SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 0-18412
ETRAVNET.COM, INC.
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(Exact name of registrant as specified in its charter)
New York 11-2602120
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
560 Sylvan Avenue, 07632
Englewood Cliffs, New Jersey (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (201) 567-8500
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(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 per share
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K [ ].
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 28, 2000 was approximately $12,630,000.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. As of March 28,
2000, there were 5,505,201 shares of Common Stock, par value $.001 per share
outstanding.
Documents incorporated by reference: None
<PAGE>
PART I
Item 1. Business
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OUR BUSINESS
Etravnet.com, Inc. (the "Company") is a leading franchisor of traditional
"brick and mortar" travel agencies operating under the names, Travel Network,
Global Travel Network and Travel Network Vacation Central as well as
Internet-based travel-related services. We were recognized as the number one
franchisor in the overall category in North America by Income Opportunities
Magazine (April 1999), the number one travel agency franchise by Income
Opportunities Magazine (February 2000), and one of the top 100 franchises by
Entrepreneur Magazine (January 1999). We are also a full-service provider of
travel products and services to the leisure and small business traveler. We
operate our business under our trade name "Global Travel Network" and our web
sites "etravnet.com," "hagglewithus.com" and "rezconnect.com." We offer our
customers a reliable source of travel products and services through our
agreements with selected travel providers, including major airlines, cruise
lines, hotels and car rental agencies, as well as wholesale travel providers
such as GoGo Worldwide Vacations, the largest North American wholesaler of
travel packages. Liberty Travel, the retail division of GoGo Worldwide
Vacations, owns an eight percent (8%) interest in the company. In addition, we
offer our customers the ability to make reservations on over 437 airlines, at
more than 35,000 hotels and with most major car rental companies, cruise lines
and tour package operators. Our travel product and service offerings are
available to our customers through:
- - our exclusive franchise network of over 350 domestic and over 50
international travel agencies;
- - our websites (www.travelnetwork.com, www.etravnet.com, www.hagglewithus.
com) and websites which are not travel-related, but which utilize our
travel reservation system; and
Since the inception of the franchise company over 18 years ago, we have
built a network of approximately 350 domestic and approximately 50 international
travel agencies which we sell as franchises to various individual and corporate
franchisees, each of whom bears the costs of establishing the particular
franchise location. Over 50 of our domestic locations are in Wal-Mart
Supercenters under the trade name "Travel Network Vacation Central ." We plan to
open additional Vacation Central franchise locations in various Wal-Mart
Supercenters and other mass merchandisers or throughout the US and
internationally. This "store-within-a-store" concept has resulted in increased
sales and exposure reaching an estimated 40,000 to 60,000 consumers per week per
Wal-mart location spanning over 3 << years of operation; and we believe we are
well positioned for expansion of this concept to other chains.
Establishing travel agency franchises has facilitated our growth and
enhanced our operations because:
- - we pass all start-up costs to the franchisee;
- - as franchisor, we are able to control and oversee the operations of the
newly-created franchise, thereby ensuring that our high standards of
quality are maintained; and
- - we can obtain significant discounts from various travel providers because
of our purchasing power which results in better prices and higher
commissions for franchisees which can be passed along to the consumer as
competitive pricing and value added services.
<PAGE>
We have also extended our franchise model to web-based travel agency
businesses, thereby giving us an increased presence on the Internet. The
franchise format we use for web-based agencies has features similar to a
franchise for a "brick and mortar" or actual site travel agency. Once again, we
can pass the start- up costs along to the franchisee while increasing our
network and enhancing our bulk purchasing power opportunities.
In addition to establishing franchises, we also
- - sell airline tickets, hotel and resort room nights, car rentals, tours,
cruises, packages and other travel- related products directly to consumers
and Internet-based travel agencies as well as our franchisees;
- - provide various "backbone" Internet and non-Internet services, including a
unique system to make and pay for travel reservations, to our franchisees;
and
- - generate advertising and other Internet usage revenues from the various web
sites in our franchise network.
Total gross bookings for the aggregate sales of the franchise chain have
grown from $1.1 billion in 1994 to in excess of $1.5 billion in 1999. We
generated revenues of $3.3 million, $4.5 million, and $5.9 million for the
fiscal years ended December 31, 1997, 1998 and 1999 respectively. Gross bookings
represent the aggregate retail value sold by our entire franchise network for
travel products and related services sold to their customers.
BUSINESS ACQUISITION
Etravnet.com, Inc. was incorporated in the State of New York in December,
1981 under the name Playorena, Inc. ("Playorena"). Playorena formerly operated
recreational play and exercise programs specifically designed for children.
Playorena discontinued these operations in November, 1997. In July, 1998,
Playorena sold all of its assets to an entity formed by Michael Astor,
Playorena's then largest shareholder. Mr. Astor transferred to Playorena all of
his common stock in Playorena in exchange for the assets of Playorena. Also in
July, 1998, Playorena effected a 1 for 20 reverse stock split. Shortly
thereafter $1.1 million in debt was converted into 8,612,624 shares of
Playorena's Common Stock.
On July 27, 1999, Playorena, Playorena Acquisition Corp., a wholly-owned
subsidiary of Playorena, and Global Travel Network LLC, a New York limited
liability company ("Global") entered into an Agreement and Plan or
Reorganization (the "Merger Agreement"). In accordance with the Merger
Agreement, Playorena acquired all of the outstanding membership interests of
Global in exchange for 5,063,379 shares of Playorena Common Stock. The 5,063,379
shares of Playorena Common Stock includes 4,931,087 shares which were issued to
the holders of all of the outstanding membership interests of Global, and
132,292 shares which were reserved for issuance upon the exercise of Common
Stock Purchase Warrants issued by Playorena to certain former holders of Global
membership interests in exchange for warrants to purchase additional membership
interests in Global.
Immediately prior to the merger, Playorena effected a .027533 for 1 reverse
stock split which resulted in a total of 294,694 shares of issued and
outstanding Playorena Common Stock. As a result of the merger, the former
holders of membership interests in Global received 49,319 shares of Playorena
Common Stock for each one percent of Global membership interest held. Upon the
completion of the merger, 4,850,716 shares or approximately 93 % of the issued
and outstanding Common Stock of Playorena was owned by former holders of Global
membership interests and Global became a wholly-owned subsidiary of Playorena.
Concurrently with the merger, Playorena amended its Certificate of Incorporation
to change its name to Etravnet.com, Inc.
<PAGE>
INDUSTRY BACKGROUND
Travel Industry
The U.S. travel industry is large and growing. Consumers in the U.S. spent
$126 billion on travel through travel agencies in 1999, up from $101 billion in
1997, according to the Travel Weekly 1998 U.S. Travel Agency Survey. Airline
travel (including leisure and business travel) represents the largest segment by
dollar volume of the travel industry and constitutes $71 billion, or 56% of
total travel dollar volume booked through travel agencies in 1999, as stated in
the survey. Historically, airlines, cruise lines, tour operators and, to a
lesser extent, hotels and rental car agencies have relied on internal sales
departments and travel agencies as their primary distribution channels. The
traditional travel agency channel is highly fragmented, with few nationally
recognized brands. According to the Airline Reporting Corporation, there are
over 23,000 travel agencies operating in more than 33,000 locations in the U.S..
Customers traditionally have relied on travel agents to access and interpret
the large amounts of rapidly changing and complex information relating to travel
products. In many cases, the ability of customers to obtain the most favorable
schedules and fares has been subject to the skill and experience of individual
travel agents. However, consumers are increasingly seeking alternative means to
access complete travel information and the ability to make informed autonomous
travel-related purchases.
Growth in Internet Travel Services
The traditional travel industry is one in which the consumer is faced with a
multiplicity of choices relating to schedules, prices and reservation
availability. This market complexity makes the Internet a particularly
well-suited medium for the consumer to use to conduct real-time research and
make informed buying decisions. According to Forrester Research, online leisure
travel bookings are expected to grow from $3 billion in 1998 to over $29 billion
in 2003. The purchase of travel products requires easy access to a vast amount
of data regarding pricing, scheduling and availability and other travel
information. This data changes frequently and consumers are increasingly seeking
more convenient access to this information and the ability to comparison shop
for travel products. Additionally, the existing travel agency infrastructure is
highly fragmented and is under economic pressure which may require travel
agencies to reduce their service and institute or increase their service fees.
Consequently, consumers have thus far been receptive to initial offerings of
travel services on the Internet and online travel bookings have become one of
the largest categories of electronic commerce. Consumers have been attracted by
the convenience of purchasing travel products and services via the Internet and
to date have sought online travel sites that are easy-to-use and that have
compelling travel-related content such as booking capabilities and destination
information.
<PAGE>
OUR TRAVEL AGENCY FRANCHISE OPERATIONS
Start-up Agencies
Our domestic travel agency franchise operations included 356 agencies at
December 31, 1999, operating in 37 states. We also have international travel
agency franchise operations and master franchise representation consisting of 51
agencies at December 31, 1999, representing 21 countries. All of our franchises
operate under the names "Travel Network," "Global Travel Network," "Travel
Network Vacation Central," or "ETN 2000" for Small Office, Home Office (SOHO)
locations.
Currently, over 50 of our domestic franchise locations are located in
Wal-Mart Supercenters under the trade name "Vacation Central." We will continue
to seek "store-within-a-store" locations for our franchises in order to increase
our brand visibility and also to facilitate one-stop shopping for our customers.
We also have well known companies such as Payless Car Rental operating our
franchises. We will continue to seek to market the franchising program to
larger, experienced and successful operators with the financial and business
capability to develop multiple franchise agencies.
Franchisees are required to execute a standard franchise agreement prior to
operating a Travel Network agency. Our current standard franchise agreement
provides for, among other things, a one-time, non-recurring franchise fee
ranging from $19,900 to $29,900, payable upon the execution of the franchise
agreement, for "brick & mortar" franchise locations. This fee covers our costs
incurred in connection with our start-up training, assistance and supervision of
the franchisee as well as initial forms, supplies and manuals. SOHO internet
agencies online have a franchise entry fee of $3,995.
Start-up franchisees are required to pay us the following monthly service
fees:
- - $350 during the first year of operations;
- - $550 during the second year of operations;
- - $750 during the third year of operations;
- - $750 plus an increase in proportion to the current yearly increase in the
Consumer Price Index during the fourth through the tenth years of
operation.
SOHO internet agencies are required to pay $100 per month during the first
year of operation and $150 per month thereafter.
Franchisees also pay us a monthly fee of $50 which pays for the maintenance
of their website and online booking engine.
Franchisees are approved on the basis of their business and educational
background, net worth and capital available for investment. We offer third-party
financing arrangements to our franchisees. All franchise applicants must have at
least $60,000 available for start-up and working capital purposes.
We provide numerous support services to our franchisees. We assist in and
approve all site selections. Thereafter, we provide architectural prototype
plans suitable for store lay-out and design. We also supply the franchisee with
guidelines which will assist in lease negotiations for the site except in the
case of Wal-Mart locations which are pre-negotiated by us. The franchisee is
required to follow our models for all signage. The franchisee is responsible for
all costs associated with site selection, development, construction and
decoration.
