151 West Century Boulevard, Suite 1200
Los Angeles, California 90045
LESSOR: Airport Center Associates Limited Partnership,
a Connecticut Limited Partnership
LEASE DATED: As of January 19, 1994 ("LEASE")
DATE:
The undersigned, Lessee, hereby certifies to General Electric Capital
Corporation ("GECC") that:
1. Lessee has accepted possession of the premises pursuant to the
Lease. A true and accurate copy of the Lease is attached hereto as Exhibit A.
The Lease term commenced on________, and the termination date of the Lease is
the date which is one (1) day immediately preceding the date which is the
commencement of the one hundred twenty-fourth (124th) month of the Lease Term,
excluding renewals and extensions.
2. Any improvements required by the terms of the Lease to be made by
Lessor have been completed to the satisfaction of Lessee in all respects, and
Lessor has fulfilled all of its duties under the Lease.
3. The Lease has not been assigned, modified, supplemented or amended
in any way. The Lease constitutes the entire agreement between the parties and
there are no other agreements between Lessor and Lessee concerning the Premises.
The undersigned does not have any option or preferential right to purchase all
or any part of the Premises or the Building of which the premises are a part or
any right, title or interest with respect to the Premises or such Building other
than as Lessee under the Lease.
4. The Lease is valid and in full force and effect, and, to the best
of Lessee's knowledge, neither Lessor nor Lessee is in default thereunder.
Lessee has no defense, setoff or counterclaim against Lessor arising out of the
Lease or in any way relating thereto, or arising out of any other transaction
between Lessee and Lessor, and no event has occurred and no condition exists,
which with the giving of notice or the passage of time, or both, will constitute
a default under the Lease.
5. No rent or other sum payable under the Lease has been paid more
than one month in advance.
6. Subject to the terms of Article 47 of the Lease, the minimum
monthly rent presently payable under the Lease is $9,072.30.
7. Lessee acknowledges that Lessee has received notice that the Lease
will be assigned to GECC, and Lessee has received no notice of a prior
assignment, hypothecation or pledge of the Lease or the rents, under the
provisions of the assignment, the Lease cannot be terminated (either directly or
by the exercise of any option which could lead to termination) or modified in
any of its terms, or consent be given to the release of any party having
liability
<PAGE>
thereunder, without the prior written consent of GECC, that without such
consent, no rent may be collected or accepted more than one month in advance and
that the interest of the Lessor in the Lease has been assigned to GECC solely as
security for the purposes specified in the assignment and GECC assumes no duty,
liability or obligations whatever under the Lease or any extension or renewal
thereof.
8. Lessee hereby acknowledges and agrees that if GECC shall succeed
to the interest of Lessor under the Lease, GECC shall assume (only while owner
of and in possession or control of the building of which the Premises are a
part) and perform all of the Lessor's obligations under the Lease, but shall not
be liable for any act or omission of any prior landlord (including the present
landlord), liable for the return of any security deposit, subject to any offset
or defense which Lessee may have against any such prior landlord, bound by any
rent or additional rent Lessee may have paid for more than the current month to
any such prior landlord or bound by any assignment, surrender, termination,
cancellation, waiver, release, amendment or modification of the Lease made
without its express written consent.
9. Lessee shall give GECC prompt written notice of any default of
Lessor under the Lease, if such default entitles Lessee, under law or otherwise,
to terminate the Lease, reduce rent or credit or offset any amount against
future rents and shall give GECC reasonable time (but in no event less than 90
days after receipt of such notice) to cure or commence during such default prior
to exercising (and as a condition precedent to its right to exercise) any right
Lessee may have to terminate the Lease, reduce rent or credit or offset any
amounts against the rent. Lessee shall given written notice to any successor in
interest of GECC, transferee who acquired the property by deed in lieu of
foreclosure or any successor or assign thereof (collectively, the "Mortgagee").
10. Lessee shall not look to the Mortgagee, as mortgagee, mortgagee
in possession, or successor in title to the Mortgaged Property, in connection
with the return of or accountability with respect to any security deposit
required by Lessor, unless said sums have actually been received by Mortgagee as
security for Lessee's performance under the Lease.
11. Lessee shall neither suffer nor itself manufacture, store,
handle, transport, dispose of, spill, leak or dump any toxic or hazardous waste,
waste product or substance (as they may be defined in any federal or state
statute, rule or regulation pertaining to or governing such waste products or
substances) on the Mortgaged Property at any time during the term, or extended
term, of the Lease.
12. All notices and other communications from Lessee to GECC shall be
in writing and shall be delivered or mailed by registered mail, postage paid,
return receipt requested, addressed to GECC at:
General Electric Capital Corporation
7700 Irvine Center Drive, Suite 500
Irvine, California 92718
Attention: Investment Manager
<PAGE>
Or at such other address as GECC, a successor, purchaser or transferee shall
furnish to Lessee in writing.
LESSEE:
Cheap Tickets, Inc., a Hawaii corporation
By: _______________________________________
Its: __________________________________
By: _______________________________________
Its:___________________________________
<PAGE>
EXHIBIT "D"
WORK LETTER AGREEMENT
---------------------
[Lessor Performs Work]
[Allowance]
This Work Letter Agreement ("Work Letter") is executed simultaneously
with that certain Lease Agreement (the "Lease") between Cheap Tickets, Inc., a
Hawaii corporation, as "Lessee", and Airport Center Associates Limited
Partnership, a Connecticut limited partnership, as "Lessor", relating to demised
premises (the "Demised Premises") at the building commonly known as 6151 West
Century Boulevard, Suite 1200, Los Angeles, California (the "Building"), which
Demised Premises are more fully identified in the Lease. Capitalized terms used
herein, unless otherwise defined in this Work Letter, shall have the respective
meanings ascribed to them in the Lease.
For and in consideration of the agreement to lease the Demised
Premises and the mutual covenants contained herein and in the Lease, Lessor and
Lessee hereby agree as follows:
1. Lessee's Initial Plans: the Work. Lessee desires Lessor to perform
--------------------------------
certain leasehold improvement work in the Office Premises (as defined in the
Lease) in substantial accordance with a plan or plans (collectively, the
"Plans") to be mutually agreed upon by Lessor and Lessee. Such work, as shown in
the Plans and as more fully detailed in the Working Drawings (as defined and
described in Paragraph 2 below), shall be hereinafter referred to as the "Work".
The Work shall include, but not be limited to, the installation of a separate
HVAC unit (the "HVAC Unit") in the office within the Office Premises in which
Lessee's computerized phone system will be located. As soon as reasonably
practicable, Lessee shall furnish to Lessor such additional plans, drawings,
specifications and finish details as Lessor may reasonably request to enable
Lessor's architect, and Lessor's engineers to prepare mechanical, electrical and
plumbing plans and to prepare the Working Drawings, including a final telephone
layout and special electrical connection requirements, if any. All plans,
drawings, specifications and other details describing the Work which have been
or are hereafter furnished by or on behalf of Lessee shall be subject to
Lessor's approval, which Lessor agrees shall not be unreasonably withheld.
Lessor shall not be deemed to have acted unreasonably if it withholds its
approval of any plans, specifications, drawings or other details or of any
Additional Work (as defined in Paragraph 7 below) because, in Lessor's
reasonable opinion, the Work, as described in any such item, or the Additional
Work, as the case may be: (a) is likely to adversely affect Building systems,
the structure of the Building or the safety of the Building and/or its
occupants; (b) might impair Lessor's ability to furnish services to Lessee or
other tenants in the Building; (c) would increase the cost of operating the
Building; (d) would violate any governmental laws, rules or ordinances (or
interpretations thereof); (e) contains or uses hazardous or toxic materials or
substances; (f) would adversely affect the appearance of the Building; (g) might
adversely affect another tenant's premises; (h) is prohibited by any ground
lease affecting the Building or any mortgage, trust deed or other instrument
encumbering the Building; or (i) is likely to be substantially delayed because
of unavailability or shortage of labor or materials necessary to perform such
work or the difficulties or unusual nature of such work. The foregoing reasons,
however, shall not be the only reasons for which Lessor may withhold its
approval, whether or not such other reasons are similar or dissimilar to the
foregoing. Neither the approval by Lessor of the Work or the Plans or any other
plans, drawings, specifications or other items associated with the Work nor
Lessor's performance, supervision or monitoring of the Work shall constitute any
warranty by Lessor to Lessee of the adequacy of the design for Lessee's intended
use of the Office Premises.
<PAGE>
2. Working Drawings. If necessary for the performance of the Work,
----------------
Lessor shall prepare or cause to be prepared final working drawings and
specifications for the Work (the "Working Drawings") based on and consistent
with the Plans and the other plans, drawings, specifications, finish details and
other information furnished by Lessee to Lessor and approved by Lessor pursuant
to Paragraph 1 above. So long as the Working Drawings are consistent with the
Plans, Lessee shall approve the Working Drawings within three (3) days after
receipt of same from Lessor by initialing and returning to Lessor each sheet of
the Working Drawings or by executing Lessor's approval form then in use,
whichever method of approval Lessor may designate.
3. Performance of the Work; Allowance. Except as hereinafter
----------------------------------
provided to the contrary, and subject to the review and approval of all
applicable governmental authorities having jurisdiction for compliance with
building, fire, safety and zoning codes, Lessor shall cause the performance of
the Work using (except as may be stated or shown otherwise in the Working
Drawings) building standard materials, quantities and procedures then in use by
Lessor ("Building Standards"). Lessor shall pay for a portion of the "Cost of
the Work" (as defined below) in an amount not to exceed the Allowance (as
defined below), and Lessee shall pay for the entire Cost of the Work, if any, in
excess of the Allowance. In the event that the amount of the Allowance exceeds
the Cost of the Work, Lessee shall not be entitled to such excess or to a credit
against future rent due and owing under the Lease in the amount of such excess,
but rather said excess funds shall belong to and be the sole property of Lessor.
For purposes of this Agreement, the term "Cost of the Work" shall mean and
include any and all costs and expenses of the Work, including, without
limitation, (i) the cost of the Working Drawings, (ii) design fees for the
preparation of the Working Drawings, (iii) the mechanical, engineering and space
planning costs with respect to the Work, and (iv) the cost of all labor
(including overtime) and materials constituting the Work, including permit or
other governmental fees, overhead and contractor profit included in the
fabrication, acquisition, construction and installation of the Work.
Notwithstanding anything to the contrary contained in this Work
Letter, for purposes of this Work Letter, the term "Allowance" shall mean an
amount equal to Two Hundred Fifty Thousand Nine Hundred Dollars ($250,900), as
such amount may be reduced pursuant to Section 30(b) of the Lease, the
immediately succeeding sentence and the terms of Paragraph 9 of this Work
Letter. Notwithstanding anything to the contrary contained in this Work Letter,
the Allowance shall be reduced by the sum of all costs incurred by Lessee in
connection with its physical move into the Demised Premises, but only to the
extent Lessor reimburses Lessee therefor pursuant to the terms of Paragraph 9 of
this Work Letter.
4. Payment. Prior to commencing the Work, Lessor shall submit to
-------
Lessee a written statement of the total Cost of the Work (which shall include
the amount of any overtime projected as necessary to substantially complete the
Work by May 1, 1994), as then known by Lessor, and such statement shall indicate
the amount, if any, by which the total Cost of the Work exceeds the Allowance
(the "Excess Costs"). Lessee agrees, within three (3) days after submission to
it of such statement, to execute and deliver to Lessor, in the form then in use
by Lessor, an authorization to proceed with the Work, and Lessee shall also then
pay to Lessor an amount equal to the Excess Costs. No Work shall be commenced
until Lessee has fully complied with the preceding provisions of this Paragraph
4. In the event, and each time, that any change order by Lessee, unknown field
condition, delay caused by acts beyond Lessor's control or other event or
circumstance causes the Cost of the Work to be increased after the time that
Lessor delivers to Lessee the aforesaid initial statement of the Cost of the
Work, Lessor shall deliver to Lessee a revised statement of the total Cost of
the Work, indicating the revised calculation of the Excess Costs, if any. Within
three (3) days after submission to Lessee of any such revised statement, Lessee
shall pay to Lessor an amount equal to the Excess Costs, as shown in such
revised statement, less the amounts previously paid by Lessee to Lessor on
<PAGE>
account of the Excess Costs, and Lessor shall not be required to proceed further
with the Work until Lessee has paid such amount. Delays in the performance of
the Work resulting from the failure of Lessee to comply with the provisions of
this Paragraph 4 shall be deemed to be delays caused by Lessee.
5. Substantial Completion. Lessor shall use its reasonable efforts
----------------------
to cause the Work to be "substantially completed" on or before May 1, 1994,
subject to delays caused by strikes, lockouts, boycotts or other labor problems,
casualties, discontinuance of any utility or other service required for
performance of the Work, unavailability or shortages of materials or other
problems in obtaining materials necessary for performance of the Work or any
other matter beyond the control of Lessor (or beyond the control of Lessor's
contractors or subcontractors performing the Work) and also subject to "Lessee
Delays" (as defined and described in Paragraph 6 of this Work Letter). The Work
shall be deemed to be "substantially completed" for all purposes under this Work
Letter and the Lease upon the earlier of the date Lessee first takes occupancy
of the Demised Premises, or Lessor's architect issues a written certificate to
Lessor and Lessee, certifying that the Work has been substantially completed
(i.e., completed except for "punchlist" items listed in such architect's
certificate) in substantial compliance with the Working Drawings such that
Lessee can legally occupy the Demised Premises and utilize same for the purposes
intended under the Lease. If the Work is not deemed to be substantially
completed on or before May 1, 1994, (a) Lessor agrees to use reasonable efforts
to complete the Work as soon as practicable thereafter, (b) the Lease shall
remain in full force and effect, except that, subject to the succeeding
sentence, the Commencement Date (as defined in the Lease) shall not occur until
the substantial completion of the Work, and (c) Lessor shall not be deemed to be
in breach or default of the Lease or this Work Letter as a result thereof and
Lessor shall have no liability to Lessee as a result of any delay in occupancy
(whether for damages, abatement of Rent or otherwise). Notwithstanding the
foregoing, in the event the Work is not substantially complete by May 1, 1994,
as a result of a Lessee Delay (defined below), the Work shall be deemed to be
substantially complete on the date that construction of the Work would have been
substantially complete, but for Lessee's Delay (as reasonably determined by
Lessor). Lessor agrees to use reasonable diligence to complete all punchlist
work listed in the aforesaid architect's certificate promptly after substantial
completion.
6. Lessee Delays. The following shall constitute "Lessee Delays":
-------------
(i) the failure of Lessee to timely furnish all or any
plans, drawings, specifications, finish details or the other information
required under Paragraph 1 above;
(ii) the failure of Lessee to grant approval of the Working
Drawings within the time required under Paragraph 2 above;
(iii) the failure of Lessee to comply with the requirements
of Paragraph 4 above;
(iv) Lessee's requirements for special work or materials,
finishes, or installations other than the Building Standards or Lessee's
requirements for special construction staging or phasing;
(v) the performance of any Additional Work (as defined in
Paragraph 7 below) requested by Lessee or the performance of any work in the
Demised Premises by any person, firm or corporation employed by or on behalf of
Lessee, or any failure to complete or delay in completion of such work;
<PAGE>
(vi) any act attributable to Lessee's architect or any
employees, representatives or agents of Lessee's architect; or
(vii) any other act or omission of Lessee.
7. Additional Work. Upon Lessee's request and submission by Lessee
---------------
(at Lessee's sole cost and expense) of the necessary information and/or plans
and specifications for work other than the Work described in the Working
Drawings ("Additional Work") and the approval by Lessor of such Additional Work,
which approval Lessor agrees shall not be unreasonably withheld, Lessor shall
perform such Additional Work, at Lessee's sole cost and expense, subject,
however, to the following provisions of this Paragraph 7. Prior to commencing
any Additional Work requested by Lessee, Lessor shall submit to Lessee a written
statement of the cost of such Additional Work, which cost shall include a fee
payable to Lessor in the amount of 10% of the total cost of such Additional Work
as compensation to Lessor for monitoring the Additional Work, including
administration, overhead and field supervision associated with the Additional
Work (such fee being hereinafter referred to collectively as "Lessor's
Additional Compensation"), and, concurrently with such statement of cost, Lessor
shall also submit to Lessee a proposed tenant extra order (the "TEO") for the
Additional Work in the standard form then in use by Lessor. Lessee shall execute
and deliver to Lessor such TEO and shall pay to Lessor the entire cost of the
Additional Work, including Lessor's Additional Compensation (as reflected in
Lessor's statement of such cost), within five (5) days after Lessor's submission
of such statement and TEO to Lessee. If Lessee fails to execute or deliver such
TEO or pay the entire cost of such Additional Work within such 5-day period,
then Lessor shall not be obligated to do any of the Additional Work and may
proceed to do only the Work, as specified in the Working Drawings.
8. Lessee Access. Lessor will grant to Lessee a license to have
-------------
access to the Demised Premises prior to the substantial completion of the Work
to allow Lessee to do other work required by Lessee to make the Demised Premises
ready for Lessee's use and occupancy (the "Lessee's Pre-Occupancy Work"). It
shall be a condition to the grant by Lessor and continued effectiveness of such
license that:
(a) Lessee shall give to Lessor accompanied by each of the
following items, all in form and substance reasonably acceptable to Lessor: (i)
a detailed description of and schedule for Lessee's Pre-Occupancy Work; (ii) the
names and addresses of all contractors, subcontractors and material suppliers
and all other representatives of Lessee who or which will be entering the
Demised Premises on behalf of Lessee to perform Lessee's Pre-Occupancy Work or
will be supplying materials for such work, and the approximate number of
individuals, itemized by trade, who will be present in the Demised Premises;
(iii) copies of all contracts, subcontracts and material purchase orders
pertaining to Lessee's Pre-Occupancy Work; (iv) copies of all plans and
specifications pertaining to Lessee's Pre-Occupancy Work; (v) copies of all
licenses and permits required in connection with the performance of Lessee's
Pre-Occupancy Work; (vi) certificates of insurance (in amounts satisfactory to
Lessor and with the parties identified in, or required by, the Lease named as
additional insureds) and instruments of indemnification against all claims,
costs, expenses, damages and liabilities which may arise in connection with
Lessee's Pre-Occupancy Work; and (vii) assurances of the ability of Lessee to
pay for all of Lessee's Pre-Occupancy Work and/or a letter of credit or other
security deemed appropriate by Lessor securing Lessee's lien-free completion of
Lessee's Pre-Occupancy Work.
(b) Lessee's employees, agents, contractors, workmen, mechanics,
suppliers and invitees shall work in harmony and not interfere with Lessor or
Lessor's agents in performing the Work and any Additional Work in the Office
Premises, Lessor's work in other premises and in common areas of the Building,
or the general operation of the Building. If at any time any such person
representing Lessee shall cause or threaten to cause such disharmony or
<PAGE>
interference, including labor disharmony, and Lessee fails to immediately
institute and maintain such corrective actions as directed by Lessor, then
Lessor may withdraw such license upon twenty-four (24) hours' prior written
notice to Lessee.
(c) Any such entry into and occupancy of the Demised Premises by
Lessee or any person or entity working for or on behalf of Lessee shall be
deemed to be subject to all of the terms, covenants, conditions and provisions
of the Lease, specifically including the provisions of Section 6 thereof
(regarding Lessee's improvements and alterations to the Demised Premises), and
excluding only the covenant to pay Rent. Lessor shall not be liable for any
injury, loss or damage which may occur to any of Lessee's Pre-Occupancy Work
made in or about the Demised Premises or to property placed therein prior to the
commencement of the term of the Lease, the same being at Lessee's sole risk and
liability. Lessee shall be liable to Lessor for any damage to the Demised
Premises or to any portion of the Work or Additional Work caused by Lessee or
any of Lessee's employees, agents, contractors, workmen or suppliers. In the
event that the performance of Lessee's Pre-Occupancy Work causes extra costs to
Lessor.
9. Moving Allowance; Telephone, Furniture, Fixtures and Equipment
--------------------------------------------------------------
Allowance. Lessor shall pay Lessee up to $60,000 to compensate Lessee for
- ---------
Lessee's actual out-of-pocket costs paid to third party contractors and directly
associated with (i) Lessee's physical move into the Office Premises, (ii) the
installation of Lessee's telephone communication system in the Office Premises,
and (iii) the acquisition and/or installation of furniture, fixtures and/or
equipment in the Office Premises to be used in connection with the operation of
Lessee's business operations therefrom. Provided that Lessee has performed all
of its obligations under this Lease up to and including the date of the proposed
payment, and provided further that Lessee has delivered to Lessor invoices from
said third party contractors covering items included in Lessee's request for
payment, Lessor shall use reasonable efforts to make such payment to Lessee
within thirty (30) days after Lessee has moved into and taken occupancy of the
Demised Premises. In no event, however, shall Lessor be obligated to make such
payment prior to the date which is thirty (30) days after the first draw request
following Lessee's occupancy of the Demised Premises is funded by Lessor's
lender on the Project.
Notwithstanding anything to the contrary contained in the
immediately preceding paragraph, only the actual reimbursement payment made by
Lessor pursuant to this Paragraph 9 (which may be less than $60,000) shall be
directly applied against the Allowance and thereby reduce the remaining
Allowance. In this regard, to the extent an amount less than $60,000 is
reimbursed by Lessor to Lessee pursuant to this Paragraph 9, the Allowance shall
not be reduced by said difference; however, Lessee shall not otherwise be
entitled to receive or obtain a credit for any excess funds available hereunder
to the extent Lessee's actual out-of-pocket costs are less than $60,000, but
rather, said excess funds shall belong to and be the sole property of Lessor.
10. Lease Provisions. The terms and provisions of the Lease, insofar
----------------
as they are applicable to this Work Letter, are hereby incorporated herein by
reference. All amounts payable by Lessee to Lessor hereunder shall be deemed to
be additional Rent under the Lease and, upon any default in the payment of same,
Lessor shall have all of the rights and remedies provided for in the Lease.
11. Miscellaneous.
-------------
(a) This Work Letter shall be governed by the laws of the state
in which the Demised Premises are located.
(b) This Work Letter may not be amended except by a written
instrument signed by the party or parties to be bound thereby.
<PAGE>
(c) Any person signing this Work Letter on behalf of Lessee
warrants and represents he/she has authority to sign and deliver this Work
Letter and bind Lessee.
(d) Notices under this Work Letter shall be given in the same
manner as under the Lease.
(e) The headings set forth herein are for convenience only.
(f) This Work Letter and Section 42 of the Lease set forth the
entire agreement of Lessee and Lessor regarding the Work.
(g) In the event that the final working drawings and
epecifications are included as part of the Plans, or in the event Lessor
performs the Work without the necessity of preparing working drawings and
specifications, then whenever the term "Working Drawings" is used in this
Agreement, such term shall be deemed to refer to the Plans and all supplemental
plans and specifications approved by Lessor.
(h) Unless otherwise defined, all capitalized terms used in this
Work Letter shall have the meanings ascribed to them in the Lease.
12. Exculpation of Lessor. Notwithstanding anything to the contrary
---------------------
contained in this Work Letter, it is expressly understood and agreed by and
between the parties hereto that:
(a) The recourse of Lessee or its successors or assigns against
Lessor with respect to the alleged breach by or on the part of Lessor of any
representation, warranty, covenant, undertaking or agreement contained in this
Work Letter (collectively, "Lessor's Work Letter Undertakings") shall extend
only to Lessor's interest in the real estate of which the Demised Premises
demised under the Lease are a part (hereinafter, "Lessor's Real Estate.) and not
to any other assets of Lessor or its constituent partners; and
(b) Except to the extent of Lessor's interest in Lessor's Real
Estate, no personal liability or personal responsibility of any sort with
respect to any of Lessor's Work Letter Undertakings or any alleged breach
thereof is assumed by, or shall at any time be asserted or enforceable against,
Lessor, its constituent partners, or against any of their respective directors,
officers, employees, agents, constituent partners, beneficiaries, trustees or
representatives.
IN WITNESS WHEREOF, this Work Letter Agreement is executed as of the
9th Day of March, 1994.
<TABLE>
<CAPTION>
LESSOR: LESSEE:
<S> <C>
Airport Center Associates Limited Partnership, CHEAP TICKETS, INC.,
a Connecticut Limited Partnership a Hawaii corporation
By: DRAHCIR REALTY CORP. By: /s/ Michael J. Hartley
-----------------------------------
By: /s/ Its: Vice President
-------------------------------------
Vice President By: /s/ Sandra T. Hartley
-----------------------------------
Its: President
</TABLE>
<PAGE>
FIRST AMENDMENT TO LEASE
------------------------
This First Amendment to Lease ("Amendment") is entered into as of this 20th
day of July, 1994, by and between Airport Center Associates Limited Partnership,
a Connecticut limited partnership ("Lessor"), and Cheap Tickets, Inc., a Hawaii
corporation ("Lessee").
RECITALS
--------
A. Pursuant to that certain Lease Agreement (the "Lease") dated as of
January 19, 1994, by and between Lessor and Lessee, Lessor leased unto Lessee
certain office space commonly known as Suite 1200 (the "Demised Premises"),
located in the building (the "Building") situated at 6151 West Century
Boulevard, Los Angeles, California 90045, as more particularly described in the
Lease.
B. Lessor and Lessee mutually desire to amend the Lease in accordance with
the terms set forth below.
NOW, THEREFORE, for and in consideration of the foregoing the further
consideration and mutual benefits provided below, the parties agree as follows:
1. Signage. Section 30(b) of the Lease is hereby amended by deleting the
-------
reference to "six (6) feet" and replacing same with "twelve (12) feet."
2. Defaults. The first paragraph of Section 19 of the Lease is hereby
--------
amended by the addition of the following subparagraph: "(j) any default by
Lessee under the terms of that certain Lease Agreement dated as of July 20,
1994, by and between Lessor and Lessee with respect to Lessee's lease of Suite
100 in the Building."
3. Basic Rental Credit. Article 47 is hereby amended by deleting the
-------------------
reference to the figure "$9,072.30" and replacing same with the figure
$8,972.40".
4. Brokers. Lessor and Lessee each warrants that it has had no dealings
-------
with any real estate broker or agent in connection with the negotiation of this
Amendment, excepting only Cushman & Wakefield of California, Inc., and that each
knows of no other real estate broker or agent who is or might be entitled to a
commission in connection with this Amendment. Lessor shall pay any commissions
or fees that are payable to Cushman & Wakefield of California, Inc. with respect
to this Amendment in accordance with the provisions of a separate commission
contract. Lessor shall have no further or separate obligation for payment of
commissions or fees to any other real estate broker, finder or intermediary.
Subject to the foregoing, each party hereto shall indemnify and hold harmless
the other party hereto from and against any and all losses, damages,
liabilities, costs and expenses (including, but not limited to, reasonable
attorneys' fees and related costs) resulting from any claims that may be
asserted against such other party by any real estate broker, finder or
intermediary arising from any act of the indemnifying party in connection with
this Amendment.
5. Attorneys' Fees. Should any party initiate a legal proceeding against
---------------
any other party, including an arbitration, then the prevailing party shall be
entitled to receive a reasonable attorneys' fees and costs incurred in
connection with such legal proceeding.
6. Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which shall
constitute the one and the same instrument.
<PAGE>
7. Definitions. As used herein, all capitalized terms shall have the same
-----------
meanings as defined in the Lease, unless otherwise defined herein.
8. Facsimile. Each party hereto, and their respective successors and
---------
assigns, shall be authorized to rely upon the signatures of all of the parties
hereto on this Amendment which are delivered by facsimile as constituting a duly
authorized, irrevocable, actual, current delivery of this Amendment with
original ink signatures of each person and entity; provided, however, that each
party hereto that delivers such facsimile signatures to another party hereto,
covenants and agrees that it shall deliver an executed original of the same to
the party(s) so receiving the previous facsimile signatures within five (5) days
after the delivery of such facsimile signatures.
9. No Other Amendments. Except as modified by this Amendment, the
-------------------
provisions of the Lease shall remain unaffected and in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of date and
year first written above.
<TABLE>
<CAPTION>
<S> <C>
"LESSOR" "LESSEE"
AIRPORT CENTER ASSOCIATES CHEAP TICKETS, INC., a Hawaii
UNITED PARTNERSHIP, a Connecticut limited corporation
partnership
By: DRAHCIR REALTY CORP. By: /s/ Michael J. Hartley
---------------------------------------
By: /s/ Its: VP & GM
---------------------------------- --------------------------------------
Its: Vice President
----------------------------------
Dated: , 1994 Dated: August 16 , 1994
------------------------ ----------
</TABLE>
<PAGE>
SECOND AMENDMENT TO LEASE
This Second Amendment to Lease ("Second Amendment") is entered into as
of this 25th day of April, 1997, by and between GENERAL ELECTRIC CREDIT
EQUITIES, INC., a Delaware corporation ("Lessor"), and CHEAP TICKETS, INC., a
Hawaii corporation ("Lessee").
Recitals
A. Pursuant to that certain Lease Agreement, dated as of January 19,
1994 (the "Original Lease"), Airport Center Associates Limited Partnership, a
Connecticut limited partnership ("Original Lessor"), leased to Lessee certain
premises identified as Suite No. 1200 (the "Premises") located in the building
situated at 6151 West Century Boulevard, Los Angeles, California 90045 (the
"Building").
B. Original Lessor and Lessee amended the Original Lease by entering
into that certain First Amendment to Lease dated as of July 20, 1994 (the "First
Amendment"). The Original Lease, as amended and modified by the First Amendment,
shall be referred to hereinafter as the "Lease."
C. Lessor thereafter succeeded to the interests of Original Lessor
under the Lease.
D. Lessee now desires to expand the size of the Premises to include
certain additional space located on the eleventh floor of the Building, and
Lessor desires to lease such additional space to Lessee, all in accordance with
the terms and conditions set forth below.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Lessor and Lessee hereby agree as
follows:
1. Expansion of Premises. Lessor hereby agrees to lease to Lessee
---------------------
and Lessee hereby agrees to lease from Lessor the following additional premises:
that certain premises (the "Expansion Premises") containing approximately 5,249
rentable square feet located on the eleventh floor of the Building, as further
depicted on Exhibit A attached hereto and incorporated herein.
2. Annual Basic Rent. In addition to its obligations under the
-----------------
Lease with respect to the Premises for Basic Rental and for all other sums due
and owing to Lessor thereunder, Lessee shall be responsible for the payment to
Lessor of Basic Rental for the Expansion Premises from and after the Expansion
Premises Commencement Date (defined below) until September 30, 2004 in
accordance with the schedule and in the amount set forth below:
(a) From the Expansion Premises Commencement Date through the
end of the twenty-fourth (24th) calendar month after the Expansion Premises
Commencement Date: $4,934.06 per month ($.94 per rentable square foot per
month);
(b) From the first day of the twenty-fifth (25th) calendar
month after the Expansion Premises Commencement Date through the end of the
forty-eighth (48th) calendar month after the Expansion Premises Commencement
Date: $5,249.00 per month ($1.00 per rentable square foot per month);
<PAGE>
(c) From the first day of the forty-ninth (49th) calendar month
after the Expansion Premises Commencement Date through September 30, 2004:
$5,616.43 per month ($1.07 per rentable square foot per month).
3. Security Deposit. Upon the execution hereof, Lessee shall pay
----------------
to Lessor the amount of $4,934.06 as an additional Security Deposit (the
"Additional Security Deposit"). On the first day of the twenty-fifth (25th)
calendar month after the Expansion Premises Commencement Date, Lessee shall pay
to Lessor the amount necessary to increase the Additional Security Deposit to
$5,249.00. On the first day of the forty-ninth (49th) calendar month after the
Expansion Premises Commencement Date, Lessee shall pay to Lessor the amount
necessary to increase the Additional Security Deposit to $5,616.43.
4. Expansion Premises Commencement Date. The term "Expansion
------------------------------------
Premises Commencement Date" shall mean the later of (i) May 1, 1997 or (ii) upon
substantial completion of the lessee improvement work to be performed by Lessor
pursuant to the Work Letter (defined below).
5. Condition of Expansion Premises. Subject to the performance
-------------------------------
of Lessor's obligations under the Work Letter Agreement attached to this Second
Amendment as Exhibit B (the "Work Letter"), Lessee hereby agrees that the
Expansion Premises shall be taken "AS IS", "WITH ALL FAULTS", "WITHOUT ANY
REPRESENTATIONS OR WARRANTIES", and Lessee hereby agrees and warrants that it
has investigated and inspected the condition of the Expansion Premises and the
suitability of same for Lessee's purposes, and Lessee does hereby waive and
disclaim any objection to, cause of action based upon, or claim that its
obligations hereunder should be reduced or limited because of the condition of
the Expansion Premises or the suitability of same for Lessee's purposes. Lessee
acknowledges that neither Lessor nor any agent nor any employee of Lessor has
made any representations or warranty with respect to the Expansion Premises or
with respect to its suitability for the conduct of Lessee's business and Lessee
expressly warrants and represents that Lessee has relied solely on its own
investigation and inspection of the Expansion Premises in its decision to enter
into this Second Amendment and let the Expansion Premises in an "As Is"
condition (subject to the performance by Lessor of its obligations under the
Work Letter). The taking of possession of the Expansion Premises by Lessee shall
conclusively establish that the Expansion Premises was at such time in
satisfactory condition.
6. Operating Expenses. In addition to its obligations with
------------------
respect to payment of Operating Expenses and Taxes for the Premises under
Article 36 of the Lease, Lessee shall be responsible for Lessee's pro rata share
(also referred to as "Lessee's Proportionate Share") of Operating Expenses and
Taxes with respect to the Expansion Premises in accordance with the terms of
Article 36 of the Lease (except as modified herein). With respect to the
Expansion Premises only: (i) the term "Lessee's pro rata share" or "Lessee's
Proportionate Share" shall mean 2.32%; (ii) Lessee's Base Year shall be 1997;
and (iii) if the average occupancy of the Building in any calendar year is less
than ninety-five percent (95%), then the Operating Expenses and Taxes for such
year, including the Base Year, shall be adjusted to reflect the amounts which
would have been payable if the occupancy of the Building had been at an average
of ninety-five percent (95%).
7. Term. The term of Lessee's lease of the Expansion Premises
----
shall commence on the Expansion Premises Commencement Date and terminate on
September 30, 2004 (the "Expansion Premises Term").
8. Option to Re-Lease. Lessee shall have an option to re-lease the
------------------
Expansion Premises in accordance with the terms and conditions set forth in the
Lease, with references to the Demised Premises meaning the Expansion Premises.
<PAGE>
9. Option to Terminate. So long as Lessee is not in default under
-------------------
the Lease, as amended by this Second Amendment, Lessee shall have a one-time
option to terminate its lease of the Expansion Premises, in accordance with the
terms and conditions set forth in Article 48 of the Lease, except that, as the
fee due and payable to Lessor on account of Lessee terminating its lease of the
Expansion Premises, Lessee shall pay to Lessor, no later than thirty (30) days
before the Cancellation Date (as defined in the Lease), an amount equal to the
sum of: (a) the unamortized Excess Amount (as defined in the Work Letter
attached hereto); and (b) three months' Basic Rental for the Expansion Premises
at the then-prevailing rate in accordance with the rent schedule set forth in
Paragraph 2 of this Second Amendment.
10. First Right of Offer. Lessee shall have a right of first offer
--------------------
with respect to space on the 11th Floor of the Building, as set forth more
particularly in Paragraph 59 of the Lease.
11. Signage.
-------
(a) Subject to Lessor's prior written consent, which may be
withheld or delayed in Lessor's sole and absolute discretion, Lessee, at its
sole cost and expense, may replace its existing sign on the side of the Building
and may illuminate the new sign, if any.
(b) Without the prior written consent of Lessor, which may be
withheld or delayed in Lessor's sole and absolute discretion, Lessee shall not
contact any other tenant of the Building with respect to that tenant's signs on
the Building or other signage rights. By its execution of this Second Amendment,
Lessee acknowledges that its violation of this covenant shall constitute a
material breach of the Lease, as amended by this Second Amendment.
(c) If each and every one of the following conditions are
satisfied, Lessee shall have a right of first offer, as hereinafter described
(the "Signage Right of First Offer"), with respect to the signage rights (the
"Signage Rights") possessed as of the date hereof by Park Avenue, a tenant in
the Building: (i) Lessee shall not be in default under the Lease, as amended by
this Second Amendment and any subsequent amendments of the Lease; (ii) Lessee
shall be occupying over fifty percent (50%) of the rentable square footage of
the Building (space assigned or sublet by Lessee to another party shall not be
included in making this determination); (iii) Park Avenue's lease(s) for any and
all space in the Building shall have been terminated (assignments, transfers and
subleases of space shall not be deemed a termination); (iv) Lessor shall have
secured possession of the Signage Rights; and (v) Lessor shall not have granted
rights to the Signage Rights to any other party or person prior to the date
hereof. The Signage Right of First Offer shall mean the right to lease or rent
the Signage Rights on commercially reasonable terms before the Signage Rights
are offered to any other party. If the conditions precedent to the Signage Right
of First Offer are satisfied, Lessor shall give to Lessee a notice advising
Lessee of the availability of the Signage Rights and of the rental price and
other terms and conditions, as reasonably determined by Lessor, for the grant of
the Signage Rights to Lessee (the "Signage Availability Notice). Within ten (10)
business days of the Signage Availability Notice, Lessee shall notify Lessor in
writing (the "Signage Rights Exercise Notice") that it has elected to exercise
the Signage Right of First Offer and to obtain the Signage Rights at the rental
price and on the other terms set forth in the Signage Availability Notice. If
Lessor does not receive the Signage Rights Exercise Notice in the ten (10)
business day time period set forth above, Lessee shall be deemed to have elected
not to exercise the Signage Right of First Offer and Lessee shall have no
further rights or interest with respect to the Signage Rights. At Lessor's
option, Lessee and Lessor shall enter into a written agreement memorializing
Lessee's rental of the Signage Rights.
<PAGE>
12. Parking. During the Expansion Premises Term, Lessee shall have
-------
the use of fifteen (15) additional unreserved parking spaces, at the prevailing
monthly rate in effect from time to time.
13. Storage Space. In addition to the Storage Space rented to
-------------
Lessee under the Lease, during the Expansion Premises Term, Lessee shall have
the right to rent storage space from Lessor, to the extent available as
determined by Lessor in its sole and absolute discretion, at the cost of sixty
cents ($.60) per rentable square foot, subject to a five percent (5%) annual
increase.
14. Lessor's Address for Notices. From and after the date hereof,
----------------------------
Lessor's address for notices under the Lease and this Second Amendment shall be
the following:
General Electric Credit Equities, Inc.
c/o R&B Commercial Real Estate Services, Inc.
9841 Airport Boulevard, Suite 1510
Los Angeles, California 90045
Attn: General Manager
with a copy to: General Electric Credit Equities, Inc.
18300 Von Karman Avenue, Suite 700
Irvine, California 92612
Attn: Real Estate Portfolio Manager
15. Attorney's Fees. In the event either party commences an action
---------------
to enforce any provision of this Second Amendment, the prevailing party in such
action shall be entitled to receive from the other party, in addition to
damages, equitable or other relief, and all costs and expenses incurred,
including reasonable attorneys fees and court costs and the fees and costs of
expert witnesses, and fees incurred to enforce any judgment obtained.
16. Severability. The provision with respect to attorneys fees
------------
incurred to enforce a judgment shall be severable from all other provisions of
this Second Amendment, shall survive any judgment, and shall not be deemed
merged into the judgment.
17. Capitalized Terms. All terms capitalized but not defined in
-----------------
this Second Amendment shall have the meanings given them in the Lease.
18. Authority. Lessee has full power and authority to enter into
---------
this Second Amendment and the person signing on behalf of Lessee has been fully
authorized to do so by all necessary corporate or partnership action on the part
of Lessee.
19. Lease in Full Force. Except as modified by this Second
-------------------
Amendment, the terms, covenants and conditions of the Lease shall remain
unaffected and in full force and effect. In addition, except to the extent
inconsistent with the terms of this Second Amendment, all references to the term
"Premises" in the Lease shall also include the Expansion Premises.
20. Brokers. Lessee represents that it has not dealt with any
-------
broker with respect to this Second Amendment. If Lessee has dealt with any
broker or person, Lessee shall be solely responsible for the payment of any fees
due said person or firm and Lessee shall protect, indemnify, hold harmless and
defend Lessor from any liability in respect thereto.
21. Facsimile. Each party hereto, and their respective successors
---------
and assigns shall be authorized to rely upon the signatures of all of the
parties hereto on this Second Amendment which are delivered by facsimile as
constituting a duly authorized, irrevocable,
<PAGE>
actual, current delivery of this Second Amendment with original ink signatures
of each person and entity; provided, however, that each party hereto that
delivers such facsimile signatures to another party hereto, covenants and agrees
that it shall deliver an executed original of the same to the party(s) so
receiving the previous facsimile signatures within ten (10) days after the
delivery of such facsimile signatures.
22. Estoppel. Lessee warrants, represents and certifies to Lessor
--------
that as of the date of this Second Amendment: (a) Lessor is not in default under
the Lease, and (b) Lessee does not have any defenses or offsets to payment of
rent and performance of its obligations under the Lease, as and when the same
becomes due.
23. Counterparts. This Second Amendment may be executed in
------------
counterparts, each of which will be deemed an original part and all of which
together will constitute a single agreement.
IN WITNESS WHEREOF, the parties have executed this Second Amendment as
of the date first written above.
<TABLE>
<CAPTION>
<S> <C>
LESSOR: LESSEE:
GENERAL ELECTRIC CREDIT EQUITIES, CHEAP TICKETS, INC.,
INC., a Delaware corporation a Hawaii corporation
By: /s/ J. Michael Malloy By: /s/ Paul L.H. Ouyang
-------------------------------- ------------------------------------
J. Michael Malloy Name: Paul L.H. Ouyang
Senior Portfolio Manager -----------------------------
Position: Chief Financial Officer
-------------------------
</TABLE>
<PAGE>
EXHIBIT A
[TO BE ATTACHED]
<PAGE>
EXHIBIT B
WORK LETTER AGREEMENT
[Lessor Performs Work]
[Allowance]
This Work Letter Agreement ("Work Letter") is executed simultaneously
with that certain Second Amendment to Lease (the "Second Amendment") between
Cheap Tickets, Inc., a Hawaii corporation, as "Lessee", and General Electric
Credit Equities, Inc., a Delaware corporation, as "Lessor", relating to certain
premises (the "Expansion Premises") located at 6151 West Century Boulevard, Los
Angeles, California (the "Building"); the Expansion Premises are more fully
identified in the Second Amendment. Capitalized terms used herein, unless
otherwise defined in this Work Letter, shall have the respective meanings
ascribed to them in the Second Amendment.
For and in consideration of the agreement to lease the Expansion
Premises and the mutual covenants contained herein and in the Second Amendment,
Lessor and Lessee hereby agree as follows:
1. Lessee's Initial Plans; the Work. Lessee desires Lessor to perform
--------------------------------
certain leasehold improvement work in the Expansion Premises in substantial
accordance with a plan or plans to be mutually agreed upon by Lessor and Lessee
(collectively, the "Initial Plan"). Such work, as shown in the Initial Plan and
as more fully detailed in the Working Drawings (as defined and described in
Paragraph 2 below), shall be hereinafter referred to as the "Work". As soon as
reasonably practicable, Lessee shall furnish to Lessor such additional plans,
drawings, specifications and finish details as Lessor may reasonably request to
enable Lessor's architects and engineers to prepare mechanical, electrical and
plumbing plans and to prepare the Working Drawings, including a final telephone
layout and special electrical connection requirements, if any. All plans,
drawings, specifications and other details describing the Work which have been
or are hereafter furnished by or on behalf of Lessee shall be subject to
Lessor's approval, which Lessor agrees shall not be unreasonably withheld.
Lessor shall not be deemed to have acted unreasonably if it withholds its
approval of any plans, specifications, drawings or other details or of any
Additional Work (as defined in Paragraph 8 below) because, in Lessor's
reasonable opinion, the work, as described in any such item, or the Additional
Work, as the case may be: (a) is likely to adversely affect Building systems,
the structure of the Building or the safety of the Building and/or its
occupants; (b) might impair Lessor's ability to furnish services to Lessee or
other lessees in the Building; (c) would increase the cost of operating the
Building; (d) would violate any governmental laws, rules or ordinances (or
interpretations thereof); (e) contains or uses hazardous or toxic materials or
substances; (f) would adversely affect the appearance of the Building; (g) might
adversely affect another lessee's premises; (h) is prohibited by any ground
lease affecting the Building or any mortgage, trust deed or other instrument
encumbering the Building; or (i) is likely to be substantially delayed because
of unavailability or shortage of labor or materials necessary to perform such
work or the difficulties or unusual nature of such work. The foregoing reasons,
however, shall not be the only reasons for which Lessor may withhold its
approval, whether or not such other reasons are similar or dissimilar to the
foregoing. Neither the approval by Lessor of the Work or the Initial Plan or any
other plans, drawings, specifications or other items associated with the Work
nor Lessor's performance, supervision or monitoring of the Work shall constitute
any warranty by Lessor to Lessee of the adequacy of the design for Lessee's
intended use of the Expansion Premises.
2. Working Drawings. If necessary for the performance of the Work and
----------------
not included as part of the Initial Plan attached hereto, Lessor shall prepare
or cause to be
<PAGE>
prepared final working drawings and specifications for the Work (the "Working
Drawings") based on and consistent with the Initial Plan and the other plans,
drawings, specifications, finish details and other information furnished by
Lessee to Lessor and approved by Lessor pursuant to Paragraph 1 above. So long
as the Working Drawings are consistent with the Initial Plan, Lessee shall
approve the Working Drawings within three (3) days after receipt of same from
Lessor by initialing and returning to Lessor each sheet of the Working Drawings
or by executing Lessor's approval form then in use, whichever method of approval
Lessor may designate.
3. Performance of the Work; Allowance. Except as hereinafter provided
----------------------------------
to the contrary, Lessor shall cause the performance of the Work using (except as
may be stated or shown otherwise in the Working Drawings) building standard
materials, quantities and procedures then in use by Lessor ("Building
Standards"). Lessor shall pay for a portion of the "Cost of the Work" (as
defined below) in an amount not to exceed $46,657.78 (such amount being $10.00
per usable square foot of the Expansion Premises which is to be improved, as
described in the Working Drawings) (the "Allowance"). Lessee shall not be
entitled to any credit, abatement or payment from Lessor in the event that the
amount of the Allowance specified above exceeds the Cost of the Work. For
purposes of this Agreement, the term "Cost of the Work" shall mean and include
any and all costs and expenses of the Work, including, without limitation, the
cost of the Initial Plan and the Working Drawings and all other fees of Lessor's
architect and engineers, all plan check, permit and license fees, the cost of
any changes in the base building or the floor(s) of the Building on which the
Expansion Premises are located, when such charges are required by the Working
Drawings or to comply with applicable governmental regulations or building codes
(collectively, the "Code"), the cost of any changes to the Working Drawings or
the Work required by Code, sales and use taxes and Title 24 fees, an
administrative fee to Lessor for the supervision by Lessor of the general
contractor (which fee shall equal 5% of the total amount paid to such general
contractor), and of all labor (including overtime) and materials constituting
the Work. Notwithstanding the foregoing, the cost of (i) the initial space study
obtained by Lessor prior to the date hereof and (ii) the first revision of that
space study, completed prior to the date hereof, shall be paid by Landlord and
shall not be deducted from or considered a part of the Allowance; the foregoing
costs specified as items (i) and (ii) represent all costs incurred by Lessor
prior to February 25, 1997 in connection with this Second Amendment.
4. Repayment of Excess Funds Expended by Lessor. At Lessee's request,
--------------------------------------------
Lessor shall expend an additional amount up to $46,657.78 (such amount being an
additional $10.00 per usable square foot of the Expansion Premises which is to
be improved, as described in the Working Drawings) over and above the Allowance
for additional work to the Expansion Premises (the "Excess Amount"). Lessee
shall reimburse Lessor for the Excess Amount as follows: concurrently with its
payments to Lessor of monthly Basic Rental, Lessee shall pay to Lessor an amount
equal to the Monthly Amortized Excess Amount (defined below). The term "Monthly
Amortized Excess Amount" shall mean the Excess Amount, amortized over the period
from the Expansion Premises Commencement Date through April 30, 1999 on a
monthly, straight line basis, with interest accruing on the unamortized Excess
Amount at ten percent (10%) per annum. If the Lease, as amended by this Second
Amendment, is canceled or terminated for any reason prior to April 30, 1999, the
unamortized Excess Amount shall become immediately due and payable to Lessor.
Lessee shall pay for the entire Cost of the Work in excess of the Allowance and
the Excess Amount, without contribution of any nature from Lessor.
5. Payment. Prior to commencing the Work or as soon as reasonably
-------
practicable thereafter, Lessor shall submit to Lessee a written statement of the
total Cost of the Work (which shall include the amount of any overtime projected
as necessary to substantially complete the Work by May 1, 1997 or as soon
thereafter as reasonably practicable), as then known by Lessor, and such
statement shall indicate the amount, if any, by which the total Cost of the Work
exceeds the Allowance and the Excess Amount (the "Excess Costs"). Lessee agrees,
within ten (10) days after submission to it of such statement, to execute and
deliver to Lessor, in
<PAGE>
the form then in use by Lessor, an authorization to proceed with the Work, and
Lessee shall also then pay to Lessor an amount equal to the Excess Costs. To the
extent the total Cost of the Work exceeds the Allowance, Lessee's delivery of
the authorization to proceed with the Work shall be deemed a request by Lessee
for Lessor to expend the Excess Amount, in accordance with Paragraph 4 above. At
Lessor's option, no Work shall be commenced until Lessee has fully complied with
the preceding provisions of this Paragraph 5. In the event, and each time, that
any change order by Lessee, unknown field condition, delay caused by acts beyond
Lessor's control or other event or circumstance causes the Cost of the Work to
be increased after the time that Lessor delivers to Lessee the aforesaid initial
statement of the Cost of the Work, Lessor shall deliver to Lessee a revised
statement of the total Cost of the Work, indicating the revised calculation of
the Excess Costs, if any. Within ten (10) days after submission to Lessee of any
such revised statement, Lessee shall pay to Lessor an amount equal to the Excess
Costs, as shown in such revised statement, less the amounts previously paid by
Lessee to Lessor on account of the Excess Costs, and Lessor shall not be
required to proceed further with the Work until Lessee has paid such amount.
Delays in the performance of the Work resulting from the failure of Lessee to
comply with the provisions of this Paragraph 5 shall be deemed to be delays
caused by Lessee. Notwithstanding the ten (10) day period provided in this
Paragraph 5 for Lessee to execute and deliver authorizations to proceed with the
Work or to pay the Excess Costs, as applicable, any delays in the performance of
the Work resulting from the failure of Lessee to comply with its obligation to
execute and deliver authorizations to proceed with the Work or to pay the Excess
Costs, as applicable, within three (3) days after Lessor submits to Lessee the
applicable statement, shall be deemed to be delays caused by Lessee.
6. Substantial Completion. Lessor shall endeavor to cause the Work to
----------------------
be "substantially completed" on or before May 1, 1997, subject to delays caused
by strikes, lockouts, boycotts or other labor problems, casualties,
discontinuance of any utility or other service required for performance of the
Work, unavailability or shortages of materials or other problems in obtaining
materials necessary for performance of the Work or any other matter beyond the
control of Lessor (or beyond the control of Lessor's contractors or
subcontractors performing the Work) and also subject to "Lessee Delays" (as
defined and described in Paragraph 7 of this Work Letter). The Work shall be
deemed to be "substantially completed" for all purposes under this Work Letter
and the Second Amendment if and when Lessor's architect issues a written
certificate to Lessor and Lessee, certifying that the Work has been
substantially completed (i.e., completed except for "punchlist" items listed in
such architect's certificate) in substantial compliance with the Working
Drawings, or when Lessee first takes occupancy of the Expansion Premises,
whichever first occurs. If the Work is not deemed to be substantially completed
on or before May 1, 1997, (a) Lessor agrees to use reasonable efforts to
complete the Work as soon as practicable thereafter, (b) the Second Amendment
shall remain in full force and effect, and (c) Lessor shall not be deemed to be
in breach or default of the Second Amendment or this Work Letter as a result
thereof and Lessor shall have no liability to Lessee as a result of any delay in
occupancy (whether for damages, abatement of Rent or otherwise). In the event
the substantial completion of the Work is delayed as a result of any Lessee
Delay, the substantial completion of the Work shall be deemed to be the date
that the Work would have been substantially complete, but for the Lessee Delay.
Lessor agrees to use reasonable diligence to complete all punchlist work listed
in the aforesaid architect's certificate promptly after substantial completion.
7. Lessee Delays. The term "Lessee Delays" shall include the
-------------
following:
(i) the failure of Lessee to furnish all or any plans, drawings,
specifications, finish details or the other information required under Paragraph
1 above on or before the date stated in Paragraph 1;
<PAGE>
(ii) the failure of Lessee to grant approval of the Working
Drawings within the time required under Paragraph 2 above;
(iii) the failure of Lessee to comply with the requirements of
Paragraph 5 above;
(iv) Lessee's requirements for special work or materials,
finishes, or installations other than the Building Standards or Lessee's
requirements for special construction staging or phasing;
(v) the performance of any Additional Work (as defined in
Paragraph 8 below) requested by Lessee or the performance of any work in the
Expansion Premises by any person, firm or corporation employed by or on behalf
of Lessee, or any failure to complete or delay in completion of such work; or
(vi) any other act or omission of Lessee.
8. Additional Work. Upon Lessee's request and submission by Lessee
---------------
(at Lessee's sole cost and expense) of the necessary information and/or plans
and specifications for work other than the Work described in the Working
Drawings ("Additional Work") and the approval by Lessor of such Additional Work,
which approval Lessor agrees shall not be unreasonably withheld, Lessor shall
perform such Additional Work, at Lessee's sole cost and expense, subject,
however, to the following provisions of this Paragraph 8. Prior to commencing
any Additional Work requested by Lessee, Lessor shall submit to Lessee a written
statement of the cost of such Additional Work, which cost shall include a fee
payable to Lessor in the amount of 10% of the total cost of such Additional Work
as compensation to Lessor for monitoring the Additional Work and for
administration, overhead and field supervision associated with the Additional
Work and an additional charge payable to Lessor in the amount of 5 % of the
total Cost of the Work as compensation for Lessor's general conditions (such fee
and additional charge being hereinafter referred to collectively as "Lessor's
Additional Compensation"), and, concurrently with such statement of cost, Lessor
shall also submit to Lessee a proposed tenant extra order (the "TEO") for the
Additional Work in the standard form then in use by Lessor. Lessee shall execute
and deliver to Lessor such TEO and shall pay to Lessor the entire cost of the
Additional Work, including Lessor's Additional Compensation (as reflected in
Lessor's statement of such cost), within five (5) days after Lessor's submission
of such statement and TEO to Lessee. If Lessee fails to execute or deliver such
TEO or pay the entire cost of such Additional Work within such 5-day period,
then Lessor shall not be obligated to do any of the Additional Work and may
proceed to do only the Work, as specified in the Working Drawings.
9. Lessee Access. Lessor, in Lessor's reasonable discretion and upon
-------------
request by Lessee, may grant to Lessee a license to have access to the Expansion
Premises prior to the date designated in the Second Amendment for the
commencement of the term of the Second Amendment to allow Lessee to do other
work required by Lessee to make the Expansion Premises ready for Lessee's use
and occupancy (the "Lessee's Pre-Occupancy Work"). It shall be a condition to
the grant by Lessor and continued effectiveness of such license that:
(a) Lessee shall give to Lessor a written request to have such
access to the Expansion Premises not less than five (5) days prior to the date
on which such access will commence, which written request shall contain or shall
be accompanied by each of the following items, all in form and substance
reasonably acceptable to Lessor: (i) a detailed description of and schedule for
Lessee's Pre-Occupancy Work; (ii) the names and addresses of all contractors,
subcontractors and material suppliers and all other representatives of Lessee
who or which will be entering the Expansion Premises on behalf of Lessee to
perform Lessee's Pre-Occupancy Work or will be supplying materials for such
work, and the approximate number of individuals,
<PAGE>
itemized by trade, who will be present in the Expansion Premises; (iii) copies
of all contracts, subcontracts and material purchase orders pertaining to
Lessee's Pre-Occupancy Work; (iv) copies of all plans and specifications
pertaining to Lessee's Pre-Occupancy Work; (v) copies of all licenses and
permits required in connection with the performance of Lessee's Pre-Occupancy
Work; (vi) certificates of insurance (in amounts satisfactory to Lessor and with
the parties identified in, or required by, the Second Amendment named as
additional insureds) and instruments of indemnification against all claims,
costs, expenses, damages and liabilities which may arise in connection with
Lessee's Pre-Occupancy Work; and (vii) assurances of the ability of Lessee to
pay for aU of Lessee's Pre-Occupancy Work and/or a letter of credit or other
security deemed appropriate by Lessor securing Lessee's lien-free completion of
Lessee's Pre-Occupancy Work.
(b) Such pre-term access by Lessee and its representatives shall
be subject to scheduling by Lessor.
(c) Lessee's employees, agents, contractors, workmen, mechanics,
suppliers and invitees shall work in harmony and not interfere with Lessor or
Lessor's agents in performing the Work and any Additional Work in the Expansion
Premises, Lessor's work in other premises and in common areas of the Building,
or the general operation of the Building. If at any time any such person
representing Lessee shall cause or threaten to cause such disharmony or
interference, including labor disharmony, and Lessee fails to immediately
institute and maintain such corrective actions as directed by Lessor, then
Lessor may withdraw such license upon twenty-four (24) hours' prior written
notice to Lessee.
(d) Any such entry into and occupancy of the Expansion Premises
by Lessee or any person or entity working for or on behalf of Lessee shall be
deemed to be subject to all of the terms, covenants, conditions and provisions
of the Second Amendment, excluding only the covenant to pay Rent. Lessor shall
not be liable for any injury, loss or damage which may occur to any of Lessee's
Pre-Occupancy Work made in or about the Expansion Premises or to property placed
therein prior to the commencement of the term of the Second Amendment, the same
being at Lessee's sole risk and liability. Lessee shall be liable to Lessor for
any damage to the Expansion Premises or to any portion of the Work or Additional
Work caused by Lessee or any of Lessee's employees, agents, contractors, workmen
or suppliers. In the event that the performance of Lessee's Pre-Occupancy Work
causes extra costs to Lessor, Lessee shall reimburse Lessor for such extra cost
at Lessor's standard rates then in effect.
10. Second Amendment Provisions. The terms and provisions of the
---------------------------
Second Amendment, insofar as they are applicable to this Work Letter, are hereby
incorporated herein by reference. All amounts payable by Lessee to Lessor
hereunder shall be deemed to be additional Rent under the Second Amendment and,
upon any default in the payment of same, Lessor shall have all of the rights and
remedies provided for in the Second Amendment.
11. No Moving Allowance. Lessee shall bear the complete cost and
-------------------
expense of moving its furnishings and other personal property into the Expansion
Premises. Lessor shall not be required to provide any moving allowance to
Lessee.
12. Miscellaneous.
-------------
(a) This Work Letter shall be governed by the laws of the state
in which the Expansion Premises are located.
(b) This Work Letter may not be amended except by a written
instrument signed by the party or parties to be bound thereby.
<PAGE>
(c) Any person signing this Work Letter on behalf of Lessee
warrants and represents he/she has authority to sign and deliver this Work
Letter and bind Lessee.
(d) Notices under this Work Letter shall be given in the same
manner as under the Second Amendment.
(e) The headings set forth herein are for convenience only.
(f) This Work Letter sets forth the entire agreement of Lessee
and Lessor regarding the Work.
(g) In the event that the final working drawings and
specifications are included as part of the Initial Plan attached hereto, or in
the event Lessor performs the Work without the necessity of preparing working
drawings and specifications, then whenever the term "Working Drawings" is used
in this Agreement, such term shall be deemed to refer to the Initial Plan and
all supplemental plans and specifications approved by Lessor.
13. Exculpation of Lessor. Notwithstanding anything to the contrary
---------------------
contained in this Work Letter, it is expressly understood and agreed by and
between the parties hereto that:
(a) The recourse of Lessee or its successors or assigns against
Lessor with respect to the alleged breach by or on the part of Lessor of any
representation, warranty, covenant, undertaking or agreement contained in this
Work Letter (collectively, "Lessor's Work Letter Undertakings") shall extend
only to Lessor's interest in the real estate of which the Expansion Premises
demised under the Second Amendment are a part (hereinafter, "Lessor's Real
Estate") and not to any other assets of Lessor or its officers, directors or
shareholders; and
(b) Except to the extent of Lessor's interest in Lessor's Real
Estate, no personal liability or personal responsibility of any sort with
respect to any of Lessor's Work Letter Undertakings or any alleged breach
thereof is assumed by, or shall at any time be asserted or enforceable against,
Lessor, or against any of its respective directors, officers, employees, agents,
constituent partners, beneficiaries, trustees or representatives.
IN WITNESS WHEREOF, this Work Letter Agreement is executed as of the
date of the Second Amendment.
<TABLE>
<CAPTION>
<S> <C>
LESSOR: LESSEE:
GENERAL ELECTRIC CREDIT EQUITIES, CHEAP TICKETS, INC.,
INC., a Delaware corporation a Hawaii corporation
By: /s/ J. Michael Malloy By: /s/ Paul L.H. Ouyang
-------------------------------- ----------------------------------
J. Michael Malloy Name: Paul L.H. Ouyang
Senior Portfolio Manager ---------------------------
Position: Chief Financial Officer
-----------------------
</TABLE>
<PAGE>
TENANT'S ESTOPPEL CERTIFICATE
PREMISES: 6151 West Century Boulevard, Suites ll20 and 1200
LANDLORD: GENERAL ELECTRIC CREDIT EQUITIES, INC., SUCCESSOR IN
INTEREST TO AIRPORT CENTER
TENANT: CHEAP TICKETS, INC., A HAWAII CORPORATION
LEASE DATED: January 19, 1994
DATE: September 05, 1997
The undersigned, Tenant, hereby certifies to Landlord that:
1. Tenant has accepted possession of the Premises pursuant to the
Lease. A true and accurate copy of the lease, together with all amendments and
modifications thereof (collectively the "Lease"), is attached hereto as Exhibit
A. The Lease term commenced on July 01, 1994. The termination date of the
Lease term, excluding renewals and extensions, is September 30, 2004. Tenant
does not have any options to extend or renew the term of the Lease, except as
follows (if none, so state): One five (5) year option to renew. Tenant has the
right to cancel the Lease pursuant to Paragraph 48 of the Suite 1200 Lease.
2. Any improvements required by the terms of the Lease to be made by
Landlord have been completed to the satisfaction of Tenant in all respects, and
Landlord has fulfilled all of its duties under the Lease.
3. The Lease has not been assigned, modified, supplemented or amended
in any way, except as set forth on Exhibit A. The Lease constitutes the entire
agreement between the parties and there are no other agreements between Landlord
and Tenant concerning the Premises. Tenant does not have any option or
preferential right to purchase all of any part of the Premises or the Building
of which the Premises are a part or any right, title or interest with respect to
the Premises or such Building other than as tenant under the Lease.
4. The Lease is valid and in full force and effect, and, to the best
of Tenant's knowledge, neither Landlord nor Tenant is in default thereunder.
Tenant has no defense, setoff or counterclaim against Landlord arising out of
the Lease or in any way relating thereto, or arising out of any other
transaction between Tenant and Landlord, and no event has occurred and no
condition exists, which with the giving of notice or the passage of time, or
both, would constitute a default under the Lease.
5. No rent or other sum payable under the Lease has been paid more
than one month in advance.
6. The current monthly base rent payable under thc Lease (Ste.#1120)
is $4,934.06. The monthly base rent increases to $5,249.00 per month on
August 01, 1999 and increases to $5,616.43 per month on August 01, 2001.
7A. The current monthly base rent payable under the Lease (Ste.#1200)
is $8,972.30. The monthly base rent increases to $_________ per month on
_______________ and increases to $_______________ per month on _______________.
<PAGE>
8. The base year for pass throughs of operating expenses and taxes is
1997, with a base amount for operating expenses of $2,181,749 and a base amount
- ----
for taxes of . Tenant's pro rata share under the Lease is 2.3200%.
9. Except for the sublease or subleases attached hereto as Exhibit B,
Tenant is not a party to any sublease with respect to all or any portion of the
Premises, and Tenant has not assigned its interest in the Lease, or any rights
therein, to any person or entity.
10. A security deposit in the amount of $13,906.36 has been deposited
by Tenant with Landlord. No portion of the security deposit has been applied by
Landlord to cure any default by Tenant under the Lease.
11. To the best of Tenant's knowledge, there are no rent, lease or
similar commissions payable with respect to the Lease.
12. Tenant is not entitled to any concession or rebate of rent or
other charges from time to time due and payable under the Lease.
Tenant acknowledges that Landlord is in the process of selling its
interest in 6151 West Century Boulevard, Los Angeles, California (the
"Property"). Tenant agrees that Landlord and thc Purchaser of the Property and
their respective successors and assigns may rely on the foregoing statements and
Tenant certifies that all of the foregoing statements are true and correct.
IN WITNESS WHEREOF, Tenant has executed and delivered this Estoppel
Certificate on the date first above written.
CHEAP TICKETS, INC.,
a Hawaii corporation
By: /s/ Michael J. Hartley
-----------------------
Its: President
----------
<PAGE>
TERMINATION AGREEMENT
---------------------
THIS TERMINATION AGREEMENT ("Agreement") is made and entered into as
of this 19th day of January, 1994, by and among Airport Center Associates
Limited Partnership, a Connecticut limited partnership ("Lessor") and Cheap
Tickets, Inc., a Hawaii corporation ("Lessee").
RECITALS:
--------
A. Pursuant to the terms and provisions of that certain Lease
Agreement dated as of September, 1992, (the "Lease"), Lessor leased to Lessee
certain premises commonly known as Suite No. 830 (the "Premises") in the
building located at 9841 Airport Boulevard, Los Angeles, California (the
"Building").
B. Lessee now desires to surrender to Lessor all of Lessee's right,
title and interest under the Lease, and Lessor desires to accept said surrender,
all on the terms and conditions of this Agreement.
AGREEMENT:
---------
NOW, THEREFORE, in consideration of the mutual covenants and upon the
conditions contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Lessor and Lessee
agree as follows:
1. Condition Precedent to Effectiveness of Agreement. This Agreement
-------------------------------------------------
is expressly conditioned upon and shall have no force or effect until such time
as that certain Lease Agreement (the "New Lease") dated as of January 19, 1994,
is mutually executed and delivered by and between Lessee and Lessor with respect
to Lessee's lease of certain premises commonly known as Suite 1200 (the "New
Premises") in the building located at 6151 W. Century Boulevard, Los Angeles,
California. This Agreement is further conditioned upon Lessee's compliance with
all of its obligations and duties under the Lease up to the Termination Date
(defined below).
2. Surrender of Lease. Effective on the day immediately preceding
------------------
the substantial completion of the Work (as defined in the New Lease) (the
"Termination Date"), Lessee hereby surrenders to Lessor and Lessor hereby
accepts the surrender from Lessee, of all of Lessee's right, title and interest
under the Lease, subject to the rights, duties and limitations set forth in this
Agreement. From and after the Termination Date, except as expressly set forth
herein, Lessor and Lessee shall have no further duties or obligations to one
another under the Lease, except that Lessee shall be entitled to continue to
occupy the Premises, free of rent, during the Early Occupancy Period (as defined
in the New Lease) in order to more easily facilitate Lessee's move into the New
Premises.
3. Release by Lessor. Subject to Lessee's full and timely compliance
-----------------
with all of the terms and conditions of this Agreement, including, without
limitation, the truthfulness and accuracy of Lessee's representations hereunder,
Lessee's timely performance of all of Lessee's obligations under the Lease, and
except for such obligations, rights or claims as may be created by or arise out
of the terms and conditions of this Agreement, effective on the Termination
Date, Lessor, on behalf of itself and its predecessors, successors, affiliates
and assigns, and all other persons, firms and corporations claiming through
Lessor and each of them (collectively, the "Releasing Parties"), do hereby
release Lessee and its predecessors, successors, affiliates and assigns, and
their respective partners, officers, shareholders, agents, contractors,
representatives, employees and attorneys (collectively, the "Lessee Released
Parties"), of and from any and all claims, demands, disputes, damages,
liabilities, obligations, controversies, debts, costs, expenses,
<PAGE>
lawsuits, actions, causes of action and other rights to relief, both legal and
equitable, of every kind and nature, whether now known or unknown, suspected or
unsuspected, past or present, contingent or fixed (collectively, the "Claims"),
which the Releasing Parties, or any of them, now have, had, or at any time
hereafter may have, against the Lessee Released Parties, or any of them, arising
out of or in connection with the payment of rental under the Lease.
4. Release by Lessee. Except for such obligations, rights or claims
-----------------
as may be created by or arise out of the terms and conditions of this Agreement,
effective on the Termination Date, Lessee, on behalf of itself and its
predecessors, successors, affiliates and assigns, and all other persons, firms
and corporations claiming through Lessee, and each of them (collectively, the
"Lessee Releasing Parties"), does hereby release Lessor and its predecessors,
successors, affiliates and assigns, and its respective partners, officers,
shareholders, agents, contractors, representatives, employees and attorneys
(collectively, the "Released Parties"), of and from any and all Claims which the
Lessee Releasing Parties, or any of them, now have, had, or at any time
hereafter may have, against the Released Parties, or any of them, arising out of
or in connection with the Lease, the Premises, or any dealings between the
Released Parties, or any of them, on the one hand, and the Lessee Releasing
Parties, or any of them, on the other hand, with respect to the Lease, the
Premises, or the property of which the Premises are a part.
5. California Civil Code Section 1542. Lessor and Lessee hereby
----------------------------------
expressly waive all rights which they have, or may hereafter claim to have, that
any claim, demand, obligation and/or cause of action has, through ignorance,
oversight or error, been omitted from the terms of this Agreement, and hereby
expressly waive all rights they may have, or claim to have, under the provisions
of California Civil Code Section 1542, or equivalent law of any jurisdiction,
which provides:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THE CREDITOR DOES NOT KNOW
OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT
WITH THE DEBTOR.
6. Representations and Warranties of Lessee. Lessee hereby makes the
----------------------------------------
following representations and warranties to Lessor (all of which representations
and warranties, together with all other representations and warranties made by
Lessee in this Agreement, shall survive the Termination Date):
a. Lessee shall have the full power, authority and legal right to
enter into and to perform and observe the provisions of this Agreement without
the authorization and consent of any other party or entity; this Agreement has
been duly and validly authorized and approved by all necessary corporate action
on the part of Lessee and will not violate the terms and provisions of Lessee's
bylaws or other organizational documents; and this Agreement has been duly and
validly executed and delivered by Lessee and constitutes a valid, binding and
enforceable obligation of Lessee. All authorizations and consents required from
any other person or entity to enable Lessee to enter into this Agreement and
surrender the Lease have been obtained.
b. Lessee has not assigned, sublet, transferred or conveyed, and
agrees not to assign, sublet, transfer or convey, its interest in any claims or
potential claims it may have against Lessor.
c. Neither Lessee nor any of Lessee's agents, representatives,
employees, subtenants or assignees have stored, released, discharged or
otherwise handled or will
<PAGE>
store, release, discharge or otherwise handle any Hazardous Materials (as
defined in the New Lease) upon, about, above or beneath the Premises or any
portion of the Building, except for normal quantities of those Hazardous
Materials customarily used in the conduct of general administrative and
executive office activities (e.g., copier fluids and cleaning supplies), which
were used or will be used in compliance with all applicable Environmental Laws
(as defined in the New Lease).
7. Indemnification. Lessee hereby agrees to indemnify, defend (by
---------------
counsel reasonably satisfactory to Lessor) and hold Lessor harmless from and
against any claims, actions, causes of action, losses, liabilities, damages,
costs and expenses (including, without limitation, attorneys' fees and costs)
suffered or incurred by Lessor as a result of any breach of or inaccuracy in
Lessee's representations and warranties contained in this Agreement.
8. Time of the Essence. Lessor and Lessee hereby acknowledge and
-------------------
agree that time is of the essence.
9. Invalidity of Provisions. If any provision of this Agreement is
------------------------
found to be invalid or unenforceable by any court of competent jurisdiction, the
invalidity or unenforceability of any such provision shall not affect the
validity and enforceability of the remaining provisions hereof.
10. Attorneys' Fees. If either party hereto commences an action
---------------
against the other to enforce any of the terms hereof, or to obtain damages for
any alleged breach of any of the terms hereof, or for a declaration of rights
hereunder, the losing party shall pay to the prevailing party the prevailing
party's reasonable attorneys' fees and costs incurred in connection with the
prosecution of such action, whether or not such action proceeds to trial or
appeal.
11. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the laws of the State of California.
12. Further Assurances. Each of the parties hereto agrees to execute
------------------
and deliver all such further documents and to take all such further actions as
may be reasonably requested by any other party to effectuate fully the terms and
provisions of this Agreement, provided such documents or actions do not
materially limit, reduce or impair the rights of the party upon whom such
request is made.
13. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
14. Facsimile. Each party hereto, and their respective successors
---------
and assigns shall be authorized to rely upon the signatures of all of the
parties hereto on this Agreement which are delivered by facsimile as
constituting a duly authorized, irrevocable, actual, current delivery of this
Agreement with original ink signatures of each person and entity; provided,
however, that each party hereto that delivers such facsimile signatures to
another party hereto, covenants and agrees that it shall deliver an executed
original of the same to the party(s) so receiving the previous facsimile
signatures within five (5) days after the delivery of such facsimile signatures.
15. Binding Agreement. This Agreement shall be binding upon and
-----------------
inure to the benefit of the heirs, successors and assigns of the parties hereto.
16. Transfer of Security Deposit. Lessee hereby acknowledges and
----------------------------
agrees that the entire Security Deposit currently being held by Lessor pursuant
to the terms of the Lease
<PAGE>
($3,959.20) shall, at Lessor's election, continue to be held by Lessor (i) as
security for the performance of Lessee's obligations under the Lease, and/or
(ii) after the Termination Date, as partial security for the faithful
performance and observance by Lessee of all of Lessee's duties, obligations,
covenants and conditions under the New Lease.
IN WITNESS WHEREOF, Lessor and Lessee have entered into this Agreement
as of the date first above written.
<TABLE>
<CAPTION>
<S> <C>
"LESSOR" "LESSEE"
AIRPORT CENTER ASSOCIATES Cheap Tickets, Inc., a Hawaii corporation
LIMITED PARTNERSHIP, a Connecticut
limited partnership By: /s/ Michael J. Hartley
-------------------------------------
By: DRAHCHIR REALTY CORP. Its: General Manager
By: /s/ By:
---------------------------- --------------------------------------
Its Vice President Its:
</TABLE>
<PAGE>
Exhibit 10.8
LEASE
-----
This Lease is made and entered into this 31st day of March, 1998, by and
between Executive Tower of Colorado Springs, LLC ("Landlord"), and Cheap
Tickets, Inc. ("Tenant").
Premises
1.1 Landlord leases to Tenant approximately 12,226 square feet of rentable
(10,540 net usable) floor space at 2864 South Circle Drive, Colorado Springs,
Colorado 80906 (the "Building"), to be known as Suite 700 (the "Premises") as
marked on Exhibit "A" attached hereto and by reference incorporated herein, to
be used as General Office Space and for no other purposes, on the terms and
conditions set forth herein.
Term
2.1 The term of this Lease shall be for Five (5) years and Six (6) months
commencing April 1, 1998, or such other date set forth in Article 8 herein, and
shall end September 30, 2003, unless sooner terminated pursuant to any of the
provisions of this Lease.
Base Rent and Common Area Facilities
3.1 Tenant agrees to pay to Landlord at the principal office of Landlord,
or to such other place or party as may be designated from time to time by
Landlord, as Base Rent for the Premises, without setoff, abatement or deduction,
and without demand, the total sum of $663,255.00 payable as follows:
<TABLE>
<S> <C>
04/01/98 - 09/30/98 $51,960.00 in equal monthly installments of $8,660.00;
10/01/98 - 09/30/99 $110,034.00 in equal monthly installments of $9,169.50;
10/01/99 - 09/30/00 $116,148.00 in equal monthly installments of $9,679.00;
10/01/00 - 09/30/01 $122,256.00 in equal monthly installments of $10,188.00;
10/01/01 - 09/30/02 $128,373.00 in equal monthly installments of $10,697.75;
10/01/02 - 09/30/03 $134,484.00 in equal monthly installments of $11,207.00.
</TABLE>
The first payment shall be due and payable upon full execution of Lease and
shall be applied to the rent due for April 1, 1998, with successive payments due
on the first day of each month thereafter. Years are the successive twelve
month periods following the Commencement Date. The obligation of Tenant for the
payment of Base Rent shall survive the termination of this Lease.
3.2 This Lease is made on a triple net basis, and Base Rent is not
intended to cover property taxes, building insurance and other common operating
expenses allocable to the Premises. The term "Common Area" means all areas and
facilities furnished, maintained, and managed by Landlord in, upon or in
connection with the Demised Premises and designated for the general use, in
common, of Tenant and other occupants of the building, including, but not
limited to, parking areas (including re-striping), streets, sidewalks, roadways,
walks, curbs, loading platforms/areas, the building signs, roofs, elevators,
washrooms, toilets, shelters, storage areas, ramps, landscaped areas, the storm
drainage system and utility lines, and other similar facilities (except for
those items of maintenance and repairs specifically set forth in this Lease
which shall be the sole obligation of Tenant). The areas and facilities
comprising the Common Area may be expanded, contracted, improved or changed by
Landlord from time to time as deemed desirable, and shall at all times be
subject to the exclusive control and management of Landlord, who agrees to
operate and maintain the same pursuant to the terms and provisions of this
Lease. Furthermore, Landlord shall have the right from time to time to make
rules and regulations pertaining to and necessary for the proper operation and
maintenance of the Common Areas.
<PAGE>
3.3 For the purpose of this Article 3, Landlord's operating costs for the
Common Area Maintenance ("CAM") is defined as including all costs and expenses
deemed necessary or appropriate by Landlord incurred in operating and
maintaining the Common Area, including, without limitation, wages and salaries
of all employees engaged in the operation, maintenance or security of the
Building, including taxes, insurance, and benefits related thereto; all supplies
and materials used in operation and maintenance of the Building; cost of all
utilities for the Building, including but not limited to the cost of water,
power, heating, lighting, air conditioning, ventilating, sewer and trash
disposal; cost of all maintenance (except for those items of maintenance and
repairs specifically set forth in the Lease which shall be the sole obligation
of Tenant), Building management and service agreements for the Building and the
equipment therein, including alarm service, janitorial service for the
Building's common areas (however, no janitorial service to the Premises is
provided), window cleaning, security service, elevator maintenance, and ground
maintenance, including but not limited to parking lot maintenance; cost of all
insurance relating the Building, including the cost of causality and liability
insurance applicable to the Building and Landlord's personal property used in
connection therewith; cost of repairs and general maintenance (excluding repairs
and general maintenance paid by proceeds of insurance applicable to the Building
and Landlord's personal property used in connection therewith); cost of repairs
and general maintenance (excluding repairs and general maintenance paid by
proceeds of insurance, by Tenant or by other third parties, and alterations
attributable solely to tenants of the Building); amortized cost of installation
of capital investment items, however not to include any Tenant finish, but does
include the parking lot, common areas, and/or roof, and any items required by
government order; any reasonable management fee for general operation and
management of the Building, which is calculated as a percentage of gross rentals
plus a base fee; and all real estate taxes and assessments and special
assessments imposed upon the Building by any governmental bodies or authorities,
and all charges specifically imposed in lieu of such taxes. The term "taxes" as
used in Article 3.2 shall not include state, local or federal personal and
corporate income taxes measured by the income of Landlord, estate and
inheritance taxes, franchise, succession and transfer taxes; interest on taxes
and penalties resulting from failure to pay real estate taxes; and ad valorem
taxes on Landlord's personal furniture and furnishings, and on Landlord's
leasehold improvements to the extent that same exceed standard building
allowance.