<PAGE>
We require all of our franchisees to complete an intensive four week
training workshop which includes one week of business development training, one
week of Travel Network agency operations, one week of airline computer training
and one week of hands-on training held on-site at the agency. In addition to the
extensive training provided to each of our franchisees, we provide each
franchisee with extensive operations manuals and remain available to our
franchisees for management assistance and support. We communicate with each of
our franchisees by our telephone help desk, through our electronic bulletin
board and e-mail through the airline computer system, and through our intranet
on-line communications system. Each franchisee also has a representative who
serves as a liaison between the franchisee and our office. We also offer
assistance to our franchisees in the following areas:
- - site selection;
- - recruiting, screening and hiring recommendations for employment of
qualified staff;
- - one year subscription to trade publications;
- - 4 week up-front training program;
- - store layout and design;
- - a furniture and equipment package is available for purchase;
- - bookkeeping system setup and assistance;
- - and notification of industry suppliers who send the initial supply of
travel brochures and literature; and
- - include franchisees on mailing lists and vendor rep visitation schedules;
on-going field support visitation from our field training team.
Franchised agencies are required to be operated in accordance with uniform
operating standards and specifications relating to travel services for
consumers, signage, decor, equipment, maintenance and cleanliness of premises
and customer service. All standards and specifications are developed by us and
applied on a system-wide basis. We continuously monitor franchisee operations
through visitation to locations. We have the right to terminate a franchise if a
franchisee does not operate and maintain a location in accordance with the
requirements of its franchise agreement. We also have the right to terminate a
franchise for non-compliance with certain other terms and conditions of the
franchise agreement such as non- payment of fees, sale of unauthorized products,
bankruptcy or conviction of a felony. During the fiscal year ended December 31,
1999, we terminated 13 franchise agreements.
Conversion Agencies
In addition to our Start-up franchise agencies, we also offer alternative
franchise arrangements to pre-existing, full service travel agencies which wish
to become part of our network of agencies and thereby enjoy the benefits of
higher commissions and competitive travel programs and also to utilize our
various web site and internet services. These agencies are referred to as
"Conversion Agencies" due to the fact that they were previously independent
agencies which have utilized some or all of the services which we offer to our
Start-up franchisees including:
- - Higher commissions on travel products which result from negotiated
agreements with suppliers;
- - Access to their own interactive internet website using our sophisticated
technology;
- - Access to our award winning marketing and customer loyalty programs;
- - Access to training programs for staff and outside sales team.
<PAGE>
The sign-up fee for a Conversion Agency is $3,000 for the first three (3)
years. We also receive a service fee of $300 per month for the first year; $400
per month during the second year and $550 per month for the third year with CPI
adjustment in future years.
Small Office/Home-Office ("SOHO") Agencies
We also enter into franchise relationships with individuals who wish to
operate a travel agency from their homes or offices. Operators of SOHO agencies
are able to avail themselves of all of our travel related products, on-line
services. SOHO agencies are similar to Start-up franchises but do not require
site locations within which to conduct business since these agencies are
operated by individuals from their home or office.
SOHO agencies are easier for us to franchise because:
- - No site location, development or decorating is required;
- - There are no staff or employees which need to be hired and trained; and
- - Operations are more streamlined and easier to manage since the business is
completely web-based.
SOHO agencies represent an effective, low-cost franchise alternative for us
which allows us to easily develop an extensive franchise network and also to
operate franchises in more remote areas due to the ease with which SOHO agency
franchises can be established and maintained. The one-time sign-up fee for a
SOHO agency is $3,995. We also receive a service fee of $100-$150 per month and
30% of the gross commissions earned by each SOHO agency for the sale of travel
products.
Regional and International Presidents
We have established 356 franchise agencies throughout the U.S. and 51
franchise agencies abroad through the combined efforts of our Corporate
Headquarters Sales Team and our Regional Presidents and International
Presidents. A Regional President is given the right, for a designated area
within the U.S., to solicit, interview and recommend prospective franchisees to
the Company. The Regional President continues to oversee the training and
development of the franchisees after the initial 4 week training is concluded,
which have been developed by the Regional President and also provides support
services to the franchise on an ongoing basis.
An International President is given the right, for a designated area in one
or more countries, to operate our franchise system within the international
territory, and, thereafter, solicit international franchise locations. Upon the
acquisition of eligible franchisees, the International President supervises the
establishment of franchises in accordance with the local laws of the territory.
The International President oversees the training and development of the
franchises which have been established and provides support services to the
franchise on an ongoing basis.
Our use of Regional and International Presidents has assisted us in
expanding our franchise network both domestically and abroad. Additionally, we
have an increased degree of control over our franchises which remain under the
supervision of Regional and International Presidents. Furthermore, Regional and
International Presidents are better-equipped to locate promising franchise
candidates and to oversee the franchise process due to familiarity with the
location of the franchise as well as the prevailing laws and business
conditions.
<PAGE>
Each start-up franchisee which is referred to us by a Regional President is
required to pay us a $19,900 - $29,900 one-time sign-up fee and monthly service
fees ranging from $350 to $750 plus CPI depending on the number of years the
franchise has operated. Each Regional President in the U.S. is required to pay
us a one-time sign-up fee ranging from $40,000 to $200,000 in general and each
International President's territory ranges from $100,000 - $500,000, in general.
The following table sets forth each of our different components of domestic
franchising operations, revenues recorded in connection with each component, and
the percentage of each components revenues to our total domestic franchise
related revenues for the fiscal year ended December 31, 1999:
<TABLE>
<CAPTION>
Franchise Form No. of Agencies 1999 Revenue Percentage of 1999 Total
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<S> <C> <C> <C>
Start-up Franchise Agencies 163 $915,000 46%
Conversion Agencies 40 120,000 6%
SOHO Agencies 12 55,000 3%
Vacation Central Agencies 52 507,000 26%
Agencies Established by
Regional Presidents 38 160,000 8%
Agencies Established by
International Presidents 51 209,000 11%
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$1,966,000 100%
========== ====
</TABLE>
OUR INTERNET OPERATIONS
Online sales of travel services have expanded dramatically in recent years
due to the substantial benefits of e-commerce to both travel service suppliers
and consumers. By moving their travel services online, travel service suppliers,
retail travel agencies and travel wholesalers can reach a global customer base
from a central location. Furthermore, both the low cost of customer interaction
and the automation of processing and fulfilment functions supported by Internet
sales allow online travel service providers the potential to maintain lower
operating expenses. Consumers benefit from convenient access to a range of
travel options and information regarding available travel services and products.
According to Forrester Research, online travel bookings are expected to grow to
$29.5 billion in 2003 from $3.1 billion in 1998, representing a compound annual
growth rate of 57%.
As the online travel services industry continues to evolve and mature, we
believe consumers will increasingly demand an easy to use web site that provides
a broad range of travel services, including transportation, accommodations,
activities and travel-related content and the ability to comparison shop for
preferred suppliers, price levels, destinations and packages. To offer consumers
maximum value and competitive prices, the web site must have access to value
added and competitive travel pricing in addition to published rates and fares
through a global distribution service. In addition, we believe travel service
suppliers will seek online distribution partners that will aggressively market
their products to provide an effective distribution channel that helps minimize
excess capacity and responds quickly to distressed inventory while suppliers
maintain published rates.
<PAGE>
OUR ETRAVNET WEBSITE
Our website provides consumers with content-rich, value-added travel
services as well as on-line, real-time negotiating for their services. Visitors
to our site at www.etravnet.com have immediate access to our easy to use
proprietary booking engine. Unlike many other travel web sites, we do not
require customers to pre-register or provide personal information prior to
searching our database for travel options. Visitors simply type in their desired
destination and itinerary, and the booking engine simultaneously displays a
range of travel options, rates and availability for the visitor to compare. At
any time, visitors can review detailed information about each of our destination
markets, including in-depth hotel and dining information, local news and events
and other travel planning information. We provide customer support through our
call center 24 hours a day, 7 days a week to answer customer questions and
assist in finding the best travel value for their needs. Customers can either
complete travel purchases in a few easy steps online, or call our reservation
center to purchase travel offline.
As of December 31, 1999, our travel inventory includes contracts for
wholesale rates at over 4,000 hotels in the U.S. and 30 countries and access to
wholesale airfares with 37 major airlines. To complete a purchase, customers
select the hotel and/or airline of their choice and supply basic identification
and credit card information. Once the order is submitted, the customer receives
instant online confirmation that travel has been booked and a subsequent e-mail
to verify the transaction. We also provide our customers with the option to
complete travel purchases quickly and efficiently through our reservation
center. Fulfilment is completed with e-tickets, whenever possible, or printed
tickets sent to the customer by overnight courier service.
Our customers can view detailed information on many different travel options
and travel related services at any time while shopping for travel values, all
without leaving the convenience of our web site.
- - HOTELS. By selecting and featuring a broad range of hotels in the economy,
mid-price and luxury price ranges in desirable areas of each market we
serve, we assist our customers in finding the properties best suited to
their individual preferences and budget.
- - SPECIALS. We offer various "specials" in cooperation with our strategic
partners in each market we serve by offering deeper than usual promotional
discounts for a select number of hotels and hotel/air packages, cruises,
tours and car rentals.
- - LOCAL EVENTS AND ATTRACTIONS. We offer extensive information on local
events and attractions by providing access to local content providers in
each of our destination markets in the U.S.
- - RESTAURANT GUIDE. We allow customers to view over 100,000 dining
alternatives in over 7,000 cities by featuring restaurant photos,
commentary and menus and providing our patent-pending technology to make
restaurant reservations on-line.
<PAGE>
- - GROUND TRANSPORTATION. We offer access to rental car reservations and other
local transportation options, such as limousine and shuttle services.
- - WEATHER REPORTS. We provide access to current weather information for
planning for packing and ground transportation on arrival.
- - TRAIN INFORMATION. We offer complete information on International rail.
- - CRUISE INFORMATION. We offer complete cruise information for all major
cruise lines with cruise itineraries throughout the world. By entering
specific preferences, the consumer prompts our computer system to sort out
the ships and sailing dates that fit the travelers' desires while posting
our special rates as compared to the cruise line's brochure rates.
- - TOURS. We offer an extensive selection of tours throughout the world with
value-added items as well as competitive pricing.
- - MISCELLANEOUS SERVICES. Consumers who visit our website also have access to
flight tracking, an information source with departure and arrival update
information of flights on the day of travel, currency conversion
information, travel insurance and quick air fare check, which enables our
consumer to select departing and arriving cities as well as departure and
return dates and receive instantaneous fare information.
OUR HAGGLE WEBSITE
Users of our website may also negotiate in "real time" directly with travel
providers for low prices through the use of "HaggleWithUs.Com," our web-based,
one-on-one reverse auction website. HaggleWithUs is owned and operated by the
Company and allows a consumer to negotiate directly with any travel supplier
chosen by the consumer. The consumer makes a bid for the purchase of the travel
services, which bid is transmitted to the travel supplier or its representative
through the HaggleWithUs website. The bid is converted to an automated phone
call which is received by the travel supplier or the representative which point
the bargaining process begins. Assuming the travel provider is able to offer a
price which is acceptable to the consumer and the consumer is willing to accept
the price of the travel supplier, a confirmation will be issued by the travel
provider within seconds of the initial consumer inquiry. The HaggleWithUs
process enables a consumer to maintain control over his transactions by allowing
the consumer to pick the travel supplier, bid directly with the travel supplier
for the lowest price and confirm the travel arrangements, all within minutes. We
have contracts for over 4,000 hotels with wholesale rates which we will utilize
for the HaggleWithUs website. We plan to expand the use of HaggleWithUs to sell
cruises, resorts, hotels and rentals and airline tickets. We have a
pending-patent application on file for the technology which drives the
HaggleWithUs products.