3.4 Tenant shall pay to Landlord monthly, as Additional Rent, its
proportionate share of CAM. Tenant's proportionate share of the CAM shall be an
amount determined by multiplying the total of the Common Area Costs by a
fraction, the numerator of which shall be the number of square feet of rentable
space in the Premises (as established in Article 1.1), and the denominator of
which shall be the total of the gross leasable square feet in the Building. The
first year estimate of CAM expenses shall be $4.30 per square-foot and said CAM
payment shall commence April 1, 1998.
3.5 Landlord shall estimate the cost for operating and maintaining the
Common Areas annually, shall notify Tenant of such estimate, and Tenant shall
pay its proportionate share of such estimate in equal monthly installments
commencing on the first day monthly installments of Base Rent are due following
such notification. Within a reasonable time following the end of each Lease
Year, Landlord shall notify Tenant in writing of the actual CAM for the
preceding year. In the event that Tenant has paid more than its proportionate
share of the CAM during the preceding year, such excess shall be credited by
Landlord against Tenant's obligation to pay its proportionate share of CAM in
the following year. In the event Tenant has paid less than its proportionate
share of the CAM, Tenant shall pay such deficiency to Landlord within ten (10)
days of receipt of the statement for such deficiency. Failure by Landlord to
notify Tenant of the actual CAM for the preceding year within a reasonable time
shall not be deemed a waiver by Landlord of its right to adjust such costs and
collect any deficiency from Tenant.
<PAGE>
Additional Rent
4.1 Tenant shall pay Landlord as Additional Rent those charges in respect
to Common Area Costs and such other sums as are required to be paid by Tenant
under this Lease, herein called "Additional Rent". Any such charges or sums
shall be deemed to be rent and shall be payable in the manner provided and
recoverable as rent, and Landlord shall have all rights specified in this Lease
against Tenant for default in payment thereof as in the case of arrears of rent.
Late Charges
5.1 If Tenant fails to make any installments of Base Rent, Additional Rent
or any other sum due Landlord hereunder within ten (10) days after such amount
is due, then such late payments shall bear a late charge equal to eighteen
percent (18%) of the delinquent payment due. Failure or delay of Landlord in
connection with this paragraph shall not constitute a waiver or renunciation of
its rights therein.
Security for Performance of Lease
6.1 On the date of the execution of this Lease, Tenant shall deposit with
Landlord the sum of $8,500.00 as security for the full and faithful performance
by Tenant of the terms of this Lease. Landlord may use, apply, or retain the
whole or any part of said security to the extent required for the payment of any
rent as to which Tenant is in default, or for any sum which Landlord may expend
or may be required to expend by reason of Tenant's default in respect to any of
the terms of this Lease. Any sums so used or applied by Landlord from said
security deposit shall immediately be repaid by Tenant to Landlord after notice.
Upon termination of this Lease, Landlord shall return to Tenant within 60
(sixty) days the security deposit herein above provided for, less any sums used
or applied upon any default and not reimbursed. In the event of a bona fide
sale subject to this Lease, Landlord shall have the right to transfer the
security deposit to the purchaser, and upon such transfer Landlord shall be
released by Tenant from all liability for the return of such security.
Purchaser shall be required to comply with the terms and conditions of this
Lease.
Improvements and Finish
7.1 Landlord shall provide Tenant with the construction and finish of the
interior of the Premises pursuant to plans and specifications which shall be
mutually approved in writing by Landlord and Tenant and which shall be based
upon a scaled floor plan design and those specifications attached hereto as
Exhibit "C".
Possession
8.1 Tenant may take possession of the Premises upon full execution of the
Lease.
8.2 Possession of the Premises shall be deemed delivered when tendered for
occupancy, and the tenant improvements agreed to between Landlord and Tenant
have been substantially completed. Tenant agrees to take possession upon
substantial completion. If only minor or insubstantial details or construction,
decoration, or mechanical adjustments remain to be completed on the Premises
then the payment of rent under the Lease will commence on the commencement date
set forth in the Lease regardless of any contrary provisions of the Lease. If a
delay in substantial completion shall be due to special work, changes,
alterations, or additions
<PAGE>
to the Premises required by or made by Tenant; or if such delay is due to
Tenant's delay or default in submitting plans, supplying information, approving
plans or specifications, or authorizing changes or otherwise; or if such delay
is caused by any other delay or default of Tenant, the Premises shall be deemed
substantially complete and ready for occupancy on the commencement date.
Acceptance of Premises
9.1 By occupying the Premises, Tenant accepts the same and acknowledges
that the Premises are in the condition called for hereunder, unless Tenant
furnishes Landlord with a notice in writing specifying any defect in the
Premises within ten (10) days after taking possession thereof.
Use
10.1 Tenant will occupy the Premises for General Office Space and for no
other purpose. Tenant will not use or permit in the Premises anything that will
increase the rate of fire insurance thereon or which would prevent Landlord from
obtaining reduced rates for long term insurance policies, or maintain anything
that may be dangerous to life or limb, or in any manner, deface, injure, or
commit waste in, on, or about said Building or any portion thereof, or overload
the floors or permit any objectionable noise or odor to escape or be emitted
from said Premises, or permit anything to be done upon the Premises in any way
tending to create a nuisance or to disturb any other tenants of the Building, or
to injure the reputation of the Building or to use or permit the use of the
Premises for lodging or sleeping purposes, or for any immoral or illegal
purposes. Tenant will comply, at Tenant's own cost and expense, with all
orders, notices, regulations, or requirements of any municipality, state or
other governmental authority respecting the use of the Premises unless such cost
or expense is due to Landlord's failure to construct the building in accordance
with such governmental requirements.
Services
11.1 Landlord shall furnish adequate common area services during normal
business hours as set forth in the rules and regulations attached hereto as
Exhibit "B". The business hours may be changed to other reasonable hours as
solely determined by Landlord, or such shorter periods as may be prescribed by
any applicable policies or regulations adopted by any utility or governmental
agency. Landlord shall not be liable for the stoppage or interruption of any
said services or for the utilities, caused by riots, strikes, labor disputes,
accidents, necessary repairs or any conditions beyond Landlord's control.
Landlord shall be the sole judge as to the amount and kind of services and
utilities to be provided under the provisions hereof, and any additional
services or utilities required by Tenant shall be at Tenant's sole cost and
expense. Tenant agrees not to connect to or alter any utilities or equipment
provided by Landlord without obtaining Landlord's prior written consent.
11.2 If, upon the request of Tenant, Landlord furnishes Tenant with any
additional services not described hereinabove as services normally furnished by
Landlord, Tenant shall pay Landlord for such additional services at the
prevailing wage and material rates in Colorado Springs, Colorado, plus 15% at
the time said services are performed. Charges for such additional services
shall be deemed to be Additional Rent, and may be collected by Landlord as
provided in Article 4 above.
Security
12.1 Landlord shall provide only such security for the Building as Landlord
deems necessary, which shall not include any special measures because of the
presence of Tenant or
<PAGE>
Tenant's business. Landlord shall have no responsibility to prevent and shall
not be liable to Tenant for losses due to theft, burglary or vandalism, or for
damages done by unauthorized persons gaining access to the Premises. In the
event Landlord contracts with an unaffiliated security service to provide
security for the Building, the provisions of this article shall not preclude
Tenant from seeking any claims, damages, or other reimbursement from said
security service caused as a result of a breach of any obligation of said
service to perform its assigned tasks.
Use of Electricity
13.1 Tenant's use of electricity in the Premises shall be for the operation
of the building standard lighting, electrical fixtures, typewriters, personal
computers and other small office machines and lamps and any other equipment
incidental to the Tenant's business and shall not at any time exceed the
capacity of any of the electrical conductors and equipment in or serving the
Premises.
13.2 In order to ensure that such capacity is not exceeded and to avert
possible adverse effect on the Building's electrical service, Tenant shall not,
without Landlord's prior written consent in each instance, connect any
additional fixtures, appliance or equipment (other than normal office electrical
fixtures and copying machinery, lamps, typewriter, and similar small office
machines) to the Building's electrical distribution system or make any
alteration or addition to the electric system of the Premises existing at the
commencement of the term hereof. If Landlord grants such consent, the cost of
all additional risers and other equipment required therefor shall be paid as
Additional Rent by Tenant to Landlord upon demand.
Alterations
14.1 Tenant will make no alterations in or additions to the Premises
without obtaining the prior written consent of Landlord which will not be
unreasonably withheld and will be deemed approved if the request by Tenant is
not objected to in writing by Landlord or its agent within twenty (20) days of
receipt. Landlord may impose such conditions on its consent as Landlord deems
appropriate.
Tenant Repairs
15.1 If any of the elevators or other apparatus or elements of the Building
used for the purpose of climate control or operation of the elevators or if the
water pipes, drainage pipes, electric lighting or the room or outside walls of
the Building or parking facilities of Landlord become damaged or destroyed
through the negligence, carelessness or misuse of Tenant, its agents, employees
or anyone permitted by Tenant to be in the Building, then the cost of the
necessary repairs, replacements or alterations shall be borne by Tenant, who
shall pay the same on demand to Landlord as Additional Rent.
15.2 Tenant shall keep the Premises in as good order, condition and repair
as when they were entered upon, loss by fire (unless caused by the negligence of
Tenant, its agents, employees or invitees) or accident, ordinary wear and tear
excepted. If Tenant fails to keep the Premises in such good order, condition
and repair as required hereunder to the reasonable satisfaction of Landlord, as
soon as reasonably possible after written demand, Landlord may restore the
Premises to such good order and condition and make such repairs without
liability to Landlord and upon completion thereof, Tenant shall pay to Landlord,
as Additional Rent, upon demand, the cost of restoring the Premises to such good
order and condition and of the making of such repairs.
<PAGE>
Landlord Repairs
16.1 Unless otherwise expressly stipulated herein, Landlord shall not be
required to make any improvements to or repairs of any kind or character on the
Premises during the term of this Lease, except such repairs as may be deemed
necessary by Landlord for normal maintenance operations of the Building. The
obligation of Landlord so to maintain and repair the Premises shall be limited
to building standard items. Special leasehold improvements will, at Tenant's
written request, be maintained by Landlord, and Tenant shall pay to Landlord for
such maintenance as Additional Rent hereunder an amount equal to Landlord's
actual costs, plus 15% of said costs to cover Landlord's overhead.
Trade and Other Fixtures
17.1 Any and all installations, alterations, changes, additions,
partitions, fixtures or improvements to the Premises, other than Tenant's trade
fixtures, including, but not limiting the generality of the foregoing, wall
coverings, tile, linoleum, and power wiring shall be the property of the
Landlord upon any termination of this Lease. Notwithstanding anything herein
contained, Landlord shall be under no obligation to repair, maintain, or insure
such installation, changes, alterations, additions, partitions, fixtures, or
improvements made or installed by, or on behalf of Tenant.
Lien Protection
18.1 Tenant agrees that at no time during the term of this Lease will
Tenant permit a lien or encumbrance of any kind or nature to come into existence
against the Premises or the Building. If at any time a lien or encumbrance is
filed against the Premises, Tenant agrees it will deposit with Landlord in cash
an amount equal to one hundred fifty percent (150%) of the amount of the lien
and shall leave the same on deposit with Landlord until said lien is discharged.
Landlord shall have the option, but not the responsibility, to satisfy any such
lien or encumbrance, and if Landlord pays any such lien or encumbrance, Tenant
shall pay to Landlord as Additional Rent, the amount of such payment on the next
following day when monthly installments of rent are due hereunder. If Landlord
satisfies any such lien or encumbrance, it may make such payment without inquiry
into the accuracy of the amount of such lien or encumbrance or the validity of
the lien or encumbrance.
Insurance
19.1 Tenant shall pay all premiums due in connection with the insurance
Tenant is required to carry under the terms of this Lease and shall furnish
Landlord with copies of paid receipts evidencing the payment thereof. All such
policies shall be written with companies satisfactory to Landlord and authorized
to do business in the State of Colorado. Landlord shall not unreasonably
withhold its consent to the placement of insurance with companies proposed by
Tenant, so long as the proposed companies have a rating of at least B XIII in
the "Best's Key Rating Guide".
19.2 During the term of this Lease, Tenant shall keep the Premises insured
for the protection of Landlord with coverage that is normal to Tenant's business
and Landlord's assignees who shall be so named as additional insured in any such
policies, by maintaining bodily injury and property damage insurance including
blanket contractual liability, broad form property damage, personal injury,
completed operations products liability and fire damage legal liability
insurance on a commercial general liability form. Such insurance shall be
written on a combined single limit basis in an amount of not less than One
Million Dollars ($1,000,000.00) and such higher limits as the Landlord may
reasonably require from time to time. Tenant shall maintain, at his sole cost
and expense, any other form or forms of insurance in amounts and for
<PAGE>
such risks as Landlord may reasonably require from time to time including, but
not limited to, insurance for the full replacement cost of Tenant's personal
property and fixtures located on the Premises on an open perils basis insurance
against "all risks of direct physical loss". Worker's Compensation Insurance as
required by statute including employer's liability insurance shall be in the
limits of $100,000/$500,000/$100,000. All policies of insurance required shall
name Landlord and Tenant as insured and provide that the proceeds of such
insurance shall be payable to Landlord and Tenant, as their interests may
appear. Tenant shall deliver to Landlord not more than thirty (30) days after
execution of this Lease and thereafter at least thirty (30) days prior to
expiration of such policy, Certificates of Insurance evidencing the above
coverage which shall expressly provide that at least thirty (30) days prior
written notice shall be given to Landlord in the event of a material alteration
or cancellation of the coverage.
19.3 If Tenant shall at any time fail, neglect, or refuse to provide and
maintain such insurance, Landlord shall have the option, but shall not be
required, to pay for such insurance and any amounts paid therefore by Landlord
shall be deemed Additional Rent due Landlord and shall be paid by Tenant to
Landlord at the next rental payment date after any such payment, with interest
thereon at the rate of eighteen percent (18%) per annum at the time that such
insurance is obtained.
19.4 Tenant agrees to pay any increase in premiums of insurance carried by
Landlord if, in the reasonable determination of Landlord, such increase is
directly related or caused by Tenant's use of the Premises.
Waiver of Subrogation
20.1 The parties shall obtain from their respective property insurance
carriers Waivers of Subrogation against the other party agents, employees, and
as to Tenant invitees. Neither party shall be liable to the other for any loss
or damage caused by fire or any of the risks enumerated in the standard fire
insurance policy with an extended coverage endorsement if such insurance was
obtainable at the time of such loss or damage.
Casualty Damage
21.1 In the event of fire or other casualty, against which Landlord is
insured, and which is not caused by the negligence of Tenant, Base Rent shall
abate in the proportion that the unusable portion of the Premises as reasonably
determined by Landlord is to the total area of the Premises until the Premises
are rebuilt, and upon receipt by Landlord of such insurance proceeds, Landlord
agrees that it will with reasonable diligence repair the Premises, unless this
Lease is terminated as provided, subject to the provisions of this article.
21.2 If the Premises are damaged or destroyed by any cause whatsoever, and
if, in the reasonable opinion of Landlord, the Premises cannot be rebuilt or
made fit for the purposes of Tenant within one hundred twenty (120) days of the
damage or destruction, Landlord, instead of rebuilding or making the Premises
fit for Tenant, may at its option terminate this Lease by giving Tenant within
sixty (60) days after such damage and destruction, notice of termination, and
thereupon rent and any other payments for which Tenant is obligated shall
terminate as of the date of such damage and Tenant shall immediately deliver up
possession of the Premises to Landlord provided, however, that those provisions
of this Lease which are designated to cover matters of termination and
thereafter, shall survive the termination hereof. In the event Landlord elects
to terminate this Lease pursuant to this clause Landlord shall reimburse Tenant,
within 30 days of receipt of the Landlord's insurance proceeds, the unamortized
portion of the Tenant Improvements.
<PAGE>
Eminent Domain
22.1 If the Premises or a substantial part thereof, shall be taken in
eminent domain, or conveyed under threat of condemnation proceedings, then this
Lease shall forthwith terminate and end upon the taking hereof as if the
original term provided in said Lease expired at the time of such taking. If
only such part or portion of the Premises is taken which would not substantially
and materially interfere with or adversely affect the business of the Tenant
conducted at the Premises, then Landlord, at Landlord's option to be exercised
in writing within thirty (30) days after the taking thereof, may repair, rebuild
or restore the Premises, and this Lease shall continue in effect. If, however,
because of such taking, the Premises should be rendered untenantable or
partially untenantable, then the rent, or a portion thereof, shall abate until
the Premises shall have been restored.
22.2 In the event that an award is made for taking of such property and
parcels of the Premises or the Building in condemnation proceedings, Landlord
shall be entitled to receive and retain the amounts awarded or paid for such
taking or conveyance; provided, however, that Tenant shall be entitled to
receive and retain such amounts as are specifically awarded to it in such
proceedings because of the taking of its furniture, or fixtures, and its
leasehold improvements which have not become a part of the realty. It is
understood and agreed that any amounts specifically awarded in any such taking
for the damage to the business of Tenant, done on the Premises and awarded to it
as a result of interference with the access to the Premises or for any other
damage to said business and trade done at the Premises shall be the property of
Tenant, provided said award does not reduce the award to Landlord.
22.3 It is understood and agreed that in the event of the termination of
this Lease as provided under this paragraph, Tenant shall have no claim against
Landlord for other value of any unexpired term of this Lease and no right or
claim to any part of the award made on account thereof.
Indemnification and Waiver of Certain Claims
23.1 Tenant hereby agrees to indemnify and hold harmless Landlord, its
subsidiaries, directors, officers, agents, attorneys and employees from and
against any and all damage, loss, liability, or expense including, but not
limited to, attorney's fees and legal costs suffered by same directly or by
reason of any claim, suit or judgment brought by or in favor of any person or
persons for damage, loss or expense due to, but not limited to, bodily injury,
including death resulting any time therefrom, and property damage sustained by
such person or persons which arises out of, is occasioned by, or is in any way
attributable to the use of occupancy of the Premises and adjacent areas by
Tenant, the acts or omissions of Tenant, its agents, employees or any
contractors brought onto the Premises by Tenant, except that caused by the sole
negligence of Landlord or its employees and agents. Such loss or damage shall
include, but not be limited to, any injury or damage to Landlord's personnel
(including death resulting anytime therefrom) or real or personal property.
Tenant agrees that the obligations assumed herein shall survive this Lease.
23.2 Landlord shall indemnify, protect, defend and hold Tenant harmless
from and against any and all claims, losses, costs (including without limitation
attorneys' fees) or damages and from liability to any person on account of any
damage to person or property to the extent caused by the negligence or willful
misconduct of Landlord, its employees, directors, officers or agents or the
failure of Landlord to perform its obligations under this Lease.
23.3 Landlord shall not be liable for any damage or injury including
business interruption, either proximate or remote, occurring through or caused
by the carelessness, negligence or improper conduct on the part of any Tenant or
anyone other than Landlord, or for any damage to person or property resulting
from any condition of the Premises or other cause including, but not limited to,
damage occasioned by defective electric wiring, breaking or stoppage of plumbing
or sewer, whether said breakage or stoppage resulted from freezing or otherwise,
not resulting from the negligence of Landlord. Tenant shall give Landlord prompt
notice of any defects in the Premises.
<PAGE>
Right of Entry
24.1 Landlord may, upon reasonable prior notice to Tenant, exhibit the
Premises to prospective tenants during the last twelve (12) months of the term,
and to any prospective purchaser, mortgagee, or assignee of any mortgage on the
property and to others having a legitimate interest at any time in the event of
an emergency, and otherwise at reasonable times, to take any and all measures,
including inspections, repairs, alterations, additions and improvements to the
Premises or the Building, as may be necessary or desirable for the safety,
protection, or the preservation of the Premises or the Building of the
Landlord's possessive interest therein, or as may be necessary or desirable in
the operation or improvement of the Building or in order to comply with all
laws, orders, and requirements of governmental or other authority. Tenant,
pursuant to this Article 24, hereby waives any claim for damages for any injury
to, inconvenience to or interference with Tenant's business, occupancy or quiet
enjoyment of the Premises.
Surrender of Premises
25.1 Tenant agrees to deliver, at the expiration of the term hereof, or
earlier termination, the Premises in good repair and in a state of broom
cleanliness, subject to ordinary wear and tear.
Default by Tenant
26.1 The occurrence of any one or more of the following events shall
constitute a breach of the Lease and default by Tenant:
26.1.1 Failure by Tenant to pay when due any payment of rent or any
other sum required to be paid by Tenant hereunder and such failure to pay
continues for a period of ten (10) days from the date that such sum became due
and payable;
26.1.2 Failure of Tenant to perform any one or more of its covenants
and agreements under this Lease within twenty (20) days after written notice to
Tenant specifying the duties or covenants Tenant has failed to perform;
26.1.3 If Tenant or any guarantor of Tenant's obligations under this
Lease shall file a voluntary petition in bankruptcy or shall be adjudicated
bankrupt or insolvent; or shall take the benefit of any relevant legislation
that may be enforced for bankrupt or insolvent debtors; or shall file any
petition or answer seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief for itself under any
present or future federal, state, or other statute, law, or regulation; or if
any proceeding shall be taken by Tenant or any Guarantor hereof under any
relevant bankruptcy act in force in any jurisdiction available to Tenant or any
Guarantor; or if any Guarantor hereof shall seek, consent, or acquiesce in the
appointment of any trustee, receiver or liquidator of Tenant or any Guarantor of
all or any substantial part of his properties or of the Premises, or shall make
any general assignment for the benefit of creditors; or if petition shall be
filed against Tenant or any Guarantor seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future federal, state or other statute, law or regulation and shall
remain undismissed for an aggregate of sixty (60) days; or if any trustee,
receiver, or liquidator of Tenant or any Guarantor hereof or of all or any
substantial part of its properties or of the Premises shall be appointed without
the consent of acquiescence of Tenant or any Guarantor and such appointment
shall remain unvacated for an aggregate of sixty (60) days.
<PAGE>
Remedies of Landlord
27.1 All rights and remedies of Landlord enumerated herein shall be
cumulative, and none shall exclude any other right or remedy allowed by law. In
addition to other remedies in this Lease provided, the Landlord shall be
entitled to the restraint by injunction of the violation or attempted violation
of any of the covenants, agreements, or conditions of this Lease.
27.2 Landlord shall have the right, at its election, in the event of a
default by Tenant and upon giving prior written notice if required in Article 26
herein, to:
27.2.1 Institute suit against Tenant to collect each installment of
rent or other sum as it becomes due or to enforce any obligation under this
Lease;
27.2.2 Re-enter and take possession of the Premises and all personal
property therein and remove Tenant and Tenant's agents and employees therefrom,
and either (i) terminate this Lease and sue Tenant for damages or breach and
default under the Lease; or (ii) without terminating the Lease, relet, assign,
or sublet the Premises and personal property as the agent and for the account of
Tenant in the name of Tenant or otherwise on such terms and conditions and for
such rent as Landlord may deem best, and collect (a) the rent therefrom,
provided Landlord shall, in no way, be responsible or liable for any failure to
collect any rent due upon any such re-letting, and (b) an amount equal to the
then present value of the Base Rent and Additional Rent provided in this Lease
for the remainder of the Lease term, less the present rental value of the
Premises for the remainder of the term. In so acting, Landlord shall not be
deemed to have trespassed in any manner, nor shall Landlord's actions be
construed to be a waiver or relinquishment of any of Landlord's right or
remedies. In this event, the rents received on any such reletting shall be
applied first to the expenses of reletting and collecting including, without
limitation, all repossession costs, attorney's fees, court costs, unamortized
broker's commissions, alteration costs, and expenses of preparing the Premises
for re-letting, and thereafter for payment of the rent and any other amounts
payable to Tenant to Landlord. If the sum realized shall not be sufficient to
pay such rent and other charges, Tenant agrees to pay Landlord within five (5)
days after demand any such deficiency as it accrues. Landlord shall use its
best efforts to mitigate its damages.
27.3 In the event Landlord elects to re-enter or take possession of the
Premises, Tenant agrees to quit and peaceably surrender the Premises to
Landlord, and Landlord may enter upon and re-enter the Premises and possess and
repossess itself thereof, by force, summary proceedings, ejectment or otherwise,
and may dispossess and remove Tenant and may have, hold, and enjoy the Premises
and the right to receive all rental income of and from the same. No such re-
entry and taking possession by Landlord shall be construed as an election on
Landlord's part to terminate or surrender this Lease unless Landlord gives
notice to Tenant specifically terminating the Lease, unless a written notice of
such intention is served on Tenant, notwithstanding the service of Demand for
the Payment of Rent and Possession, and Landlord and Tenant expressly agree that
the service of posting of such demand will not constitute an election on the
part of the Landlord to terminate this Lease.
27.4 If Landlord elects to terminate this Lease in accordance with the
provisions herein, Landlord shall be entitled to recover as damages attorney's
fees and costs, the cost of removing Tenant, all costs of refurbishing and
repairing the Premises for reletting, all sums due Landlord by Tenant.
<PAGE>
Landlord's Right to Cure Tenant's Default
28.1 If Tenant shall default in the performance of any covenant or
provision of this Lease to be performed on Tenant's part, Landlord may, after
fifteen (15) days written notice to Tenant, or without notice if in Landlord's
opinion an emergency exists, perform the same for the account and at the expense
of Tenant. If Landlord shall incur any expense, including reasonable attorneys'
fees, in instituting, prosecuting, or defending any action of Tenant, Tenant
shall reimburse Landlord for the amount of such expense with interest at the
rate of eighteen percent (18%) per annum from the date of Landlord's advance or
advances therefore. Should Tenant, pursuant to this Lease, become obligated to
reimburse or otherwise pay Landlord one or more sums of money pursuant to this
Article 28, the amount thereof shall be paid by Tenant to Landlord within five
(5) days of Landlord's written demand therefore, and if Tenant fails to make
such payment, such failure shall be deemed an event as set forth in Article 26
hereof. The provisions hereof shall neither impose a duty on Landlord nor
excuse any failure on Tenant's part to perform or observe any covenant or
condition in this Lease contained on Tenant's part to be performed or observed.
Assignment and Sublease
29.1 Tenant shall not voluntarily or by operation of law assign, license,
transfer, mortgage or otherwise transfer or encumber all or any part of Tenant's
interest in this Lease or in the Premises and shall not sublet or license all or
any part of the Premises, without the prior written consent of Landlord in each
instance, and any attempted assignment, sale, transfer, mortgage, encumbrance or
subletting without such consent, which shall not be unreasonably withheld, shall
be wholly void. The Tenant's rights, duties and obligations under this Lease
may not be assigned or delegated, nor may the Leased Premises be sublet during
the term of this Lease without the prior written consent of the Landlord to such
assignment, delegation or subletting; provided, however, that such consent shall
not be unreasonably withheld by the Landlord if such assignment, delegation or
subletting shall be to a financially responsible assignee, delegatee or
sublessee with proven business expertise and of a profession substantially
similar to that of existing tenants. If Landlord shall consent to a subletting,
the difference, if any, between the Base Rent and Additional Rent as stated
herein and the rent paid by the person subletting the Premises shall be split
between the Tenant and Landlord with the Landlord receiving one-half, in
advance, monthly during the remaining term or options of the Lease.
Notwithstanding the above, Landlord consents to assignment of the lease to a
corporation or other entity in which Tenant holds at least a fifty-one percent
(51%) ownership interest.
29.2 No subletting or assignment, even with the consent of Landlord, shall
relieve Tenant of its obligation to pay the Base Rent and Additional Rent and to
perform all of the other obligations to be performed by Tenant hereunder. The
acceptance of rent by Landlord from any other person shall not be deemed to be a
waiver by Landlord of any subletting, assignment, or other transfer. Consent to
one assignment, subletting or other transfer shall not be deemed to constitute
consent to any subsequent assignment, subletting or other transfer.
Subordination, Estoppel Letter and Attornment
30.1 This Lease is subject and subordinate to all first mortgages or first
deeds of trust which now or hereafter may affect the Premises or the Building,
and Tenant shall execute and deliver upon demand of Landlord any and all
instruments subordinating this Lease, in the manner requested by Landlord, to
any new or existing mortgage or deed of trust. In the event that Tenant's
interest is subordinated, said mortgagee shall agree that it shall not disturb
Tenant's possession, provided that Tenant is not in default under the terms and
conditions of this Lease. Further, Tenant shall at any time and from time to
time, upon not less than ten (10) days prior written notice from Landlord,
execute, acknowledge, and deliver to Landlord a statement in
<PAGE>
writing certifying that this Lease is unmodified and in full force and effect
(or, if modified, stating the nature of such modification and certifying that
this Lease as so modified, is in full force and effect) and the dates to which
rent and other charges are paid in advance, if any, and acknowledging that there
are not, to the Tenant's knowledge, any uncured defaults on the part of the
Landlord hereunder, or specifying such defaults, if any are claimed, or
acknowledging to any mortgagee that Tenant will not modify or amend this Lease
without consent of such mortgagee, and certifying as to such other matters
Landlord may reasonably request.
30.2 In the event that Landlord or its principal sells, conveys, transfers
or grants the Building or the Premises to any person, firm, corporation,
company, or entity during the term hereby demised, Tenant agrees to attorn to
such new owner and Landlord and its principal shall be released from performance
hereunder.
Quiet Enjoyment
31.1 So long as the Tenant shall observe and perform those covenants and
agreements binding on it hereunder, the Tenant shall, at all times during the
term herein granted, peacefully and quietly have and enjoy possession of the
Premises without any encumbrance or hindrance by, from, or through Landlord.
Holding Over
32.1 Unless otherwise agreed to in writing by Landlord and Tenant, if
Tenant retains possession of the Premises or any part thereof after the
termination of the term, such holding over shall be deemed to be tenancy from
month-to-month at a monthly rental equal to one hundred and twenty percent
(120%) of the monthly installment of base rent due under the terms of the Lease
from the month next preceding the commencement of the holdover period, and
Tenant shall remain liable for all other payments provided for hereunder, and
such holding over shall be subject to all of the other terms and conditions of
the Lease. In addition to rent, Tenant agrees to pay the Landlord for all
damages, consequential as well as direct, sustained by Landlord resulting or
arising from Tenant's possession. No such holding over shall be deemed to
constitute a renewal or extension of the term of the Lease.
Notices
33.1 Any notice required or permitted hereunder or which any party elects
to give shall be in writing and delivered either personally to the other party
or the other party's authorized agent set forth below (or as changed by written
notice), or by depositing such notice in the United States Certified Mail,
Return Receipt Requested, postage fully prepaid, to the person at the address
set forth below, or to such other address as either party may later designate in
writing:
Landlord: Executive Tower of Colorado Springs, LLC
c/o The Equity Group
90 South Cascade Avenue, Suite 1500
Colorado Springs, CO 80903
Tenant: Cheap Tickets, Inc.
1440 Kapiolani Boulevard, Suite 800
Honolulu, Hawaii 96814
<PAGE>
Definition of Landlord
34.1 The term "Landlord" as used in this Lease, so far as covenants or
agreements on the part of the Landlord are concerned, shall be limited to mean
and include only the owner or owners of the Landlord's interest in this Lease at
the time in question, and in the event of any transfer or transfers of such
interest, the Landlord herein named (and in case of any subsequent transfer,
then transferor) shall be automatically freed and relieved from and after the
date of such transfer of all liability as respects the performance of any
convenants or agreements on the part of the Landlord contained in this Lease
thereafter to be performed and provided Landlord is not in default hereunder,
and provided transferee assumes in writing Landlord's obligations under this
Lease.
Waiver
35.1 No waiver or any breach of any one of the agreements, terms,
conditions, or convenants of this Lease by Landlord or Tenant shall be deemed to
imply or constitute a waiver of any other agreement, term, condition, or
covenant of this Lease. The failure of either party to insist on strict
performance of any agreement, term, condition, or covenant, herein set forth,
shall not constitute or be construed as a waiver of the rights of either or of
the other thereafter to enforce any other default of such agreement, term,
condition, or covenant; neither shall such failure to insist upon strict
performance be deemed sufficient grounds to enable either party hereto to forego
or subvert or otherwise disregard any other agreement, term, condition, or
covenant of the Lease.
Successor
36.1 All of the agreements, terms, conditions, and covenants set forth in
this Lease shall inure to the benefit of and be binding upon the heirs, legal
representatives, successors, executors, and assigns of the parties, except that
no assignment or subletting by Tenant in violation of the provisions of this
Lease shall vest any rights in the assignee or in the sublessee.
Corporate Resolution
37.1 If a corporation executes this Lease as a Tenant, Tenant shall
promptly provide Landlord with certified corporate resolutions attesting to the
authority of the of ficers to execute this Lease on behalf of such corporation.
Enforcement of Lease - Attorney's Fees
38.1 In the event that either Landlord or Tenant commences any action for
the enforcement of or arising out of a breach of the terms or this Lease, then
the party who is awarded judgment in such action shall be awarded, in addition
to any other award made thereof, an amount to be fixed by the Court for court
costs and reasonable attorney's fees.
Invalidity of Particular Provisions
39.1 If any clause or provision of this Lease is or becomes illegal,
invalid, or unenforceable because of present or future laws or any rule,
decision, or regulation of any governmental body or entity, the intention of the
parties hereto is that the remaining parts or provisions of this Lease shall not
be affected thereby.
<PAGE>
Article Headings
40.1 The article headings throughout this Lease are for convenience and
reference only, and the words contained therein shall in no way be held to
explain, modify, amplify or aid in the interpretation, construction, or meanings
of the provisions of this Lease.
Governing Law
41.1 This Lease shall be deemed to have been made and shall be construed in
accordance with the laws of the State of Colorado.
Time
42.1 Time is of the essence hereof, and each party shall perform its
obligations and conditions hereunder within the time hereby required.
Recording of Lease
43.1 This Lease shall not be recorded by either Landlord or Tenant without
prior written consent of the other.
First Right of Refusal
44.1 Tenant shall have the first right of refusal to expand into any space
on the eighth floor of the Building which becomes available during the term of
this Lease.
44.2 Tenant shall have use of the eighth floor computer room at no charge
for as long as Western Pacific Airlines leases said space. Upon Western Pacific
Airlines' vacating the eighth floor, Landlord and Tenant shall execute an
addendum to this Lease whereby Tenant shall pay Landlord for all areas used
directly or indirectly on said eighth floor at a rental rate equivalent to the
rate per square foot Tenant is paying for lease of the seventh floor. Landlord
at Landlord's expense shall make the computer room accessible from the common
area.
Early Termination
45.1 Tenant shall have a one time option to terminate the Lease after six
(6) months. Within the first six (6) months of the lease Tenant shall give
Landlord at least thirty (30) days written notice of Tenant's intent to
terminate this Lease as provided for herein and Tenant shall deliver up
possession of the Premises to Landlord in accordance with such notice of
termination. In event Tenant fails to provide Landlord with said written notice
within the first six months of the Lease, this early termination option shall no
longer apply and Tenant shall be obligated for the remaining term of the Lease.
Training Space
46.1 Landlord shall provide, subject to availability, Tenant with adequate
training space within the Building at a rental rate equivalent to Tenant's
existing rental rate on the Demised Premises. All furniture, fixtures and
equipment incidental to and required in said training space shall be provided by
Tenant.
Exculpation
47.1 Notwithstanding anything to the contrary contained herein, Landlord's
liability under this Lease shall be limited strictly to its interest in the
Building.
<PAGE>
Rules and Regulations
48.1 Tenant agrees that Tenant, Tenant's employees and agents or any others
permitted by Tenant to occupy or enter the Premises shall abide by the rules and
regulations attached hereto as Exhibit "B" and made a part hereof. Landlord
shall have the right to amend, modify, or change in any way the rules and
regulations provided that said amendments are not inconsistent with the terms of
this Lease, and Tenant agrees to comply with all such rules and regulations upon
notice from Landlord thereof. A breach of any of such rules or regulations
shall be deemed a default under the Lease and Landlord shall have all remedies
as set forth in Article 27.
Parking
49.1 Tenant and its employees and invitees shall have the non-exclusive
privilege to use non-reserved parking spaces in common with other tenants of
Landlord. Tenant agrees not to overburden the parking facilities and agrees to
cooperate with Landlord and other tenants in the use of parking facilities.
Landlord reserves the right in its discretion to determine whether parking
facilities are becoming crowded and, in such event, to allocate specific parking
spaces among Tenant and other tenants of the Building and to take any other
steps necessary to correct such condition.
Signs
50.1 Tenant shall not install any signs, window lettering or other
advertisement in, upon or around the Premises without the prior written approval
of Landlord which shall not be unreasonably withheld. Landlord shall have
absolute discretion in approving or disapproving any proposed sign.
50.2 Landlord shall provide and install, at Tenant's cost, all letters or
numerals on doors in the Premises; all such letters and numerals shall be in the
Building's standard graphics, and no other shall be used or permitted on the
Premises without Landlord's express written approval.
50.3 Tenant at Tenant's expense shall be listed on the building lobby
directory. Tenant shall also be permitted to install, at Tenant's expense, a
building standard sign outside Tenant's entry door.
50.4 No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed, printed or affixed on or to any part of the outside or
inside of the Building without the written consent of Landlord first had and
obtained and Landlord shall have the right to remove any such sign, placard,
picture, advertisement, name or notice without notice to and at the expense of
Tenant. Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly from
outside the Premises; provided, however, that Landlord may furnish and install a
Building standard window covering at all exterior windows. Tenant shall not
without prior written consent of Landlord cover or otherwise sunscreen any
window. Said consents shall not be unreasonably withheld.
50.5 All signage shall be subject to City sign ordinances.
Brokers
51.1 Tenant represents and warrants that it has only dealt with Equity
Realty & Investment Company, Inc. as broker/agent in connection with this
transaction and that no broker, agent or other person brought this transaction
other than Equity Realty & Investment Company,
<PAGE>
Inc. and Tenant agrees to indemnify and hold Landlord harmless from and against
any claims by any broker, agent, or other person claiming a commission or other
form of compensation by virtue of having dealt with Tenant with regard to this
Leasing transaction. Equity Realty & Investment Company, Inc. represents the
Landlord in this transaction. The provisions of this Article shall survive the
termination of the Lease.
Entire Agreement
52.1 This Lease constitutes the entire agreement of the parties hereto. No
representations, promises, terms, conditions, obligations or warranties
whatsoever referring to the subject matters hereof, other than those expressly
set forth herein, shall be of any binding legal force or effect whatsoever. No
modification, change, or alteration of this Lease shall have legal force or
effect whatsoever unless in writing, signed by all parties hereto.
Attachments
Exhibit A - Floor Plan
Exhibit B - Rules and Regulations
Exhibit C - Tenant Finish Specifications
IN WITNESS WHEREOF, the Parties hereto execute this Lease the day and year
first above written.
LANDLORD: Executive Tower of Colorado Springs, LLC
By: /s/ Danny Mientka
-----------------------------------------------
Danny Mientka
Agent for Landlord
TENANT: Cheap Tickets, Inc.
By: /s/ Michael J. Hartley
-----------------------------------------------
Michael J. Hartley
Title: President & Chief Operating Officer
-------------------------------------------
<PAGE>
EXHIBIT "A"
FLOOR PLAN
Lease Dated March 31st, 1998
LANDLORD: Executive Tower of Colorado Springs, LLC
TENANT: Cheap Tickets, Inc.
LANDLORD'S ADDRESS: c/o The Equity Group
90 South Cascade Avenue, Suite 1500
Colorado Springs, CO 80903
TENANT'S ADDRESS: 2864 South Circle Drive, Suite 700
Colorado Springs, CO 80906
[Diagram Description: The floor plan of the 7th floor of Executive Tower at
2864 South Circle Drive, Colorado Springs, Colorado]
<PAGE>
EXHIBIT "B"
RULES AND REGULATIONS
Lease Dated March 31st, 1998
LANDLORD: Executive Tower of Colorado Springs, LLC
TENANT: Cheap Tickets, Inc.
The rules and regulations set forth in this Exhibit shall be and hereby are
made a part of the Lease to which they are attached. Whenever the term "Tenant"
is used in these rules and regulations, it shall be deemed to include Tenant,
its employees or agents, and any other persons permitted by Tenant to occupy or
enter the Building. The following rules and regulations may from time to time
be modified by Landlord in the manner set forth in Article 46 of the Lease.
1. OBSTRUCTION. The sidewalks, entries, passages, corridors, halls, lobbies,
stairways, elevators and other common facilities of the Building shall be
controlled by Landlord and shall not be obstructed by Tenant or used for any
purpose other than ingress or egress to and from the Premises. Tenant shall not
place any item in any of such locations, whether or not any such item
constitutes an obstruction, without the prior written consent of Landlord.
Landlord shall have the right to remove any obstruction or any such item without
notice to Tenant and at the expense of Tenant.
2. ORDINARY BUSINESS HOURS. The ordinary business hours of the Building shall
be from 8:00 A.M. to 5:00 P.M., Monday through Friday of each week, excluding
the legal holidays of New Year's Day, President's Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Tenant shall
have access to the Building 24 hours per day, 365 days per year.
3. DELIVERIES. Tenant shall insure that all deliveries of supplies to the
Premises shall be made only upon the elevator designated by Landlord for
deliveries and only during the ordinary business hours of the Building. If any
person delivering supplies to Tenant damages the elevator or any other part of
the Building, Tenant shall pay to Landlord upon demand the amount required to
repair such damage.
4. MOVING. Furniture and equipment shall be moved in or out of the Building
only upon prior notice to and with the written approval of Landlord and only
upon the elevator designated by Landlord for deliveries and then only during
such hours and in such manner as may be prescribed by Landlord. Landlord shall
have the right to approve or disapprove the movers or moving company employed by
Tenant (said approval shall not be unreasonably withheld) and Tenant shall cause
such movers to use only the loading facilities and elevator designated by
Landlord. If Tenant's movers damage the elevator or any other part of the
Building, Tenant shall pay to Landlord upon demand the amount required to repair
such damage.
5. HEAVY ARTICLES. No safe or article, the weight of which may, in the
reasonable opinion of Landlord, constitute a hazard or damage to the Building or
its equipment, shall be moved into the Premises. Safes and other heavy
equipment, the weight of which will not constitute a hazard or damage the
Building or its equipment shall be moved into, from or about the Building only
upon prior notice to and with the written approval of Landlord and only during
such hours and in such manner as shall be prescribed by Landlord, and Landlord
shall have the right to designate the location of such articles in the Premises.
6. NUISANCE. Tenant shall not do or permit anything to be done on the
Premises or in the Building or bring or keep anything therein which would in
anyway constitute a nuisance or waste, or obstruct or interfere with the rights
of other tenants of the Building, or in anyway injure or annoy them, or conflict
with the laws relating to fire, or with any regulations of the fire department,
or with any insurance policy upon the Building or any part thereof, or conflict
with any of the laws, codes, rules or ordinances of any governmental authority
having jurisdiction over the Building.
<PAGE>
7. BUILDING SECURITY. Landlord may restrict access to and from the Premises
and the Building outside the ordinary business hours of the Building for reasons
of building security. Landlord may require identification of persons entering
and leaving the Building and, for this purpose, may issue building passes to
tenants of the Building.
8. PASS KEY. The Building Manager may at all times keep a pass key to the
Premises, and he and other agents of the Landlord shall at all times be allowed
admittance to the Premises.
9. LOCKS AND KEYS FOR PREMISES. No additional lock or locks shall be placed
by Tenant on any door in the Building and no existing lock shall be changed
unless written consent of Landlord shall first have been obtained. A reasonable
number of keys to the Premises, the Building, and the toilet rooms locked by
Landlord will be furnished by Landlord, and Tenant shall not have any duplicate
keys made. At the termination of this tenancy Tenant shall promptly return to
Landlord all keys to offices, Building and toilet rooms.
10. USE OF WATER FIXTURES. Water closets and other water fixtures shall not be
used for any purpose other than that for which the same are intended, and any
damage resulting to the same from misuse on the part of the Tenant or its guests
or employees shall be paid for by Tenant. No person shall waste water in any
manner.
11. NO ANIMALS; EXCESSIVE NOISE. With the exception of seeing eye dogs for the
blind, no animals shall be allowed in the offices, halls, corridors and
elevators of the Building. No person shall disturb the occupants of this or
adjoining buildings or space by the use of any radio or musical instrument or by
the making of loud or improper noises.
12. BICYCLES. Bicycles or other vehicles shall not be permitted anywhere
inside or on the sidewalks outside of the Building, except in those areas
designated by Landlord for bicycle parking.
13. TRASH. Tenant shall not allow anything to be placed on the outside of the
Building, nor shall anything be thrown by Tenant out of the windows or doors, or
down the corridors, elevator shafts, or ventilating ducts or shafts of the
Building. All trash shall be placed in receptacles provided by Tenant on the
Premises or in any receptacles provided by Landlord for the Building.
14. WINDOWS. No window shades, blinds, screens or draperies will be attached
or detached by Tenant and no awnings shall be placed over the windows without
Landlord's prior written consent. Tenant agrees to abide by Landlord's rules
with respect to maintaining uniform curtains, draperies and linings at all
windows and hallways so that the Building will present a uniform exterior
appearance. Tenant will use its best efforts to have all curtains, draperies
and blinds closed at the end of each day in order to help conserve energy.
Except in case of fire or other emergency, Tenant shall not open any outside
window because the opening of windows interferes with the proper function of the
Building heating and air conditioning systems.
15. HAZARDOUS OPERATIONS AND ITEMS. Tenant shall not install or operate any
steam or gas engine or boiler, or carry on any mechanical business in the
Premises without Landlord's prior written consent, which consent may be withheld
in Landlord's absolute discretion. The use of oil, gasoline, noxious gas,
inflammable or combustible liquids or material for heating, lighting or any
other purpose is expressly prohibited. Explosives or other articles deemed
extra hazardous shall not be brought into the Building. Tenant shall not use
any method of heating, cooling, or air conditioning of the Premises other than
that supplied by Landlord.
<PAGE>
16. HOURS FOR REPAIRS, MAINTENANCE AND ALTERATIONS. Any repairs, maintenance
and alterations required or permitted to be done by Tenant under the Lease shall
be done only during the ordinary business hours of the Building unless Landlord
shall have first consented in writing to such work being done outside of such
times. If Tenant desires to have such work done by Landlord's employees on
Saturday, Sundays, holidays or weekdays outside of ordinary business hours,
Tenant shall pay the extra cost of such labor.
17. NO DEFACING OF PREMISES. Except as permitted by Landlord, Tenant shall not
mark upon, paint signs upon, cut, drill, drive nails or screws into, or in any
way deface the walls, ceilings, partitions or floors of the Premises of the
Building, and defacement, damage or injury caused by Tenant shall be paid for by
Tenant.
18. CHAIR PADS. During the entire term of the Lease, Tenant shall, at its
expense, install and maintain under all chairs a chair pad or carpet casters to
protect the carpeting.
19. SOLICITATION, FOOD AND BEVERAGES. Landlord reserves the right to restrict,
control or prohibit canvassing, soliciting and peddling within the Building.
Tenant shall not grant any concession, licenses or permission for the sale or
taking of orders for food, beverages, services or merchandise in the Building,
nor install nor permit the installation or use of any machine or equipment for
dispensing food, beverages, services or merchandise, nor permit the preparation,
serving, distribution or delivery of food, beverages, services or merchandise
without the written approval of Landlord and in compliance with arrangements
prescribed by Landlord. No cooking shall be done or permitted by any tenant in
the Building.
20. UNDESIRABLE OCCUPANTS. Landlord reserves the right to exclude or expel
from the Building any person who, in the judgment of Landlord, is intoxicated or
under the influence of liquor or drugs, or who shall in any manner do any act in
violation of any of the rules and regulations of the Building.
21. ELECTRICIANS. Landlord will direct electricians as to where and how
telephone and telegraph wires are to be introduced. No boring or cutting for
wires will be allowed without the written consent of the Landlord. The location
of telephones, call boxes and other office equipment affixed to the Premises
shall be subject to the written approval of Landlord (said approval shall not be
unreasonably withheld).
22. LANDLORD CONTROL OF PUBLIC AREAS. Landlord shall have the right to control
and operate the public portions of the Building, and the public facilities, and
heating and air conditioning, as well as facilities furnished for the common use
of the tenants, in such manner as it deems best for the benefit of the tenants
generally.
23. AFFIXED OBJECTS. Landlord shall approve in writing the method of
attachment of any objects affixed to walls, ceilings, or doors.
24. SMOKING. No smoking is permitted in any portion of the Building,
including, but not limited to restrooms, hallways, elevators, break rooms,
tenants space, lobby and corridors. Smoking is only permitted outside the north
rear door of the Building.
<PAGE>
25. ALTERATIONS AND/OR ADDITIONS. All contractors hired by Tenant to perform
alterations, additions, or repairs to the Premises must be licensed and insured
and a copy of the Insurance Certificates must be provided to the Landlord before
any work commences. The following copies are required for all contractors and
sub-contractors:
a. License of each trade.
b. Liability Insurance
c. Lien Waivers
d. Workmen's Compensation
e. Building permit from proper authorities
f. All other information and or copies required by Landlord.
Landlord has the sole responsibility of approving all alterations, additions,
and/or repairs and the selection of carpet (including quality and color), paint
(including quality and color), doors, door hardware, light fixtures and any
other changes to Landlord's property.
END OF EXHIBIT "B"
<PAGE>
EXHIBIT "C"
TENANT FINISH SPECIFICATIONS
Lease Dated March 31st, 1998
LANDLORD: Executive Tower of Colorado Springs, LLC
TENANT: Cheap Tickets, Inc.
I. Landlord shall provide Tenant Improvements based upon a scaled floor plan
design which shall be mutually agreed upon between Landlord and Tenant.
Tenant Finish Specifications are to be as follows:
A. Patch and repair walls as needed for paint;
B. Paint 100% of the Demised Premises;
C. Change all light shields;
D. Relamp all light bulbs;
E. Replace all windows with broken seals;
F. Clean 100% of carpeted areas;
G. Rekey the Premises;
H. General cleaning of kitchen to include striping and waxing of all VCT
flooring.
II. Tenant, at Tenant's expense, shall provide all other Tenant Improvements
and required labor and materials.
<PAGE>
ADDENDUM TO LEASE
Addendum to Lease dated this 31st day of March, 1998, by and between
Executive Tower of Colorado Springs, LLC ("Landlord"), and Cheap Tickets, Inc.
("Tenant").
WHEREAS, Landlord and Tenant have entered into a Lease of even date;
WHEREAS, the parties wish to add paragraph 11.3 to said Lease.
NOW, THEREFORE, based on good and valuable consideration and the mutual
covenants contained in this Addendum to Lease, the parties agree as follows:
1. The Lease shall be amended to add paragraph 11.3 to read as follows:
"11.3. Landlord acknowledges Tenant operates seven (7) days a week with
hours which exceed the ordinary business hours of the Building. Tenant shall
not be accessed additional energy or service charges because of its days and
hours of operation."
2. All other provisions of the Lease shall remain in full force and
effect.
LANDLORD: Executive Tower of Colorado Springs, LLC
By: /s/ Danny Mientka
------------------------------------------
Danny Mientka
Agent for Landlord
TENANT: Cheap Tickets, Inc.
By: /s/ Michael J. Hartley
---------------------------------------------
Michael J. Hartley
TITLE: President & Chief Operating Officer
------------------------------------------
<PAGE>
ADDENDUM
--------
This Agreement dated this 29th day of May, 1998, by and between Executive
Tower of Colorado Springs, LLC (the "Landlord") and Cheap Tickets, Inc. (the
"Tenant");
WHEREAS, the parties hereto did enter into a certain Lease Agreement under
the date of March 31, 1998 (the "Lease"), relating to certain office space known
as 2864 South Circle Drive, Suite 700, Colorado Springs, Colorado 80906; and
WHEREAS, Tenant desires to lease additional space within the Building for
purpose of Storage;
NOW THEREFORE, the parties hereby agree to modify the Lease as follows:
1. Commencing May 1, 1998, and continuing on a month to month basis for an
indefinite period of time hereafter, Tenant shall lease approximately 725
rentable square feet (630 usable square feet) of space known as Suite 430
for Storage.
2. Either party may terminate Tenant's lease of said space by delivery to the
other party of thirty (30) days written notice of intent to terminate at
which time Tenant shall deliver up possession of the Premises to Landlord
in accordance with such notice of termination.
3. In consideration for the aforementioned additional space, Tenant shall pay
to Landlord, commencing May 1, 1998, Monthly Base Rent of $120.83.
4. In addition to Base Rent, Tenant shall pay monthly estimates of Common Area
Costs based upon the current estimated rate of $4.30 per square foot.
5. All other terms and conditions of said Lease shall continue in full force
and effect.
LANDLORD: TENANT:
Executive Tower of Cheap Tickets, Inc.
Colorado Springs, LLC
By: /s/ Danny Mientka By: /s/ Joan W. Gillett
----------------------------- -------------------------------
Danny Mientka
Agent for Lanlord Title: Reservations Manager
------------------------------
<PAGE>
Exhibit 10.9
Note: Portions of this exhibit indicated by "[*]" are subject to a
confidential treatment request, and have been omitted from this exhibit.
Complete, unredacted copies of this exhibit have been filed with the Securities
and Exchange Commission as part of this Company's confidential treatment
request.
1994 NET FARE/COMMISSION AGREEMENT
WHOLESALER: C.T.I. dba CHEAP TICKET
738 Kaheka Street, #301
Honolulu, HI 96814
ARC #: 12-601676 CONTRACT #: C094 4026
---------
The following agreement is hereby entered into between Continental
Airlines, Inc. ("Continental"), and the Wholesaler/Consolidator ("Agent")
identified above:
Continental and the Agent agree as follows:
1. Continental will provide the Agent with a net airfare program and/or
a commission program to the applicable origin and destination points listed as
"unpublished tariffs" in Attachment A hereto. The Agent agrees to comply with
the special terms and conditions of each individual unpublished tariff as listed
in Attachment A1 hereto.
2. Upon receipt of this signed agreement, Continental will assign the
Agent special fare basis codes and/or authorization codes, which must be marked
on all tickets issued by the Agent. Tickets must be issued in accordance with
the ticketing procedures as stated on Attachment B hereto.
3. This agreement shall be valid upon execution by a duly authorized
Continental Airlines representative, and shall be effective until further
written notice.
4. This agreement is subject to cancellation by either party at any time
without penalty, upon a thirty (30) day written notice.
5. Tickets issued in conjunction with this agreement may be issued only
at the ARC number(s) noted above and all branch locations of that home office
locations as reported to Continental by the Airline Reporting Corporation (ARC).
Unauthorized ticketing at other ARC locations will result in debit memos at the
lowest applicable retail fare on the date ticket was issued in the class of
service booked and the termination of this agreement. Full payment will be made
for all tickets in accordance with and through standard ARC reporting
procedures. Tickets will be limited to confirmed seating. Open tickets will not
be allowed. Tickets must be issued on standard ARC stock and must be validated
on Continental.
6. Tickets issued in conjunction with this agreement must be sold as
part of a bona fide tour program, unless otherwise specified in the applicable
attachments. Tour programs must include a prepaid land portion consisting of a
two night minimum hotel stay. The minimum retail price for inclusive tours must
be greater than Continental's lowest published airfare in
<PAGE>
applicable markets. Net airfares and/or commission levels may not be sold,
advertised or promoted in any way as "air only", unless otherwise specified in
the applicable attachments. Failure to comply with this provision shall result,
upon notice, in immediate cancellation of this agreement.
7. In the event of flight delays, cancellations or passenger rerouting,
the same amenities will be provided by Continental to passengers hereunder as
are customarily provided by Continental under involuntary re-route procedures to
regular economy fare passengers on scheduled service.
8. If Continental's service in any market covered by this agreement is
(1) terminated, (2) canceled or (3) suspended, this agreement will be terminated
with respect to such market.
9. If the Agent or Continental uses the other's name or trademarks in
advertising or promotion, the material must clearly state the Agents ticketing
and refund responsibility as well as Continental's limitation of liability and
conditions of carriage.
10. All advertising and promotional material relating to the services of
either party must be approved in writing by the other party prior to its use,
including but not limited to the use of logos, trademarks, trade names or
service marks.
11. Agent agrees to indemnify Continental against any expense, loss,
damage, claim or suit (including reasonable attorney's fees) arising hereunder,
made or brought against Continental by reason of Agent's default or failure to
perform hereunder or claims based on the tour programs, except such matters as
arise out of the air transportation provided by Continental.
12. Continental has the right to terminate, suspend or modify this
agreement in the event of an assignment, sale, transfer or change in the Agent
ownership during the term of this agreement. Agent may not assign any right or
delegate any duty hereunder without the express written consent of Continental.
13. Increases and/or reductions in net fare programs and/or commission
programs will be effective twenty-one (21) days from the date of notice from
Continental to the Agent. Continental reserves the right to increase net
airfares and/or reduce commission levels on five (5) days notice if fuel prices
rise more than 10% in any given period of time. Passengers booked and ticketed
prior to the effective ticketing date of a net airfare increase and/or reduction
of commission may travel using previous fare/commission levels. Passengers
booked and not ticketed prior to the effective ticketing date of a net airfare
increase and/or reduction of commission must be ticketed at the new levels.
14. Increase/reductions to or additions of tax, fees and or surcharge
amounts will be effective immediately for all passengers not ticketed and it
will be the responsibility of the Agent to collect all such taxes, fees and
surcharges at the time of ticketing.
<PAGE>
15. Agent will advise passengers in writing that OnePass and or any
other type of upgrade/discount certificates are not permitted in conjunction
with the net airfares provided herein. OnePass mileage accrual is permitted,
unless otherwise stated herein.
16. The net airfares and/or commission levels on Attachment "A" do not
automatically apply to groups of 10 or more. All groups must be requested and
booked through the preferred accounts department at 1-800-243-4366 and are
subject to approval by Continental Airlines. Agents with commission programs
may not use commission levels on negotiated group rates. Tour Conductor tickets
are not applicable to nets/commissions on Attachment "A", unless otherwise
specified.
17. Both Continental and Agent shall be considered as independent
contractors, and nothing contained herein shall be construed so as to create an
agency relationship, partnership or joint venture, and each party shall be
responsible for their respective actions.
18. Continental shall have no responsibility or liability to Agent for
any loss, damage, delay or prevention of the completion of any flight subject to
this agreement, resulting from any occurrences or acts beyond the control of
Continental.
19. The terms and conditions of this agreement are strictly
confidential. Any breach of confidentiality, duplication, use or disclosure of
this agreement in whole or in part shall immediately render this agreement null
and void at the option of the non-breaching party.
20. This agreement shall be governed by the laws of the State of Texas.
Agreement with, and acceptance of, the above conditions is indicated by
the signatures below.
<TABLE>
<CAPTION>
<S> <C>
C.T.I. dba CHEAP TICKET CONTINENTAL AIRLINES, INC.
/s/ Michael J. Hartley /s/ Richard L. Ensign
- ------------------------------ ----------------------------------
Name Richard L. Ensign
Sr. Director-Leisure Sales
General Manager
- ------------------------------
Title
Date: 10/21/93 Date: 10/25/93
------------------------- -----------------------
</TABLE>
<PAGE>
[LETTERHEAD OF CONTINENTAL AIRLINES, INC.]
ADDENDUM
NOVEMBER 12, 1998
MR. MICHAEL HARTLEY
C.T.I.-CHEAP TICKETS
1440 KAPIOLANI BLVD #800
HONOLULU, HI 96814
REF: NET FARES CONTRACT #: CO944026
ARC: 12601676
DEAR MR. HARTLEY:
This letter and the enclosed Attachment A(s) will serve as an addendum to the
above mentioned contract and is subject to the terms, conditions, rules, and
regulations of that contract.
The enclosed Attachment A(s) include:
SEE ATTACHMENT
Your agreement to this addendum is indicated by the signature below. Please sign
both originals of this addendum and return both copies, including all
attachments to the address below. Failure to sign and return this addendum
within five(5) days will void the above mentioned contract:
Continental Airlines
ATTN: JIM COMPTON
2929 ALLEN PARKWAY, SUITE 1227
Houston, TX 77019
Thank you for your cooperation and support.
C.T.I. CONTINENTAL AIRLINES, INC.
CHEAP TICKETS
/s/ Michael Hartley /s/ Jim Compton
- ---------------------- ----------------------
NAME JIM COMPTON
STAFF V.P. PRICING
President & CEO
- ----------------------
Title
11/17/98 11/24/98
- ---------------------- ----------------------
Date Date
<PAGE>
ATTACHMENT A
[*]
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
<PAGE>
CONTINENTAL AIRLINES
ATTACHMENT A1.1//ORIGINAL
1997 DOMESTIC WHOLESALE RULES AND GUIDELINES
(All other terms and conditions of the net fare agreement apply)
COMBINABILITY: Net fare levels are not combinable with published fares,
- -------------
other net fare programs, group/convention discounts,
coupon/certificate offers, override commission programs or
any other type of discount/negotiated fare. Net fare levels
are combinable with other net fare levels within the same
program.
RESERVATIONS: Names are due at the time of booking. Reservations must be
- ------------
booked in the class of service indicated by the alpha net
airfare indicator. EXAMPLE: [*] net fares must be booked in
[*] class of service and [*] net fares must be booked in [*]
class of service.
GROUPS: FOR GROUP PROCEDURES SEE ATTACHMENT "A1.2"
- ------
PREPAIDS: NOT PERMITTED. NO EXCEPTIONS.
- --------
UPGRADES: NOT PERMITTED: NO EXCEPTIONS
- --------
CHILDREN'S FARES: NOT PERMITTED, unless otherwise specified on Attachment "A"
- ----------------
fare sheet.
TICKETING
PROCEDURES: SEE ATTACHMENT "B".
- ----------
NAME CHANGES: Once a PNR has been booked, name changes will not be allowed.
- ------------
Clerical changes (ie. spellings) are permitted.
AIRPORT/FUEL
SURCHARGES: Surcharges must appear on all flight coupons and must be
- ----------
remitted through ARC.
PASSENGER FACILITY
CHARGES (PFC'S): PFC charges apply to all net tickets when an approved PFC
- ---------------
city is included in the itinerary. PFC's ARE-NOT-ABSORBED IN
CONNECTING MARKETS.
ILLNESS EXTENSION
OF VALIDITY: NOT ALLOWED.
- -----------
REFUNDS: Totally unused tickets are refundable with a fifty dollar
- -------
($50) cancellation penalty unless otherwise specified on
Attachment "A".
Passengers may incur penalties from the tour operator.
LOST TICKETS: Standard lost ticket application procedures-will-apply.
- ------------
Service charge may apply.
VERBAL CHANGES TO THE CONTRACT, FARES OR RULES AND GUIDELINES WILL-NOT-BE
HONORED. ALL CHANGES ARE VALID ONLY WHEN RECEIVED IN WRITING FROM CONTINENTAL
LEISURE MARKETING.
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
<PAGE>
CONTINENTAL AIRLINES
ATTACHMENT A1.2// ORIGINAL
1997 DOMESTIC AND INTERNATIONAL WHOLESALE GROUP PROCEDURES
(All other terms and conditions of the net fare agreement apply)
GROUPS: The net airfares and/or commission levels on Attachment "A"
- ------
do-not-automatically apply to groups of 10 or more. All
groups must be requested and booked through the Preferred
Accounts Desk at 1-800-243-4366, and are subject to approval
by CO. The appropriate class of service, as stated on
Attachment "A", must be available and booked on all flights
for the net/published fare used.
------------------------------------------------------------
Agents with commission programs may not use override
commission levels on negotiated group rates. Tour conductor
tickets are -not-applicable, unless otherwise specified on
Attachment "A".
-----------------------------------------------------------
THE FOLLOWING PROCEDURES WILL APPLY TO ALL FUTURE GROUP BOOKINGS
ASSOCIATED WITH THE NET AIRFARES LISTED ON ATTACHMENT "A".
"AGENT" AGREES TO PAY APPLICABLE PENALTIES PER EACH SEAT NOT UTILIZED.
DEPOSITS: GROUPS BOOKED 91 OR MORE DAYS PRIOR TO DEPARTURE:
- --------
- A $25.00 per person refundable deposit is required.
- Deposit is due fourteen (14) days after booking -OR- 90
days prior to departure, whichever is first.
- Deposit must be remitted in the form of an MCO. The MCO
should be sent to the following address:
CONTINENTAL AIRLINES
ATTN: Preferred Accounts Desk Supervisor
P.O. Box 60455
Houston, TX 77205-0455
- Deposit will be returned to the "Agent" at least 21 days
prior to departure for ticket issuance.
GROUPS BOOKED WITHIN 91 DAYS OF DEPARTURE:
- Deposit -not- required.
*NOTE: Deposit guarantees seats only. Fare is subject to change (see Net Fare
Agreement - paragraph #13)
DUE DATE
FOR NAMES: GROUPS BOOKED 21 OR MORE DAYS PRIOR TO DEPARTURE:
- --------- - All names are due 21 days prior to departure.
GROUPS BOOKED 20-7 DAYS PRIOR TO DEPARTURE:
- All names are due within 72 hours of booking -OR- seven
(7) days prior to departure, whichever is first.
GROUPS BOOKED WITHIN 7 DAYS OF DEPARTURE:
- All names are due at the time of booking.
UTILIZATION: GROUPS BOOKED 45 OR MORE DAYS PRIOR TO DEPARTURE:
- ----------- - 80% utilization is required of space held at 45 days. If
group drops below 80% between 45 days and the departure
date, "Agent" will be debited for $40.00 per each seat not
utilized.
GROUPS BOOKED WITHIN 45 DAYS OF DEPARTURE:
- 80% utilization is required of space held at the time of
booking. If group drops below 80% between the time of
booking and the departure date, "Agent" will be debited
for $40.00 per each seat not utilized.
<PAGE>
CONTINENTAL AIRLINES
ATTACHMENT B// ORIGINAL
"BULK" TICKETING PROCEDURES // REVISED
TICKETS MUST BE PLATED ON CONTINENTAL (005), REPORTED THROUGH ARC AND MUST
CLEARLY INDICATE THE FOLLOWING:
- ------------------------------
- -------------------------------------------------------------------------------
FARE BASIS BOX: (Corresponding fare code/by segment/as shown on
Attachment "A"
- -------------------------------------------------------------------------------
CLASS OF SERVICE BOX: (Fare class which corresponds with the net fare
used)
- -------------------------------------------------------------------------------
NOT VALID BEFORE: (Date of departure)
- -------------------------------------------------------------------------------
NOT VALID AFTER: (Appl. max. stay from date of departure, per
Attachment "A")
- -------------------------------------------------------------------------------
FARE/TAX/TOTAL: FARE/TAX/TOTAL must appear on AGENTS/AUDITORS
coupons ONLY. "BULK" must appear on all passenger
coupons.
- -------------------------------------------------------------------------------
SURCHARGES/PFC'S: (Must appear on -ALL- coupons)
- -------------------------------------------------------------------------------
COMMISSION BOX: "0" (Zero)
- -------------------------------------------------------------------------------
TOUR CODE BOX: (Blank)
- -------------------------------------------------------------------------------
*ENDORSEMENT BOX: Valid CO/COEX only/NONEND/NONTRANS/NOCHGS/APPL PNLTY
- -------------------------------------------------------------------------------
FORM OF PAYMENT: (Form of Payment) / REFUNDABLE BY TOUR OPERATOR ONLY
- -------------------------------------------------------------------------------
*NOTE: Endorsement Box must include applicable restrictions as listed on
Attachment "A". The above listed restrictions are to be used as an example.
TICKETS ISSUED AT THE AIRFARE LEVELS LISTED ON ATTACHMENT "A" THAT
DO NOT CORRESPOND WITH THE CLASS OF SERVICE BOOKED WILL BE DEBITED
AT THE LOWEST UNRESTRICTED COACH CLASS FARE FOR THE ENTIRE ITINERARY.
- -------------------------------------------------------------------------------
PFC PROCEDURES: PFC's must appear in the "TAX" BOX of all tickets
coupons as "XF". If other fees are collected in
addition to the PFC's, "XT" and the TOTAL AMOUNT
must appear in the "TAX" BOX of all ticket coupons.
---------------------------------------------------
SHOWING PFC'S ON A MANUAL TICKET:
--------------------------------
Show the "XF" in the "FROM/TO" BOX, leave the
"CARIRER" BOX blank. In the "FARE CALCULATION" BOX
list, in itinerary order, the AIRPORT CODE followed
by the AMOUNT INDICATOR for the PFC amount
collected.
---------------------------------------------------
SHOWING PFC'S ON AN AUTOMATED TICKET:
At the end of the fare calculation enter "XF", the
AIRPORT CODE and AMOUNT INDICATOR for each airport
to which the PFC applies.
- -------------------------------------------------------------------------------
<PAGE>
Exhibit 10.10
Note: Portions of this exhibit indicated by "[*]" are subject to a
confidential treatment request, and have been omitted from this exhibit.
Complete, unredacted copies of this exhibit have been filed with the Securities
and Exchange Commission as part of the Company's confidential treatment request.
--------------------------
1999 NET CONSOLIDATOR PROGRAM
================================================================================
<TABLE>
<S> <C> <C> <C>
YOUR FIRM: CTI Proposal Date: January 19, 1998
1440 Kapiolani Blvd. Your Firm ARC: 1260167/05-51326
8th Floor Effective Date: November 1, 1998
Honolulu, HI 96814 Termination Date: October 31, 1999
(hereinafter "Your Firm") DISTRICT: LAX
AGREEMENT NO: CON99005
</TABLE>
This Agreement, when accepted shall constitute the entire Agreement between Your
Firm and Trans World Airlines, Inc. ("TWA") with respect to net fares applicable
to the markets identified herein, for air travel on TWA or Trans World Express
("TWE") commencing with the above Effective Date and continuing through the
above Termination Date, and is subject to the General Terms and Conditions set
forth on the following pages. This Agreement supersedes and replaces all
previous understandings and agreements, whether oral or written with respect to
the subject matter hereof.
The net fares offered to Your Firm are predicated on the following:
1. All travel must originate in the USA, with no westbound origination, and
must be round-trip, open-jaw, circle trip, or one-way. One way transatlantic
travel permitted at 60% of the applicable round-trip fare.
2. All travel must be sold consisting of a [*] minimum, [*] day maximum
stay.
3. All fares are quoted in U.S. dollars and are payable in U.S. dollars
(regardless of the currency rate of exchange). Payment must be made in cash
only; payment by credit card or MCO is not acceptable.
4. Net fares, surcharges and applicable fees are not subject to commission.
5. Net fares are exclusive of fuel, departure, passenger facility, airport,
terminal and/or security taxes or surcharges, which when applicable must be
added to the fare collected from the passenger, and shown on the ticket(s)
when issued. Outbound date determines round trip seasonal fares only.
Surcharges, fees, sell-up differentials are applicable based on actual
differentials are applicable based on actual date of travel and must be
added to the fares regardless of departure date and/or season. Any passenger
routing must be the same as the routing of any TWA published fare for that
city pair.
6. Travel may not be combined with or ticketed in conjunction with any other
fare on TWA/TWE (except for fares listed in this Agreement) or any other
carrier or airline fare.
7. Net fares must be ticketed within [*] days of booking a reservation;
however, for bookings made within [*] days of departure ticketing must
occur within [*] hours.
8. No block space is permitted; group bookings (10 or more passengers) require
specific authorization from TWA's Group Desk, and are subject to the terms
and conditions applicable to TWA Group Desk sales procedures.
9. Net fares are subject to change upon fifteen (15) days prior written notice.
10. All sales are subject to audit by TWA. Booking or ticketing violations will
subject Your Firm to debit memo, cancellation of booking and/or immediate
termination of this Agreement, at the sole discretion of TWA.
11. During the term of this Agreement, Your Firm agrees to ticket an average of
[*] net flown (based on true origin and destination) passengers per month.
12. No tour conductor, student, infant, senior, site, agency discounts are
permitted.
13. All tickets must be issued on standard stock with TWA (015) validation. No
manual ticketing is permitted.
14. In the event of departure date weather conditions or TWA encounters
operational difficulties which result in flight cancellation, delay or
misconnection, TWA will provide transportation on its next available flight
in the same class of service as originally ticketed, at no additional cost
to passenger. TWA does not guarantee reprotection of passengers on another
airline.
15. No name changes allowed on ticketed reservations (PNR).
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
<PAGE>
1999 NET CONSOLIDATOR PROGRAM
================================================================================
<TABLE>
<CAPTION>
<S> <C>
MARKETS: USA to: All TWA International destinations except TLV/CAI/RUH
- -------
SURCHARGE DATES: See attached schedule
- ---------------
BOOKING CLASS: [*] Coach Transatlantic and Domestic
SELLUP: [*] Coach Transatlantic and Domestic
- -------------
FARES: See attached schedule
- -----
FARE BASIS CODE: [*]
SELLUP: [*]
- ---------------
TICKET DESIGNATOR/ NF99
SELLUP: NF99
- ------------------
DISCOUNTS: None
- ---------
CHANGES: Reticketing (including the reissuance of lost tickets) is the responsibility of the Your Firm. All
- ------- changes/cancellations must be made at least 24 hours prior to the flight on which the passenger has
reservations.
Once ticketed, all changes will be subject to a $100.00 fee provided origin and destination do not
change, minimum/maximum stay requirements are met, and space in appropriate booking class is available.
CANCELLATION: A $150.00 service charge applies refunded tickets provided the reservation was cancelled prior to
- ------------ departure. Refund does not apply to NOSHOW reservations or partially used tickets. Refund request must
be submitted to TWA Passenger Refunds within 60 days of original travel date. In the event of death or
the hospitalization of the passenger, there will be no penalty provided valid documentation is provided.
TICKETING All tickets must be issued on standard stock with TWA (015) validation. All tickets must be booked
- --------- from direct access availability with ticket numbers appearing in PNR. For Non-Worldspan users, ticket
PROCEDURES: numbers must be transmitted via GFAXX (OSI) Field.
- ----------
Remarks (Endorsement Box) - Valid only on TWA/$100.00 change fee apply/$150.00 Cancellation
------------------------- penalty.
Fare Basis Box/
--------------
Ticket Designator Box - Assigned fare basis code/ticket designator code extended
----------------------- to all flight coupons. No dollar should appear on
flight coupon or passenger receipt.
Total Box (Flight coupon) - "Bulk Fare" and Government fees and taxes should appear
------------------------ on flight coupon. Prepaid Ticketing and MCO's are not
permitted.
FARE BASIS/BOOKING CLASSS TICKET DESIGNATOR AVIATOR MILES
------------------------- ----------------- -------------
(See seasonal fare page) [*] NF99 NONE
(See seasonal fare page) [*] NF99 NONE
</TABLE>
AGREED TO AND ACCEPTED BY: Trans World Airlines, Inc.
NAME: /s/ Michael J. Hartley /s/ Richard G. McBee
------------------------
TITLE: President & CEO Richard G. McBee
------------------------
DATE: 9-24-98 Staff Vice President - Sales Programs
------------------------
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
<PAGE>
1999 NET CONSOLIDATOR PROGRAM
================================================================================
GENERAL TERMS AND CONDITIONS
1. This agreement shall become effective as of the date indicated above
provided one (1) copy, signed by Your Firm is returned to TWA within thirty
day of the date TWA signed this Agreement. In the event this Agreement is
not so returned, it shall be construed as an offer only and shall be deemed
automatically revoked. Any alterations, deletions or additions to the Terms
and Conditions of this Agreement will not be effective without the express
written approval of TWA.
2. Either party may cancel this Agreement at anytime, with or without cause,
upon 30 days prior written notice to the other.
3. Your Firm can not promote TWA in conjunction with this program in any way
including, but not limited to, written advertisement or print through
newspapers, magazines, and/or facsimile solicitations.
4. Transportation shall be used in accordance with applicable tariffs and the
conditions of carriage and rules and regulations of TWA. Tickets may not be
used in conjunction with any special marketing programs conducted by TWA
from time to time and shall not qualify for TWA Aviator Program mileage
credit.
5. Tickets may not be endorsed over to other airlines for carriage, refund or
exchange. Individual passengers shall be responsible for payment of excess
baggage charges, upgrades and other charges incurred after issuance of
tickets.
6. Your Firm agrees to notify TWA promptly, in writing in the event there are
changes in the ownership, operation or control of Your Firm.
7. Your Firm agrees to take all reasonable and appropriate measures to keep
this Agreement confidential, with the exception of those details necessary
for the normal conduct of Your Firm's business.
8. Neither TWA nor Your Firm will in any manner or by any device, either
directly or indirectly, act in violation of any applicable law, governmental
order or regulation including the provisions of TWA's tariffs and Your
Firm's appointment or provision for the conduct of business as established
by ARC.
9. Tickets must be issued only at Your Firm's home office set forth on the
preceding page hereof and Your Firm's branch office locations filed as such
with the Airline Reporting Corporation ("ARC").
10. In the event TWA terminates your firms Your Firm Sales Agreement, this
Agreement shall also terminate as of the same date.
11. This Agreement is governed by the laws of the State of Missouri.
<PAGE>
Consolidator Winter Season Roundtrip Net Fares
[*]
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
<PAGE>
Consolidator Shoulder Season Roundtrip Net Fares
[*]
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
<PAGE>
IMPORTANT!
Please Retain and Refer To At Time of Ticketing
BULK/NET TICKETING INSTRUCTIONS
TWA's Bulk/Net Fare Agreements with net fares to TWA destinations: Please refer
to the contract for the applicable markets, fares, fare basis codes, and ticket
designators. To issue tickets correctly please follow the instructions below.
1. Always use the APPLICABLE FARE BASIS CODE followed by the ASSIGNED TICKET
DESIGNATOR. IT IS EXTREMELY IMPORTANT THAT THIS COMPLETE CODE BE USED IN
THE FARE BASIS/TICKET DESIGNATOR BOX. Note: a slash is required between
the fare basis code and the ticket designator.
2. Booking Class: Applicable booking class of the Bulk/Net fare specified in
your contract.
3. The following information must be printed on the ticket:
<TABLE>
<CAPTION>
<S> <C>
Remarks/Endorsement Box---------------------------VALID ON TWA ONLY/$$$$ CHANGE FEE/
NON-REFUNDABLE
(Replace $$$$ with applicable change
fee amount as stated in contract).
Fare Basis Box/Ticket Designator------------------ASSIGNED FARE BASIS CODE/TICKET DESIGNATOR
extended to ALL coupons and travel segments.
Equivalent Fare Paid Box (Auditors Coupon)--------ALLOCATE BASE FARE, TAX, PASSENGER FACILITY
CHARGES AND OTHER APPLICABLE GOVERNMENT FEES
AND TAXES. Total all amounts
Total Box (Flight Coupon)-------------------------"BULK FARE", plus government fees and taxes.
Fare amount must not be written on Passenger
Coupon or Flight Coupon.
</TABLE>
TICKETS ISSUED INCORRECTLY ARE SUBJECT TO DEBIT MEMOS
-----------------------------------------------------
<PAGE>
Exhibit 10.11
Note: Portions of this exhibit indicated by "[*]" are subject to a confidential
treatment request, and have been omitted from this exhibit. Complete, unredacted
copies of this exhibit have been filed with the Securities and Exchange
Commission as part of the Company's confidential treatment request.
AMERICA WEST AIRLINES
CONSOLIDATOR AGREEMENT
This Agreement is made on this 14th day of December, 1998, between America
West Airlines, Inc., a Delaware corporation, at 4000 East Sky Harbor Boulevard,
Phoenix, Arizona 85034 (herein "America West") and Cheap Tickets, Inc., a Hawaii
corporation, at 1440 Kapiolani Blvd., Suite 800, Honolulu, Hawaii 96814 (herein
"Customer"). The parties agree on the following mutual covenants:
1. Fares:
a. Seats sold will be at specific fare levels in markets specified by
America West and under the conditions stated in Attachments A and B herein.
b. The net fares herein shall be applicable for travel wholly over the
services of America West and America West Express, all other codeshare flights
are not applicable. Net fares are as shown on Net Fare Sheets under Attachment
A, herein.
c. Net fares are subject to change at the sole and complete discretion of
America West. Written notice shall be provided to Customer not less than five
(5) business days prior to the effective ticketing date of any net fare change,
or two (2) business days for electronic filing of fares. Customer agrees that
it will pay the changed fare amounts for all tickets issued as of the effective
date of such net fare change. By signing and returning the confirmation page of
all Bulk Program Advisories, Customer acknowledges receipt of said advisories.