We will derive revenues from monthly listing fees from each travel service
provider which utilizes the HaggleWithUs website as well as a sign-up fee and a
transaction fee that will be a percentage of the cost of the travel services
purchased. Our listing fees for travel suppliers who wish to utilize
HaggleWithUs are:
- - a subscription fee of $150.00 for the first year,
- - $25.00 per month maintenance fee; and
- - 13% of gross sales exclusive of tax and transaction fee.
<PAGE>
We have also developed a real-time reservations system which will allow
consumers to transact directly with travel suppliers in real time to reserve
hotel rooms, tours and other travel services. This on-line reservation system is
called "ReZconnect," and will soon be available on our website. We expect this
patent- pending technology to be available to consumers in or about April, 2000.
OUR INTERNET B-2-B MODEL
Commencing in or about April, 2000, we will begin to extend our
business-to-business (B-2-B) business model to Internet companies which are not
in the travel industry bur which own high traffic web sites with a strong
demographic of upscale users or large e-commerce web sites, which are not
travel-related but which would like to offer our travel products within their
own web sites and under their own brand name. These B-2-B sites are referred to
as "Private Label Agencies." The sales of the travel products on these sites are
transacted through our Internet booking engine and the revenues generated from
these sales are shared by us and the owner of the web site. Our Internet booking
engine will also be available to our start-up franchises, conversion agencies,
SOHO agencies, as well as independent travel agencies under our Power Partners
non-franchised program, each of whom may establish its own web site, using its
own brand name. Through their use of our Internet booking engine, franchisees
and B-2-B private labeled sites will offer their web clients an efficient
mechanism to electronically purchase air travel services, hotel rooms, car
rentals, cruises and tours and vacation packages. Additionally, the use of our
Internet booking engine will enable our B-2-B users to benefit from:
- - providing an important service on their web sites that creates a reason for
users to visit more often and stay on the site longer;
- - tracking all accounting matters related to sales made on their site;
discounted and competitive travel products;
- - the capability to utilize our patent-pending technology which drives
HaggleWithUs and Rezconnect, our on-line, real time travel-related
services;
- - revenue sharing on the sales of all travel products.
The Private Label Agency pays us a one-time fee of $4,000 and their revenue
shares a commission split equal to up to 50% of the base commission of the
aggregate purchases of all travel products sold through our booking engine on
the private label site.
We have entered into an agreement with Amadeus, our booking engine provider
which will enable us to earn revenues, or segment fees, based on the number of
reservations made by us or any of our franchise agencies and/or Private Label
agencies. Each reservation will correspond to a certain number of segments. For
example, a tour, a cruise and a combination of air, hotel and car rental will be
credited for 2,2, and 4 or more segments, respectively. We estimate that 10 tour
bookings (equal to 20 segments), 10 hotel bookings (equal to 20 segments) and 73
combined air, hotel and car rental bookings (equal to 292 segments) will
generate $100,000 in gross revenue from Amadeus. Our agreement with Amadeus
provides that we receive $0.60 per segment per year based on the total booking
volume of our company.
<PAGE>
MARKETING AND SALES
We utilize a variety of marketing programs to attract new and existing
travel agencies and potential web and non-web based franchisees and Private
Label web sites of companies not in the travel industry into our network. We
also are continually trying to increase brand awareness and promote our brand
names, including Travel Network, HaggleWithUs.Com and Etravnet.com. These
programs are intended to include, among others, investing in online advertising
and entering into selected marketing relationships to drive traffic to our Web
site and toll-free telephone reservation and customer service center. We also
intend be strategically placed on search engines, enter in B-2-B relationships
with high profile e-commerce companies, utilize the resources of strong public
relations and investor relations firms, and place advertisements on selected
high viewership cable television shows implementing a two million dollar
($2,000,000) cable television advertising campaign for which we have purchased
air time. We also will be attending trade shows, engaging in telemarketing and
sending broadcast faxes to restaurant associations and groups, tourist and
visitor and convention boards, hotel associations and hotel groups and e-mail to
reach domestic and international potential private label customers and
ReZconnect customers from our hotel and restaurant sites as well as products
from HaggleWithUs.com
Marketing Relationships
We seek to increase our bulk purchasing power, the range of travel products
we offer, the consumer base which has access to our products and franchised
agencies, our access to online customers, build brand recognition and expand our
online presence by entering into agreements with select wholesale and retail
travel providers, online search engines, content providers, communities and Web
sites. We refer to those agreements as strategic marketing relationships. To
this end, we have already established a strategic relationship with Go-Go
Worldwide Vacations.
COMPETITION
The market for travel products and services is extremely competitive. We
compete primarily with:
- - traditional travel agencies such as American Express Travel Related
Services, Carlson Wagonlit Travel and Uniglobe Travel;
- - individual airlines, hotels, car rental companies, and tour package
operators and other travel suppliers;
- - online travel reservation services such as Biztravel.com, Cheap Tickets,
Expedia which is operated by Microsoft, Getthere.com, Preview Travel,
Priceline.com, The Trip.com and Travelocity which is operated by The SABRE
Group; and
- - consolidators and wholesalers of airline tickets and other travel products.
In addition to the traditional travel agency channel, most travel suppliers
also sell their products and services directly to customers, predominantly by
telephone. As the market grows for online travel services, we believe that the
number of companies involved in the online travel products and services industry
will increase and travel suppliers, traditional travel agencies and travel
industry information providers will increase their efforts to develop services
that compete with our online services. Many airlines and hotels offer travel
services directly through their own Web sites, including travel services from
other travel suppliers, eliminating the need to pay commissions to third parties
such as the Company. We are unable to anticipate which other companies are
likely to offer competitive services in the future. There can be no assurance
that our online operations will compete successfully with any current or future
competitors.
<PAGE>
Many of the our current and potential competitors have greater brand
recognition, longer operating histories, larger customer bases and significantly
greater financial, marketing and other resources than we do and may enter into
strategic or commercial relationships with larger, more established and
well-financed companies. Some of our competitors may be able to secure services
and products from travel suppliers on more favorable terms, devote greater
resources to marketing and promotional campaigns and devote substantially more
resources to Web site and systems development than our company. In addition, new
technologies and the continued enhancement of existing technologies may increase
competitive pressures on our company. Increased competition may result in
reduced operating margins, loss of market share and brand recognition. There can
be no assurance that we will be able to compete successfully against current and
future competitors or address increased competitive pressures, which may cause a
decrease in our business and adversely affect our results of operations and
financial condition.
INTELLECTUAL PROPERTY
We regard our intellectual property as important to our future success on
the Internet. Presently our intellectual property includes our names
"Etravnet.com" and "HaggleWithUs.Com" and our copyrights in original works of
authorship created in connection with the business and our Web sites. 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, available trademark and copyright
protection may not be sufficient to protect our intellectual property. Also,
such protection may not be available or sought by us in every country in which
our products and services are made available. Despite our precautions, it may be
possible for a third party to copy or otherwise obtain and use our intellectual
property without authorization. In addition, there can be no assurance that
others will not independently develop substantially equivalent intellectual
property. Our failure to protect our intellectual property could harm our
business.
We also rely on third-party licensed technology for our computer systems and
content for our Web sites. These third-party licenses may not continue to be,
and those which we may seek to obtain in the future may not be, available to us
on commercially reasonable terms or at all. The loss or inability to obtain any
of these licenses could result in delays in Web site development or services
until equivalent content, if available, is identified, licensed and integrated.
Any such delays in site development or services could harm our business.
GOVERNMENT REGULATION
We are subject to Federal Trade Commission regulation and several state laws
which regulate the offer and sale of franchises. We are also subject to a number
of state laws which regulate substantive aspects of the franchisor-franchisee
relationship.
The FTC's "Trade Regulation Rule Concerning Disclosure Requirements and
Prohibitions Concerning Franchising and Business Opportunity Ventures" requires
us to provide disclosure of specified information to prospective franchisees.
Fifteen states, including New York, also require similar disclosure. While the
FTC rule does not require registration or filing of the disclosure document,
fourteen states require franchisors to register the disclosure document (or
obtain exemptions from that requirement) before offering or selling a franchise.
The laws of seventeen other states require some form of registration under
"business opportunity" laws, which sometimes apply to franchisors such as us.
<PAGE>
Laws which regulate one or another aspect of the franchisor-franchisee
relationship presently exist in twenty-one states and the District of Columbia.
These laws regulate the franchise relationship by, for example, requiring the
franchisor to deal with its franchisees in good faith, prohibiting interference
with the right of free association among franchisees, limiting the imposition of
standards of performance on a franchisee, and regulating discrimination among
franchisees in charges, royalties or fees. These laws have not precluded us from
seeking franchisees in any given area. Although these laws may also restrict a
franchisor in the termination of a franchise agreement by, for example,
requiring "good cause" to exist as a basis for the termination, advance notice
to the franchisee of the termination, an opportunity to cure a default and
repurchase of inventory or other compensation, these provisions have not had a
significant effect on our operations.
We are not aware of any pending franchise legislation which in its view is
likely to significantly affect our operations. We believe that our operations
comply substantially with the FTC rule and state franchise laws.
Some segments of the travel industry are heavily regulated by the federal
and state governments, and accordingly, some services offered by us are affected
by such regulations. For example, we are subject to United States Department of
Transportation regulations prohibiting unfair and deceptive practices, and
Airline Reporting Corporation regulation, which requires us to provide them with
a weekly report, and a record of, every ticket sold since the previous report.
In addition, Department of Transportation regulations concerning the display and
presentation of information that are currently applicable to airline booking
services could be extended to us in the future, as well as other laws and
regulations aimed at protecting consumers accessing online travel services or
otherwise. We are required to register as a seller of travel pursuant to the
Seller of Travel Act enacted in some states, comply with disclosure requirements
and participate in restitution funds.
All of our services are subject to federal and state consumer protection
laws and regulations prohibiting unfair and deceptive trade practices. We are
also subject to related "plain language" statutes in place in many
jurisdictions, which require the use of simple, easy-to-read, terms and
conditions in contracts with consumers. Such consumer protection laws could
result in substantial compliance costs and interfere with the conduct of our
business.
Although there are very few laws and regulations directly applicable to the
protections of consumers with respect to Internet commerce, it is possible that
legislation will be enacted in this area and could cover such topics as
permissible online content and user privacy (including the collection, use,
retention and transmission of personal information provided by an online user).
Furthermore, the growth and demand for online commerce could result in more
stringent consumer protection laws that impose additional compliance burdens on
online companies.
EMPLOYEES
As of December 31, 1999, we had 34 employees, of which 25 were full-time and
9 were part-time. Of the total, 12 full-time were employed in operations, 5
employees in administration, 8 in sales and marketing and 9 in technology. We
have never had a work stoppage, and none of our employees is represented by a
labor union. We consider our employee relations to be good. We believe that our
<PAGE>
ability to achieve our financial and operating objectives depends in large part
upon our continued ability to recruit, retain and motivate highly qualified
employees, and upon the continued service of our senior management and key sales
and technical personnel.
Item 2. Properties
- ------- ----------
Our principal executive office consists of approximately 2,600 sq. ft. of
leased space in an office building in Englewood Cliffs, New Jersey. The monthly
rent is $4,000. The lease expires in October, 2002. We believe we will be able
to extend our existing lease or renegotiate a new lease upon favorable terms
when our existing lease expires. We currently have no plans to relocate,
however, we plan to take additional space in this building to meet our growing
needs. We have no other offices and we do not own any properties. All franchised
agency sites are owned or leased directly by the franchisees for such agencies.
Item 3. Legal Proceedings
- ------- -----------------
We are involved in ordinary and routine litigation from time to time. We are
also involved in the following litigation:
In a lawsuit filed in Indiana, on June 1999 JCB Enterprises ("JCB"), a
franchisee of the Company is seeking money damages in excess of $80,000 for
alleged violations of the Indiana Franchise Act and Indiana Deceptive Franchise
Practices Act, for common law fraud, rescission of the Franchise Agreement
between us and JCB, as well as a declaratory judgment on whether a partnership
existed between JCB and us. JCB recently filed personal and corporate bankruptcy
and JCB's interest in the lawsuit has been transferred to JCB's bankruptcy
trustee who has given an indication of interest in settling the lawsuit out-of-
court. We have made an offer to settle this lawsuit for $15,000. This offer was
not accepted by JCB's bankruptcy trustee.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
None.
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock or Plan of Operation
- ------- ---------------------------------------------------------
Common Stock Prices
Our common stock has traded on the OTC Bulletin Board under the symbol
"ETRV" from September 17, 1999 to December 14, 1999 and "ETVT" since December
15, 1999. Prior thereto, it was trading under the symbol "PLEX". The following
table sets forth the high and low closing share prices per share for the periods
indicated:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal year ended December 31, 1998
First quarter $.001 $ .001
Second quarter .001 .001
Third quarter .001 .001
Fourth quarter .05 .001
Fiscal year ended December 31, 1999
First quarter $.03 $ .01
Second quarter .01 .01
Third quarter .25 .02
Fourth quarter (after 1 for 36.320052 13.50 6.00
reverse split)
</TABLE>
At March 27, 2000 the closing price per share for our common stock, as
reported by Nasdaq was $8.00.
Dividend Policy
We have not declared nor paid a cash dividend on our common stock since our
initial public offering. It is the policy of our Board of Directors to retain
all available funds to finance the development and growth of our business. The
payment of cash dividends in the future will be dependent upon our earnings and
financial requirements.
Shareholders
As of March 1, 2000, we had 685 shareholders of record, exclusive of
shareholders whose shares were held by brokerage firms, depositories and other
institutional firms in "street name" for their customers.
Recent Sales of Unregistered Securities
We have sold unregistered shares of our common stock in the following
transactions:
(a) On July 27, 1999, Playorena, Playorena Acquisition Corp., and Global
Travel Network LLC, a New York limited liability company entered into an
Agreement and Plan of Reorganization (the "Merger Agreement"). In accordance
with the Merger Agreement, Playorena acquired all of the outstanding membership
interests of Global in exchange for 5,063,379 shares of Playorena Common Stock.
<PAGE>
The 5,063,379 shares of Playorena Common Stock includes 4,931,087 shares which
were issued to the holders of all of the outstanding membership interests of
Global, and 132,292 shares which were reserved for issuance upon the exercise of
Common Stock Purchase Warrants issued by Playorena to certain former holders of
Global membership interests in exchange for warrants to purchase additional
membership interests in Global.
Immediately prior to the merger, Playorena effected a .027533 for 1 reverse
stock split which resulted in a total of 294,694 shares of issued and
outstanding Playorena Common Stock. As a result of the merger, the former
holders of membership interests in Global received 49,319 shares of Playorena
Common Stock for each one percent of Global membership interest held. Upon the
completion of the merger, 4,850,716 shares or approximately 93 % of the issued
and outstanding Common Stock of Playorena was owned by former holders of Global
membership interests and Global became a wholly-owned subsidiary of the Company.
This was a transaction by the Company not involving any public offering which
was exempt from the registration requirements under the Securities Act pursuant
to Section 4(2) thereof.
(b) On or about December 8, 1999 the Company issued 47,250 shaes of its
common stock to acquire that part of Travel Network On-Line LLC not already
owned by the Company. This was a transaction by the Company not involving any
public offering which was exempt from the registration requirements under the
Securities Act pursuant to Section 4(2) thereof.
Item 6. Management's Discussion and Analysis or Plan of Operation
- ------- ---------------------------------------------------------
Etravnet.com, Inc. (the "Company") is a leading franchisor of traditional
"brick and mortar" travel agencies as well as Internet-based travel-related
services. We are also a full-service provider of discount travel products and
services to the leisure and small business traveler. We operate business under
our trade names "Travel Network," "Global Travel Network" and "Travel Network
Vacation Central" as well as web sites "Etravnet.com," "HaggleWithUs.com," and
"Rezconnect.com." We offer our customers a reliable source of travel products
and services through our agreements with selected travel providers, including
major airlines, cruise lines, hotels and car rental agencies, as well as
wholesale travel providers. In addition, we offer our customers the ability to
make reservations on over 424 airlines, at more than 35,000 hotels and with most
major car rental companies, cruise lines and tour package operators.
OVERVIEW
Our revenues are predominately comprised of franchise fees and franchise
service fees, commissions paid by travel providers, and the retail value of
travel agency related sales. In addition, certain travel suppliers pay
performance-based compensation known as "override commissions" or "overrides."
Commission revenues and gross retail sales net of allowances, for cancellations,
are recognized generally when the related service is booked and paid for.
Overrides are recognized on an accrual basis once the amount has been confirmed
with the travel supplier. Franchise fees are recognized when all material
services and conditions required of the Company have been performed and
collectibility of the franchise fee is relatively assured. We generally defer
recognition of franchise fees until such amounts have been collected from the
franchisee. Franchise service fees are recognized in the accrual basis as
earned.
With respect to travel services, revenues are generated by transactions
with customers who make offers to purchase tickets supplied by participating
sellers. Because the Company is the merchant record in these transactions,
revenue for these services includes the total amount billed to the customer.
The commission rates paid by travel suppliers, in addition to overrides,
are determined by individual travel suppliers and are subject to change.
Historically, typical standard base commission rates paid by travel suppliers
have been approximately 10% for hotel reservations, 5% to 10% for car rentals
and 10% to 15% for cruises and vacation packages. Based on the past several
years leisure vendors including tour operators, cruise lines, and hotel and car
<PAGE>
packagers have not reduce their commission levels but in fact have offered the
company incentive commissions above the standard compensation for its volume
business. The company expects that its weighted average commission on online
transactions revenue will increase due to the fact that its leisure bookings are
much greater as percentage of total sales than airline ticketing which offers
the company lower commissions. There can be no assurance that travel suppliers
will not reduce commission rates paid to the Company or eliminate such
commissions entirely, which could, individually or in the aggregate, have a
material adverse effect on the Company's business, operating results and
financial condition.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
relationship of certain items from the Company's consolidated statement of
operations to total revenues, except as indicated:
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Revenues
Franchise fees 7.0 % 21.2 %
Franchise service fees and
other 26.2 % 28.0 %
Travel products and services 65.0 % 48.5 %
Advertising and other 1.8 % 2.3 %
------- ------
TOTAL REVENUES 100 % 100 %
------- ------
Operating Expenses
Cost of travel products and sales 59.1 % 44.9 %
Marketing and selling 21.9 % 29.5 %
General and administrative 23.8 % 23.3 %
Merger related charges for
issuance of common stock 4.0 % -
------- ------
TOTAL OPERATING EXPENSES 108.8 % 97.7%
Income (loss) before other
income and income taxes (8.8 %) 2.3 %
Other income - primarily interest 1.4 % 1.6 %
------- ------
Income (loss) before income taxes (7.4 %) 3.9 %
Income taxes - -
------- ------
Net income (loss) (7.4 %) 3.9%
======= ======
</TABLE>
<PAGE>
Comparison of years ended December 31, 1999 ("1999") and 1998 ("1998")
REVENUES
Franchise Fees. Franchise fees declined in 1999 as compared to 1998 as a
direct result of management's decision in 1999 to focus all of its resources and
funding on a development and growth of the Company's Internet presence. In 1999,
the Company reduced its advertising and promotion of franchising activities in
its domestic and international market because of time and cost considerations
and devoted full attention to its development of Internet based travel services.
The company's Internet business has completed its beta testing, and is expected
to be released in the early part of the second quarter of the year 2000.
Management believes that it will have the time and effort to resume an
aggressive promotion for its domestic and international franchising since it no
longer will be preoccupied with the development of its web based business.
Franchise Service Fees and Other. Franchise service fees increased from 1999
to 1998 by approximately $293,000 or 23%. The increase is attributable to an
increase in the number of operating franchisees in 1999. Additionally, each
franchise agreement requires franchisees to pay monthly franchise fees, which
have annual scheduled increases.
Travel Products and Services. Travel products and services increased by
approximately $1,664,000 from 1998 to 1999, for an increase of approximately
76%. The increase is attributable to an increase in the number of franchisees
utilizing the Company as their credit card merchant of record, various
incentives offered to franchisees by the Company to interest franchisees
customers in travel packages, increased customer traffic as a result of the
Company's Internet ("on-line") presence, and an increase in override commissions
received.
OPERATING EXPENSES
Cost of travel products and services. Cost of travel products and services
increased by approximately $1,478,000 or 73%. These costs increased as a result
of higher commissions and fees paid to franchisees in connection with the
earlier noted incentives offered to customers, as well as increased travel
related revenue. Cost of travel products and services as a percentage of travel
products and services sales were approximately 91% for 1999 and 93% for 1998.
The slight improvement in gross margin is the result of certain incentive
programs offered to customers in 1999 and not in 1998. Certain of these
incentive programs were substantially wound down as of December 31,1999.
Marketing and Selling. Marketing and selling expenses decreased by
approximately $34,000 from 1998 to 1999. The decrease represents a change of
approximately 2.5%. Decreases in payroll costs were partially offset by
increases in incentives and on-line related commissions.
General Administrative. General and administrative expenses increased by
approximately by $357,000 or 34% from 1998 to 1999. As a percentage of total
revenues, general and administrative expenses were 23.8% in 1999 as compared to
23.3% in 1998. The increase in general and administrative expense in 1999 (in
dollar terms) is attributable to increases in consulting expenses related to the
Company's expanding Internet activities, professional and other fees related to
the Company's status (as of September 17, 1999) as a public company and
stock-based compensation recorded in 1999 related to the granting of stock
options to employees and consultants in 1999.
<PAGE>
Merger Related Charge for Issuance of Common Stock. In connection with the
Company's revenue acquisition of Playorena, Inc. consummated on September 17,
1999, the Company's investment advisors were issued 80,371 shares of the
Company's common stock. For financial accounting purposes, we estimated that
each share had a fair value of $3.00 on the date of the transaction. We
determined fair value based on our investment advisors estimates of entity value
for purposes of allocating shares between the former Playorena shareholders and
the Company's shareholders.
Variability of Results
The Company's travel products and services gross bookings have increased
significantly year to year due to expansion of the Company's distribution
channels, travel services and customer base, repeat purchases by existing
customers and increased customer acceptance of electronic commerce. Revenues
from travel products and services grew in conjunction with the growth in gross
bookings. Operating expenses have similarly increased on a year to year basis,
reflecting increased spending on developing the Company's online operations and
expanding its strategic relationships.
As a result of the Company's limited operating history in online commerce and
the variability that can be experienced by our franchising operations, the
Company is unable to accurately forecast its revenues. The Company's current and
future expense levels are based predominantly on its operating plans. The
Company may be unable to adjust spending in a timely manner to compensate for
any unexpected revenue shortfall. Accordingly, any significant shortfall in
revenues would likely have an adverse effect on the Company's business,
operating results and financial condition. Further, the Company currently
intends to substantially increase its operating plans. The Company may be unable
to adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in revenues would likely have
a material adverse effect on the Company's business, operating results and
financial condition. Further, the Company currently intends to substantially
increase its operating expenses to develop and offer new and expanded travel
services, to fund increased sales and marketing and customer service operations
to develop its technology and transaction processing systems. To the extent such
expenses precede or are not subsequently followed by increased revenues, the
Company's operating results will fluctuate and anticipated net losses in a given
period may be greater than expected.