Failure to sign and return confirmation does not release customer from adherence
to any revisions made on such advisories.
d. The [*] Fare [*] allows Customer to take applicable commission
levels on published fares. Restrictions and commission are as stated in
Attachment B, herein.
e. Fares do not include the following: US Transportation or International
Taxes; Fuel Surcharges; Passenger Facility Charges; and/or other
city/governmental surcharges.
2. Payment/Reporting:
Customer agrees to issue tickets on standard industry ticket stock.
In accordance with ARC policies and procedures, tickets will be reported and
funds due for tickets will be remitted through ARC each week. Invoices for
other than ticket sales shall be due and payable within fifteen (15) days from
the date of invoice, and shall not be subject to any offset or deduction for
any purposes.
3. Advertising:
Customer agrees that it will not use the America West trade name or service
marks in any advertising, promotional material, brochures, printed matter or
signs or internet web sites without the prior review and written approval of
such material by America West.
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
<PAGE>
4. Internet:
If customer utilizes an Internet website to facilitate the sale of America
West seats, customer agrees to the following:
a) A complete list of all Internet website addresses connected to the
sale of the America West seats will be provided to America West within
ten (10) business days of submission of this signed Agreement. Any
additions, deletions or corrections to this list must be communicated
to America West within ten (10) business days of said additions,
deletions or corrections.
b) If a website contains restricted pages that are used to facilitate
business, customer agrees to provide passwords necessary to gain
access to restricted pages.
5. Contract Non-Compliance:
a. America West is entitled to receive compensation for the full value of
the coach fare in the event that inventory sold is not ticketed in accordance
with Attachment A and B.
b. Compensation due America West will be invoiced to Customer due and
payable (15) business days after notification.
c. Revenue Accounting will continue to advise Customer through issuance of
debit memos or invoices of compensation due America West when reservations are
found booked and/or ticketed in the wrong class of service, or for other booking
or ticketing irregularities including but not limited to individual CRS bookings
that qualify as a group, and booking published fares without ticketing in
accordance with tariff rules. America West will recover CRS fees as well as
full ticket value of any booking irregularity.
6. Default:
In the event Customer fails to make payment as required by this Agreement,
America West shall provide written notice to customer to cure such default
within five (5) working days from the date of such notice. In the event such
non-payment is not cured within said five (5) days, this Agreement shall be
terminated immediately. If Customer fails to perform any other terms of this
Agreement and is in default thereof, this Agreement may be terminated after
thirty (30) days written notice of those matters in default being given and the
failure of Customer to cure such default. America West shall be free to pursue
all legal and equitable remedies available for any default.
7. Terms and Termination:
a. The term of this Agreement is from January 1, 1999 through December 31,
1999, with all travel completed by January 31, 2000, and either party may
terminate this Agreement without cause by giving not less than thirty (30) days
prior written notice of their intention to do so. Such termination shall not
relieve either party from payment of amounts currently due and owing, and
neither party may terminate this Agreement if that party is in default in the
performance of this Agreement.
b. Should Customer fail to perform it's duties as outlined in this
Agreement and such default shall continue after thirty (30) days written notice
to correct such default, then America West may terminate this Agreement.
8. Lost Tickets:
When a passenger loses his/her America West ticket, the passenger may
purchase a replacement ticket for the portion lost, and will be refunded the
price of the replacement ticket, provided the itinerary (flight number, travel
date, city) of the replacement ticket is exactly the same as the lost ticket.
If a replacement ticket is not purchased for the exact itinerary, no refund
will be made.
9. Confidentiality:
The terms and conditions of this Agreement are strictly confidential. Any
breach of Confidentiality, duplication of the Agreement and/or its Attachments,
use or disclosure of this Agreement in whole or in part for any purpose shall
immediately render this Agreement null and void and subject to immediate
cancellation at the option of America West.
<PAGE>
10. Entire Agreement:
This Agreement represents the entire understanding between the parties. No
waiver, alteration, or modification of any of the provisions herein shall be
binding unless in writing and signed by and authorized agent or representative
of the parties.
11. Assignment and Binding Effect:
The provisions of this Agreement shall be binding upon any successor to
either of the parties, but shall not be assignable by Customer.
12. Attorney's Fees:
In the event that an action is necessary to enforce the terms of this
Agreement, the prevailing party in such action shall be entitled to recover its
reasonably attorney's fees and costs.
13. Applicable Law:
The laws of the State of Arizona shall govern this Agreement.
14. ARC Numbers:
A current and complete list of ARC numbers included under this Agreement
must be provived to America West within ten (10) business days of submission of
this signed Agreement. This information should be either mailed or e-mailed to:
Laura Loveland
America West Airlines
4000 E. Sky Harbor Blvd. HY-SPO
Phoenix, Arizona 85034
E-mail address: [email protected]
-------------------
If the number of ARC locations exceeds ten (10), Customer agrees to provide ARC
numbers on a 3 1/2" IBM compatible diskette in MS Excel format. The file will
also include the address and phone number for each 8-digit ARC number. Any
additions, deletions or corrections to this ARC list must be submitted to
America West within ten (10) business days of said additions, deletions or
corrections.
CHEAP TICKETS, INC. AMERICA WEST AIRLINES, INC.
By: /s/ Michael J. Hartley By:
----------------------------- ----------------------------
Michael J. Hartley Ron L. Cole
President & CEO Vice President, Sales
Date: 12-18-98 Date:
--------------------------- -----------------------
<PAGE>
Attachment A
[*]
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
<PAGE>
Attachment B
[*]
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
<PAGE>
EXHIBIT 10.12
CREDIT AGREEMENT
Intending to be legally bound by this Credit Agreement ("Agreement"), dated
November 26, 1997, BANK OF HAWAII, a Hawaii corporation, whose address is 130
Merchant Street, Honolulu, Hawaii 96813 (the "Bank") and CHEAP TICKETS, INC., a
Hawaii corporation, whose mailing address is 1440 Kapioiani Boulevard, Suite
800, Honolulu, Hawaii 96814 (the "Borrower") agree as follows:
I. REVOLVING CREDIT AND TERM LOAN OPTION
1.1 In General. Subject to the terms of this Agreement, the Bank hereby
establishes a credit facility in favor of the Borrower (the "Credit Facility")
under which the Bank will extend credit to the Borrower, from time to time until
December 5, 1999 (the "Credit Termination Date"), by way of (i) Loans pursuant
to Section 1.2 hereof and (ii) issuance of standby letters of credit for the
account of the Borrower pursuant to Section 1.2 hereof. Each extension of
credit shall be in such amount as the Borrower may request, but the aggregate
principal amount of all extensions of credit at any one time outstanding shall
not exceed $3,000,000.00 (the "Commitment"). The Borrower may obtain credit,
repay without penalty and obtain further credit as provided for under this
Agreement, from the date hereof until the Credit Termination Date, in either the
full amount of the Commitment or any lesser sum. Upon the Borrower's execution
of this Agreement, the Borrower's existing credit facilities under the Revolving
Line of Credit Agreement and Term Loan Agreement, both dated April 8, 1997,
shall be terminated.
1.2 Drawings. The Borrower may draw on the Commitment in the following
manner(s):
(A) By obtaining a cash advance (each such cash advance herein
referred to as a "Loan").
(B) By obtaining the issuance of standby letters of credit.
1.3 Purpose. The proceeds of the Loans, other extensions of credit under
this Credit Facility and the Term Loan shall be used exclusively for short-term
working capital and to finance various fixed asset acquisitions and investments.
1.4 Security. The Credit Facility, Loans and Term Loan shall be secured
by liens on or security interests in the following collateral ("Collateral"),
which liens or security interests shall be of first priority unless otherwise
approved by the Bank: all of Borrower's right, title and interest in and to
Borrower's Bank of Hawaii deposit accounts, accounts receivable, inventory,
furniture, fixtures and equipment, general intangibles, trade names, licenses
and proceeds of the foregoing.
1.5 Guarantors. Repayment of all Loans, the Term Loan and other
extensions of credit under this Agreement shall be jointly, severally,
unconditionally and absolutely guaranteed by the following persons and/or
entities: None.
1.6 Requests for Loans or Credit. Subject to the provisions of Articles
II and III, Section 7.2 and other terms and conditions of this Agreement, the
Borrower shall have the option on any Business Day to obtain new Loans by
delivering to the Bank a written and completed "Notice of Loan/Conversion" in
the form of Exhibit A attached hereto. A Notice of Loan/Conversion must arrive
no later than noon (Hawaii Standard Time) on the date either one or three
Business Days prior to the proposed disbursement date in the case of a Base Rate
Loan or a LIBOR Loan, respectively.
<PAGE>
If the Borrower fails to timely notify the Bank of the Borrower's selection
of a new Interest Period prior to the expiration of any current Interest Period,
such Loan will automatically be converted to a Base Rate Loan upon expiration of
the current Interest Period.
Unless otherwise directed in writing by the Borrower, all proceeds of Loans
shall be credited to the Borrower's Deposit Account No. 01-042327, maintained
with the Bank.
1.7 Limitation on Loans. LIBOR Loan amounts shall be in minimums of
$100,000 and in multiples of $50,000, with at most six (6) LIBOR Loans
outstanding at any one time.
1.8 Conversions of Base Rate Loans to LIBOR Loans. Subject to the
provisions of Article II and other terms and conditions in this Agreement, the
Borrower shall have the option on any Business Day (the "Conversion Date") to
convert all of the outstanding principal amount of one or more Base Rate Loans
to a LIBOR Loan by giving the Bank a Notice of Loan/Conversion at the Payment
Office no later than noon (Hawaii Standard Time) on the date three (3) Business
Days prior to the proposed Conversion Date; provided that if an Event of Default
is then in existence or if the Pricing Ratio is greater than 3.00, the Borrower
may not convert a Base Rate Loan to a LIBOR Loan. Although no repayment shall
actually be required upon any conversion, the proceeds thereof shall, for
bookkeeping purposes, be deemed to be applied directly to repay the outstanding
principal amount of the Base Rate Loans being converted.
1.9 Interest; Repayment of Loans and Credit.
(A) Interest Rate. The Borrower agrees to pay interest on the
outstanding principal balance of the Loans pursuant to the following interest
rate options that the Borrower may select in accordance with the provisions of
this Agreement:
(1) a floating rate equal to the Base Rate in effect from time to
time; or
(2) LIBOR plus the Applicable Margin determined as follows:
The Applicable Margin shall be determined quarterly in advance and shall
apply to each LIBOR Loan, based on the most recent quarterly financial statement
available, on the basis of the following pricing grid:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
If the Pricing Ratio is Applicable Margin
- -----------------------------------------------------------------------
<S> <C>
greater than 2.25%
or equal to
2.00 but is not
more than 3.00
- -----------------------------------------------------------------------
greater than 2.00%
or equal to
1.00 but is not
more than 1.99
- -----------------------------------------------------------------------
less than or equal to 0.99 1.25%
- -----------------------------------------------------------------------
</TABLE>
<PAGE>
The Borrower may not select the LIBOR interest rate option if the Pricing
Ratio is greater than 3.00 or if an Event of Default is in existence.
The Base Rate will increase or decrease during the term of this Agreement
if there is an increase or decrease in such rate. If the Base Rate or the LIBOR
Rate is no longer available, the Bank will choose a new rate that is based on
comparable information.
Interest hereunder shall be computed, but not compounded, daily on the
basis of the rate of interest then in effect. A change in the Base Rate shall
take effect on the date upon which a change in the Base Rate is announced and
made effective by the Bank, with or without notice to the Borrower. With
respect to any LIBOR Loan, interest will be calculated at a fixed rate for the
applicable Interest Period. Interest hereunder shall be computed on the basis of
the actual number of days elapsed between payments and a 365-day year (or a 366-
day year in leap years) in respect of any Base Rate Loan or a 360-day year in
respect of any LIBOR Loan.
In no event shall the Borrower be obligated to pay any amount under this
Agreement that exceeds the maximum amount allowable by law. If any sum is
collected in excess of the applicable maximum amount allowable by law, the
excess collected shall, at the Bank's discretion, be applied to reduce the
principal balance of the Loans, the Term Loan or returned to the Borrower.
(B) Repayment of Loans.
(1) Payment Schedule.
(a) The Borrower agrees to make monthly payments to the Bank
of all accrued interest on the outstanding principal balance of each Base Rate
Loan on the first day of each month until all amounts owing under the Credit
Facility and the Term Loan are paid in full.
(b) The Borrower agrees to pay interest on the unpaid
principal amount of each LIBOR Loan on the earliest of (i) the last day of the
Interest Period, (ii) the last day of each three month interval occurring during
the Interest Period, or (iii) prepayment of the LIBOR Loan.
<PAGE>
(c) All principal and accrued interest then outstanding
under the Credit Facility shall be due and payable on the Credit Termination
Date, provided, however, that subject to the conditions set forth in Subsection
1.9(B)(1)(d) below, the Borrower shall have the option (the "Term Loan Option")
to convert the aggregate outstanding principal balance of the Loans on the
Credit Termination Date into a term loan (the "Term Loan") payable as follows:
(i) Interest on the principal amount shall be payable
as set forth in Subsections 1.9(B)(1)(a) and 1.9(B)(1)(b).
(ii) Principal payments shall be payable quarterly
beginning ninety (90) days following the Credit Termination Date. The amount of
the principal payments shall be determined on the Credit Termination Date and
shall be calculated as the amount sufficient to fully amortize the aggregate
outstanding principal balance of the Term Loan on the Credit Termination Date in
equal principal payments over a period of three years.
(iii) From time to time the Borrower may convert all or
a portion of the outstanding principal balance under the Term Loan then subject
to the Base Rate to a LIBOR Loan, as provided and subject to the terms and
conditions of Section 1.8, and may continue LIBOR Loans at the end of the
Interest Period relating thereto.
(d) The Borrower's Term Loan Option is expressly conditioned
upon the following:
(i) no Event of Default shall have occurred and be
continuing;
(ii) no earlier than thirty (30) days and no later than
ten (10) days prior to the Credit Termination Date, the Borrower shall provide
to the Bank written notice of the Borrower's election to exercise the Term Loan
Option. Such notice shall set forth the Borrower's interest rate selection(s)
pursuant to Section 1.9(A) and shall include a pro forma compliance certificate,
signed by the Borrower's chief financial officer, in the form attached hereto as
Schedule 1.9 and made a part hereof. Such pro forma compliance certificate shall
be calculated using the financial results from the most recent compliance
certificate submitted to the Bank and shall certify to the Bank that the
Borrower's financial condition at that time meets the following standards, in
each case determined in accordance with GAAP:
Pro Forma Current Ratio of not less than 1.50 to one;
Tangible Net Worth of not less than the amount equal to: $4,800,000, plus
100% of net proceeds of all Equity Offerings after the date hereof, plus 50% of
Borrower's consolidated net earnings, excluding losses, for each quarter
commencing January 1, 1997, to and including the fiscal quarter immediately
preceding the date of determination;
Pro Forma Debt Service Coverage Ratio of not less than 1.50 to one; and
Pro Forma Funded Debt to Cash Flow Ratio of not more than 3.00 to one.
If no interest rate option is set forth in the notice of exercise, the Base
Rate shall apply; and
(iii) satisfaction of the conditions for subsequent
extensions of credit as set forth in Section 3.2.
<PAGE>
(e) The Borrower agrees to pay in full on or before the
Maturity Date all principal and accrued interest then outstanding under the
Credit Facility or the Term Loan, as applicable.
(2) Currency, Place and Dates of Payments. Payments shall be made
in United States money at the Bank's address stated above, or at such other
place as the Bank shall have designated by written notice to the Borrower. Any
payment due on a day that is not a Business Day shall be made on the next
succeeding Business Day and the extension of time shall be included in the
computation of interest.
(3) Evidence of Making and Repayment of Loans. The Bank's records
evidencing the date of disbursement and principal amount of each Loan and the
Term Loan and the amounts of all repayments of principal and payments of
interest on each Loan and the Term Loan shall constitute prima facie evidence of
the making and repayment of such Loans and the Term Loan and of the payment of
such interest. However, the Bank's making of erroneous notations in its records
shall not affect the Borrower's obligation to repay the outstanding balance of
principal under a Loan or the Term Loan, and accrued interest thereon, as
provided in this Agreement.
(4) Late Charges. If any payment under this Agreement is not made
within five (5) days after notice that payment is due, the Borrower will pay to
the Bank a late charge in respect of that payment, in the amount of 5% of the
overdue payment.
(5) Application of Payments. Payments under this Agreement may be
applied by the Bank to the indebtedness evidenced by this Agreement in any
manner the Bank deems appropriate; provided, however, that if no Event of
Default exists, payments applied to the principal amount of the Loans or the
Term Loan outstanding shall be applied first to Base Rate Loans and next to
LIBOR Loans to minimize funding losses payable pursuant to Section 2.1, as
determined by the Bank. The priority of application elected by the Bank on any
one occasion shall not determine any such election in the future.
(C) Repayment of Drawings on Letter of Credit. If the Bank pays a
draft pursuant to a letter of credit issued under the Credit Facility, the
Borrower will automatically repay such draft by way of a Loan made under the
Credit Facility.
1.10 Evidence of Indebtedness; Loan Documents. The Credit Facility and
the Term Loan are or are to be evidenced and/or secured by this Agreement, a
Master Note in the form attached hereto as Exhibit B and all such other
documents as the Bank may reasonably require from time to time to effectuate the
intent of this Agreement, together with all renewals, extensions and
modifications thereto (collectively the "Loan Documents").
1.11 The Borrower's Obligations. The Borrower's obligations to pay,
observe and perform all indebtedness, liabilities, covenants and other
obligations on the part of the Borrower to be paid, observed and performed under
this Agreement and the remainder of the Loan Documents are herein collectively
called the "Obligations".
1.12 Fees. In respect to the Credit Facility and the Term Loan, the
Borrower shall pay:
(A) a facility fee of $7,500.00, of which the Bank acknowledges
receipt of payment in full;
(B) an annual administration fee of $1,200 during the term of the
revolving loan, payable in arrears on the first anniversary of the Closing Date
and on the Credit Termination Date;
<PAGE>
(C) the Bank's standard issuance and documentation fees for letters of
credit;
(D) in quarterly installments in arrears, a 1.25% per annum fee on the
amount of each outstanding standby letter of credit issued pursuant to this
Agreement; and
(E) if the Borrower exercises the Term Loan Option, a fee equal to the
greater of (i) $2,500 or (ii) 0.25% of the indebtedness under the Term Loan.
Such fee shall be paid by the Borrower upon the Bank's receipt and acceptance of
the Borrower's request to exercise the Term Loan Option pursuant to Subsection
1.9(B)(1)(d).
II. FUNDING LOSS AND YIELD PROTECTION PROVISIONS
2.1 Funding Loss Indemnification. If the Borrower shall (a) pay or
convert any LIBOR Loan on any day other than the last day of the applicable
Interest Period (whether on account of a scheduled payment, an optional
prepayment or conversion, a mandatory prepayment or conversion, a payment upon
acceleration or otherwise, but excluding any such payment or conversion made by
the Borrower pursuant to Section 2.4; or (b) fail to borrow any LIBOR Loan after
giving due notice thereof to the Bank; or (c) fail to convert any Base Rate Loan
into a LIBOR Loan after giving due notice thereof to the Bank, the Borrower
shall reimburse the Bank and hold the Bank harmless for all costs, net losses or
administrative overhead incurred as a result of such repayment, prepayment or
failure, except those resulting from the willful misconduct or gross negligence
of the Bank. The Bank may use any reasonable method in calculating such actual
loss, costs and overhead under this Section, which calculation shall be binding
and conclusive on the Borrower absent manifest error.
2.2 Lack of Availability or Profitability of Eurodollar Deposits. With
respect to any LIBOR Loan or conversion requested, if the Bank shall have
determined (a) that dollar deposits in the principal amount of the respective
LIBOR Loan are not generally available in the interbank market; (b) that
reasonable means do not exist for ascertaining LIBOR; or (c) that the rates at
which such dollar deposits are being offered will not adequately and fairly
reflect the Bank's cost of making or maintaining such LIBOR Loan, the Bank
shall, as soon as practicable thereafter, give written or telecopy notice of
such determination to the Borrower. In that event, such Notice of
Loan/Conversion shall be of no force and effect. The Borrower may submit a new
Notice of Loan/Conversion electing a different option. Each determination by the
Bank hereunder shall be conclusive absent manifest error.
2.3 Change in Legality; Additional Costs to the Bank. If after the date
of this Agreement any change in applicable law or regulation or in the
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof (whether or not having the
force of law) shall change the basis of taxation of payments to the Bank or the
principal or interest on any Loans under this Credit Facility or the Term Loan;
impose, modify or hold applicable any fees, reserve requirements, special
deposits or any costs to the Bank in respect of any Loans; or cause a reduction
in the amount of any sum received or receivable by the Bank hereunder; the
Borrower will promptly pay to the Bank such additional amounts as will
compensate the Bank on an after-tax basis for such cost or reduction incurred.
The Bank may use any reasonable method in calculating its additional costs under
this Section, which calculation shall be conclusive absent manifest error. The
Bank shall have no right to recover any compensation pursuant to this Section
2.3 with respect to amounts incurred or accrued more than 180 days prior to the
giving of notice to the Borrower by the Bank thereof.
2.4 Illegality. Notwithstanding anything to the contrary contained in
this Agreement, if any change in any present or future applicable law, rule or
regulation, or in the interpretation or administration thereof by any
governmental authority charged with the administration thereof, or compliance
with any request, guideline, policy or directive (whether or not having the
force of
<PAGE>
law) of any such governmental authority; shall make it unlawful or impracticable
in the sole judgment of the Bank to make, fund or maintain any LIBOR Loan, or
any part of its commitment hereunder, then by notice to the Borrower the
obligation of the Bank to permit interest to be calculated on the basis of LIBOR
or to convert any other types of Loans to LIBOR Loans shall forthwith be
suspended until such time as the Bank shall notify the Borrower that the
circumstances causing such suspension no longer exist. Interest on any such
LIBOR Loans shall automatically convert to an interest rate calculated the basis
of the Base Rate in accordance with the terms governing Base Rate Loans.
2.5 Capital Requirements. If the Bank determines that the introduction of
or change to any law, regulation or any guideline or request from any central
bank or other governmental authority (whether or not having the force of law)
will result in an increase in the amount of capital required or expected to be
maintained by the Bank or any corporation controlling the Bank, and that such
increase is based upon the existence of the Bank's Commitment hereunder and
other commitments of this type, then upon demand the Borrower shall pay the Bank
compensation. A certificate as to the amount of compensation, submitted to the
Borrower by the Bank, shall be conclusive and binding for all purposes absent
manifest error. The Bank shall have no right to recover any compensation
pursuant to this Section 2.5 with respect to amounts incurred or accrued more
than 180 days prior to the giving of notice to the Borrower by the Bank thereof.
III. CONDITIONS PRECEDENT
3.1 First Loan or Other Extension of Credit. The obligation of the Bank
to make the first Loan or other extension of credit under this Agreement is
subject to the satisfaction of all of the following conditions on or before
December 1, 1997:
(A) Documents Required for Closing. The Bank shall have received, in
each case in form and substance satisfactory to the Bank, such fully executed
originals or certified copies as the Bank may have requested of each of the
following, in each case as amended through the Closing Date:
(1) Loan Documents. All of the Loan Documents.
(2) Consents. Evidence that all parties to the Loan Documents
(except the Bank) have obtained all necessary and appropriate authority,
approvals and consents to execute and deliver the Loan Documents.
(3) Organizational Documents. If any party to the Loan Documents
(except the Bank) is a corporation, partnership, trust, association or other
recognized legal entity other than a natural person (a "Legal Entity"), all
instruments pursuant to which such Legal Entity and each Legal Entity comprising
such Legal Entity was organized and by which its internal affairs are governed
and, if requested by the Bank, a Certificate of Good Standing, evidencing such
Legal Entity's good standing and authority to conduct its business in the
jurisdiction(s) in which it conducts its business.
(4) Opinion(s) of Counsel. An opinion or opinions of counsel for
the Borrower, addressed to the Bank, covering to the Bank's satisfaction (i) the
due authorization, execution and delivery of the Loan Documents, (ii) the
existence of any litigation affecting the Borrower or the Collateral, (iii) any
required consents or approvals, (iv) no conflicts with any agreement or laws,
and (v) such other matters as the Bank may require.
(5) Evidence of Priority. Evidence acceptable to the Bank that
the Bank's liens on and/or security interests in the Collateral have the
priority required by the Bank.
(6) Insurance. Evidence of the Borrower's compliance with the
provisions stated below in Section 5.6.
<PAGE>
(B) Certain Other Events. On the Closing Date:
(1) The Borrower shall have paid to the Bank all fees and other
charges required to have been paid in accordance with the terms of the Loan
Documents, including, without limitation, any fees then payable pursuant to
Section 1.12 above.
(2) The representations and warranties contained in Section IV
shall be true.
(3) To event shall have occurred and be continuing that (i)
constitutes an Event of Default, or (ii) with the giving of notice or passage of
time, or both, would constitute an Event of Default.
(4) No material adverse change shall have occurred in the
financial condition of the Borrower since the date of the most recent of the
Borrower's financial statements submitted to the Bank.
(5) No material adverse change shall have occurred in the
physical condition of the Borrower's assets since the date of this Agreement.
(6) All legal matters incidental to the Closing shall be
satisfactory to legal counsel for the Bank.
3.2 Subsequent Loans or Extensions of Credit. The obligation of the Bank
to make the second or any subsequent Loan or other extension of credit is
subject to (i) the prior satisfaction of all conditions stated above in Section
3.1(A), and (ii) the satisfaction as of the date of such subsequent Loan or
other extension of credit of the conditions stated above in Sections 3.1(B) of
this Agreement, and (iii) the delivery to the Bank of such additional Loan
Documents as may have been reasonably requested by the Bank with respect to such
subsequent Loan or other extension of credit .
IV. REPRESENTATIONS AND WARRANTIES
To induce the Bank to make the Commitment available to the Borrower, the
Borrower makes the following representations and warranties to the Bank, which
representations and warranties shall survive the execution of this Agreement and
continue so long as the Borrower is indebted to the Bank under the Loan
Documents, and until payment in full of the Credit Facility and the Term Loan:
4.1 Organization. The Borrower, if it is a Legal Entity, as well as each
Legal Entity comprising the Borrower, is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization, and has
the lawful power to own its properties and to engage in the business it
conducts.
4.2 No Breach. The execution and performance of the Loan Documents will
not immediately, or with the passage of time or the giving of notice, or both:
(A) Violate any law or result in a default under any contract,
agreement, or instrument to which the Borrower is a party or by which the
Borrower or its property is bound; or
(B) Result in the creation or imposition of any security interest in,
or lien or encumbrance on, any of the assets of the Borrower, except in favor of
the Bank.
<PAGE>
4.3 Authorization. The Borrower has the power and authority to incur and
perform the Obligations, and, if the Borrower is a Legal Entity, the Borrower
has taken all corporate, partnership, or other action necessary to authorize the
execution and delivery of the Loan Documents and its incurring of the
Obligations.
4.4 Validity. This Agreement is, and the remainder of the Loan Documents
when delivered will be, legal, valid, binding, and enforceable in accordance
with their respective terms, except as enforcement may be limited by insolvency,
liquidation, reorganization, moratorium, or other laws affecting the enforcement
of creditors' rights in general.
4.5 Financial Statements. All financial statements heretofore given by
the Borrower to the Bank in connection with this Agreement, including any
schedules and notes pertaining thereto, were prepared in accordance with
generally accepted accounting principles, consistently applied ("GAAP"), and
fully and fairly present the financial condition of the Borrower at the dates
thereof and the results of operations for the periods covered thereby, and as of
the date of this Agreement there have been no material adverse changes in the
financial condition or business of the Borrower from the date of the most recent
financial statements given to the Bank.
4.6 Taxes. Except as otherwise permitted by this Agreement, the Borrower
has filed all tax returns it was required by law to have filed prior to the date
of this Agreement, has paid or caused to be paid all taxes, assessments, and
other governmental charges that were due and payable prior to the date of this
Agreement, except those contested in good faith by appropriate action diligently
pursued and for which Borrower has set aside on its books (segregated to the
extent required by sound accounting principles) adequate reserves with respect
thereto, and has made adequate provision for the payment of such taxes,
assessments, or other charges accruing but not yet payable, and the Borrower has
no knowledge of any deficiency or additional assessment in a materially
important amount in connection with any taxes, assessments, or charges not
provided for on its books.
4.7 Compliance With Law. Except to the extent that the failure to comply
would not materially interfere with the conduct of the business of the Borrower,
the Borrower has complied with all applicable laws in respect of: (1)
restrictions, specifications, or other requirements pertaining to products that
the Borrower sells or to the services it performs; (2) the conduct of its
business; and (3) the use, maintenance, and operation of its properties.
4.8 Statements and Omissions. No representation or warranty by the
Borrower contained in this Agreement or in any certificate or other document
furnished by the Borrower pursuant to this Agreement contains any untrue
statement of material fact or omits to state a material fact necessary to make
such representation or warranty not misleading in light of the circumstances
under which it was made.
4.9 No Pending Actions. There is no pending or threatened litigation
affecting the Borrower or any Collateral that is reasonably expected to have a
material adverse effect on the business of the Borrower or the Collateral.
4.10 Equity Offerings. All Equity Offerings were and will continue to be
conducted in full compliance in all material respects with all applicable
federal and state securities laws, rules and regulations.
<PAGE>
V. AFFIRMATIVE COVENANTS
For so long as the Commitment or any of the Obligations remains
outstanding, the Borrower will, unless otherwise permitted by the Bank in
writing:
5.1 Payments. Punctually pay when due all sums which may be due under the
Loan Documents.
5.2 Accounting Records. Maintain accurate and proper accounting records
and books in accordance with GAAP, and provide the Bank with access to such
books and accounting records at the Bank's request during the Bank's normal
business hours.
5.3 Financial Reporting. Furnish the Bank with financial reports,
certified as true and correct by the Borrower's chief financial officer, in
reasonable detail and form approved by the Bank, as follows:
(A) Not later than 120 days after and as of the end of each fiscal
year a financial statement of the Borrower, audited by a firm of independent
certified public accountants acceptable to the Bank, which financial statements
shall include a balance sheet and statements of income and cash flow for such
year, all prepared in accordance with GAAP;
(B) Not later than 60 days after and as of the end of each quarter a
financial statement prepared by the Borrower and satisfactory to the Bank,
including a balance sheet and income statement;
(C) The financial statements required pursuant to clauses (a) and (b)
shall be accompanied by a compliance certificate signed by the Borrower's chief
financial officer in the form attached as Schedule 5.3 certifying (i) the
financial ratios and other requirements referred to in Section 5.10, (ii) the
representations and warranties set forth in Article IV as being true and correct
on and as of such date except as otherwise disclosed, and (iii) that no Event of
Default has occurred or is continuing; and
(D) From time to time such other information as the Bank may
reasonably request.
5.4 Existence. If the Borrower is a Legal Entity, preserve and maintain
the Borrower's legal existence and timely file all necessary and appropriate
documents and exhibits and pay all appropriate fees and charges in connection
therewith.
5.5 Observance of Laws. Conduct the Borrower's business activities in an
orderly, efficient and regular manner and comply with all requirements of all
applicable state, federal and local laws, rules and regulations.
5.6 Insurance. Maintain and keep in force insurance of the types and in
such amounts as are satisfactory to the Bank, and in no event less than amounts
customarily carried in lines of business similar to the Borrower's, including
but not limited to, property and casualty, commercial general liability and
workers' compensation insurance, and provide the Bank with a schedule or
schedules or certificates of insurance from time to time setting forth all
insurance then in effect along with copies of all such policies.
If real or personal properties are given to secure the Obligations or any
guaranty given in support of the Obligations, such properties shall be covered
by property and casualty insurance acceptable to the Bank, and such policies
shall contain a mortgagee's clause and/or lender's loss payable endorsements and
shall require 30 days' prior written notice to the Bank of any cancellation or
material change in coverage.
<PAGE>
If an "insurance binder" is issued as temporary evidence of insurance
coverage, the Borrower must provide to the Bank the original insurance policy at
the earlier of (i) the expiration of the binder, or (ii) thirty (30) days from
the date the insurance binder is issued.
5.7 Facilities. Keep all of the Borrower's property and business premises
in a good state of repair and condition, make all necessary repairs, renewals
and replacements thereto from time to time so that such property and business
premises shall be fully and efficiently preserved and maintained, keep such
property and business premises free and clear of all liens, charges or
encumbrances except those consented to by the Bank in writing and permit the
Bank's authorized representatives to make reasonable inspections of the
Borrower's property and business premises.
5.8 Taxes and Other Liabilities. Pay and discharge when due all of the
Borrower's indebtedness, obligations, assessments and taxes, except such as the
Borrower may in good faith contest or as to which a bona fide dispute may exist,
provided that the Borrower has provided evidence satisfactory to the Bank
regarding the Borrower's ability to pay the disputed items in the event they are
determined to be justly due.
5.9 Notice to the Bank. Promptly give notice to the Bank of (a) the
occurrence of any Event of Default, (b) any change in the name or organizational
structure of the Borrower, (c) any uninsured loss through fire, theft, liability
or property damage exceeding $100,000.00, (d) any pending or threatened
litigation affecting the Borrower or any of the Collateral involving an amount
exceeding $100,000.00, (e) any event which is reasonably expected to have a
material adverse effect on the ability of the Borrower to continue its business
operations in the ordinary course, (f) any change in the Borrower's principal
place of business, and (g) any change in the location of any of the Collateral.
5.10 Financial Condition. Maintain the Borrower's financial condition
according to the following standards, in each such case determined in accordance
with GAAP as of the end of each fiscal quarter:
(A) Current Ratio of not less than 1.15 to one, and increasing to 1.50
to one commencing with the Borrower's financial reporting period ending
September 30, 1997;
(B) Tangible Net Worth of not less than the amount equal to:
$4,800,000, plus 100% of net proceeds of all Equity Offerings after the date
hereof, plus 50% of Borrower's consolidated net earnings, excluding losses, for
each quarter commencing January 1, 1997, to and including the fiscal quarter
immediately preceding the date of determination;
(C) Debt Service Coverage Ratio of not less than 1.25 to one
commencing with the financial reporting period ending March 31, 1998, and
increasing to 1.50 to one commencing with the financial reporting period ending
December 31, 1998; and
(D) Funded Debt to Cash Flow Ratio of not more than 3.00 to one.
5.11 Hazardous Materials. Abide at all times by all applicable hazardous
material laws, rules and regulations and immediately notify the Bank of any
claim or threatened claim affecting any property owned, leased or occupied by
the Borrower.
<PAGE>
VI. NEGATIVE COVENANTS
For so long as the Commitment or any Obligation remains outstanding, the
Borrower will not, without the prior written consent of the Bank:
6.1 Use of Funds. Use any of the proceeds of the Commitment for any
purpose except as set forth in Section 1.3 of this Agreement.
6.2 Merger, Consolidation, Pledge of Stock, Sale of Assets. Merge into or
consolidate with any Legal Entity, acquire or establish any operating
subsidiaries or acquire all or substantially all of the capital stock or assets
of any other legal entity; or sell, assign, transfer, pledge, mortgage, or
otherwise dispose of all or substantially all of the major assets of the
Borrower, except in the ordinary course of its business.
6.3 Business. Materially change the character of the Borrower's current
business, or engage in any type of business other than the Borrower's current
business.
VII. THE BANK'S RIGHTS UPON DEFAULT
7.1 Events of Default. Each of the following events is an "Event of
Default" under this Agreement:
(A) The Borrower's failure to pay within three (3) Business Days after
it is due any sum payable to the Bank under the Loan Documents or under any
other agreement or note between the Bank and the Borrower, whether now existing
or hereafter executed;
(B) The dissolution or insolvency of the Borrower;
(C) The commencement of any proceeding or the taking of any act by or
against the Borrower for any relief under bankruptcy, insolvency or similar laws
for the protection of debtors, or for the appointment of a receiver of the
business or assets of the Borrower or the Borrower's inability (or admission of
inability) to pay its debts as they become due; provided that any such
proceeding or action for relief filed or instigated without the consent of the
Borrower has not been dismissed or undischarged within sixty (60) days;
(D) Any governmental authority having jurisdiction over the Borrower
revokes any authorization or permit materially affecting the Borrower's ability
to do business;
(E) The Borrower defaults in the payment of any indebtedness for
borrowed money owed by the Borrower in an amount in excess of $300,000 to any
person or entity other than the Bank, if such failure results in the
acceleration of such debt;
(F) Any representation, warranty, or other information made or
furnished by the Borrower in respect of the Credit Facility or the Term Loan is
or shall be untrue in any material respect or materially misleading;
(G) The Bank reasonably believes that there has been a material
impairment of or decrease in either the Borrower's ability to pay or perform the
Obligations or the value of the Collateral or any guaranty given to secure
payment of the Obligations, and Borrower has not remedied such impairment or
decrease to the reasonable satisfaction of Bank within 30 days after notice by
Bank;
(H) A final judgment (which alone or with other outstanding final
judgments, but excluding amounts covered by insurance) is rendered against the
Borrower in an aggregate amount of $300,000 or more, and each such judgment is
not discharged or stayed pending appeal within 60 days after entry of such
judgment or is not discharged within 60 days after the expiration of any such
stay;
<PAGE>
(I) Any third party obtains a court order enjoining or prohibiting the
Borrower, or the Bank from performing any of its respective obligations under
the Loan Documents and such order is not discharged within 60 days after its
issuance;
(J) The Borrower fails to pay when due (or prior to delinquency) any
amount relating to any plan governed by the Employee Retirement Income Security
Act of 1974, as amended;
(K) Borrower shall default in its obligations under Sections 5.4, 5.9,
6.1 through 6.3 hereof; or
(L) Borrower shall fail to perform or observe any other term,
covenant, agreement or obligation under this Agreement or any of the other Loan
Documents on the part of the Borrower to be performed or observed, and such
failure does not constitute an Event of Default under Section 7.1 (A) through
(K), above, and any such failure shall remain unremedied after any applicable
grace period provided therefor in this Agreement or in the other Loan Documents,
or if no such grace period is provided, for a period of thirty (30) days after
the earlier of (i) the date written notice thereof shall have been given by the
Bank to the Borrower, or (ii) the date the Borrower should have delivered to the
Bank a written notice of such default or Event of Default pursuant to Section
5.9 hereof.
7.2 The Bank's Rights. If an Event of Default shall occur, the Bank shall
have, in addition to any and all other rights and remedies, legal or equitable,
available to the Bank under any and all of the Loan Documents or at law, the
following additional rights and remedies:
(A) The absolute right to deny to the Borrower any further Loan or
extension of credit (the Bank's obligation to extend any further credit to the
Borrower shall immediately terminate);
(B) The right, at the option of the Bank, to declare, without notice,
the entire principal amount and accrued interest for any Loan, the Term Loan or
extension of credit outstanding under this Agreement, plus any fees and charges
reasonably incurred by the Bank under any of the Loan Documents, immediately due
and payable;
(C) The right, at the option of the Bank, to charge interest on any
principal amount outstanding under this Agreement at the rate equal to the
greater of (i) Base Rate plus 3% or (ii) three percentage points above the
otherwise applicable interest rate; and
(D) The right to the ex parte appointment without bond of a receiver,
without regard to the value of any Collateral or solvency of any party liable
for payment, observance or performance of the Obligations and regardless of
whether the Bank has an adequate remedy at law.
VIII. MISCELLANEOUS
8.1 Further Assurance. From time to time within five Business Days after
the Bank's demand, the Borrower will execute and deliver such additional
documents and provide such additional information as may be reasonably requested
by the Bank to carry out the intent of this Agreement.
<PAGE>
8.2 Enforcement and Waiver by the Bank. The Bank shall have the right at
all times to enforce the provisions of the Loan Documents, as they may be
amended from time to time, in strict accordance with their terms,
notwithstanding any conduct or custom on the part of the Bank in refraining from
so doing at any time or times. The failure of the Bank at any time or times to
enforce its rights under such provisions, strictly in accordance with the same,
shall not be construed as having created a custom in any way or manner contrary
to specific provisions of the Loan Documents or as having in any way or manner
modified or waived the same. All rights and remedies of the Bank are cumulative
and concurrent and the exercise of one right or remedy shall not be deemed a
waiver or release of any other right or remedy.