The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of other factors, many of which are
outside the Company's control. Factors that may adversely affect the Company's
quarterly operating results include, but are not limited to (I) the Company's
ability to retain existing customers, attract new customers at a steady rate and
maintain customer satisfaction, (ii) changes in inventory availability from
third party suppliers or commission rates paid by travel suppliers, (iii) the
announcement or introduction of new or enhanced sites, services and products by
the Company or its competitors, (iv) general economic conditions specific to the
Internet, online commerce or the travel industry, (v) the level of use of online
services and consumer acceptance of the Internet and commercial online services
for the purchase of consumer products and services such as those offered by the
Company, (vi) the Company's ability to upgrade and develop its systems and
infrastructure and to attract new personnel in a timely and effective manner,
(vii) the level of traffic on the Company's online sites, (viii) technical
difficulties, system downtime or Internet brownouts, (ix) the amount and timing
of operating costs and capital expenditures relating to expansion of the
Company's business, operations and infrastructure, (x) governmental regulation
and (xi) unforeseen events affecting the travel industry.
In addition, the Company expects that it will experience seasonality in its
business, reflecting seasonal fluctuations in the travel industry, Internet and
commercial online service usage and advertising expenditures. The Company
anticipates that travel bookings will typically increase during the first and
<PAGE>
second quarter in anticipation of summer travel and will typically decline
during the third quarter. Internet and commercial online service usage and the
rate of growth of such usage may be expected typically to decline during the
summer. Depending on the extent to which the Internet and commercial online
services are accepted as an advertising medium, seasonality in the level of
advertising expenditures could become more pronounced for Internet-based
advertising. Seasonality in the travel industry, Internet and commercial online
service usage and advertising expenditures is likely to cause fluctuations in
the Company's operating results and could have a material adverse effect on the
Company's business, operating results and financial condition.
Due to the foregoing factors, quarterly revenues and operating results are
difficult to forecast, and the Company believes that period-to-period
comparisons of its operating results will not necessarily be meaningful and
should not be relied upon as an indication of future performance. It is likely
that the Company's future quarterly operating results from time to time will not
meet the expectations of security analysts or investors. In such event, the
price of the Company's Common Stock would likely be materially and adversely
affected.
LIQUIDITY AND CAPITAL RESOURCES
Although the Company was successful in becoming a public entity in September
1999, no capital was raised in connection therewith. Previously, in March, 1999,
the Company's wholly owned subsidiary, Global Travel Network, raised $210,000
(net of $40,000 in syndication costs) in a private sale of membership interests.
In January 1998 Global Travel Network raised $855,000 in another private sale of
membership interests.
Cash used in operations was approximately $42,500 in 1999 and $6,000 in 1998.
Cash used in operating activities in 1999 was primarily attributable to the
Company's net loss, increases in accounts receivable, prepaid expenses and
security deposits, all of which were partially offset by increases in accounts
payable and other liabilities. Cash used in operating activities in 1998 was
primarily attributable to an increase in accounts receivable and decrease in
accounts payable and accrued expenses.
Cash used in investing activities in 1999 was approximately $59,000 and in
1998 was approximately $144,000. Cash used in investing activities in 1999 was
primarily for payments for short term investments, furniture and fixtures, a
down payment on our software license fee, all partially offset by cash provided
by Travel Network On-Line, LLC, in which we owned a 25% interest until December
8, 1999, when we acquired the balance of the company. Cash used in investing
activities in 1998 was primarily for payments for furniture and fixtures and
payments for short-term investments.
Cash provided by financing activities was approximately $12,000 in 1999 and
$248,000 in 1998. Cash provided by financing activities consisted of proceeds
form the sale of equity interests of $210,000 and $855,000 in 1999 and 1998,
respectively. The proceeds of the equity sales were partially offset by
distributions to Global's members of approximately $198,000 and $608,000 in 1999
and 1998, respectively.
As of December 31, 1999, the Company had approximately $20,000 in cash and
approximately $1,010,000 in short-term investments. The Company's principal
commitments consist of amounts due pursuant to its master lease with Wal-Mart.
These amounts, however, are substantially recovered by the Company's subleases
with its Wal-Mart Supercenters franchisees. In addition, we are obligated to
make additional payments to the developer of our "Haggle" software in 2000,
which we believe could potentially aggregate $120,000.
<PAGE>
We believe that our results of operations, current cash, and short-term
investments will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures through the end of 2000.
Management has initiated discussions with an investment banker for the sale,
through a private placement, of shares of the Company's common stock.
POSSIBLE SALE OF FRANCHISE SYSTEM
The Company has been approached by an unrelated entity with respect to the
possible sale of the Company's Travel Products and Services Division, including
it franchise system, to this entity. As of the date of filing on Form 10-KSB, a
preliminary asset purchase agreement has been drafted. If the transaction is
effected, thereafter the "bricks and mortar" travel agency activities of the
Company's Travel Products and Services Division, including the franchise system,
would be carried out by the purchaser, and the Company's On-Line travel agency
activities would thereafter become the Company's principal activity.
Currently, the Company can give no assurance that an agreement to sell
substantially all of the assets of its Travel Products and Services division
will be effected.
YEAR 2000 CONSIDERATIONS
The Company conducted a program to bring its internal systems and products
into Year 2000 (Y2K) compliance. This program included upgrades to internal
computer systems and technical infrastructure, as well as a review of the
Company's product lines to bring them into Y2K compliance. In addition, the
Company surveyed its significant suppliers to determine their ability to provide
necessary products and services that are critical to business continuation
through Y2K.
The Company has experienced no interruptions in its business because of Y2K
and is not aware of any significant problems being experienced by its customers
or suppliers that would have a negative impact on the Company. There can be no
assurance, however, that unexpected difficulties related to Y2K compliance at
the Company, its customers, or its suppliers will not occur. Such unexpected
difficulties could have a material adverse effect on the Company. Through
December 31, 1999, the Company's Y2K compliance for software testing,
modifications and upgrades were completed without any significant expenditures.
Funding for regular updates to computer systems, technical infrastructure and
other requirements were not a significant expense to the company.
FORWARD-LOOKING STATEMENTS
All statements other than statements of historical fact included in this annual
report, including without limitation statements regarding the company's
financial position, business strategy, Year 2000 readiness and the plans and
objectives of the company's management for future operations, are
forward-looking statements. When used in this annual report, words such as
"anticipate", "believe", "estimate", "expect", "intend" and similar expressions,
as they relate to the company or its management, identify forward-looking
statements. Such forward-looking statements are based on the beliefs of the
company's management, as well as assumptions made by and information currently
available to the company's management. Actual results could differ materially
from those contemplated by the forward-looking statements as a result of certain
factors, including but not limited to, business and economic conditions,
competitive factors and pricing pressures, capacity and supply constraints and
the impact of any disruption or failure in normal business activities at the
company and its customers and suppliers as a consequence of Year 2000 related
problems. Such statements reflect the views of the company with respect to
future events and are subject to these and other risks, uncertainties and
<PAGE>
assumptions relating to the operations, results of operations, growth strategy
and liquidity of the company. Readers are cautioned not to place undue reliance
on these forward-looking statements. The company does not undertake any
obligation to release publicly any revisions to these forward-looking statements
to reflect future events or circumstances or to reflect the occurrence of
unanticipated events.
Item 7. Financial Statements.
- ------- ---------------------
The consolidated financial statements and supplementary data is submitted as a
separate section of this report beginning on Page F-1.
Item 8. Changes in and Disagreements with Accountants on Accounting and
- ------- -----------------------------------------------------------------------
Financial Disclosure
--------------------
None
<PAGE>
PART III
Item 9. Directors and Executive Officers, Promotors and Control Persons;
- ------- -----------------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position(s) with the Company
- ---- --- ----------------------------
<S> <C> <C>
Michael Brent . . . 58 President and Chief Executive
Officer and Director
Stephanie Abrams. . 56 Executive Vice President
Derek Brent . . . . 29 Vice President of Reservations and Director
Harold Kestenbaum . 50 Director
</TABLE>
- ------------
Michael Brent has been a director of the Company since September 1999. He
graduated from the University of Miami in June 1965 with a Bachelor of Arts in
administration and accounting. From July 1965 through 1974, he was a Director of
Convention Sales for his family hotel business. From 1974 - 1981, Mr. Brent
owned and operated his own travel company. In 1982, he helped start Travel
Network, Ltd. (the Company) and served as Vice President until June 1989 when he
became its Chief Operating Officer and a part owner. In 1994, Mr. Brent became
the Company's President and Chief Executive Officer. As of December 1997, he
became sole owner of the Company. Mr. Brent has been a director of the Company
since 1999.
Stephanie Abrams joined the Company in 1986 with strong travel experience in
retail, wholesale, tour operations and travel sales. Ms. Abrams earned a
Bachelor of Arts with a major in education in 1965 and a Master in Science with
a double major in social sciences and education from Queens College of the City
University of New York in 1967. Ms. Abrams has expanded and continually
redefined the Company's training program to meet changing needs, developed and
implemented marketing programs and has been responsible for the sale of
individual unit franchises, conversion of existing agencies, the sales of U.S.
Regional Master Rights while concurrently spearheading its globalization. She
has held the positions of Director of Field Services (1986), National Director
of Marketing (1988), Vice President of Global Marketing (1992) and assumed the
position of Executive Vice President in 1995. Her marketing and franchise
achievements have earned her numerous awards and recognition as an industry
leader. For example, she has served on advisory boards of ASTA, the ASTA Council
of Travel Marketing Organizations, Dollar Rent-A-Car, Hong Kong Tourism, System
One and AMADEUS Travel Industry Reservations Systems, as well as the
International Affairs Committee of the International Franchise Association. Ms.
Abrams has consistently been named on the list of the Most Powerful Women in
Travel (Travel Agent Magazine) and has been the Company's number two executive
since 1988. More recently, she has taken an active role in repositioning the
Company's emphasis on technology and its application in e-commerce.
Derek Brent has been a director of the Company since September 1999. He
joined the Company in May 1993 as sales consultant. In 1996, he became Director
of Sales. Mr. Brent, the son of Michael Y. Brent, graduated from the University
of Maryland in June 1993 with a Bachelor of Business Administration and
Accounting, majoring in accounting. He has passed all necessary CPA examinations
and is applying for certification as a CPA by Certified Public Accountants Board
of New Jersey. Mr. Brent has been a director of the Company since 1999.
Harold Kestenbaum has been an independent director the Company since
September 1999. Mr. Kestenbaum has been engaged primarily in the private
practice of law, specializing in franchise law from his Garden City, New York
offices.
<PAGE>
Item 10. Executive Compensation
- ------- ----------------------
The following table sets forth the annual and long-term compensation with
regard to the Chairman/Chief Executive Officer and each of the other executive
officers of the Company who received more than $100,000 for services rendered
for the fiscal years ended December 31, 1999, 1998 and 1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
--------------------------------- ----------------------------
Other Annual Restricted Securities
Name and Fiscal Compensation Stock Awards underlying All Other
Principal Position Year Salary Bonus (1) ($) Options/SARS(#) Compensation
- ------------------ ------ ------ ----- ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael Y. Brent 1999 $175,000 $54,000 $45,000 - 200,000 -
Chairman, President and 1998 $175,000 $48,000 $35,000 - - -
Chief Executive Officer 1997 $139,000 $39,000 $25,000 - - -
Stephanie Abrams 1999 $102,000 $10,000 - - 100,000 -
Executive 1998 - - - - - -
Vice President 1997 - - - - - -
<FN>
- ------
(1) Includes automobile, medical and miscellaneous travel expenses.
</FN>
</TABLE>
Employment Contracts
In March 2000, we entered into an employment agreement with Michael Y.
Brent, for a term expiring in 2005, providing for an annual base salary of
$192,500 a year with annual 10% increases thereafter, and bonus incentive of 10%
of all front end franchise fees earned by the Company.
<PAGE>
Option/SAR Grants in Last Fiscal Year
The following table sets forth certain information with respect to stock
options granted to the officers named in the Summary Compensation Table during
the fiscal year ended December 31, 1999.
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------
Number of % of Total
Securities Options Granted Exercise
Underlying Employees in Price Expiration
Name Options Granted (1) Fiscal Year per Share Date
- ---- ------------------ -------------- --------- ----------
<S> <C> <C> <C> <C>
Michael Y. Brent 200,000 40% $3.00 2006
Stephanie Abrams 100,000 20% $3.00 2006
<FN>
(1) These options are exercisable for seven years.
</FN>
</TABLE>
Aggregated Option/SAR Exercises and Fiscal Year-End Options/SAR Value Table
The following information concerns the exercise of each stock option and/or
free standing SAR during the last fiscal year by each of the named executive
officers and the aggregate fiscal year-end value of unexercised options and
SARs.
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options at In-The-Money Options
Fiscal Year End at Fiscal Year End
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Michael Brent - - - / 200,000 $ - / $1,350,000
Stephanie Abrams - - - / 100,000 $ - / $675,000
</TABLE>
Indemnification Agreements
We have entered into separate indemnification agreements with our officers
and directors and we have agreed to provide indemnification with regard to
specified legal proceedings so long as the indemnified officer or director has
acted in good faith and in a manner he or she reasonably believed to be in, or
not opposed to, our best interests and, with respect to any criminal proceeding,
had no reasonable cause to believe his or her conduct was unlawful. We only
provide indemnification for expenses, judgments, fines and amounts paid in
settlement actually incurred by the relevant officer or Director, or on his or
her behalf, arising out of proceedings brought against the officer or Director
by reason of his or her corporate status.
Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the Exchange Act requires our executive officers,
Directors and persons who own more than ten percent of a registered class of our
equity securities ("Reporting Persons") to file reports of ownership and changes
in ownership on Forms 3, 4, and 5 with the Securities and Exchange Commission
(the "SEC") and the National Association of Securities Dealers (the "NASD").
These Reporting Persons are required by SEC regulation to furnish us with copies
of all Forms 3, 4 and 5 they file with the SEC and NASD. Based solely on our
review of the copies of the forms we have received, we believe that all
Reporting Persons complied on a timely basis with all filing requirements
applicable to them with respect to transactions during fiscal year 1999.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
- -------- --------------------------------------------------------------
The following table sets forth as of March 27, 2000 information with regard
to ownership of our common stock by (1) each beneficial owner of 5% or more of
our common stock, based on filings with the Commission; (2) each executive
officer named in our "Summary Compensation Table"; (3) each of our directors;
and (4) all of our executive officers and directors as a group:
<TABLE>
<CAPTION>
Common Stock Percent
Name and Address (1) Beneficially Owned of Class
- -------------------- ------------------ --------
<S> <C> <C>
Michael Y. Brent 3,726,000 67.68%
Stephanie Abrams 100,000 1.82%
Derek Brent 100,000 1.82%
Harold Kestenbaum - -
Directors and Officers
as a group (4 persons) 3,926,000 71.3%
<FN>
- -------
(1) The address of each of the individuals and entities in this table is 560
Sylvan Avenue, Englewood Cliffs, New Jersey 07632.
</FN>
</TABLE>
Item 12. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
On July 27, 1999, the Company, (then known as Playorena, Inc.) Playorena
Acquisition Corp., a wholly-owned subsidiary of Playorena, Inc. and Global
Travel Network LLC, a New York limited liability company ("Global") entered into
an Agreement and Plan or Reorganization (the "Merger Agreement"). In accordance
with the Merger Agreement, we acquired all of the outstanding membership
interests of Global in exchange for 5,063,379 shares of our Common Stock. The
5,063,379 shares of our Common Stock included 4,931,087 shares which were issued
to the holders of all of the outstanding membership interests of Global, and
132,292 shares which were reserved for issuance upon the exercise of Common
Stock Purchase Warrants issued by us to certain former holders of Global
membership interests in exchange for warrants to purchase additional membership
interests in Global.
As a result of the merger, the former holders of membership interests in
Global received 49,319 shares of our Common Stock for each one percent of Global
membership interest held. Upon the completion of the merger, 4,850,716 shares or
93% of our issued and outstanding Common Stock was owned by former holders of
Global membership interests and Global became a wholly-owned subsidiary of the
Company.
The Company pays commissions to another company owned by Michael Brent.
Such payments totalled approximately $118,000 and $42,000 for the years ended
December 31, 1999 and 1998, respectively.
<PAGE>
PART IV
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------- ---------------------------------------------------------------
(a) Consolidated Financial Statements
The consolidated financial statements listed in the accompanying index to
consolidated financial statements and schedule on Page F-1 are filed as part of
this report.
(b) Exhibits
Certain of the following exhibits (as indicated in the footnotes to the
list), were previously filed as exhibits to other reports or registration
statements filed by the Registrant under the Securities Act of 1993 or under the
Securities Exchange Act of 1934 and are herein incorporated by reference.
Exhibit
No. Exhibit
- ------- -------
3.1 Certificate of Incorporation of the Company (Incorporated by reference to
Exhibit 3.1 to Registration Statement on Form S-18, File No. 33-29561-NY).
3.2 Certificate of Amendment to the Certificate of Incorporation of the Company
(Incorporated by reference to Form 10-KSB for the fiscal year ended
November 30, 1998).
3.3 Certificate of Amendment to the Certificate of Incorporation of the Company
filed with the Secretary of State of New York on September 28, 1999.
3.4 By-Laws of the Company, as amended. (Incorporated by reference to Exhibit
3.2 to Registration Statement on Form S-18, File No. 33-29561-NY).
10.1 Employment Agreement between the Company and Michael Y. Brent, dated March
1, 2000.
10.2 Lease Agreement between Wal-Mart Stores, Inc. and Travel Network dated as
of July 1, 1996.
10.3 Form of Indemnification Agreement.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, ETRAVNET.COM, INC. has duly caused this Report to be
signed on its behalf by the undersigned thereunto duly authorized on the 24th
day of March, 2000.
ETRAVNET.COM, INC.
/s/ Michael Y. Brent
------------------------------------
Michael Y. Brent
Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of ETRAVNET.COM, INC.
in the capacities indicated on the 24th day of March, 2000.
/s/ Michael Y. Brent Chairman of the Board
Michael Y. Brent President and Chief Executive Officer
/s/ Stephanie Abrams Executive Vice President
Stephanie Abrams
/s/ Derek Brent Director
Derek Brent
/s/ Harold Kestenbaum Director
Harold Kestenbaum
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.) AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AND
AUDITORS' REPORT
YEARS ENDED DECEMBER 31, 1999 AND 1998
<PAGE>
CONTENTS
Page
----
AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet F-2
Statements of Operations F-3
Statements of Shareholders' and Members' Equity F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders'
Etravnet.Com, Inc.
We have audited the accompanying consolidated balance sheet of Etravnet.Com,
Inc. (formerly Playorena, Inc.) and Subsidiary as of December 31, 1999, and the
related consolidated statements of operations, shareholders' and members'
equity, and cash flows for the years ended December 31, 1999 and 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Etravnet.Com, Inc.
and Subsidiary as of December 31, 1999, and the results of their operations and
their cash flows for the years ended December 31, 1999 and 1998, in conformity
with generally accepted accounting principles.
/s/ Israeloff, Trattner & Co., P.C.
Valley Stream, New York Israeloff, Trattner & Co., CPAs, P.C.
February 9, 2000
F-1
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.) AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (Note 1) $ 19,813
Short-term investments (Note 1) 1,009,956
Accounts receivable, less allowance for doubtful
accounts of $74,955 418,461
Current portion notes receivable (Note 1) 74,640
Prepaid expenses and other current assets 96,857
----------
Total Current Assets $1,619,727
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation of $36,862 (Note 1) 73,085
OTHER ASSETS
Goodwill (Note 3) 227,848
Notes receivable, less current portion (Note 1) 703,397
Software license costs (Note 2) 888,800
Security deposits and other 90,439
----------
Total Other Assets 1,910,484
----------
TOTAL ASSETS $3,603,296
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 270,986
Deferred revenue (Note 1) 74,640
----------
Total Current Liabilities $ 345,626
OTHER LIABILITIES
Deferred revenue (Note 1) 703,397
Security deposits 139,358
----------
Total Other Liabilities 842,755
----------
Total Liabilities 1,188,381
COMMITMENTS AND CONTINGENCIES (Notes 4 and 11)
SHAREHOLDERS' EQUITY (Notes 1, 5, 6 and 11)
Preferred stock, par value $.001 per share; authorized
5,000,000 shares, none issued or outstanding -
Common stock, par value $.001 par share; authorized
20,000,000 shares; issued and outstanding 5,317,753
shares 5,318
Additional paid-in capital 2,897,459
Accumulated deficit (454,602)
Accumulated other comprehensive income (loss) (33,260)
----------
2,414,915
----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,603,296
==========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
F-2
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Revenues (Note 1)
Franchise fees $ 411,984 $ 955,319
Franchise service fees and other 1,553,696 1,260,542
Travel products and services (Note 1) 3,850,373 2,186,592
Advertising and other 106,723 104,181
---------- ----------
Total Revenues 5,922,776 4,506,634
---------- ----------
Operating Expenses
Cost of travel products and services 3,500,817 2,023,218
Marketing and selling 1,297,569 1,331,294
General and administrative, including $87,840 in 1999
in the form of common stock purchase warrants
issued and stock options granted 1,406,739 1,049,250
Merger related charge for issuance of common stock
(Note 1) 241,000 -
---------- ----------
Total operating expenses 6,446,125 4,403,762
---------- ----------
Income (loss) before other income and income taxes (523,349) 102,872
Other Income-primarily interest 85,331 72,191
---------- ----------
Income (loss) before income taxes (438,018) 175,063
Income taxes (Notes 1 and 7) - -
---------- ----------
Net income (loss) (438,018) 175,063
Other comprehensive loss (Note 1) (33,260) -
---------- ----------
Comprehensive income (loss) $ (471,278) $ 175,063
========== ==========
Unaudited Pro forma Information (Notes 1 and 9)
Historical income (loss) before income taxes $ (438,018) $ 175,063
Provision for Income Taxes
Adjustment to recognize income taxes as if company
had been a "C" corporation for the entire year - 74,200
---------- ----------
Pro forma net income (loss) $ (438,018) $ 100,863
========== ==========
Earnings Per Share:
Weighted average common shares outstanding 4,854,791 4,490,113
========== ==========
Basic earnings (loss) per share $ (.09) $ .02
========== ==========
Weighed average common shares outstanding
assuming exercise of warrants 4,854,791 4,578,308
========== ==========
Diluted earnings (loss) per share $ (.09) $ 02
========== ==========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
F-3
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' AND MEMBERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Retained Accumulated
Additional Earnings Other
Common Stock Paid-In (Accumulated Members' Comprehensive
Shares Amount Capital Deficit) Equity Loss Total
------ ------ ---------- ----------- -------- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1998 100 $ 1 $ 174,999 $ 751,064 $ - - $ 926,064
Net loss of Travel Network, Ltd. for
the three months ended March 31, 1998 - - - (17,460) - - (17,460)
Distributions - - - (608,000) - - (608,000)
Acquisition of Travel Network, Ltd.