8.3 Expenses of the Bank. The Borrower will, on demand, reimburse to the
Bank all reasonable expenses, including reasonable attorneys' fees (including
allocated costs of the Bank's in-house counsel), incurred by the Bank in
connection with the amendment, modification, workout, or enforcement of the Loan
Documents and the collection or attempted collection of the indebtedness
evidenced by the Loan Documents, whether or not legal proceedings are commenced.
8.4 Notices. Any notices or consents required or permitted by this
Agreement or the remainder of the Loan Documents shall be in writing and shall
be deemed delivered if delivered in person or if sent by certified mail, postage
prepaid, return receipt requested, or by FAX, at the following addresses or FAX
numbers, unless such address or FAX number is changed by written notice
hereunder:
BORROWER BANK
Paul Ouyang, Peter S. Ho, Vice President
Executive Vice President and BANK OF HAWAII
Chief Financial Officer Corporate Hawaii Division
CHEAP TICKETS, INC. P.O. Box 2900
6151 West Century Boulevard Honolulu, Hawaii 96846
Suite 1200 PHONE: (808) 537-8870
Los Angeles, California 90045 FAX: (808) 537-8943
PHONE: (310) 641-1262
FAX: (310) 342-9995
8.5 Waiver and Release by the Borrower. To the maximum extent permitted by
applicable law, the Borrower (and each of them, if more than one):
(A) Waives notice and opportunity to be heard, after acceleration of
the indebtedness evidenced by the Loan Documents, before exercise by the Bank of
the remedy of setoff or of any other remedy or procedure permitted by any
applicable law or by any prior agreement with the Borrower, and, except where
specifically required by this Agreement or by any applicable law, notice of any
other action taken by the Bank;
(B) Waives presentment, demand for payment, notice of dishonor, and
any and all other notices or demands in connection with the delivery,
acceptance, performance, or enforcement of this Agreement, and consents to any
extension of time (and even multiple extensions of time for longer than the
original term), renewals, releases of any person or organization liable for the
payment of the Obligations under this Agreement, and waivers or modifications or
other indulgences that may be granted or consented to by the Bank in respect of
the Loans, the Term Loan and other extensions of credit evidenced by this
Agreement; and
(C) Releases the Bank and its officers, agents, and employees from all
claims for loss or damage caused by any act or omission on the part of any of
them except gross negligence or willful misconduct.
<PAGE>
8.6 Sales and Participations. The Borrower consents to the Bank's
negotiation, offer, and sale to third parties ("Participants") of the Credit
Facility or the Term Loan or participating interests in the Credit Facility or
the Term Loan, to any and all discussions and agreements heretofore or hereafter
made between the Bank and any Participant or prospective Participant regarding
the interest rate, fees, and other terms and provisions applicable to the Credit
Facility or the Term Loan (as between any such Participant and the Bank). The
Bank shall obtain the Borrower's written consent, which consent shall not be
unreasonably withheld prior to the Bank's disclosure to any Participant or
prospective Participant other than any competitor of the Borrower, from time to
time, of such financial and other information pertaining to the Borrower, the
Credit Facility and the Term Loan as the Bank and such Participant or
prospective Participant may deem appropriate (whether public or non-public,
confidential or non-confidential, and including information relating to any
insurance required to be carried by the Borrower and any financial or other
information bearing on the Borrower's creditworthiness and the value of any
Collateral). The Borrower acknowledges that the Bank's disclosure of such
information to any Participant or prospective Participant constitutes an
ordinary and necessary part of the process of effectuating and servicing the
Credit Facility and the Term Loan. No Participant shall have any right to
approve any amendment to, or any consent or waiver with respect to, this
Agreement or any other Loan Document except to the extent such amendment,
consent or waiver would: (A) increase or extend the Commitment of the Bank, (B)
postpone or delay any date fixed for any payment of principal specified herein,
(C) reduce the principal of, or the rate of interest specified herein (other
than interest payable after a default), under the Credit Facility or the Term
Loan or (D) release a substantial portion of the Collateral.
8.7 Applicable Law. The substantive laws of the State of Hawaii shall
govern the construction of this Agreement and the rights and remedies of the
parties hereto.
8.8 Binding Effect. This Agreement shall inure to the benefit of the
parties hereto and their respective heirs, personal representatives, successors
and permitted assigns, and shall be binding on the parties hereto and their
respective heirs, personal representatives, successors and assigns.
8.9 Merger. This Agreement and the remainder of the Loan Documents
constitute the full and complete agreement between the Bank and the Borrower
with respect to the Credit Facility and the Term Loan, and all prior oral and
written agreements, commitments, and undertakings shall be deemed to have been
merged into the Loan Documents and such prior oral and written agreements,
commitments, and undertakings shall have no further force or effect except to
the extent expressly incorporated in the Loan Documents.
8.10 Amendments; Consents. No amendment, modification, supplement,
termination, or waiver of any provision of this Agreement or the other Loan
Documents, and no consent to any departure by the Borrower therefrom, may in any
event be effective unless in writing signed by the Bank, and then only in the
specific instance and for the specific purpose given.
8.11 Assignments.
(A) The Borrower shall have no right to assign any of its rights or
obligations under the Loan Documents without the prior written consent of the
Bank.
<PAGE>
(B) The Bank may sell participations in the Credit Facility or the
Term Loan, as contemplated by Section 8.6 above, and the Bank may assign the
Loan Documents (or the receivables evidenced thereby) to a Federal Reserve Bank
or to any other agency or instrumentality of the United States of America to
support borrowings of Federal Funds.
8.12 Severability. If any provision of any of the Loan Documents shall be
held invalid under any applicable law, such invalidity shall not affect any
other provision of the Loan Documents that can be given effect without the
invalid provision, and, to this end, the provisions of the Loan Documents are
severable.
8.13 The Bank's Right of Setoff; Security Interest in Accounts. After the
occurrence and during the continuance of an Event of Default, the Bank may set
off obligations owed by the Bank to the Borrower (such as balances in checking
and savings accounts) against the Obligations, without first resorting to other
Collateral. To secure the Obligations, the Borrower grants to the Bank a
security interest in all checking, savings, and other deposit accounts now or
hereafter maintained by the Borrower with the Bank.
8.14 Time is of the Essence. Time is of the essence under and in respect
of this Agreement.
8.15 Joint and Several Liability. If more than one Borrower has signed
this Agreement, all Borrowers shall be liable under this Agreement jointly, and
each of them severally, for the payment, observance, and performance of all of
the Obligations.
8.16 Headings. The headings of the various provisions of this Agreement
are inserted for convenience of reference only and shall not affect the meaning
or construction of any provision.
8.17 Counterparts. This Agreement may be executed in counterparts, each of
which shall be an original instrument and all of which shall together constitute
one and the same agreement.
8.18 Dispute Resolution. Any controversy or claim arising out of or
relating to this Agreement or any of the other Loan Documents shall, at the
request of either party, be decided by binding arbitration conducted in the
State of Hawaii without a judge or jury, under the auspices of the American
Arbitration Association or Dispute Prevention and Resolution, Inc. in accordance
with Chapter 658 of the Hawaii Revised Statutes and the respective and
applicable rules of the aforementioned organizations. The arbitrator will apply
any applicable statute of limitations and will determine any controversy
concerning whether an issue is arbitrable. Judgment upon the arbitration award
may be entered in any court having jurisdiction. The prevailing party will be
entitled to recover its reasonable attorneys' fees and costs as determined by
the arbitrator. This agreement to arbitrate shall not limit or restrict the
right, if any, of any party to exercise before, during or following any
arbitration proceeding, with respect to any claim or controversy, self-help
remedies such as setoff, to foreclose a mortgage or lien or other security
interest in any Collateral judicially or by power of sale, or to obtain
provisional or ancillary remedies such as injunctive relief from a court having
jurisdiction. Either party may seek those remedies without waiving its right to
submit the controversy or claim in question to arbitration.
<PAGE>
IX. DEFINITIONS
9.1 Applicable Margin shall have the meaning given in Section 1.9.
9.2 Base Rate means the primary index rate established from time to time
in good faith by the Bank in the ordinary course of its business and with due
consideration of the money market, and published by intrabank circular letters
or memoranda for the guidance of its loan officers in pricing all of its loans
which float with the Base Rate.
9.3 Base Rate Loan means any Loan or any portion of the Term Loan for
which interest is calculated on the basis of the Base Rate.
9.4 Business Day means any day on which the Bank is open for business and,
with respect to any LIBOR Loan, a day on which the Bank and commercial banks in
New York City are open for business.
9.5 Closing Date means the date on which the Bank disburses the first
Loan.
9.6 Collateral shall have the meaning given in Section 1.4.
9.7 Commitment shall have the meaning given in Section 1.1.
9.8 Conversion Date shall have the meaning given in Section 1.6.
9.9 Credit Facility shall have the meaning given in Section 1.1.
9.10 Credit Termination Date shall have the meaning given in Section 1.1.
9.11 Current Assets means all assets of the Borrower, on a consolidated
basis, that should, in accordance with GAAP, be classified as current assets on
the Borrower's financial statements.
9.12 Current Liabilities means all liabilities of the Borrower, on a
consolidated basis, that should, in accordance with GAAP, be classified as
current liabilities on the Borrower's financial statements.
9.13 Current Ratio means the number, rounded to the nearest hundredth,
obtained by dividing Current Assets by Current Liabilities.
9.14 Debt Service means, for the four (4) fiscal quarter period immediately
preceding the date of determination, the sum of all scheduled and of all
required payments during such period in respect of all Funded Debt.
9.15 Debt Service Coverage Ratio means the number, rounded to the nearest
hundredth, obtained by dividing Net Cash Flow by Borrower's Debt Service.
9.16 Equity Offering means the offering or sales of ownership interests in
Borrower, excluding any such offerings made pursuant to an employee benefit
plan.
9.17 Event of Default shall have the meaning given in Section 7.1.
9.18 Funded Debt means, on and as of the date of calculation thereof, the
aggregate principal amount, determined in accordance with GAAP, of all
obligations for borrowed money, including, without limitation, obligations under
guaranties, all recourse obligations on investments, all obligations evidenced
by bonds, debentures, notes or other similar instruments, standby letters of
credit, and all obligations under leases which shall have been or should be, in
accordance with GAAP, recorded as capital leases.
<PAGE>
9.19 Funded Debt to Cash Flow Ratio means the number, rounded to the
nearest hundredth, obtained by dividing (i) Borrower's Funded Debt, less
Borrower's cash balances, as of the date of calculation thereof, in excess of
$1,500,000, divided by (ii) Net Cash Flow.
9.20 GAAP shall have the meaning given in Section 4.5.
9.21 Interest Period means the period commencing on the Business Day on
which a LIBOR Loan is disbursed, rolled over or converted from another pricing
option, and ending on the date 30, 60, 90 or 180 days thereafter, as selected by
the Borrower in its Notice of Loan/Conversion in respect of LIBOR Loans;
provided that if such ending date is not a Business Day, such ending date shall
be deemed to be the next succeeding Business Day unless such next succeeding
Business Day falls in a new calendar month, in which case the ending date shall
be the next preceding Business Day. No Interest Period shall extend beyond the
Maturity Date.
9.22 Legal Entity shall have the meaning given in Section 3.1(A)(3).
9.23 LIBOR means the reserve-adjusted rate of interest per annum, rounded
upward if necessary, to the nearest four decimal places, at which U.S. dollar
deposits in immediately available funds are offered to major banks in the
interbank market at 11:00 a.m. New York time three Business Days prior to the
commencement of an Interest Period. The Bank shall establish LIBOR for each
Interest Period based on offered rates as reported by reporting services
generally used by the Bank. Rates are quoted based on both the Interest Period
and the amount of Loan requested by the Borrower. Such rate shall incorporate
the following adjustment for any reserve requirements relative to dollar
deposits, placed on the Bank by any regulatory body:
<TABLE>
<S> <C>
LIBOR (Unadjusted)
LIBOR (Reserve Adjusted) = (100% - LIBOR Reserve Requirement)
-------------------------------------------------------------
</TABLE>
The Bank's determination of LIBOR shall be binding and conclusive upon the
Borrower absent manifest error.
9.24 LIBOR Loan means any Loan or any portion of the Term Loan for which
interest is calculated on the basis of LIBOR.
9.25 LIBOR Reserve Requirement means the then maximum effective rate per
annum (expressed as a percentage), as determined solely by the Bank, of reserve
requirements imposed by any regulatory body (such as those pursuant to
Regulation D of the Board of Governors of the Federal Reserve System) on
eurocurrency liabilities of U.S. banks having a term to maturity equal to the
applicable Interest Period; and as adjusted by the Bank for changes or scheduled
changes in such percentage during the applicable Interest Period.
9.26 Loan shall have the meaning given in Section 1.2.
9.27 Loan Documents shall have the meaning given in Section 1.10.
9.28 Maturity Date means the Credit Termination Date, or if the Borrower
exercises the Term Loan Option in accordance with Subsection 1.9(B)(1)(d), the
third (3rd) anniversary of the Credit Termination Date.
9.29 Net Cash Flow means, for the twelve (12) month period immediately
preceding the date of determination, Borrower's net income after taxes, net of
extraordinary gains, plus depreciation, non-cash amortization and interest
expense, all determined in accordance with GAAP.
<PAGE>
9.30 Notice of Loan/Conversion shall mean a written notice in the form
attached as Exhibit A.
9.31 Obligations shall have the meaning given in Section 1.11.
9.32 Participant shall have the meaning given in Section 8.6.
9.33 Payment Office shall mean Bank of Hawaii, Corporate Hawaii Division,
130 Merchant Street, Honolulu Hl 96813.
9.34 Pricing Ratio means the number, rounded to the nearest hundredth,
obtained by dividing (i) Borrower's Funded Debt divided by (ii) Net Cash Flow.
9.35 Pro Forma Current Liabilities means Current Liabilities, less the
amounts attributable to principal under the Credit Facility, plus the aggregate
amount of indebtedness under the Term Loan divided by three (3).
9.36 Pro Forma Debt Service means Debt Service, less the amounts
attributable to principal and interest under the Credit Facility, plus Pro Forma
Principal and Pro Forma Interest.
9.37 Pro Forma Debt Service Coverage Ratio means the number, rounded to the
nearest hundredth, obtained by dividing Net Cash Flow by the Borrower's Pro
Forma Debt Service.
9.38 Pro Forma Funded Debt means Funded Debt, less the amounts attributable
to principal under the Credit Facility, plus the aggregate amount of
indebtedness under the Term Loan.
9.39 Pro Forma Interest means, for the twelve month period following the
Credit Termination Date, the amount of interest to accrue on the aggregate
amount of indebtedness under the Term Loan determined using, at the Borrower's
option, either the Base Rate or LIBOR (based upon the rate for a 30-day LIBOR
Loan) plus Applicable Margin, as set forth in Section 1.9(A).
9.40 Pro Forma Principal means the aggregate amount of indebtedness under
the Term Loan divided by three (3).
9.41 Tangible Net Worth means that amount, determined on a consolidated
basis in accordance with GAAP, that is equal to the Borrower's total assets less
intangible assets, minus total liabilities.
9.42 Term Loan shall have the meaning given in Subsection 1.9(B)(1)(c).
9.43 Term Loan Option shall have the meaning given in Subsection
1.9(B)(1)(c).
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Bank have duly executed this
Agreement.
CHEAP TICKETS, INC. BANK OF HAWAII
By: /s/ Michael J. Hartley By: /s/
---------------------------- ---------------------------
Michael J. Hartley Its Vice President
Its President and Chief
Operating Officer
Borrower Bank
<PAGE>
Schedule 1.9
------------
Pro Forma Compliance Certificate
DATE: ____________, 199__
TO: Bank of Hawaii
Attn: Peter S. Ho, Vice President
P.O. Box 2900
Honolulu, Hawaii 96846
Telecopier No.: (808) 537-8943
SUBJECT: Credit Agreement (the "Agreement") dated __________, 1997, between the
BANK OF HAWAII (the "Bank") and CHEAP TICKETS, INC. (the "Borrower").
Pursuant to Section 1.9 of the Agreement, the Borrower hereby certifies as
follows (capitalized terms not defined herein shall have the respective meanings
assigned in the Agreement):
1. The information furnished in Attachment A hereto is true and correct as the
last day of the fiscal quarter preceding the date of this Compliance
Certificate.
2. The representations and warranties set forth in Section IV of the Agreement
are true and correct on and as of the date hereto, provided that the
representations and warranties set forth in the first sentence of Section 4.5
of the Agreement shall be deemed to be made with respect to the financial
statements delivered to the Bank concurrently herewith pursuant to the
Agreement.
3. As of the date hereof, no event has occurred and is continuing that (a)
constitutes an Event of Default under the Agreement, or (b) with the giving
of notice or passage of time, or both, would constitute an Event of Default.
The Borrower has observed and performed all of the Borrower's covenants and
other agreements, and satisfied every condition, contained in the Agreement
and in the other Loan Documents, to be observed, performed or satisfied by
the Borrower.
CHEAP TICKETS, INC.
By:
---------------------------
Michael J. Hartley
Its President and Chief
Operating Officer
Authorized Signatory
Borrower
<PAGE>
Attachment A
To Pro Forma Compliance Certificate
Dated _________
PRO FORMA CURRENT RATIO (attach calculation)
Required minimum: 1.50 to one _________________
TANGIBLE NET WORTH (attach calculation)
Required minimum: $4,800,000,
plus 100% of net proceeds from all
Equity Offerings after the date hereof,
plus 50% of Borrower's consolidated
net earnings, excluding losses, for each quarter
commencing January 1, 1997, to and including
the fiscal quarter immediately preceding
the date of determination. $_________________
PRO FORMA DEBT SERVICE COVERAGE RATIO (attach calculation
indicating interest rate)
Required minimum: 1.50 to one _________________
PRO FORMA FUNDED DEBT TO CASH FLOW RATIO (attach calculation)
Permitted maximum: 3.00 to one _________________
PRICING RATIO (attach calculation) _________________
<PAGE>
Master Note
$3,000,000.00 Honolulu, Hawaii
_______________, 1997
The undersigned ("Borrower") promises to pay to the order of BANK OF HAWAII
("Bank") the principal amount of $3,000,000.00 or so much thereof as shall have
been disbursed by Bank and may remain outstanding, together with interest on
outstanding balances of principal in accordance with and under the terms of that
certain Credit Agreement of even date, between Bank and Borrower.
CHEAP TICKETS, INC.
By:
----------------------------
Michael J. Hartley
Its President and Chief
Operating Officer
Authorized Signatory
Borrower
<PAGE>
SECURITY AGREEMENT
1. Parties; Grant of Security Interest. CHEAP TICKETS, INC., a Hawaii
corporation, ("Borrower"), whose address is 1440 Kapiolani Boulevard, Suite 800,
Honolulu, Hawaii 96814, hereby grants to BANK OF HAWAII, a Hawaii corporation
("Bank"), whose mailing address is P.O. Box 2900, Honolulu, Hawaii 96846, a
security interest in the collateral described in Schedule A attached to this
Agreement ("Collateral").
2. Obligations Secured. Borrower has granted the security interest in the
Collateral to Bank for the purpose of securing the payment of all indebtedness
evidenced by or arising out of or in connection with that certain Credit
Agreement of even date by and between Borrower and Bank, as it may be modified
or amended from time to time (the "Loan Agreement"), and the observance and
performance of all obligations to be observed or performed by Borrower under
this Agreement and the Loan Documents, as defined in the Loan Agreement,
together with all modifications thereto. All obligations referred to in this
Section 2 are herein called "Obligations".
3. Representations and Warranties. Borrower represents and warrants as
follows:
(a) Priority. Unless otherwise consented to by Bank in writing, the
security interests granted to Bank by this Agreement now do and hereafter will
constitute security interests of first priority.
(b) Ownership. Borrower is, and, as to Collateral acquired by it from
time to time after the date hereof, Borrower will be, except as may otherwise be
permitted by Bank in writing and so long as any Obligations remain outstanding,
the owner of all Collateral free from any encumbrances other than Bank's
security interest therein, and Borrower shall defend the Collateral against any
and all claims and demands of all persons at any time claiming any interest
therein in any manner materially adverse to Bank.
(c) Office. Borrower's chief executive office is located at the address
stated in Section 1, above. Borrower shall not move its chief executive office
without having given Bank 45 days' prior written notice. Evidence of all
Collateral and the only original books of account and records of Borrower
relating thereto are, and will continue to be, kept at Borrower's chief
executive office.
(d) Location of Collateral. All Inventory and Equipment included in the
Collateral, held on the date hereof by Borrower, is located in the State of
Hawaii or at such other locations described in any Schedule A, attached hereto,
except for Inventory and Equipment in transit in the ordinary course of business
to or from one or more of such locations. All Inventory and Equipment now held
or subsequently acquired shall be kept at locations previously provided to Bank,
which locations Borrower will certify and update from time to time at Bank's
request (except for Inventory and Equipment which may at any one time be in
transit in the ordinary course of business), or such new location as Borrower
may establish if (1) it shall have given at least 45 days' prior written notice
to Bank of its intention so to do, describing such new location and providing
such other information in connection therewith as Bank may reasonably request,
and (2) with respect to such new location Borrower shall take all action
reasonably requested by Bank to maintain the perfection of the security interest
in the Collateral intended to be granted hereby.
(e) Power. Borrower has full power and authority and legal right to grant
to Bank a security interest in the Collateral pursuant to this Agreement.
<PAGE>
(f) Consents. No consent of any other party (including, without
limitation, creditors of Borrower) and no consent, authorization, approval, or
other action by, and no notice to or filing with, any governmental authority is
required either (1) for the grant to Bank of a security interest in the
Collateral pursuant to this Agreement or for the execution, delivery or
performance of this Agreement by Borrower or (2) for the exercise by Bank of the
rights provided for in this Agreement.
4. Supplements; Further Assurances. Borrower agrees that at any time and from
time to time at its expense, Borrower will promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or that Bank deems appropriate or advisable, in order to initially
perfect and thereafter preserve and protect any security interest granted or
purported to be granted hereby or to enable Bank to exercise and enforce its
rights and remedies hereunder.
5. Special Provisions Regarding Receivables Collateral. If Receivables are
included in the Collateral:
(a) Location of Records. All records pertaining to the Receivables
(including computer records) and all returns of Inventory are or will be kept at
the chief executive office of Borrower, and Borrower will give Bank 45 days'
prior written notice of any change in address of the chief executive office of
Borrower or of the change of the location where records pertaining to
Receivables or returns of Inventory are kept.
(b) Accuracy of Records. All books, records and documents relating to the
Receivables (including computer records) are and will be genuine and in all
respects what they purport to be; and the amount of each Receivable shown on the
books and records of Borrower is and will be the correct amount actually owing
or to be owing at maturity of such Receivable.
(c) Collection of Receivables. Until Bank directs otherwise, Borrower
shall use reasonable efforts in good faith to collect all the Receivables as and
when they become due. Following Bank's demand for remittance of the Receivables
to Bank, proceeds of Receivables collected by Borrower shall not be commingled
with other funds of Borrower and shall be immediately delivered to Bank in the
form received except for necessary endorsements to permit collection.
(d) Government Contracts. Borrower shall notify Bank if any Receivables
arise out of contracts with the United States government or any department or
agency thereof, and Borrower shall execute any instruments and take any steps to
perfect the assignment of the rights of Borrower to Bank as required by the
Federal Assignment of Claims Act, Hawaii Revised Statutes, as amended, or any
other similar law or regulation.
(e) Analysis of Receivables. Borrower shall, upon Bank's request, furnish
Bank within 10 days after the end of each calendar month, an aged analysis of
all outstanding Receivables, in form and substance satisfactory to Bank.
(f) Further Documents. Borrower shall provide to Bank, at Bank's request,
from time to time: confirmatory assignment schedules; copies of all invoices
relating to the Receivables; evidence of shipment or delivery of Inventory; and
further information and/or schedules as Bank may reasonably require, all in form
satisfactory to Bank.
<PAGE>
6. Protection and Insurance of Collateral. Borrower will take reasonable
efforts in good faith, at all times, to protect the Collateral against damage or
loss. Borrower will also insure all insurable Collateral against such hazards
and in such amounts as Bank may require, under policies containing endorsements
naming Bank as loss payee and prohibiting any cancellation or material revision
in such policies without 30 days' prior written notice to Bank.
7. Tax and Other Liens. Borrower shall pay promptly when due all taxes,
assessments and governmental charges or levies imposed upon, and all claims
(including claims for labor, materials and supplies) against, the Collateral,
except to the extent the validity thereof is being contested in good faith.
8. Bank Appointed Attorney-in-Fact. Borrower hereby appoints Bank Borrower's
attorney-in-fact, with full power of substitution, and with full authority in
the name, place and stead of Borrower, or otherwise, from time to time, after an
Event of Default has occurred and is continuing, in Bank's discretion to take
any action and to execute any instrument which Bank may reasonably deem
necessary or advisable to accomplish the purposes of this Agreement. Such action
includes, without limitation, withdrawal from a time deposit account before
maturity, even if a forfeiture of accrued interest results. Said power of
attorney is irrevocable, being coupled with an interest, and shall not be
affected by the disability or incapacity of Borrower.
9. Reasonable Care. Bank shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equivalent to that which Bank, in
its individual capacity, accords its own property. Bank shall have no
responsibility for taking any necessary steps to preserve rights against any
other persons with respect to any Collateral.
10. Events of Default.
(a) Definition. As used in this Agreement, the term "Event of Default"
has the meaning given to it in the Loan Agreement.
(b) Remedies; Obtaining the Collateral Upon Event of Default. If any Event
of Default shall have occurred and be continuing, then and in every such case,
Bank may, at any time or from time to time during such Event of Default:
(1) Personally, or by agents or attorneys, immediately take
possession of the Collateral or any part thereof, with or without notice or
process of law, and for that purpose may enter upon the premises where any
of the Collateral is located and remove the same;
(2) Instruct the obligor or obligors on any agreement, instrument or
other obligation constituting Collateral to make any payment required by
the terms of such instrument or agreement directly to Bank;
(3) Withdraw all monies, securities and instruments included in the
Collateral, for application to the Obligations;
(4) Sell or otherwise liquidate, or direct Borrower to sell or
otherwise liquidate, any or all investments made in whole or in part with
the Collateral or any part thereof, and take possession of the proceeds of
any such sale or liquidation; and
<PAGE>
(5) Take possession of the Collateral or any part thereof, by
directing Borrower in writing to deliver it to Bank at any place or places
designated by Bank, in which event Borrower shall at its own expense:
(i) cause the same to be moved to the place or places so
designated by Bank;
(ii) store and keep any Collateral so delivered to Bank at such
place or places pending further action by Bank as provided in Section
10.(c) below; and
(iii) while the Collateral shall be so stored and kept, provide
such guards and maintenance services as shall be necessary to protect
the same and to preserve and maintain them in good condition.
(c) Remedies; Disposition of the Collateral. Bank may from time to time
exercise in respect of the Collateral, in addition to other rights and remedies
provided for herein or otherwise available to it, all the rights and remedies of
a secured party under the Uniform Commercial Code in effect in the State of
Hawaii at the time of an Event of Default. Bank may also, without notice except
as specified below, sell the Collateral or any part thereof at public or private
sale, at any exchange, broker's board or at any of Bank's offices or elsewhere,
for cash, on credit or for future delivery, and at such price or prices and upon
such other terms as Bank may deem commercially reasonable. Bank may be the
purchaser of any or all of the Collateral at any such sale to the extent
permitted by law and shall be entitled, for the purpose of bidding and making
settlement or payment of the purchase price for all or any portion of the
Collateral sold at such sale, to use and apply any of the Obligations as a
credit on account of the purchase price. Each purchaser at any such sale shall
acquire the property sold absolutely free from any claim or right on the part of
Borrower, and Borrower hereby waives (to the fullest extent permitted by law)
all rights of redemption, stay or appraisal under any rule of law or statute now
existing or hereafter enacted. To the extent notice of sale shall be required by
law, at least ten days' notice to Borrower of the time and place of any public
sale or the time after which any private sale is to be made shall constitute
reasonable notification. Bank shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. Bank may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and any such sale may, without further notice, be made at the
time and place at and to which it was so adjourned. Borrower waives (to the
fullest extent permitted by law) any claims against Bank arising by reason of
the fact that the price at which any Collateral may have been sold at a private
sale was less than the price which might have been obtained at a public sale,
even if Bank accepts the first offer received and does not offer such Collateral
to more than one offeree.
11. Application of Proceeds. After and during the continuance of an Event of
Default, any cash held by Bank as Collateral and all cash proceeds received by
Bank in respect of any sale of, collection from, or other realization upon all
or any part of the Collateral shall be applied from time to time:
(a) First, to the payment of the costs and expenses of such sale,
collection or other realization, including compensation to Bank's agents and
attorneys, and all expenses, liabilities and advances made or incurred by Bank
in connection therewith;
(b) Second, to the payment of the Obligations then due; and
(c) Third, after payment in full of all Obligations then due, to Borrower,
or to whomsoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct, any surplus then remaining from such
proceeds.
<PAGE>
12. No Waiver. No failure on the part of Bank to exercise, and no course of
dealing with respect to, and no delay in exercising, any right, power or remedy
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise by Bank of any right, power or remedy hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The remedies herein provided (are to the fullest extent permitted by law)
cumulative and are not exclusive of any remedies provided by law.
13. Notices. Any notices or consents required or permitted by this Agreement
shall be in writing and shall be deemed delivered if delivered in person or if
sent by certified mail, postage prepaid, return receipt requested, or by FAX, to
Borrower or Bank at the addresses set forth in Section 1, above, unless such
address is changed by written notice hereunder.
14. Applicable Law. The laws of the State of Hawaii shall govern the
construction of this Agreement and the rights and remedies of the parties
hereto.
15. Binding Effect and Entire Agreement. This Agreement shall inure to the
benefit of, and shall be binding on, Bank and its successors and assigns and
Borrower and its successors and assigns. This Agreement, together with all other
documents evidencing or securing the Obligations, constitutes the entire
agreement between Bank and Borrower.
16. Amendments; Consents. No amendment, modification, supplement, termination,
or waiver of any provision of this Agreement, and no consent to any material
departure by Borrower therefrom, may in any event be effective unless in writing
signed by Bank, and then only in the specific instance and for the specific
purpose given.
17. Severability. If any provision of this Agreement shall be held invalid
under any applicable law, such invalidity shall not affect any other provision
of this Agreement that can be given effect without the invalid provision, and,
to this end, the provisions of this Agreement are severable.
IN WITNESS WHEREOF, Borrower and Bank have duly executed this Agreement
this 26th day of November, 1997.
CHEAP TICKETS, INC. BANK OF HAWAII
By /s/ Michael J. Hartley By /s/
------------------------- -------------------------
Michael J. Hartley Its Vice President
Its
Borrower Bank
<PAGE>
SCHEDULE A
For purposes of this Schedule A, CHEAP TICKETS, INC. is called "Debtor".
Debtor has granted to BANK OF HAWAII a security interest in the following
Collateral:
1. Bankoh Deposit Accounts. All demand, time, savings and other deposit
accounts now or hereafter maintained by Debtor with Bank of Hawaii.
2. Equipment. All of Debtor's equipment, whether now existing or hereafter
acquired, including, in each case, all modifications, alterations, repairs,
substitutions, additions and accessions thereto, all replacements thereof, and
all substitutions therefor.
3. Fixtures. All of Debtor's fixtures, now owned or hereafter acquired,
including without limitation, fixtures located at 1440 Kapiolani Boulevard,
Suite 800, Honolulu, Hawaii 96814, the owner of record of which is Tosei
Properties, Inc., or at 6151 West Century Boulevard, Suite 1200, Los Angeles,
California 90045, the owner of record of which is General Electric Credit
Equities, Inc., or at the real property described in Exhibit A attached hereto,
the owner of record of which is Debtor, or at such other location as hereafter
located and all replacements thereof and substitutions therefor.
4. Furniture and Furnishings. All of Debtor's furniture and furnishings, now
owned or hereafter acquired, and all replacements thereof and substitutions
therefor.
5. General Intangibles. All of Debtor's "general intangibles", as that term is
defined in Section 490:9-106 of the Hawaii Revised Statutes.
6. Inventory. All of Debtor's inventory, whether now existing or hereafter
acquired, including, without limitation, raw materials, supplies, work in
process, returned goods, samples and consigned goods to the extent of the
consignee's interest therein.
7. Receivables. All of Debtor's rights to payment for goods sold or leased or
services performed by Debtor or any other party, whether now in existence or
arising from time to time hereafter, including, without limitation, rights
evidenced by accounts, notes, contracts, security agreements, chattel paper or
other evidences of indebtedness, together with (a) all security granted to
Debtor to secure the foregoing, (b) general intangibles arising out of Debtor's
rights in any goods, the sale of which gave rise thereto, and (c) all
guaranties, endorsements and indemnifications on or of any of the foregoing.
8. Tradenames and Licenses. All of Debtor's tradenames and license agreements
with respect to any patents, trademarks, service marks or copyrights, whether
Debtor is a licensor or licensee under such license agreements, together with
all (a) renewals, extensions, supplements and continuations thereof, and (b)
income, royalties, damages, claims and payments, now or hereafter due or payable
to Debtor in respect thereof.
9. Proceeds. All Proceeds of the Collateral, including, without limitation,
all proceeds of the conversion, voluntary or involuntary, of the Collateral,
into cash or liquidated claims, including proceeds of insurance thereon.
<PAGE>
EXHIBIT A
---------
DESCRIPTION OF REAL PROPERTY
The following land situated in the City of Lakeport, County of Lake, State
of California, described as follows:
Parcel A as shown on a map filed in the office of the County Recorder of
said Lake County on January 30, 1984, in Book 24 of Parcel Maps at Page 42.
<PAGE>
FIRST LOAN MODIFICATION AGREEMENT
This Agreement is dated June 15, 1998 between CHEAP TICKETS, INC., a Hawaii
corporation ("Borrower"), and BANK OF HAWAII, a Hawaii corporation ("Bank").
Recitals
A. Bank established a Credit Facility in the principal amount of
$3,000,000.00 in favor of Borrower under a Credit Agreement and Master Note both
dated November 26, 1997, including any renewals, extensions, or modifications
thereof ("Loan Agreement" and "Note" respectively). The documents which
evidence, secure or guaranty the Credit Facility are called the "Loan
Documents."
B. The performance of Borrower's obligations under the Loan Documents is
secured by the following ("Security Instrument"): Security Agreement dated
November 26, 1997, made by Borrower, as the same may from time to time be
amended.
C. Borrower has requested a modification of the Loan Documents and Bank is
willing to accommodate this modification under the terms of this Agreement.
Agreement
Therefore, Bank and Borrower agree as follows:
1. The Loan Documents are amended to conform to the following:
a. Section 1.9(B)(1)(d)(ii) of the Loan Agreement is amended to read
as follows:
(ii) no earlier than thirty (30) days and no later than ten (10)
days prior to the Credit Termination Date, the Borrower shall provide to the
Bank written notice of the Borrower's election to exercise the Term Loan Option.
Such notice shall set forth the Borrower's interest rate selection(s) pursuant
to Section 1.9(A) and shall include a pro forma compliance certificate, signed
by the Borrower's chief financial officer, in the form attached hereto as
Schedule 1.9 and made a part hereof. Such pro forma compliance certificate shall
be calculated using the financial results from the most recent compliance
certificate submitted to the Bank and shall certify to the Bank that the
Borrower's financial condition at that time meets the following standards, in
each case determined in accordance with GAAP:
Pro Forma Current Ratio of not less than 1.10 to one;
Tangible Net Worth of not less than the amount equal to:
$4,300,000, plus 100% of net proceeds of all Equity Offerings after the date
hereof, plus 50% of Borrower's consolidated net earnings, excluding losses, for
each quarter commencing January 1, 1998, to and including the fiscal quarter
immediately preceding the date of determination;
Pro Forma Debt Service Coverage Ratio of not less than 1.50
to one; and
Pro Forma Funded Debt to Cash Flow Ratio of not more than
3.00 to one.
If no interest rate option is set forth in the notice of exercise, the
Base Rate shall apply; and
<PAGE>
b. Section 5.10 of the Loan Agreement is amended to read as follows:
5.10 Financial Condition. Maintain the Borrower's financial
condition according to the following standards, in each such case determined in
accordance with GAAP as of the end of each fiscal quarter:
(A) Current Ratio of not less than: 1.15 to one, increasing to
1.50 to one commencing with the Borrower's financial reporting period ending
September 30, 1997; 1.00 to one for fiscal quarters ending March 31, 1998, and
June 30, 1998, increasing 1.10 to one commencing with fiscal quarter ending
September 30, 1998;
(B) Commencing with fiscal quarter ending March 31, 1998, Tangible
Net Worth of not less than the amount equal to: $4,300,000, plus 100% of net
proceeds of all Equity Offerings after November 26, 1997, plus 50% of Borrower's
consolidated net earnings, excluding losses, for each quarter commencing January
1, 1998, to and including the fiscal quarter immediately preceding the date of
determination;
(C) Debt Service Coverage Ratio of not less than: 1.10 to one for
the calendar year to and including the fiscal quarter ending March 31, 1998;
1.25 to one for the calendar year to and including, the fiscal quarters ending
June 30, 1998, and September 30, 1998; and increasing to 1.50 to one commencing
with the financial reporting period ending December 31, 1998; and
(D) Funded Debt to Cash Flow Ratio of not more than 3.00 to one.
2. Upon execution of this Agreement and in consideration of these
amendments, Borrower shall pay Bank a fee of $2,500.00.
3. Capitalized terms used, but not defined, in this Agreement, shall have
the definitions stated in the Loan Agreement.
4. Borrower agrees that there are no claims, defenses, or offsets that may
be asserted by Borrower to the enforcement of the Loan Documents arising prior
to the date of this Agreement, and that Borrower agrees that all such claims,
defenses, and offsets are hereby released.
5. In all other respects, the Loan Documents, as amended, remain in full
force and effect and the provisions of the Loan Documents including, without
limitation, all promises, representations, warranties, covenants, and
conditions, are ratified and confirmed as of the date of this Agreement by the
parties hereto. Borrower acknowledges that the Security Instrument shall
continue to apply to the remaining Loan Documents.
6. This Agreement is binding upon, and shall inure to the benefit of, the
parties hereto and their respective successors and assigns.
<PAGE>
To signify their agreement, the parties have executed this Agreement as of
the date first written above.
CHEAP TICKETS, INC.
By /s/ Michael J. Hartley
-----------------------------------------
Michael J. Hartley
Its President and Chief Operating Officer
Borrower
BANK OF HAWAII
By /s/
-----------------------------------------
Its Vice President
Bank
<PAGE>
Attachment A
To Pro Forma Compliance Certificate
Dated ________________
PRO FORMA CURRENT RATIO (attach calculation)
Required minimum: 1.15 to one, increasing to 1.50
to one commencing with the Borrower's financial
reporting period ending September 30, 1997; 1.00
to one for fiscal quarters ending March 31, 1998,
and June 30, 1998, increasing 1.10 to one commencing
with fiscal quarter ending September 30, 1998 ______________
TANGIBLE NET WORTH (attach calculation)
Required minimum: $4,300,000, plus 100% of net proceeds
of all Equity Offerings after November 26, 1997, plus
50% of Borrower's consolidated net earnings, excluding
losses, for each quarter commencing January 1, 1998, to
and including the fiscal quarter Immediately preceding
the date of determination ______________
PRO FORMA DEBT SERVICE COVERAGE RATIO (attach calculation
indicating interest rate)
Required minimum: 1.10 to one for the calendar year to
and including the fiscal quarter ending March 31, 1998;
1.25 to one for the calendar year to and including, the
fiscal quarters ending June 30, 1998, and September 30,
1998; and increasing to 1.50 to one commencing with the
financial reporting period ending December 31, 1998 ______________
PRO FORMA FUNDED DEBT TO CASH FLOW RATIO (attach calculation)
Permitted maximum: 3.00 to one ______________
PRICING RATIO (attach calculation) ______________
<PAGE>
Exhibit 10.13
Note: Portions of this exhibit indicated by "[*]" are subject to a
confidential treatment request, and have been omitted from this exhibit.