(Note 1) (100) (1) (174,999) (125,604) 300,604 - -
Net proceeds from private placement
(Note 1) - - - - 855,500 - 855,500
Net income of Global for nine months
ended December 31, 1998 - - - - 192,523 - 192,523
--------- ------ ---------- --------- ----------- -------- ----------
Balance - December 31, 1998 - - - - 1,348,627 - 1,348,627
Capital contribution, net of related
costs of $40,000 - - - - 210,000 - 210,000
Net earnings of Global through date of
merger - - - - 16,584 - 16,584
Distributions to managing member - - - - (197,836) - (197,836)
Acquisition of Global and the Company
on September 17, 1999 5,145,410 5,146 1,372,229 - (1,377,375) - -
Acquisition of Travel Network On-line,
LLC 47,250 47 332,715 - - - 332,762
Exercise of warrants 44,722 45 (45) - - - -
Issuance of common shares for investment
banking services 80,371 80 240,920 - - - 241,000
Warrants issued in connection with
acquisition of software license - - 863,800 - - - 863,800
Professional fees and marketing services
paid in the form of stock options - - 53,000 - - - 53,000
Other comprehensive loss - - - - - (33,260) (33,260)
Stock options granted to employees - - 34,840 - - - 34,840
Net loss for the period September 18,
1999 through December 31, 1999 - - - (454,602) - - (454,602)
--------- ------ ---------- --------- ----------- -------- ----------
Balance December 31, 1999 5,317,753 $5,318 $2,897,459 $(454,602) $ - $(33,260) $2,414,915
========= ====== ========== ========= =========== ======== ==========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
F-4
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(438,018) $175,063
--------- --------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Equity in earnings of affiliate - (793)
Depreciation 14,730 8,263
Issuance of common shares for fees 241,000 -
Stock options granted to employees and consultants 87,840 -
Provision for doubtful accounts 57,000 -
Changes in assets and liabilities:
Accounts receivable (41,963) (162,650)
Notes receivable (99,553) (434,395)
Prepaid expenses and other
current assets (93,126) 19,140
Security deposits (33,689) (21,997)
Accounts payable and accrued expenses 133,301 (79,117)
Deferred revenue 99,553 434,395
Other liabilities 30,466 56,160
--------- --------
Total adjustments 395,559 (180,994)
--------- --------
Net cash used by operating activities (42,459) (5,931)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for software license fee (25,000) -
Net advances to affiliate - (4,738)
Payments for furniture and fixtures (34,166) (48,667)
Cash of acquired company 98,757 -
Payments for short-term investments (99,040) (90,918)
--------- --------
Net cash used by investing activities (59,449) (144,323)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to LLC members (197,836) (608,000)
Net proceeds from private placement 210,000 855,500
--------- --------
Net cash provided by financing activities 12,164 247,500
--------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (89,744) 97,246
CASH AND CASH EQUIVALENTS - beginning 109,557 12,311
--------- --------
CASH AND CASH EQUIVALENTS - end $ 19,813 $109,557
======== ========
NON-CASH INVESTING AND FINANCING ACTIVITIES
Issuance of 217,000 common stock warrants
as partial payment for software license $863,800 $ -
======== ========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
F-5
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REORGANIZATION OF PREDECESSOR ENTITY
In January, 1998, Global Travel Network, LLC ("Global") was formed as a New
Jersey limited liability company. During January through March 1998, Global
sold 998,000 membership units, approximating a 20% membership interest, in
a private placement for net proceeds of $855,500.
On April 1, 1998, Global acquired the operating assets and assumed the
operating liabilities of Travel Network, Ltd. ("Travel Network") from its
shareholder in exchange for a membership interest representing ownership of
approximately 80% of Global. For accounting purposes, Travel Network was
considered the acquiring entity. Prior to its acquisition by Global, during
November and December 1997, a one-third shareholder of Travel Network
acquired the remaining two-thirds shareholder interests for an amount
slightly in excess of their book value at December 31, 1997. For financial
reporting purposes, Global was considered to be a continuation of Travel
Network.
MERGER OF GLOBAL AND PLAYORENA, INC.
Global, Playorena, Inc. ("Playorena"), an inactive publicly traded company,
and Playorena Acquisition Corp. ("PAC"), a wholly owned subsidiary of
Playorena entered into an Agreement and Plan of Reorganization dated July
27, 1999, as amended on September 17, 1999 (the "Merger" or "reverse
acquisition"). Immediately prior to the Merger, and in connection
therewith, the shareholders of Playorena approved a .027533 for 1 reverse
stock split (the "reverse split"), which reduced Playorena's outstanding
common shares to 294,694. The merger agreements provided for the conversion
of Global's membership interest into a total of 5,063,379 new Playorena
common shares, including 132,292 and 88,195, respectively, new common
shares reserved for issuance upon exercise of certain Global stock purchase
warrants assumed in the reverse acquisition, which are exercisable at $.01
and $4.00 per share, respectively, and expire on March 31, 2003. In
addition, pursuant to the Merger agreements, PAC merged with and into
Global. Shortly after the completion of the transaction discussed above,
Playorena changed its name to Etravnet.Com, Inc. ("the Company"). For
financial reporting purposes, Global is considered the acquiring entity. In
addition, financial advisors to the transaction were issued approximately
80,000 common shares as partial payment for their services provided to the
combining companies. The fair value of those shares, $241,000, as estimated
by management, is reflected as a merger related expense in 1999.
Consolidated results of operations include both Global and Playorena from
September 17, 1999.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions are eliminated in consolidation.
BUSINESS
The Company is engaged in the business of selling franchises to existing
and start-up travel agency operators to use the Company's systems, methods
and techniques for promoting and performing travel agency services.
Franchisees are charged an initial franchise fee upon the signing of a
franchise agreement. In addition to the initial fee, franchisees are
required to remit monthly service and advertising fees, as defined in the
franchise agreement, to the Company. Franchise agreements are typically for
fifteen-year terms and are renewable for additional ten- year terms.
F-6
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BUSINESS (CONTINUED)
The Company also sells area franchise agreements. Area franchisees are
charged an initial fee upon the signing of a franchise agreement. In
consideration for soliciting, screening, evaluating and introducing
prospective franchisees to the Company, as well as undertaking certain
franchiser responsibilities, the area franchisee receives from 50% to
66-2/3% of any initial franchise fees, service fees and other revenues, as
defined, for new franchises granted in the defined area. Such area
franchise agreements are typically for a ten-year term and are renewable
for one additional ten-year term.
The Company is also engaged in the wholesale travel business, providing
product and services to its franchisees, which it obtains from tour
operators and cruise lines. The Company also operates a retail travel
agency.
Currently, the Company has 356 franchises operating in 37 U.S. states.
Additionally, there are franchises in 21 countries.
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
disclosures 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 from those
estimates.
REVENUE RECOGNITION
Franchise Fees
Payment of an initial franchise fee, which is due upon execution of a
franchise agreement, can be in the form of cash, notes or a combination
thereof. Revenue is recognized when all material services and conditions
required of the Company, prior to the opening of the franchised business,
have been performed and substantial doubts of collectibility have been
eliminated, usually upon receipt of payment.
Travel Products and Services
Commissions earned from the sales of travel products and services are
generally recognized upon receipt. Revenues earned from all other sales of
travel and related products, where the Company is the credit card merchant
of record, are recorded at their aggregate retail value. Cancellations have
historically not been material.
Other
Advertising, franchise service fees and other revenues are recognized as
they become payable by the franchisee. Other revenue consists primarily of
travel related income from the operation of a retail travel service, and
certain earned commissions.
F-7
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
The Company is subject to credit risk through its trade receivables and
short-term investments. Credit risk with respect to trade receivables is
minimized due to the Company's large customer base and geographic
dispersion of such customers. Short-term investments are placed in a
highly-rated mutual bond fund.
FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, trade receivables,
current maturities of notes receivable and payables for which carrying
amounts approximate fair value due to the relatively short maturity of
these instruments. The carrying value of the Company's short-term
investments approximates fair value based on quoted market prices.
Management has determined that it would not be practicable to estimate the
fair values of its long-term notes receivable.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments with
original maturities, when purchased, of three months or less. Cash and
equivalents included $6,314 of uninsured money market funds at December 31,
1999.
SHORT-TERM INVESTMENTS
Short-term investments consist of mutual bond funds which are classified as
"available-for-sale" securities and, accordingly, are carried at fair
value. Realized gains and losses are included in earnings; unrealized
holding gains and losses are reported as a separate component of
stockholders' equity. At December 31, 1999, unrealized losses amounted to
$33,260. At December 31, 1998, cost approximated market value.
INVESTMENT IN AFFILIATE
The Company's 25% investment in an affiliate was accounted for under the
equity method; cost was increased or decreased by the Company's share of
earnings or losses, less distributions and advances. The Company acquired
the remaining 75% of this affiliate on December 8, 1999. This has been
accounted for as a purchase and, accordingly, results of operations of the
affiliate have been included in the Company's financial statements since
that date. Results of operations of the affiliate, however, were not
material for either 1999 or 1998 (Note 3).
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment is stated at cost, and consist of fixtures and store
equipment. Major expenditures for property and those which substantially
increase useful lives are capitalized. Maintenance, repairs, and minor
renewals are expensed as incurred. When assets are retired or otherwise
disposed of, their costs and related accumulated depreciation are removed
from the accounts and resulting gains or losses are included in income.
Depreciation is provided by the straight-line method over the estimated
useful lives of the assets, five to seven years.
F-8
<PAGE>
ETRAVNET.COM, INC. (FORMERLY PLAYORENA, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROFIT SHARING PLAN
In 1997, the Company adopted a defined contribution plan. All employees who
have completed 1,000 hours of service during the plan year may participate.
Contributions are accrued and paid out of the Company's current profits at
the discretion of the Company's Board of Directors. Employees may make
voluntary contributions, subject to statutory limitations. The Board has
elected not to make a contribution for 1999. The Company's contribution for
1998 was $37,719.
ADVERTISING COSTS
The Company expenses all advertising costs as incurred. Advertising expense
was $82,200 and $89,926 for 1999 and 1998, respectively.
INCOME TAXES
Through March 31, 1998, Travel Network Ltd. (a predecessor to Global)
elected to be treated as a small business corporation ("S" Corporation) for
income tax purposes as provided in the Internal Revenue Code and the
applicable state statutes. Thereafter and through September 17, 1999,
Global was a nontaxable limited liability company. Accordingly, no federal
income taxes were provided in the accompanying financial statements for
that period. After September 17, 1999, the Company became a taxable "C"
Corporation (Note 9).
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"). SFAS No. 130 establishes new rules for reporting and
display of comprehensive income and its components. At December 31, 1999,
the only item of comprehensive loss was the unrealized loss on marketable
securities in the amount of $33,260.
SEGMENT INFORMATION
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information" (SFAS No. 131). SFAS No. 131 superseded SFAS No.