Complete, unredacted copies of this exhibit have been filed with the Securities
and Exchange Commission as part of the Company's confidential treatment request.
SABRE SUBSCRIBER AGREEMENT - (UNITED STATES)
This SABRE* Subscriber Agreement (the "Agreement") is entered into by and
between The SABRE Group, Inc. ("TSG") and the undersigned ("Customer"),
effective as of December 31, 1998 ("Effective Date") regarding the provision of
products and services set forth herein to Customer's locations within the United
States and its territories.
1. LEASE TERM
1.1 Lease. For the term specified in Article 0 below, TSG shall lease to
Customer the System, as defined herein.
1.2 Term. The lease term of the System identified on Schedule A shall commence
on the Effective Date and shall continue for 60 months ("Initial Term"). The
lease term of any additional System installed prior to the twenty-fourth (24th)
month after the Effective Date shall terminate at the end of the Initial Term.
Commencing on the twenty-fifth (25th) month, any additional System installed
shall have a term of sixty (60) months from the date of its installation
("Additional Term"). Any additional System installed after the Effective Date
shall be subject to the same terms and conditions as this Agreement.
2. DEFINITIONS
The following terms shall have the following meanings in this Agreement:
2.1 Agreement means this SABRE Subscriber Agreement, and all Amendments,
Schedules and Supplements made a part hereof.
2.2 Charges has the meaning given in Article 0.
2.3 Communication Protocol means the rules or standards on how data
transmission takes place across computer networks.
2.4 Confidential Information means this Agreement, any and all applicable rights
to patents, copyrights, trademarks and trade secrets, proprietary and
confidential information of TSG or Customer, their affiliates, subsidiaries,
successors or assigns concerning their past, present or future research,
development, business activities or affairs, finances, properties, methods of
operation, processes and systems, agreements (including without limitation
private fare or special discount agreements) related to the business of TSG or
Customer.
2.5 Information Provider means any party, other than Customer, which provides
information for inclusion in the SABRE System, including, without limitation,
Reed Elsevier Inc., the publisher of the Official Airline Guide.
2.6 Instructions means any and all manuals, operating procedures,
manufacturer's recommendations, rules, and instructions delivered or made
available to Customer by TSG either in hard-copy or via the SABRE System, and
which must be complied with by Customer. Such Instructions may be unilaterally
revised or amended by TSG at any time.
2.7 Internet means the global computer network commonly referred to as the
"Internet".
2.8 Internet Connection means any connection between the Internet and the SABRE
System or System for the purpose of allowing clients of Customer to make direct
reservations for the products and services offered in the SABRE System.
2.9 ISP means any third party computer network which connects Customer or its
employees to the SABRE System or the System via the Internet. ISPs and ISP
supplied equipment such as datalines or browser software are not included in the
definitions of the SABRE System or the System.
- -----------------
*SABRE is a registered trademark of a subsidiary of The SABRE Group, Inc.
<PAGE>
2.10 Non-SABRE Traffic means data other than that passing to and from the SABRE
System which is transmitted and received by Customer using the System.
2.11 Non-Standard System means any hardware, software, communication access
devices or firmware not acquired from TSG, including any such Non-Standard
System acquired from an ISP.
2.12 PNR means a passenger name record created in the SABRE System.
2.13 Participant means any air carrier (including scheduled, charter, domestic
and international airlines), car rental company, surface transportation carrier,
hotel or lodging provider, railroad, steamship company, cruise or tour operator
or other vendor of travel related products, information or services which has an
agreement with TSG for the display of information regarding its products or
services in the SABRE System.
2.14 Prohibited Segment means a Travel Service Segment for which no
corresponding space has been reserved within the transporting carrier's internal
reservation system.
2.15 SABRE Booking means an airline, hotel, tour, rental car or cruise Segment
that obligates a Participant to pay a booking fee to TSG and that is created in
or processed through the SABRE System by Customer during any one calendar month
or that is secured to Customer's location, less cancellations made prior to the
Segment Activity Date. SABRE Bookings are credited in the latter of (i) the
calendar month in which the Segment Activity Date occurs or (ii) the calendar
month in which the Segment is actually processed by the SABRE System for billing
to the Participant. SABRE Bookings may include additional product or service
Segments in the future at TSG's sole discretion.
2.16 SABRE Component means all memory, disk storage space, ports and any other
element of the Standard Equipment.
2.17 SABRE Licensee means a person or entity licensed to market the SABRE System
in a designated area of the world.
2.18 SABRE Subscriber means a person or entity, other than an airline, which
utilizes the SABRE System to make reservations. The term "SABRE Subscriber"
shall include any person or entity making reservations through any version of
the SABRE System or through a SABRE Licensee.
2.19 SABRE System means TSG's global distribution system (commonly referred to
as a computerized reservation system) which collects, stores, processes,
displays and distributes information through computer terminals concerning air
and ground transportation, lodging and other travel related products and
services offered by travel suppliers and which enables SABRE Subscribers to (i)
reserve or otherwise confirm the use of, or make inquiries or obtain information
in relation to, such products and services and/or (ii) issue tickets for the
acquisition or use of such products and services.
2.20 Schedule A means the document reflecting the Charges and any applicable
discounts for the System as amended by any additional documents.
2.21 Segment means (a) for airline bookings, each separate flight segment
reservation identified by a separate flight number in a PNR, multiplied by the
number of passengers booked in such PNR for such flight segment; (b) for hotel
bookings, each separate reservation that is processed through the SABRE System
with an action status code of HK, KK or KL regardless of the number of rooms,
suites or other accommodations or the number of persons or the duration of the
stay; (c) for car rental bookings, each separate reservation that is processed
through the SABRE System with an action status code of HK, KK or KL regardless
of the number of vehicles or persons or the duration of the rental; and (d) for
cruise and tour bookings, each separate reservation that is created in or
processed through the SABRE System and confirmed by that Participant, regardless
of the number of cabins or travelers or the duration of the cruise or tour. The
term Segment does not include Prohibited Segments.
2.22 Segment Activity Date means the first date listed in a PNR for the relevant
Segment.
2.23 Site means Customer's location at which the System is to be installed as
identified on Schedule A.
<PAGE>
2.24 Standard Equipment means the items of hardware and communication access
devices, including, without limitation, communication data lines and networks,
leased to Customer by TSG in accordance with this Agreement and identified on
Schedule A.
2.25 Supplement means a document reflecting any changes to the System, and/or
Charges or discounts related thereto, all as agreed to by the parties. A
Supplement will be provided by TSG upon request of Customer.
2.26 System means the Standard Equipment, SABRE Component, System Software
and/or Internet Connection.
2.27 System Software means that software delivered by TSG to Customer.
2.28 Transaction means a grouping of characters transmitted to the SABRE System
whether such transmission is made in the SABRE System manually or automated,
including transmissions made through an Internet Connection. Each transmission
to the SABRE System from Customer constitutes one Transaction. No input message
may exceed three hundred (300) characters in length.
2.29 Transaction Limit has the meaning given in Article 0.
2.30 Transaction Ratio has the meaning given in Article 0.
2.31 Travel Service Segment means a SABRE Booking entered in the SABRE System
with an action status code of GK, GL, BK, BL, HN, YK, HK*, or HL*.
3. CHARGES AND PAYMENTS
3.1 Prepayment. Upon execution of this Agreement by Customer, Customer shall
pay to TSG the non-refundable prepayment as shown on Schedule A. If the System
is installed, the prepayment shall be credited against the Customer's first
Charges.
3.2 Charges. All amounts payable to TSG ("Charges") shall be due and payable
in United States dollars within fifteen (15) days of the date of TSG's invoice,
without setoff or counterclaim.
3.3 Additional Charges. Customer agrees to pay to TSG additional Charges at
TSG's then prevailing rate for services and materials including without
limitation the following: (a) the installation or removal of Standard
Equipment; (b) Standard Equipment relocation within the Site; (c) each Site
disconnect or relocation to different premises; (d) modifications, upgrades,
enhancements or additions of Standard Equipment and/or System Software; (e) any
applicable fees for non-compliance with any payment terms; (f) installation of
peripheral devices requested by Customer; (g) processing Transactions which
exceed the level of one hundred thirty (130) Transactions per SABRE Booking
("Transaction Ratio"); (h) materials for use with the Standard Equipment,
including, but not limited to, ticket stock for use with thermal ticket
printers; and (i) connecting the System to other TSG approved networks or
systems. The Transaction Ratio is subject to change by TSG upon thirty (30)
days advance notice to Customer.
3.4 Variables. If Customer elects to use certain variables including, without
limitation, Ticketing and Invoice/Itinerary functions or Microfiche, Customer
shall pay all Charges for much variables based an TSG's then prevailing rate.
3.5 Increases. TSG shall have the right to increase, the Charges, other than
the Fixed Monthly Charges identified on Schedule A, for the remaining term of
this Agreement upon thirty (30) days advance written notice to Customer. If the
increase exceeds ten percent (10%) of the Charges in any consecutive twelve
month period, Customer may terminate this Agreement upon written notice to TSG
within fifteen days of receipt of TSG's notice of the increase. Notwithstanding
the foregoing, the Charges for data lines or other communication access devices,
shall be subject to increase, at any time and without limitation, to cover any
increase in the cost imposed upon TSG by the telecommunications vendor.
3.6 Modifications. TSG's completion of any modification to the System or
Customer's payment of any revised Charges related thereto, whichever occurs
first, constitutes acceptance and ratification of the modifications to the
System and the revised Charges and/or discounts related thereto.
<PAGE>
3.7 Interest. Charges not paid when due shall accrue interest at the rate of
eighteen percent (18%) per annum or the highest rate permitted by the governing
law indicated in Article 0, whichever is less.
3.8 Taxes. Customer shall pay any taxes, or assessments including any interest
or penalty thereon levied as a result of this Agreement, excluding taxed
measured by the net income of TSG. Customer shall indemnify and hold harmless
TSG from all costs, fines and expenses (including reasonable legal costs)
incurred by TSG resulting from Customer's failure to pay taxes as provided in
this Article.
4. INSTALLATION AND DELIVERY
4.1 Delivery. TSG shall arrange for delivery of the System F.O.B. the Site, on
the estimated installation date, as identified on Schedule A.
4.2 Installation. Subject to Article 0, TSG shall install, or cause to be
installed, the System at the Site. Customer shall allow installation of the
System at the Site. Customer's failure to do so or to give adequate assurance
that it will do so on the estimated installation date will constitute an Event
of Default pursuant to Article 0.
4.3 Customer's Obligations Prior to Installation. Customer, at its expense,
shall be responsible for preparing, on or before the estimated installation
date, the Site for the System in accordance with the Instructions. If
installation of the System is prevented or delayed because of Customer's failure
to prepare the Site, TSG shall use reasonable efforts to install the System upon
Customer's compliance with this Article and upon payment of all reasonable
expenses incurred by TSG resulting from Customer's failure to prepare the Site.
4.4 Relocation and Possession. Customer shall at all times keep the System in
its sole possession and control at the Site. Customer shall not move any part
of the System from the Site without first obtaining the written consent of TSG.
Such consent will not be unreasonably withhold.
4.5 Communication Access. Except when Customer utilizes an ISP to access the
SABRE System, TSG or its designated third party shall install the necessary
communication access device to connect the System to the SABRE System and other
approved systems or networks. All such devices are either owned by TSG or such
third-party, are subject to this Agreement, and shall be returned to TSG or the
third-party as TSG directs upon termination of the Agreement.
4.6 Non-Standard System.
4.6.1 Subject to Customer's compliance with all other terms and conditions
of this Agreement, TSG agrees to allow Customer to connect or use Non-Standard
System with the System without TSG's prior written consent, except to the extent
that such Non-Standard System consists or communications data lines, emulator
boards, gateways, routers, ticket printers or other devices connecting directly
to the System or SABRE System ("Reserved Equipment"). TSG consent for Reserved
Equipment shall be conditioned upon TSG certification and approval prior to its
use with the System. Such consent may be withheld in order to preserve the
integrity of the SABRE System and the System.
4.6.2 Customer shall represent and warrant to TSG that the Non-Standard
System and its connection to the System conforms in all respects to TSG's Non-
Standard System standards and specifications, a copy of which Customer may
request from TSG, and will not be altered or modified without prior notice to
TSG.
4.6.3 Customer shall remove all Non-Standard System placed on or within
the Standard Equipment prior to TSG's removing such Standard Equipment from
Customer's Site. TSG disclaims, and Customer hereby waives and indemnifies, any
responsibility or liability on the part of TSG, under any theory whatsoever, for
any Non-Standard System that Customer has failed to remove from the Standard
Equipment prior to TSG's removing such Standard Equipment from Customer's site.
4.6.4 Customer shall not use Non-Standard System in conjunction with the
System for any function not specifically outlined in this Agreement and any use
or attempted use for any other function shall constitute an Event of Default
under Article 0.
<PAGE>
4.6.5 Customer shall also ensure that TSG has access to Customer's Site on
request for conducting on-site inspections, testing or to oversee installation
of the Non-Standard System. Customer is responsible for ensuring that any
Standard Equipment at Customer's Site is connected to the System for the
purposes of performing testing and diagnostics on such Standard Equipment by
TSG's designated agent. If TSG reasonably determines that the Non-Standard
System is causing, or contributing to, a problem with the System, the SABRE
System or another SABRE Subscriber's access to or operation of the SABRE System,
then TSG has the right to immediately restrict access to the SABRE System upon
notice to Customer as provided for in this Agreement and TSG shall have no
liability to Customer for such restriction of access.
4.6.6 Customer agrees that its continued right to maintain the connection
between the Non-Standard System and the System and/or the SABRE System and to
use the Non-Standard System in connection with the Standard Equipment shall be
dependent upon Customer's full cooperation with requests by TSG to repair,
alter, modify, or where necessary, de-install the Non-Standard System if TSG
reasonably determines that the Non-Standard System, or a component thereof, is
impairing the System, the SABRE System or another SABRE Subscriber's access to
or operation of the SABRE System.
4.6.7 Customer shall pay TSG's then prevailing rate for all employee
resources expended by TSG for, but not limited to, TSG's monitoring of the
installation of the Non-Standard System and/or expended in connection with on-
site, inspection and/or testing of the Non-Standard System after installation,
service calls and any travel and incidental expenses incurred by TSG's personnel
or vendors for the conduct of such monitoring, inspecting, testing or service
calls; provided, however, that after the initial installation of the Non-
Standard System, TSG will make such on-site inspections or test only where it
reasonably believes that the Non-Standard System is impairing the System, the
SABRE System or another SABRE Subscriber's access to or operation of the SABRE
System.
4.6.8 Customer agrees that TSG has first and complete access to the SABRE
Component. If, as a result of Customer's use of Non-Standard System, an upgrade
of the SABRE Component is required, Customer shall comply with the applicable
provisions of this Agreement.
4.6.9 TSG reserves the right to modify the SABRE System or the System,
even if such modification requires changes in Customer's Non-Standard System.
TSG will make reasonable efforts to notify Customer in advance of such changes.
Any expenses incurred in modifying Customer's Non-Standard System to conform to
the SABRE System or System modifications shall be the sole responsibility of
Customer.
4.7 Acceptance of System. Upon installation of the System and establishment of
a successful connection with the SABRE System and any other TSG approved systems
or networks, Customer shall be deemed to have accepted the System. Any use of
the System, additional System and/or Non-Standard System further constitutes
acceptance of this Agreement by Customer.
5. REPAIRS AND MAINTENANCE
5.1 Repairs and Maintenance. Upon prompt notification from Customer, TSG or
its designated agent shall promptly repair and maintain or replace the Standard
Equipment provided that the Standard Equipment has been subject to reasonable
operation. Customer shall not make any modifications nor attempt to perform
repairs or maintenance of any kind to the System.
5.2 Limitation. TSG is not responsible for repairs and maintenance of any Non-
Standard System or other hardware, software or communication access devices at
Customer's Site or at the locations of other TSG approved systems or networks
beyond the point at which they are connected to the System and/or the SABRE
System.
5.3 Notification. Customer shall promptly inform TSG of any breakdown of the
Standard Equipment by contacting SABRE Customer Services. Customer shall
maintain a record of all occasions upon which repair or maintenance service is
performed and make such records available to TSG upon request.
<PAGE>
5.4 Charges. Repair or maintenance services on Standard Equipment during
normal business hours (9:00 a.m. to 6:00 p.m. local time, Monday through Friday,
excluding legal holidays) are included in the Charges, provided that the
Customer has not been negligent and the Standard Equipment has been subject to
reasonable operation; otherwise, Customer will be charged a service fee in
accordance with TSG's or its independent contractor's then prevailing rates.
5.5 Non-Standard System. All maintenance of the Non-Standard System shall be
the sole responsibility of the Customer. TSG will accept calls to SABRE
Customer Services regarding a malfunction of the Non-Standard System if TSG
determines that the malfunction is not attributable to the Non-Standard System.
Customer shall pay TSG's then prevailing maintenance charges for any maintenance
calls for the SABRE System or the System if TSG reasonably determines that the
problems were caused by or attributable to the Non-Standard System.
6. TITLE AND OWNERSHIP OF SYSTEM
The System leased hereunder shall remain the property of TSG. Customer shall
not in any other manner dispose of the System or any part thereof or suffer any
lien or legal process to be incurred or levied on the System.
7. INSURANCE
7.1 General. Customer shall take all necessary precautions to protect the
System installed at Customer's Site.
7.2 At its own cost, Customer shall procure and maintain insurance, from an
insurer and on terms and conditions acceptable to TSG, insuring the System
against all risk of loss or damage, including, without limitation, the risk of
fire, theft and any other such risks as are customarily insured in a standard
all risk policy. Such insurance shall also provide the following:
7.2.1 Full replacement value coverage for the Standard Equipment, which
value is set forth on Schedule A;
7.2.2 An endorsement naming TSG as a co-insured and as a loss payee to the
extent of its interest in the Standard Equipment; and
7.2.3 An endorsement requiring the insurer to give TSG at least thirty
(30) days prior written notice of any intended cancellation, non-renewal,
material change in coverage or, within thirty (30) days of the event, written
notice of any default in the payment of a premium.
7.3 Risk of loss for and damage to the System shall pass to the Customer upon
delivery of the System to the Site.
7.4 TSG may request at any time proof of such insurance and/or other form of
surety from Customer. The failure of Customer to produce such proof or surety
within thirty (30) days of the request by TSG will be considered an Event of
Default as defined in Article 0 herein.
8. TITLE AND OWNERSHIP OF CONFIDENTIAL INFORMATION
8.1 Each party's Confidential Information shall remain that party's exclusive
property.
8.2 Each party shall maintain the confidentiality of the other party's
Confidential Information at all times during and after the term or this
Agreement. Neither party shall use, sell, sublicense, transfer, publish,
disclose, display, or otherwise make available to others, except as authorized
in this Agreement the Confidential Information of the other party or any other
material relating to the Confidential Information of the other party nor shall
either party permit its officers, employees, agents, contractors or
subcontractors to divulge the other party's Confidential Information without
that party's prior written consent.
8.3 Customer shall use the data, other then Non-SABRE Traffic, transmitted
under this Agreement ("Data") solely for the benefit of itself and its customers
in connection with rendering the following services: (i) air carrier, hotel,
car and rail reservations, including schedule quotations; (ii) customer
accounting and record
<PAGE>
keeping activities; or (iii) the sale of or reservations for other miscellaneous
products or services offered in the SABRE System. Customer shall not publish,
disclose or otherwise make available to any third party any compilation of Data
obtained from the SARRE System. However, Customer may use specific Data for the
benefit of its customers in connection with any reservation or schedule
quotation production of a hard copy travel itinerary, invoice, statement or
ticket.
8.4 Nothing in this Agreement shall be interpreted to limit in any way TSG's
right to use, market, sell or publish any booking related data subject only to
any applicable laws or regulations.
9. SYSTEM SOFTWARE LICENSE
9.1 Ownership of System Software. Customer acknowledges that TSG or the
original manufacturer of the System Software, as applicable, owns or has
licensed from the owner, copyrights in the respective System Software and that
ownership and title are retained by the manufacturer or its licensor. All
applicable rights to patents, copyrights, trademarks, and trade secrets inherent
in the System Software and pertinent thereto are and shall remain TSG's or the
original manufacturer's sole and exclusive property. Any copy of such System
Software must incorporate any copyright, trade secret, or trademark notices or
legends appearing in the original version delivered to Customer.
9.2 Grant of License. Subject to the provisions of this Agreement and for the
term specified in Article 0, either TSG or the original manufacturer grants to
Customer a non-transferable, non-exclusive limited license to use the System
Software subject to the following restrictions: (a) Customer shall use the
System Software solely in connection with its use of the SABRE System, (b) the
System Software shall be used and installed solely at the Site and solely used
on the Standard Equipment or Non-Standard System authorized under Article 0, (c)
the System Software shall be used solely for internal purposes and only in the
ordinary course of business, (d) Customer shall not compile, reverse compile,
decompile, disassemble, reverse assemble or reverse engineer the System Software
or any portion thereof, (e) the System Software shall not be copied or reprinted
in whole or in part except (i) a reasonable number of copies of each program may
be made in machine readable form for reasonable archival or backup purposes or
(ii) when TSG has granted permission to do so, (f) Customer shall not lease,
sell, license, sublicense or otherwise transfer the System Software to any other
party, and (g) the terms of this Agreement shall govern the System Software
license unless modified by a license which may be associated with a particular
software product, wherein the license associated with that particular software
product shall govern.
9.3 Modification Rights. Customer shall not modify the System Software or
merge such software into other programs or create derivative works based on such
software. Additionally, Customer shall not delete or cause to be deleted the
System Software from the Standard Equipment. Notwithstanding anything to the
contrary contained herein, noncompliance with this provision shall constitute an
Event of Default under this Agreement and this Agreement shall immediately
terminate and Customer shall be obligated to pay TSG damages as specified in
Article 0 hereof.
9.4 Upgrades and Modifications. All tangible objects containing or relating to
the System Software are the sole and exclusive property of TSG or the
manufacturer. In the event TSG modifies the System Software, it may deliver
such modified System Software to Customer at its then current charge, if any,
and Customer shall promptly return to TSG any and all tangible objects relating
to all previous versions of the System Software as provided in Article 0.
Customer shall be solely responsible for protecting all software not obtained
from TSG hereunder and the data related thereto in the event of a software
upgrade. Customer, in order to receive an upgraded or updated program, shall
comply with any and all terms, conditions and Instructions requested by TSG.
9.5 Operating Program.
9.5.1 Customer acknowledges that the System Software may incorporate, in
part, copyrighted materials pertinent to the Operating Program as identified on
Schedule A ("Operating Program"). Customer agrees that such copyrighted
portions shall be subject to the Operating Program copyright and license.
<PAGE>
9.5.2 If Customer requires additional Operating Programs, Customer shall
notify TSG and TSG will provide Customer with additional copies to support
additional video agent sets pursuant to this Agreement.
9.5.3 Customer will look only to TSG and not to the manufacturer for any
support, maintenance, assistance and upgrades and the like with respect to the
Operating Program and the manufacturer shall have no liability to Customer in
relation to the Operating Program.
9.5.4 No action, regardless of form, arising out of the license of the
Operating Program may be brought more then two years after the cause of action
has arisen.
9.5.5 Customer shall physically retain a copy of the Conditions of Use for
SABRE Users (Attachment I) with each applicable video agent set or dedicated
fileserver/processor eligible to use such Operating Program.
10. OPERATION OF THE SABRE SYSTEM AND THE SYSTEM
10.1 Operation of System.
10.1.1 The SABRE System and the System shall be operated by Customer or
solely for the purposes and functions expressly permitted by this Agreement and
in strict accordance with the Instructions. Customer shall not in any way
utilize the System for the direct or indirect purpose of bypassing or
circumventing the SABRE System in communicating in any way with Participants.
Any violation of this provision will be deemed an Event of Default under Article
0.
10.1.2 Customer may use the System to transmit and receive Non-SABRE
Traffic only from those systems or networks approved in writing by TSG.
Customer acknowledges that in cases of communications capacity limits being
reached, data transmission through the System with the SABRE System will be
given priority over any Non-SABRE Traffic.
10.1.3 Customer shall access the SABRE System only through the System, an
ISP or another system or device authorized in writing by TSG.
10.1.4 Customer shall take all precautions necessary to prevent
unauthorized operation or misuse of the SABRE System or the System, including
without limitation, speculative booking, shell bookings, reservation of space in
anticipation of demand, or improper record or access. In the event of misuse of
the SABRE System or the System, TSG reserves the right, in addition to all
rights under the Agreement, to immediately terminate the Agreement.
10.1.5 Customer shall not enter any Prohibited Segments into the SABRE
System. Prohibited Segments so entered shall not be calculated in determining
productivity levels under the Agreement. All Travel Services Segments shall be
removed from the SABRE System should corresponding space be canceled direct via
telephone with the transporting carrier.
10.2 Non-Exclusivity. This Agreement is not exclusive and nothing in the
Agreement is intended to preclude or prohibit Customer from using any other
computerized [illegible] expected use of the System is the Fixed Monthly
Discount Booking Level stated in Schedule A.
10.3 Transaction Volume. Notwithstanding the provisions of Article 0(g), TSG
shall have the right, upon thirty (30) days notice to Customer to limit Customer
to generating no more then one hundred thirty (130) Transactions per SABRE
Booking ("Transaction Limit"). The Transaction Limit may be changed by TSG upon
thirty (30) days advance notice to Customer.
10.4 Training. TSG will make available introductory SABRE System training
during the installation process. For purposes of this Article, the installation
process is defined as anytime between contract signing by both Customer and TSG
through two months after installation is complete.
10.4.1 Upon written request from Customer, at such time that installation
is complete, additional training may be offered subject to availability and at
TSG's then prevailing rate per person, per class. The additional training
charge will be assessed on Customer's monthly invoice.
<PAGE>
10.4.2 The training described in Article O shall be performed at a location
designated by TSG.
10.4.3 Except as otherwise provided herein, Customer is responsible for
all training of all its employes in the proper use of the SABRE System.
10.4.4 In addition to the training described in Article O, TSG may offer to
Customer supplemental training programs on a local level at TSG's then
prevailing rate and method of delivery. Such training may consist of, but
not be limited to, workshops, seminars, self-paced instruction and
individual consultations.
10.4.5 Customer and its trainees agree to comply with all training
procedures and rules established by TSG, and TSG reserves the right to
remove any Customer trainee from the training program if such trainee fails
to comply with such procedures and rules.
10.4.6 TSG may, at its discretion, monitor or test Customer's employee's
training levels. If TSG determines the training level of any one or more of
Customer's employees to be insufficient, then Customer will institute such
additional training at its own expense (including, if necessary, additional
training by TSG at TSG's then prevailing charges) as may be necessary to
bring Customer's employees to the level of training required by TSG.
11. WARRANTY, AND LIMITATION OF WARRANTY, LIABILITY AND REMEDY
11.1 SABRE Warranty. TSG agrees to use reasonable efforts to maintain the
availability of the SABRE System, but shall have no liability for interruptions
in the operation of the SABRE System except as specifically provided herein.
Subject to the terms hereof, in the event that the SABRE System is not operable
ninety-five percent (95%) of the total normal business hours each month,
excluding periods for maintenance of Standard Equipment or other scheduled down
time ("Normal Time"), TSG will reduce the monthly Charges (on a pro-rata basis
according to the percentage of Normal Time during which the SABRE System was not
operable at least ninety-five percent (95%) of the Normal Time. For purposes of
this article, normal business hours shall be 9:00 a.m. to 6:00 p.m., local time,
Monday through Saturday. The SABRE System shall be deemed inoperable if Customer
is unable, after calling SABRE Customer Service to make any SABRE Bookings as a
result of a failure attributable to the SABRE System. To request a reduction
under this Article, Customer shall submit a written record to TSG and request an
adjustment in the monthly charges. Customer's written records must be submitted
in a timely manner and include, at a minimum, the date and time of the outage,
the time the outage was reported to SABRE Customer Service, the time the SABRE
System was restored (within normal business hours as defined above) and the type
of outage.
11.2 Limited Warranty of the System. In the event of a material malfunction or
defect in an unaltered component of the System that substantially affects
performance of the System that is reported by Customer to TSG and that can be
reproduced by TSG, TSG will use reasonable efforts to correct such malfunction
or defect without additional charge to Customer. THE FOREGOING SHALL BE
CUSTOMER'S SOLE AND EXCLUSIVE REMEDY FOR ANY MALFUNCTION OR DEFECT IN THE
SYSTEM. IF SUCH MALFUNCTION OR DEFECT MATERIALLY IMPAIRS CUSTOMER'S USE OF THE
SYSTEM AND CANNOT BE CURED AS PROVIDED IN THIS SECTION, THEN CUSTOMER'S
ALTERNATE SOLE AND EXCLUSIVE REMEDY SHALL BE TO TERMINATE THIS AGREEMENT
WITHOUT FURTHER LIABILITY TO TSG FOR DAMAGES HEREUNDER.
11.3 Exclusion of Other Warranties. EXCEPT AS SPECIFICALLY PROVIDED IN THIS
ARTICLE, THE USE OF THE SABRE SYSTEM, THE DATA DERIVED FROM THE SABRE SYSTEM,
THE SYSTEM AND/OR ANY COMPONENTS THEREOF ARE PROVIDED TO CUSTOMER BY TSG, ANY
INFORMATION PROVIDER OR THE OWNER OF ANY ELEMENT OF THE SYSTEM (AS THE CASE MAY
BE) "AS IS AND WITH ALL FAULTS". ALL OTHER WARRANTIES ARE HEREBY DISCLAIMED
INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF ACCURACY, COMPLETENESS AND
NON-INFRINGEMENT OF THE DATA DERIVED FROM THE SABRE SYSTEM, ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY
IMPLIED WARRANTIES ARISING OUT OF COURSE OF PERFORMANCE, COURSE OF DEALING OR
USAGE OF TRADE.
11.4 Limitation of Liability.
11.4.1 NEITHER TSG NOR ANY INFORMATION PROVIDER NOR ANY OWNER OF ANY
ELEMENT OF THE SYSTEM OR THE SABRE SYSTEM SHALL BE LIABLE TO CUSTOMER OR ANY
THIRD PARTY FOR ANY INJURY, LOSS, CLAIM OR DAMAGE CAUSED IN WHOLE OR IN PART BY
THE NEGLIGENCE OF TSG OR ANY INFORMATION PROVIDER OR BY ANY OWNER OF ANY ELEMENT
OF THE SYSTEM OR BY EVENTS BEYOND THE CONTROL OF TSG OR OF ANY OF THOSE OTHER
PERSONS.
11.4.2 IF A PASSENGER USES A CONFIRMED TICKET FOR AIR TRANSPORTATION ISSUED
PURSUANT TO A RESERVATION MADE BY CUSTOMER BY MEANS OF THE SABRE SYSTEM AND IS
REFUSED CARRIAGE BECAUSE OF AN OVERSALE OF SEATS OR THE LACK OF RECORD OF SUCH
RESERVATION, THE SOLE REMEDY OF CUSTOMER SHALL BE AS SET FORTH IN THE TARIFF OF
THE REFUSING CARRIER OR APPLICABLE TERMS AND CONDITIONS OF THE CARRIER'S
CONTRACT OF CARRIAGE.
11.4.3 TO THE EXTENT THAT TSG HAS ANY LIABILITY UNDER THIS AGREEMENT OR
UNDER ANY THEORY OF LIABILITY, TSG'S CUMULATIVE LIABILITY FOR DAMAGES TO
CUSTOMER HEREUNDER SHALL BE LIMITED TO THE LESSER OF (1) CUSTOMER'S DIRECT
DAMAGES, (2) THE TOTAL AMOUNT OF CHARGES ACTUALLY PAID BY CUSTOMER TO TSG
PURSUANT TO THIS AGREEMENT OVER THE TERM OF THIS AGREEMENT, OR (3) ONE MILLION
DOLLARS ($1,000,000).
11.4.4 NEITHER TSG NOR ANY INFORMATION PROVIDER NOR ANY OWNER OF ANY
ELEMENT OF THE SYSTEM SHALL BE LIABLE TO CUSTOMER UNDER ANY THEORY OF LIABILITY
OR ANY FORM OF ACTION, INCLUDING NEGLIGENCE FOR ANY INCIDENTAL, SPECIAL,
PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES UNDER ANY CIRCUMSTANCES, INCLUDING
BUT NOT LIMITED TO LOST PROFITS, REVENUE OR SAVINGS, OR THE LOSS OF USE OF ANY
DATA, EVEN IF THAT PERSON THAT WOULD HAVE BEEN LIABLE IN THE ABSENCE OF THIS
SECTION HAD BEEN ADVISED OF, KNEW, OR SHOULD HAVE KNOWN, OF THE POSSIBILITY
THEREOF.
11.5 NON-SABRE TRAFFIC. CUSTOMER ACKNOWLEDGES THAT IT IS SOLELY LIABLE FOR THE
CONTENT, ACCURACY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-
INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS OR OTHER THIRD PARTY RIGHTS, OF
THE NON-SABRE TRAFFIC. CUSTOMER WARRANTS THAT THE TRANSMISSION AND RECEIPT OF
NON-SABRE TRAFFIC BY CUSTOMER IS NOT IN CONTRAVENTION OF ANY LAWS, RULES OR
REGULATIONS. FURTHER, CUSTOMER HEREBY WARRANTS THAT IT HAS ENTERED INTO SUCH
SEPARATE AGREEMENTS AS IT DEEMS NECESSARY OR APPROPRIATE WITH THE SYSTEMS OR
NETWORK PROVIDERS FOR THE TRANSMISSION AND RECEIPT BY CUSTOMER OF THE NON-SABRE
TRAFFIC AND, IN PARTICULAR, CUSTOMER WARRANTS THAT IT SHALL BE SOLELY LIABLE TO
THESE PROVIDERS FOR ANY MALFUNCTION OR OTHER ADVERSE IMPACT EXPERIENCED BY SAID
PROVIDERS AS A RESULT OF THE TRANSMISSION AND RECEIPT BY CUSTOMER OF THE NON-
SABRE TRAFFIC.
12. INDEMNIFICATION
12.1 Customer and TSG ("Indemnitor") hereby agree to indemnity and hold each
other, their affiliates, subsidiaries, successors end assigns and their
officers, directors, agents and employees ("Indemnitees") harmless from and
against third-party liabilities, including, but not limited to, attorneys' fees,
and other expenses incident, thereto, ("Claims") which may be threatened
against, or recoverable from the Indemnitees by reason of any
<PAGE>
injuries to or death of persons or loss of, damage to, or destruction of
property to the extent arising out of or in connection with any act, or omission
of the Indemnitor.
12.2 Customer will indemnify TSG for any Claims, including debt memos issued by
Participants, arising from Customer's misuse of the SABRE System including,
without limitation, making fraudulent bookings and/or failing to honor
Participant ticketing and fare rules.
13. ASSIGNMENT
13.1 Assignment Or Sublease By Customer. Customer shall not sublease, transfer
or assign this Agreement or any portion thereof, or any right or obligation
hereunder, unless customer has obtained the prior written consent of TSG, which
consent shall not be unreasonably withheld. Any attempted assignment in
violation of this Article shall be void.
13.2 Assignment by TSG. TSG shall have the right to sell, transfer, assign or
delegate its, interests, rights and/or obligations, without the prior consent of
Customer, and, provided that such transferee or assignee assumes all of TSG's
obligations, TSG shall be released of all obligations after the effective date
of such sale, transfer, delegation or assignment.
14. TERMINATION AND DEFAULT
14.1 Default By Customer. The occurrence of any one or more of the following
events shall constitute a non-exclusive event of default (the "Event of
Default") pursuant to the terms of this Agreement:
14.1.1 Customer falls to pay any amount when due;
14.1.2 Any representation by Customer is discovered to be materially
misleading or inaccurate, or Customer fails to perform any material covenant,
agreement, obligation, term or condition contained herein;
14.1.3 Customer terminates or cancels this Agreement or any portion
thereof, except as expressly permitted in this Agreement;
14.1.4 Customer ceases to do business as a going concern, makes an
assignment for the benefit of creditors, admits in writing its inability to pay
debts as they become due, acquiesces in the appointment of a trustee, receiver
or liquidator for it or any substantial part of its assets or properties, or
executes an agreement to sell all or substantially all of its assets without
obtaining the consent for assignment of this Agreement under Article 0;
14.1.5 Customer fails to secure and maintain Airlines Reporting
Corporation ("ARC") accreditation for ticketing of reservations;
14.1.6 Events of Default described in 0, 0 and 0 shall not be cause for
termination if Customer cures such failure within fifteen (15) days after date
of written notice from TSG. If Customer cures its failure as provided in this
provision, said failure shall not be considered to be an Event of Default for
the purposes of Article 0.
14.2 TSG's Rights Upon Termination. Upon the occurrence of an Event of Default
and subject to Article 0, TSG shall have the right to any one or more of the
following remedies; (i) terminate this Agreement and Customer's access to the
SABRE System, the System and any other approved systems or networks; (ii) seek
all legal and equitable remedies to which it is entitled; and (iii) retake
immediate possession of the System. If Customer's Event of Default results in
termination, Customer agrees to pay to TSG damages suffered by TSG as a result
of such Event of Default.
14.3 Termination By Customer. In the event that TSG breaches any material term
of this Agreement, which breach continues for a period of fifteen (15) days
after TSG receives from Customer written notice which sets forth the specific
breach and Customer's intent to terminate the Agreement if such breach is not
cured, then Customer may immediately terminate the Agreement upon separate
written notice to TSG. Customer may not otherwise cancel, terminate, modify,
repudiate, excuse or substitute this Agreement without TSG's prior written
<PAGE>
consent, which TSG may withhold in its absolute discretion.
15. MISCELLANEOUS
15.1 Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE
OF TEXAS AND THE UNITED STATES OF AMERICA. CUSTOMER HEREBY SUBMITS AND CONSENTS
TO THE NON-EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF TEXAS AND THE COURTS OF THE STATE OF TEXAS IN ANY DISPUTE
ARISING OUT OF THIS AGREEMENT AND AGREES THAT SERVICE OF PROCESS SHALL BE
SUFFICIENT IF MADE ON THE SECRETARY OF STATE OF THE STATE OF TEXAS WITH A COPY
TO BE SENT, REGISTERED MAIL TO THE CUSTOMER AT THE ADDRESS SET FORTH IN SCHEDULE
A OR SUCH OTHER ADDRESS AS CUSTOMER MAY LATER SPECIFY BY WRITTEN NOTICE TO TSG.
15.2 Binding Effect. Except as otherwise provided, this Agreement shall inure
to the benefit of and bind the successors and assigns of the parties hereto.
15.3 Deletion of Equipment. During the term of the Agreement, Customer may
delete up to [*] of the installed productive video agent sets, video agent set
terminal addresses and printers, contingent upon the following: (a) Customer
provides documentation of a substantial decrease in the number of SABRE
Bookings, which decrease is the result of the loss of its commercial accounts
and/or customer base; (b) Customer notifies TSG, in writing, of the description
and location of the equipment to be deleted (the "Deleted Equipment"); (c)
Customer pays to TSG the then current de-installation charges for the Deleted
Equipment plus any outstanding Charges for such Deleted Equipment up through the
Stop Billing Date which TSG will specify to Customer; and (d) Customer will
forfeit all right and equity, if any, in the Deleted Equipment removed from
Customer's location.
15.3.1 If Customer complies with the requirements identified in 0 above,
TSG shall de-install the Deleted Equipment and disconnect it from the System.
15.3.2 TSG shall defer all Charges related to the Deleted Equipment
("Deferred Charges") from the Stop Billing Date to the termination date of this
Agreement on the following conditions: (a) the Additional Term and all other
terms and conditions of this Agreement that would have applied to the Deleted
Equipment shall apply to any Standard Equipment added to the System after the
Stop Billing Date, up to an amount equal in number and type to the Deleted
Equipment or such lesser amount agreed to by TSG ("Re-installed Equipment"); and
(b) Customer shall pay TSG all applicable Charges for the Re-installed
Equipment, including installation, lease, maintenance and use Charges, at TSG's
then current rates.
15.3.3 The Deferred Charges shall be deemed waived by TSG at the end of
the Initial Term of the Agreement or any renewal thereof if Customer has not
breached this Agreement. Interest shall accrue on the Deferred Charges at the
maximum rate allowed by applicable law from the date of the deferral until
payment. In addition to all other rights under Article 0, TSG shall be entitled
to immediate payment of the Deferred Charges plus interest upon default by
Customer.
15.4 Entire Agreement. This Agreement and the Instructions constitute the
entire agreement of the parties as to the matter set forth herein and shall
supersede any previous understandings, agreements, representations, statements,
negotiations and undertakings, whether written or oral, between the parties
relating to the matters set forth herein. Any amendment to this Agreement must
be in writing and signed by the authorized representatives of both parties.
15.5 Force Majeure. TSG and Customer shall be relieved of their obligations
hereunder in the event and to the extent and only so long as that performance is
delayed or prevented by any cause reasonably beyond their control, including,
but not limited to, acts of God, public enemies, war, civil disorder, fire,
flood, explosion, labor disputes or strikes, or any acts or orders of any
governmental authority, inability to obtain supplies and materials (including
without limitation computer hardware) or any delay or deficiency caused by the
electrical or telephone line suppliers or other third parties.
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
<PAGE>
15.6 Notices. Unless otherwise stated, notices given or required under this
Agreement must be in writing and shall be deemed delivered upon deposit through
the United States Mail, to TSG at P.O. Box 619815, MD 3558, Dallas/Fort Worth,
Texas, 75261-9615 (to be sent to the attention of SABRE Travel Information
Network, Financial Services) or to the Customer at the address set forth in
Schedule A.
15.7 Return of System. Upon the termination of this Agreement for any reason,
Customer, at its sole cost and expense, shall return the System and all
Confidential information as requested by TSG, in good repair, condition and
working order, less normal and ordinary wear and tear, by delivering it to a
common carrier selected and designated by TSG, F.O.B. the destination designated
by TSG in writing.
15.8 SABRE System Modification. TSG retains the right to modify the SABRE
System, at its discretion at any time during the term of this Agreement.
However, such modifications will not materially impair Customer's ability to
access and use the SABRE System in the manner expressly permitted in this
Agreement.
15.9 Severability. Any provision of this Agreement which may be determined by a
court or other competent governmental authority to be prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective, only to the extent of such prohibition or unenforceability, without
invalidating the remaining provisions thereof, unless said prohibition or
unenforceability materially alters the rights or obligations of either party.
15.10 Subsequent Acts of Government. In the event that there is any change in
any statute, rule, regulation or order governing the operation of computerized
reservations systems, or air transportation generally or the SABRE System, which
in any way materially impairs the benefits of this Agreement to TSG, then the
parties hereto will commence consultation in order to determine what, if any,
changes to this Agreement are necessary or appropriate, including, but not
limited to, early termination of this Agreement. If the parties hereto are
unable to agree upon changes in the Agreement in response to such new statute,
rule, order or regulation within thirty (30) days after commencement of such
consultation, this Agreement may be canceled by TSG upon giving Customer ninety
(90) days prior written notice of such cancellation. If TSG elects to terminate
the Agreement pursuant to this Article, except for Customer's obligation to pay
any and all Charges incurred through the date of termination, each party shall
be relieved of any future obligations under this Agreement as of the effective
date of cancellation. each party shall bear its own costs and expenses incurred
as a result of said termination. Customer does not have the right to terminate
the Agreement under this provision.
15.11 Surviving Sections. If the term of the Agreement expires or is
terminated for any reason before Customer has paid to TSG all of the sums due,
the Agreement shall survive such expiration or termination to the extent
necessary to protect TSG's rights until all sums owed to TSG have been paid.
Notwithstanding anything to the contrary referenced herein, Articles 0, 0, 0 and
0 shall survive the termination of this Agreement.
15.12 Waiver. A failure or delay of either party to require strict performance
to enforce a provision of this Agreement or a previous waiver or forbearance by
either party shall in no way be construed as a waiver or continuing waiver of
any provision of this Agreement.
15.13 Acknowledgment. Customer hereby acknowledges that TSG has offered
Customer a SABRE Subscriber Agreement with three (3) year term with reasonable
terms and conditions.
16. INTERNET CONNECTIONS
16.1 Limited License. Customer may establish an Internet Connection using TSG's
products or a third party application. Customer is hereby given a limited
license to utilize data transmitted from the SABRE System for purposes of
developing, operating and maintaining a reservation booking site solely for the
use of its customers and according to the other limitations contained in the
Agreement, including, without limitation, Article 0. All uses of the SABRE
System through an Internet Connection will be considered uses by Customer under
this Agreement. Customer may not utilize any data transmitted from the SABRE
System for purposes of developing, operating or maintaining a reservation
booking site or any other redisplay of SABRE System data for any third party
including any un-affiliated travel agencies.
16.2 Termination. The limited license granted in Article 0 may be terminated by
TSG for any reason upon
<PAGE>
five (5) days written notice to Customer. Upon such termination Customer must
immediately remove the Internet Connection and cease utilizing data transmitted
under the Agreement for purposes of developing, operating or maintaining a
reservation booking site.
16.3 Branding. Customer agrees to adhere to the branding standards and
requirements as communicated by TSG which may be modified from time to time upon
thirty (30) days advance notice to Customer.
16.4 Charges. Customer will pay a Charge for each PNR created through an
Internet Connection at TSG's then current rate.
17. TSG RESERVES THE RIGHT TO CHANGE SABRE GUARANTEE PROGRAM RULES,
REGULATIONS, AND SPECIAL OFFERS WITHOUT NOTICE, AND TO END SABRE GUARANTEE
PROGRAMS WITHOUT NOTICE
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth below.
ALL SIGNATURES MUST BE IN BLACK INK
CUSTOMER
By:
---------------------------------------
(Signature)
Name:
------------------------------------
(Print Name)
Title:
-----------------------------------
Agency Name:
-----------------------------
Pseudo City Code:
------------------------
THE SABRE GROUP, INC.
By:
--------------------------------------
(Signature)
Name:
------------------------------------
(Print Name)
Title:
-----------------------------------
<PAGE>
ATTACHMENT I
Conditions of Use for SABRE Users
1. QUALIFYING USE. The manufacturer has made this package available to you
through The SABRE Group, whether directly or indirectly, on the understanding
that it is being supplied to you primarily for use with the SABRE System, and
not with a view to resale or other re-marketing.
2. COPYRIGHT AND OTHER RIGHTS.
The manufacturer's programs contain material in which the manufacturer and in
many cases the manufacturer's suppliers, retain proprietary rights. The
manufacturer wants these programs to be fully useable by you for the purpose for
which they are supplied, that is, in connection with a computer. No
infringement of the rights of the manufacturer or of the manufacturer's
suppliers will occur provided that the following conditions are observed with
respect to each program:
a. The program is used only on:
(i) a single machine; or
(ii) on any workstation connected to a single fileserver which is
primarily used in connection with the SABRE System.
b. The program is copied into machine-readable or printed form for backup
or modification purposes only in support of use on a single machine, or on
a workstation connected to the SABRE System;
c. However, certain diskettes marked "Copy Protected" may include
mechanisms to limit or inhibit copying of the program;
d. The program is modified or merged into another program only for use on
a single machine or on a workstation connected to the SABRE System. Any
portion so merged continues to be subject to these conditions;
e. The copyright notice is reproduced and included in any copy or
modifications made of the program and in any program merged into other
programs; and
f. If the program package is transferred to another party, all copies and
modifications made of the program must be transferred or destroyed. You do
not retain any right with respect to the transferred package. The other
party agrees to observes all of these Conditions of Use.
Any other act involving reproduction or use of, or other dealing in the program
is prohibited.
You are reminded that it may be necessary to obtain local and United States
licenses to export or re-export this package.
No statements contained in this package shall affect the statutory rights of any
person.
<PAGE>
AMENDMENT NO. 1 TO SABRE SUBSCRIBER AGREEMENT
This Amendment to that certain SABRE Subscriber Agreement is made and
entered into this 31st day of December, 1998, between The SABRE Group, Inc.
("TSG") and Cheap Tickets, Inc. ("Customer").
RECITALS
WHEREAS, TSG and Customer have entered into that certain SABRE Subscriber
Agreement, dated as of 31 December 1998 (the "Agreement"); and
WHEREAS, it is in the best interest of the parties to modify certain
provisions of the Agreement.
NOW THEREFORE, in consideration of the mutual covenants contained herein,
TSG and Customer hereby agree as follows:
1. Effective Date. The effective date of this Amendment is 31 December
1998.
2. Cash Advance. TSG agrees to pay to Customer the following, as SABRE
Promotional Support, pursuant to the schedule set out below contingent upon the
Agreement and this Amendment have been signed by both Customer and TSG:
[*] within [*] after the Agreement and this Amendment have been signed
by both parties.
If an Event of Default as defined in Article 14.1 of the Agreement occurs, TSG's
obligations under this Amendment are nullified and Customer will be immediately
obligated to repay to TSG all monies paid by TSG to Customer pursuant to this
Amendment.
3. Line of Credit. TSG shall extend to Customer a line of credit in the
following amount, which amount will be applied automatically toward the payment
of SABRE/ADS/IBT Charges. Such line of credit shall be applied each month until
the total amount is exhausted. Any unused portion of this line of credit shall
revert to TSG and be unavailable for Customer's use upon the happening of either
of the following events: (i) the expiration of the Initial Term of the Agreement
or (ii) termination of the Agreement for any reason.
[*]
4. Current and Expansionary Devices. Upon the Effective Date of this
Amendment and provided Customer meets the terms and conditions as set forth
below and in the Agreement TSG shall provide, each month during the term hereof,
fixed monthly discounts to offset the charges for the services and products
listed below that are either currently installed or installed subsequent to the
Effective Date of the Agreement:
(a) data lines, fileservers, gateways, SABRE video agent sets, SABRE
Printers, Satellite Ticket Printers (STP's) or any other equipment standard to
the SABRE System, provided the following:
(i) TSG will not provide fileservers, gateways or SABRE video agent
sets at Customer call center locations;
(ii) TSG will provide currently installed equipment at Customer
locations other than at Customer call centers;
(iii) TSG will provide expansionary SABRE gateways and SABRE video
agent sets at Customer locations other than at Customer call centers, [*]
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
<PAGE>
based on total Customer SABRE Bookings and Customer SABRE gateways and SABRE
video agent sets on the Effective Date of this Agreement at Customer locations
other than at Customer call centers;
(iv) TSG will provide expansionary SABRE Printers and Satellite Ticket
Printers (STP's) [*] based on total Customer SABRE Bookings and Customer SABRE
Printers and Satellite Ticket Printers (STP's) on the Effective Date of this
Agreement;
(v) TSG will provide expansionary SABRE data lines [*] based on total
Customer SABRE Bookings and Customer SABRE data lines on the Effective Date of
this Agreement. Equivalent Data Line is defined as [*];
(vi) TSG will not provide maintenance for equipment that is not owned by
TSG;
(b) SABREscribe;
(c) installation, de-installation, move and relocation charges (excluding
charges associated with moves or relocations outside the ordinary course of
business which shall be determined by Customer's past practices, which shall be
billed to Customer at TSG's then prevailing rate);
(d) variable charges for Branch Access, Bargain Finder Plus, FACTS Report,
Option 6 Interface, Invoice and Itinerary, Microfiche, Ticketing, ARC Report,
SABRE Report Managers, Classified Fares, STARS and SABRE Re-Check;
(e) [*] of the monthly lease and SMU Charges for SABRE TravelBase
equipment, operating system licenses and software license fee sufficient to
process [*] SABRE Bookings per year, [*]
(f) [*] SABRE TravelBase workstations in Year One of this Agreement,
increasing up to a total of not more than [*] SABRE TravelBase workstations by
Year Five of the Agreement, as TSG and Customer jointly determine that a need
for such SABRE TravelBase workstations exists; in addition, TSG will provide to
Customer sufficient software licenses for Customer-owned SABRE TravelBase
workstations.
5. Additional Standard Equipment. TSG agrees to allow Customer to add Standard
Equipment in excess of that provided for in paragraph 4, and Customer and TSG
agree that all Standard Equipment added under this paragraph 5 will be charged
on a monthly basis at TSG's then prevailing rate. Customer and TSG agree that
the rate charged is the rate that applies to the actual piece of Standard
Equipment most recently added by Customer. TSG agrees to allow Customer to
choose to pay for this additional Standard Equipment with either cash or funds
from Customer's Line of Credit.
6. Booking Threshold Adjustments. TSG agrees to offer Customer, as new products
are introduced, the option to pay for those products at standard
non-discriminatory rates as described in the product offering.
7. Booking Threshold. Notwithstanding anything contained herein, TSG shall have
no obligation to perform the undertakings set forth in paragraph 4 unless: (a)
the Standard Equipment is available for purchase by TSG on reasonable terms and
conditions from the manufacturer, and (b) Customer processes a minimum of the
following number of SABRE Bookings [*] (the "[*] Volume Threshold") during the
term of the Agreement:
[*]
Notwithstanding anything contained herein, TSG shall have no obligation to
perform the undertakings set forth in paragraph 9 unless Customer achieves the
Monthly Booking Threshold as described herein.
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
<PAGE>
8. SABRE Bookings Below [*] Volume Threshold. In the event Customer fails to
achieve the [*] Volume Threshold in paragraph 7 for each [*] measurement period,
Customer shall pay to TSG an amount equal to the prevailing booking fee that TSG
charges to airlines that participate in the full availability features of the
SABRE System multiplied by the difference between the [*] Volume Threshold and
the actual SABRE Bookings at all the Customer's locations. Measurement of the
[*] Volume Threshold shall be performed by TSG on a [*] basis commencing on the
Effective Date of the Agreement.
9. [*]
10. [*]
11. SABREscan. TSG and Customer agree to a contractual SABREscan rate of [*]
Transactions per SABRE Booking. Transactions and SABRE Bookings include, but are
not limited to, those generated by Customer retail, call-center and on-line
("Internet") locations. Customer agrees to pay TSG on a semi-annual basis an
additional charge at the rate of [*] per Host Transaction for Host Transactions
which exceed the level of [*] Host Transactions per SABRE Booking.
12. Fares Filing. TSG and Customer agree to retain in force the provisions of
the agreement termed "SABRE Agreement for Negotiated Fares Maintenance" dated
15 July 1994, throughout the term of the Agreement. Customer agrees to pay TSG
the monthly charge of [*] for these services. Should TSG's costs to provide
Customer's fares
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
<PAGE>
filing decline substantially below [*] per month, TSG agrees to reduce
Customer's charges associated with this fares filing.
13. SABRE Terminal Addresses (TAs). Customer agrees to pay TSG the sum of [*]
for every Terminal Address exceeding the [*] total number allowed by TSG
below.
Year Total Number of TAs Allowed
---- ---------------------------
Year 1 [*]
Year 2 [*]
Year 3 [*]
Year 4 [*]
Year 5 [*]
14. Internet On-line Bookings. Customer agrees to pay TSG the sum of [*] for
every Passenger Name Record ("PNR") created which utilizes Customer's Internet
website for all or part of the booking process.
15. Credit Card Address Verification ("AVS"). Customer agrees to pay TSG the sum
of [*] for every automated credit card address verification ("AVS") query
Customer processes through SABRE. [*].
16. Turbo SABRE License Fees. Customer agrees to pay TSG the sum of [*] for each
additional Turbo SABRE license utilized by Customer during the term of this
Agreement. [*].
17. TSG Technical Support. Customer agrees to pay TSG the sum of [*] per hour
for any TSG in-house technical support provided to Customer by TSG during the
term of this Agreement. Customer agrees that TSG is under no obligation to
provide technical support to Customer, and agrees to pay TSG for the services of
any outside parties (including but not limited to consultants and
subcontractors), which may be passed through to Customer at rates which may
exceed [*] per hour. Customer also agrees to pay TSG's reasonable administrative
costs and travel and incidentals expenses associated with any Customer technical
support provided by or on behalf of TSG.
18. Reports. Reports showing the number of SABRE Bookings shall be provided by
TSG on a monthly basis. Invoicing, if necessary, will be made at the end of each
month and Customer agrees to pay all amounts due to TSG, including applicable
taxes, within thirty (30) days of the invoice date.
19. Monthly Reconciliation. The reports will be reconciled by TSG and Customer
each month. The semi-annual measurement will be calculated using the reconciled
information.
20. Yearly Reconciliation. Upon each anniversary of the Effective Date, there
shall be a reconciliation of payments/credits made throughout the year. Such
reconciliation shall consist of the following: the total SABRE Bookings over the
year shall be compared to the Booking Threshold as defined in paragraph 7 and
the differentiation shall be applied to the formula herein regarding SABRE
Bookings above or below the Booking Threshold as applicable ("The Reconciled
Amount"). The Reconciled Amount, and all [*] Volume Threshold incentives under
paragraph 10, shall be compared to the actual amount of payments/credits
provided during the same year and TSG shall invoice or credit customer for the
difference between The Reconciled Amount and the actual amount paid/credited
during the year.
21. Acquisitions. If at any time during the term of the Agreement, Customer
purchases or otherwise acquires all of the assets of any travel agency which
utilizes SABRE, then such travel agencies shall be bound by the terms and
conditions as set forth in the Agreement and this Amendment. Notwithstanding the
foregoing, all outstanding receivables at the time of acquisition by Customer
must be paid to TSG prior to inclusion of the acquired locations and/or
equipment under the terms of the Agreement, unless otherwise agreed to by both
parties. Customer and travel agency acquired must both notify TSG in
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
<PAGE>
writing of the acquisition and must provide at a minimum (i) the pseudo city
code of acquired location(s), (ii) total number of productive devices being
acquired, and (iii) the effective date of the acquisition.
22. Agreement Reviews. Commencing on the first anniversary of the Effective Date
but not more than once every contract year, the parties will review this
Agreement in order to adjust the [*] Volume Threshold Incentives in paragraphs 9
and 10 to reflect changes in the actual costs of providing products and services
hereunder. Upon conclusion of such review, TSG shall have the right to decrease
the [*] Volume Threshold Incentives by no more than [*] per year to
compensate for automation cost increase. Notwithstanding the foregoing, TSG
shall have the right to decrease the [*] Volume Threshold Incentives to recover
any actual increases in communication costs during the upcoming year. TSG shall
provide to Customer satisfactory evidence of such increased communication costs.
23. Wholly Owned Offices/Outlets. The terms and conditions of the Agreement and
this Amendment are only applicable to wholly owned offices/outlets of Customer
and shall not apply to any franchise or associate operation.
24. Confidentiality. It is expressly understood and agreed that this Amendment
and the Agreement, and each and every provision hereof, shall be held and
treated as confidential and shall not be disclosed by Customer to any other
person, firm, organization, association, or entity, of any and every kind,
whether public, private or governmental, for any reason, or at any time, without
the prior written consent of TSG (except that Customer may disclose the
provisions of the Agreement and this Amendment to its attorney and/or
accountant), unless such disclosure is required by law or legal process. In the
event of such disclosure, this Amendment and the Agreement may be terminated
immediately by TSG, without notice to Customer, and TSG shall have the right to
pursue any remedies available to it in law or in equity.
25. Defined Terms. The defined terms used in this Amendment shall have the
meaning assigned to such terms in the Agreement.
26. Agreement. Except as otherwise provide herein, all other terms of the
Agreement remain in full force and effect. In the event of any conflict between
the terms of the Agreement and this Amendment, the Amendment shall control.
27. Termination of Prior Agreements. All oral or written agreements entered into
by the parties prior to the effective date of the Agreement and this Amendment
which relate to the maintenance or use of the SABRE System or any portion
thereof shall be deemed terminated upon execution of the Agreement and this
Amendment.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year written below.
CUSTOMER THE SABRE GROUP, INC.
By: ______________________________ By: ______________________________
(Signature) (Signature)
Name: ______________________________ Name: ______________________________
(Print Name) (Print Name)
Title: ______________________________ Title: ______________________________
Date: ______________________________ Date: ______________________________
PCC: ______________________________
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
<PAGE>
Exhibit 10.14
Note: Portions of this exhibit indicated by "[*]" are subject to a confidential
treatment request, and have been omitted from this exhibit. Complete,
unredacted copies of this exhibit have been filed with the Securities and
Exchange Commission as part of the Company's confidential treatment request.
SABRE AGREEMENT
---------------
FOR
---
NEGOTIATED FARES MAINTENANCE
----------------------------
THIS AGREEMENT is made as of the 15th day of July, 1994, by and between
SABRE TRAVEL INFORMATION NETWORK ("STIN"), a division of AMERICAN AIRLINES, INC.
a Delaware corporation having its principal address at 4200 American Boulevard,
Fort Worth, Texas 76155 (American), and CTI CORPORATION, a corporation having
its principal place of business at 738 Kaheka Street, Honolulu, Hawaii
("Customer").
RECITALS
A. STIN provides computerized reservations services for travel agents with
related data processing activities through its SABRE Computerized Reservations
System which is a database of fares and pricing data.
B. Customer operates a travel agency and enters into contractual arrangements
for negotiated fares with carriers operating air transportation services.
C. The parties desire to enter into an agreement governing the SABRE display and
maintenance of the Customer's negotiated fares.
SECTION 1. DEFINITIONS. The following definitions shall apply to this
Agreement.
1.1 ATPCo is the Airline Tariff Publishing Company which is a vendor of fares
data to the airline industry.
1.2 Fare Base Management is a department of SABRE Computer Services. Fare Base
Management shall be responsible for updating and maintenance of the Negotiated
Fares, Fare Rules, Fare Routings and other related information.
1.3 Fare Rule is a set of provisions, limitations or conditions applicable to a
specific Negotiated Fare or set of Negotiated Fares as reflected in a single
rule number assigned by ATPCo. The same ATPCo rule number in two tariffs will
be construed to be two rules.
1.4 Fare Routing is the path of travel the traveler must follow to obtain the
Negotiated Fare from the appropriate carrier.
1.5 Implementation Date is August 2, 1994 but will be extended one day for each
day after July 21 that ATPCo fails to deliver the Customer's Negotiated Fares
through an acceptable transmission to Fare Base Management. If the revised
implementation Date falls on a weekend or legal holiday, the date will be
further extended until the following Tuesday.
1.5 Negotiated Fares are fares subject to various rules and restrictions which
are negotiated by Customer with various air transportation carriers and which
are evidenced by valid contracts with the applicable air carriers.
1.6 SABRE System Database is the database of fares, rules and restrictions
maintained in STIN's SABRE Computerized Reservations System.
<PAGE>
SECTION 2. RESPONSIBILITIES OF STIN
2.1. STIN agrees to process the Customer's Negotiated Fares, Fare Rules and
Fare Routings into the SABRE System Database and to maintain Customer's
Negotiated Fares and the Fare Rules and Fare Routings pertaining to such fares,
subject to the following terms and conditions:
a. STIN agrees to process and maintain Customer's Negotiated Fares, together
with the applicable Fare Rules and Fare Routings, to the extent that such
rules and routings are, at STIN's sole discretion, practical for inclusion in
the SABRE System. However, notwithstanding the above, STIN shall not, at any
time, be required to maintain more than [*] Customer Fare Rules within the
SABRE System Database.
b. STIN shall use its best efforts to provide SABRE access to Customer's
Negotiated Fares, Fare Rules and Fare Routings by the Implementation Date. In
the event that Customer does not have access to its Negotiated Fares, Fare
Rules and Fare Routings by the Implementation Date, it may terminate this
contract which shall be its exclusive remedy for STIN's failure to meet the
Implementation Date.
c. After the initial implementation of Customer's existing Negotiated Fares,
Fare Rules and Fare Routings in the SABRE System Database, STIN will make
changes or additions to the Customer's Negotiated Fares, Fare Rules and Fare
Routings upon Customer's written request to Fare Base Management. Such
changes or additions will be made within [*] days of receipt of Customer's
request whenever reasonably practical.
d. Should all or part of Customer's data be lost or destroyed Fare Base
Management shall use its best efforts to reconstruct the data within twenty
four (24) hours of such loss or destruction; in the event that such loss of
Customer's data is caused, in whole or in part, by force majeure or
Customer's negligence such reconstruction shall be at Customer's expense; and
in any other event, such reconstruction shall be at STIN's expense. To the
extent that reconstruction of the Customer's data requires data solely in
Customer's possession, STIN shall use its best efforts to reconstruct the
database within twenty four (24) hours of receiving such data from the
Customer.
e. STIN shall, under no circumstances, be responsible for calculating the
Negotiated Fares under the Customer's contracts with various air carriers.
Instead, the Customer's Negotiated Fares will be added to the SABRE System
Database solely through transmissions or magnetic tapes received from ATPCo.
STIN assumes no responsibility or liability for the accuracy of any
information received from ATPCo.
2.2. STIN shall bill the Customer on a monthly basis. Payment is due upon
receipt of each monthly invoice.
2.3. STIN shall use its best efforts to assure that data supplied by the
Customer is promptly and accurately incorporated into the SABRE Database;
however, STIN does not warrant the accuracy or completeness of the data so
incorporated, nor does it assume liability for consequential damages resulting
from any delay in, or error or omission made in the course of such
incorporation, whether or not solely attributable to STIN's negligence or other
conduct.
2.4. SABRE Downtime. Customer recognizes that from time to time, SABRE and/or
access to Customer's Negotiated Fares, Fare Rules and Fare Routings may be
unavailable due to unexpected failures and routine maintenance, upgrading or
repairs. STIN shall not be liable for any such downtime.
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
<PAGE>
SECTION 3. RESPONSIBILITIES OF CTI CORPORATION
3.1 Customer Representations and Warranties. Customer makes the following
representations and warranties:
a. The Customer warrants that the Negotiated Fares, Fare Rules, Fare
Routings and any other data it supplies under this Agreement is based on
fully and validly executed contractual agreements between the Customer and
various carriers on whose behalf it is authorized to sell transportation.
b. Customer warrants the accuracy and reliability of all Negotiated Fares,
Fare Rules, Fare Routings and any other information it supplies to STIN under
this contract and assumes sole responsibility and liability (if any) for
providing this information to STIN on behalf of those carriers with whom
contracts for Negotiated Fares exist.
c. Customer warrants that in executing this agreement and in supplying the
Negotiated Fares, Fare Rules, Fare Routings and any other information
hereunder, it is not in breach of any existing contracts or in violation of
any Federal or State statutes, rules or regulations.
3.2 Information Supplied. In supplying data to be included in the SABRE System
Database, the Customer shall conform to the standards and procedures as
prescribed in attached Schedule 1 and as amended from time to time by mutual
consent.
3.3 Customer Payment. Customer shall pay STIN each of the following charges
for services provided pursuant to this Agreement.
a. A one time implementation fee of [*] for development, testing and for the
inputting of the Customer's existing Negotiated Fares, Fare Rules, Fare
Routings and other related information into the SABRE System Database, which
shall be due and payable within thirty (30) days of the Implementation Date.
b. A charge for each request change or addition to the SABRE System Database
as follows:
i. A filing fee of [*] to be charged each time Customer request STIN to
make one or more changes or additions to the existing SABRE System
Database.
ii. An additional processing fee of [*] per Fare Rule or Fare Routing for
each change or addition to the existing SABRE System Database. However,
nothwithstanding the above, STIN shall waive this [*] processing fee for
a given number of requested changes or additions as set forth in the
following chart.
Number of Customer Fare Number of Changes / Additions For
Rules in SABRE System Which No Processing Fee Will Be
Database Charged
1 - 75 [*]
76 - 100 [*]
100 - 125 [*]
126 - 200 [*]
[*]
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
<PAGE>
c. A monthly maintenance and storage fee based on the number of Fare Rules
maintained in the SABRE System Database as shown in the following chart.
<TABLE>
<CAPTION>
Number of Customer Fare Monthly Maintenance
Rules in SABRE System and Storage
Database Fee
<S> <C>
1 - 75 [*]
76 - 100 [*]
100 - 125 [*]
125 - 200 [*]
</TABLE>
d. The filling fee of [*] and the processing fee of [*] shall be [*] made to
the Customer's Negotiated Fares, Fare Rules of Fare Routings during the first
[*] days after the actual Implementation Date.
SECTION 4. TERM, DEFAULT AND TERMINATION PROVISIONS
4.1. Term. This Agreement shall be effective for a period of one (1) year from
the date of this Agreement or until terminated pursuant to Sections 2.1(b),
4.4. or 4.5 of this Agreement. In the event that this Agreement has not been
terminated prior to the expiration of one (1) year, it shall continue in effect
thereafter until terminated by either party upon ninety (90) days written
notice.
4.2. Price Increases. At the end of the one (1) year initial term of this
agreement, STIN may increase the charges set forth in Section 3.3 of this
Agreement. STIN agrees to notify Customer in writing at least thirty (30) days
prior to any such price increase.
4.3 Default. The occurrence of any one (1) or more of the following events
shall constitute an event of default pursuant to this Agreement ("Event of
Default").
a. Customer fails to pay or cause to be paid any amounts due hereunder as it
becomes due in accordance with the terms of this Agreement and such failure
continues for a period of five (5) days after receipt of written notice from
STIN that Customer is in default under this Agreement.
b. Either party has materially breached or misrepresented any representation,
warranty, or covenant given by it in this Agreement.
c. Customer commences bankruptcy or insolvency proceedings or Customer ceases
to do business as a going concern, makes an assignment for the benefit of
creditors, admits in writing its inability to pay debts as they become due,
or acquiesces in the appointment of a trustee, receiver or liquidator for it
or any substantial part of its assets.
4.4 Termination. Upon occurrence of an Event of Default, the non-defaulting
party shall have the right to (i) terminate this Agreement, and if Customer is
the defaulting party. Customer's access to SABRE; and (ii) seek all legal and
equitable remedies to which it is entitled.
4.5 Right to Terminate if Claim is Made. In the event that any claim is made
or threatened to be made against STIN by one of the carriers with whom Customer
has Negotiated Fares, Fare Rules or Fare Routings and such claim arises out of
STIN's performance under this Agreement, STIN may, in its sole discretion,
terminate this Agreement without any further obligation or liability on the part
of STIN.
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
<PAGE>
SECTION 5. LIMITATION ON LIABILITY
5.1 STIN shall not be liable to Customer for any loss, claim or damage caused
in whole or in part by STIN's negligence or by contingencies beyond STIN's
control in procuring, collecting, compiling, abstracting, Interpreting,
communicating, processing or delivering Negotiated Fares, Fare Rules or Fare
Routings through SABRE. However, if errors in data are due to circumstances
under STIN's direct control, STIN shall use its best efforts to correct such
errors within 72 hours after notification by the Customer of the error.
Although STIN shall use its best efforts to accurately maintain Customer's
Negotiated Fares, Fare Rules and Fare Routings in the SABRE System Database, the
foregoing limitation on liability includes, but is not limited to, any liability
in contract or tort, for the difference between the fare reflected in SABRE, or
on tickets autopriced and issued by SABRE, the Customer's actual Negotiated
Fares.
5.2 STIN DISCLAIMS AND CUSTOMER HEREBY WAIVES ANY WARRANTIES EXPRESS OR IMPLIED
INCLUDING BUT NOT LIMITED TO ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR
INTENDED USE OF SERVICES FURNISHED HEREUNDER OR ANY LIABILITY IN NEGLIGENCE
OR TORT WITH RESPECT TO THE SERVICES FURNISHED HEREUNDER. CUSTOMER AGREES
THAT STIN SHALL NOT BE LIABLE TO IT FOR CONSEQUENTIAL DAMAGES UNDER ANY
CIRCUMSTANCES.
SECTION 6. INDEMNITY
Customer hereby agrees to indemnify and hold STIN, its officers, directors,
agents and employees harmless from and against any and all liabilities, damages,
losses, expenses, claims, demands, suits, debit memos, fines or judgments
including, but not limited to, attorney's fees, costs and expenses incident
thereto, which may be suffered by, accrue against, be charged to or recoverable
from STIN, its officers, directors, agents, or employees, by reason of losses
(including lost profits), damages, injuries or deaths of persons arising out of
or in connection with, STIN's performance of the terms if this Agreement or any
negligent act, error, or omission of the Customer.
SECTION 7. MISCELLANEOUS PROVISIONS
7.1 Force Majeur. STIN shall not be liable for delays in or failure of
performance hereunder caused by acts of God, strikes or other labor disputes,
fires, or for any other delay or failure resulting from a cause beyond its
reasonable control.
7.2 Assignment. Customer shall not transfer or assign this Agreement, or any
right or obligation under it by operation of law or otherwise, without the prior
written consent of STIN.
7.3 Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE
OF TEXAS AND THE UNITED STATES OF AMERICA. CUSTOMER HEREBY SUBMITS AND CONSENTS
TO THE NON-EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF TEXAS AND THE COURTS OF THE STATE OF TEXAS IN ANY DISPUTE
ARISING OUT OF THIS AGREEMENT AND AGREES THAT SERVICE OF PROCESS SHALL BE
SUFFICIENT IF MADE ON THE SECRETARY OF STATE OF THE STATE OF TEXAS WITH A COPY
TO BE SENT, REGISTERED MAIL TO THE CUSTOMER AT THE ADDRESS SET FORTH BELOW OR
SUCH OTHER ADDRESS AS CUSTOMER MAY LATER SPECIFY BY WRITTEN NOTICE TO STIN.
<PAGE>
BELOW OR SUCH OTHER ADDRESS AS CUSTOMER MAY LATER SPECIFY BY WRITTEN NOTICE TO
STIN.
7.4 Notices. Notices given or required under this Agreement shall be deemed
delivered if sent by United States mail, postage prepaid, fax, or by telex, to
the respective address of SABRE Travel Information Network or Customer set forth
below:
STIN: Customer:
SABRE Travel Information Network C.T.I. Corporation
- ------------------------------------ ---------------------------------------
P.O. Box 819816 738 Kaheka Street #301
- ------------------------------------ ---------------------------------------
DFW Airport, TX 75261-9616 Honolulu, HI 86814
- ------------------------------------ ---------------------------------------
7.5 Waiver. A failure or delay of STIN to require strict performance or to
enforce a provision of this Agreement shall in no way be construed as a waiver
or continuing waiver of any provision of this Agreement.
7.6 Severability. Any provision of this Agreement which may be determined in a
court or other competent government authority to be prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition and unenforceability, without invalidating the
remaining provisions thereof, unless such prohibition or unenforceability
materially after the rights or obligations of either party.
7.7 Entire Agreement. This Agreement shall constitute the entire agreement of
the parties as to the matters set forth herein and shall supersede any previous
understandings, whether written or oral, between the parties relating to the
matters set forth herein. Any amendment to this Agreement must be in writing and
signed by the authorized representatives of both parties.
7.8 Effective Date. This Agreement shall not be effective until countersigned
by an authorized representative of STIN.
IN WITNESS WHEREOF, STIN and Customer have executed this Agreement as of
the date first above written.
CTI CORPORATION STIN
By: Customer /s/ Mike Hartley By: /s/
-------------------------- --------------------------
Name: Mike Hartley Name:
------------------------ -------------------------
Title: General Manager Title:
---------------------- ------------------------
<PAGE>
QCP Schedule for SABRE
<TABLE>
<S> <C> <C> <C> <C> <C>
Vendor WDM WDM QCP SABRE
Transmission Update Freetext Processing Load Times
Cutoff Cutoff Time
QCP 09:00 09:30 09:30 - 13:00 -
1 ATP Dom 13:00 14:00
QCP 11:30 11:30 - 11:45 12:00 - 18:30 -
2 ATP Int'l 10:00 12:00 18:30 20:30
ATP Dom 11:30
QCP 14:00 19:00 19:00 - 23:00 -
3 ATP Int'l 14:00 23:00 02:30
SITA 17:00
QCP 19:00 23:00 21:45 23:00 - 03:00 -
4 ATP Int'l 03:00 06:30
ATP Dom
QCP 04:30 05:00 05:00 - 07:30 -
5 ATP Int'l 07:30 10:00
Sat/ 16:00 18:00 14:30 18:00 - 20:30 -
Sun ATP Int'l 20:30 08:30
ATP Dom
</TABLE>
<PAGE>
Reference WorldFare Data Management
- --------------------------------------------------------------------------------
GFS, Commercial, and SABRE Categories/Tables
IMS Menu Screens (see chart for specific category screens):
Main Menu /FOR [*]
Fare Class Application /FOR [*]
Rule /FOR [*]
Fares Update (Fare Record) /FOR [*]
Browse for Footnotes/Rules /FOR [*] or /FOR [*] or /FOR [*]
QCP Table /FOR [*]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
QCP (IMS) Auto
SABRE RD GFS /FOR [*] MRT Rules Freetext
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
01 Booking Code WAR 412
02 Penalty 16 402
03 Reservation/Ticketing 05 008 [*]
04 Minimum Stay 06 001 [*]
05 Maximum Stay 07 002 [*]
06 Day/Time 02 005 [*]
07 Season 03 03
08 Blackouts 11 11
09 Effective/Expired 14-15 003 [*]
Sales/Travel 006 [*]
10 Flight Application 04 014 [*] WAR*
11 Stopovers 08 009 [*] WAR* 408
12 Ticket Issue 15 016 [*] 420
13 Surcharges 12 015 [*] 936
14 Discounts 19-22 012 [*] 406
15 Reroute 16 404
16 Transfers 09 09
17 Combinability 10 10
18 Open Return 05 410
19 Refunds 16 416
20 Special Provision 13 011 [*]
21 Co-terminals WAR* 418
22 Int'l Construction 114/116
23 Group 26 414
24 Tour 27 422
25 Deposit 27 424
26 Misc. 23 426
Ticket Endorsements 18 108
</TABLE>
* Limited WAR applications
- --------------------------------------------------------------------------------
Version 2.3 Categories-1 10/27/97
[*] The redacted portion, indicated by this symbol, is the subject of a
confidential treatment request.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1, to
be filed on or about January 20, 1999, of our report dated October 13, 1998,
except for Notes 4 and 5 as to which the date is January 15, 1999, on our
audits of the financial statements of Cheap Tickets, Inc. We also consent to
the references to our firm under the captions "Experts" and "Selected Financial
Data."
/s/ PricewaterhouseCoopers LLP
Honolulu, Hawaii
January 19, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 9,232,480
<SECURITIES> 0
<RECEIVABLES> 1,793,229
<ALLOWANCES> 0
<INVENTORY> 399,012
<CURRENT-ASSETS> 12,014,746
<PP&E> 4,024,656
<DEPRECIATION> 1,319,256
<TOTAL-ASSETS> 14,903,140
<CURRENT-LIABILITIES> 7,767,918
<BONDS> 1,097,882
4,007,495
0
<COMMON> 10,338
<OTHER-SE> 1,887,051
<TOTAL-LIABILITY-AND-EQUITY> 14,903,140
<SALES> 122,994,328
<TOTAL-REVENUES> 131,047,672
<CGS> 104,547,056
<TOTAL-COSTS> 128,639,676
<OTHER-EXPENSES> 61,532
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 117,955
<INCOME-PRETAX> 2,497,375
<INCOME-TAX> 1,023,924
<INCOME-CONTINUING> 1,473,451
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,473,451
<EPS-PRIMARY> 1.00
<EPS-DILUTED> .84
</TABLE>
<PAGE>
Exhibit 99.1
CONSENT
The undersigned hereby consents to his nomination to serve as a
Director on the Board of Directors of Cheap Tickets, Inc., a Delaware
Corporation, and to all references to him and to his professional history,
including but not limited to his biography on pages 47 and 48, that are included
or made a part of this Registration Statement on Form S-1 filed with the
Securities and Exchange Commission.
Dated as of January 19, 1999.
/s/ Giles H. Bateman
------------------------
GILES H. BATEMAN
<PAGE>
[LETTERHEAD OF KPMG]
EXHIBIT 99.2
January 19, 1999
Office of the Chief Accountant
SECPS Letter Files
Securities and Exchange Commission
Mail Stop 9-5
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We were previously principal accountants for Cheap Tickets, Inc. and, under the
date of March 13, 1998, we reported on the financial statements of Cheap
Tickets, Inc. as of and for the years ended December 31, 1997 and 1996.
Subsequent to March 13, 1998, the Board of Directors recommended that our
appointment as principal accountants be terminated. We have read Cheap Tickets,
Inc.'s statements included under "Change in Independent Auditors" in its S-1
Registration Statement to be filed on January 20, 1999, and we agree with such
statements.
Very truly yours,
/s/ KPMG LLP
c: Cheap Tickets, Inc.