14, "Financial Reporting of Segments of a Business Enterprise. SFAS No. 131
establishes standards for the way that business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. SFAS No. 131 also establishes
standards for related disclosure about products and services, geographic
areas, and major customers. Based on the Company's evaluation of the
requirements of SFAS No. 131, management believes that the Company operates
in two business segments providing and selling (1) management services
within the travel industry, including franchising activities and (2)
beginning in 1999, Internet based technology programs.
EARNINGS PER SHARE
For the period January 1, 1999 through September 17, 1999 and for all of
1998, the pro forma weighted average number of shares was based on the
number of common shares obtained by Global's members in connection with the
reverse acquisition. Thereafter, basic earnings per share are based on the
weighted average number of common shares outstanding. Diluted earnings per
common share assume that outstanding common shares are increased by shares
issuable upon exercise of those stock options for which market price
exceeds exercise price where their exercise would be dilutive.
F-9
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123) requires that companies with
stock-based compensation plans recognize compensation expense based on the
"fair value" accounting method, or to apply the "intrinsic value" method
provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25), and disclose pro forma net income
assuming the fair value method had been applied.
The Company has elected to adopt the disclosure-only provisions of SFAS 123
and, accordingly, computes compensation expense for employees as prescribed
by APB 25. Under APB 25, compensation cost, if any, is measured as the
excess of the quoted market price of the Company's stock at the date of
grant over the amount an employee must pay to acquire the stock. For stock
options granted to non-employees, expense is measured based on the fair
value method prescribed by SFAS 123.
2. SOFTWARE LICENSE AGREEMENT
In 1999, the Company entered into a four-year agreement to license software
designed for and expected to be utilized by the Company in its e-commerce
activities. In connection therewith, the Company agreed to pay the licensor
$50,000 and to issue to the licensor warrants to acquire an aggregate of
217,000 shares of the Company's common stock. The first $25,000 was payable
on the date of the agreement. The balance is payable in two installments of
$12,500 due in the year 2000. In addition, during the second year of the
license, the Company is required to pay $75,000 in four equal installments.
If the Company elects to do so, it may renew its license subsequent to the
fourth year for $50,000 per year. The warrants issued in connection with
transactions are summarized in the table below.
<TABLE>
<CAPTION>
Number
of Shares Exercise
Date Issuable Price Expiration
----------------- --------- --------------- -----------------
<S> <C> <C> <C>
December 27, 1999 117,000 $5.00 Per Share December 27, 2000
December 27, 1999 100,000 $5.00 Per Share December 27, 2004
</TABLE>
The warrants were valued at between $3.49 and $4.40 per share for the
warrants expiring in 2000 and 2004, respectively, and together with the
first-year cash portion of the agreement, such amounts were utilized to
determine the initial cost of the license arrangement. Commencing upon
delivery of the software, expected in 2000, the costs, which amount to
$888,800 at December 31, 1999, will be amortized over the four years of the
agreement's initial term.
In addition to the payments noted above, the Company must pay the licensor
royalties aggregating 3.75% of any revenues received by the Company as a
result of any transaction processed using the software, and support fees.
Support fees represent the licensor's direct costs of "development support"
and "maintenance support", as those terms are defined.
3. ACQUISITION OF TRAVEL NETWORK ON-LINE, LLC.
Effective December 8, 1999, the Company issued 47,250 shares of its common
stock to acquire the portion of Travel Network On-Line, LLC that it did not
already own. The excess (approximately $227,000) of the fair value of the
shares issued over the book value of the acquired assets has been reflected
as goodwill in the accompanying consolidated balance sheet.
F-10
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
4. COMMITMENTS AND CONTINGENCIES
Leases
The Company is obligated under two office leases expiring April 30, 2002,
for minimum annual rentals, currently at $47,470, plus increases based upon
real estate taxes and operating costs.
In addition, the Company has entered into various lease agreements with
Wal-Mart Stores, Inc. for 55 locations pursuant to a master lease
arrangement. The Company is obligated to pay approximately $71,000 per
month in the aggregate. The Company has also entered into sub- lease
agreements with franchisees at certain of these Wal-Mart locations with
payment terms approximating the Company's obligation under its master lease
arrangement. The Company has an option to renew the leases for a three-year
period and, additionally, a five-year period.
The following is a summary of net rental expense, included in general and
administrative expenses, under all operating leases:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Minimum rentals $ 721,000 $ 664,000
Less: Sublease rentals 674,000 535,164
--------- ---------
$ 47,000 $ 128,836
========= =========
</TABLE>
Minimum future rental payments under noncancelable operating leases having
remaining terms in excess of one year as of December 31, 1999, are as
follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 474,900
2001 217,000
2002 74,000
2003 58,000
2004 5,000
---------
Total $ 828,900
</TABLE>
=========
The minimum future rentals have not been reduced by approximately $753,000
of sublease rentals to be received in the future under noncancelable
subleases.
Legal Proceedings
In a lawsuit filed in Indiana, on June 21, 1999, JCB Enterprises ("JCB"), a
franchisee of the Company is seeking money damages in excess of $80,000 for
alleged violations of the Indiana Franchise Act and Indiana Deceptive
Franchise Practices Act, for common law fraud, rescission of the Franchise
Agreement between the Company and JCB, as well as a declaratory judgment on
whether a partnership existed between JCB and the Company. JCB recently
filed personal and corporate bankruptcy and JCB's interest in the lawsuit
has been transferred to JCB's bankruptcy trustee who has given an
indication of interest in settling the lawsuit out-of-court. The Company
made an offer to settle this lawsuit for $15,000. This offer was rejected
by JCB's bankruptcy trustee. Nevertheless, the Company intends to
vigorously defend the matter. In addition, the Company is involved in other
legal proceedings incurred in the normal course of business. At December
31, 1999, in the opinion of management, there are no proceedings that would
have a material effect on the financial position of the Company if
adversely decided.
F-11
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
4. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Merger Related Items
As of the date of the reverse acquisition (Note 1), Playorena's recorded
liabilities amounted to $332,218 and consisted of notes payable of $35,000
and other accrued expenses of $297,718. In connection therewith, certain
Playorena shareholders agreed to indemnify the Company with respect to
"losses" incurred with regard to any of these "payables", as these terms
are defined in the related Indemnification Agreement. The indemnification
relates to any claims made by a potential creditor within three years from
the date of the Agreement. For the reasons set forth above, the Company has
not included these liabilities in the financial statements.
Letter of Credit
The Company is contingently liable under a letter of credit in the amount
of $25,000, which expires in September 2000. The letter of credit was
obtained to facilitate processing airfare reservations via customers credit
cards.
5. STOCKHOLDERS' EQUITY
Sale of Equity Interest
In March 1999, Global, with the approval of its members, sold 500,000
equity units of the Company to Liberty Travel, a major travel agency chain,
for $250,000. In connection therewith, Global received an option from the
investor to reacquire the units for $250,000 plus a premium designed to
return to the buyer a 10% per annum return. The option expires 30 months
from March 1999. In July 1999 the option was assigned to all of Global's
members other than Liberty Travel. In connection with the reverse
acquisition (Note 1), the units were converted into shares of the Company's
stock.
Shares Reserved for Issuance
Common shares are reserved for issuance as follows:
<TABLE>
<CAPTION>
Warrants
--------
<S> <C>
Exercisable at $.01 per share 132,292
Exercisable at $4.00 per share 88,195
Exercisable at $5.00 per share 217,000
Options
-------
Exercisable at various prices with a weighted average of $4.02 503,000
-------
Total 940,487
-------
</TABLE>
F-12
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
6. STOCK OPTIONS
During 1999, the Company granted stock options (non-qualified) to various
employees and certain consultants to the Company. Generally, the options
granted are exercisable for up to seven years, subject to a vesting
schedule in the case of employees' options. Options granted to the
consultants in 1999 are immediately exercisable. The options were granted
with exercise prices ranging from $3.00 per share to $8.00 per share. The
earliest date that the employees' options will vest is September 17, 2000.
A summary of stock option activity and weighted average exercise prices
follows:
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
--------------------------------
Options Exercise Price
------- --------------
<S> <C> <C>
Outstanding, beginning of year - $ -
Granted (a) 503,000 4.02
Exercised - -
Forfeited/Cancelled - -
------- ---------
Outstanding, end of year 503,000 $ 4.02
======= =========
Exercisable 10,000 $ 5.00
======= =========
<FN>
(a) 400,000 options were granted at an exercise price of $3.00 per share
when the market price of the underlying common stock was $3.39 per
share.
</FN>
</TABLE>
A summary of stock options outstanding and exercisable as of December 31,
1999 follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------- --------------------------
Weighted Weighted Weighted
Exercise Number Average Average Number Average
Prices Outstanding Remaining Life Exercise Exercisable Exercise Price
-------- ----------- -------------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$3.00 400,000 3 Years $3.00 - -
$5.00 10,000 1 Year $5.00 10,000 $5.00
$8.00 93,000 3 Years $8.00 - -
</TABLE>
The fair value of the options granted was estimated using the Black-Scholes
option pricing model based on weighted average assumptions of; risk free
interest rate of 5.75%, volatility 143%, expected lives of 1 to 3 years and
a dividend yield of zero.
Had compensation cost for employee stock options been determined consistent
with SFAS 123, the Company's net loss and loss per share would have been as
follows for 1999:
<TABLE>
<CAPTION>
<S> <C>
Net loss as reported $(438,018)
Pro forma net loss $(633,736)
Loss per share as reported $ (.09)
Pro forma loss per share $ (.13)
</TABLE>
F-13
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
7. INCOME TAXES
The components of deferred tax assets and liabilities is as follows at
December 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Net operating loss carryforward $ 143,000
Allowance for doubtful accounts 19,000
Less: Valuation allowance (162,000)
---------
Net deferred asset $ -
=========
</TABLE>
As a result of the company's operating loss in 1999 no current income taxes
are provided. The following is a reconciliation of the Company's income tax
expense (benefit) reflected in the financial statements and the amounts
calculated at the federal statutory income tax rate.
<TABLE>
<CAPTION>
<S> <C>
Income tax benefit at statutory rate $ 162,000
Increase in valuation allowance (162,000)
----------
Total provision for (benefit from) income taxes $ -
==========
</TABLE>
As of December 31, 1999, the Company has a net operating loss carryforward
of $397,000 that expires in 2014.
8. RELATED PARTY TRANSACTIONS
The Company pays commissions to another company owned by a significant
shareholder who is also the Company's Chief Executive Officer. Such
payments totalled approximately $118,000 and $42,000 for the years ended
December 31, 1999 and 1998, respectively.
9. PRO FORMA INFORMATION (UNAUDITED)
As discussed in Note 1, the Company was a nontaxable entity prior to
September 17, 1999. As a result of the merger with Playorena on that date,
Global's LLC status was terminated. Therefore, the Company's tax status
changed to that of a regular "C" corporation. The pro forma effect of the
change in the Company's income tax status on the historical results of
operations is presented in the accompanying statements of operations. The
pro forma provision for income taxes reflects federal, state and local
income taxes, which would have been required if the Company had operated as
a taxpaying entity in each of the respective periods.
10. SEGMENT INFORMATION
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "other" column includes the
merger related charge for issuance of common stock and other corporate
items not specifically allocated to the segments.
<TABLE>
<CAPTION>
Travel &
Related Internet
Management Technology
1999 Services Programs Other Total
----------------------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues $5,922,776 $ - $ - $5,922,776
Segment profit (loss) $ (106,566) $(90,873) $ (240,579) $ (438,018)
Total assets $1,704,540 $888,800 $1,009,956 $3,603,296
Capital expenditures $ 34,166 $888,800 $ - $ 922,966
Depreciation and amortization $ 14,730 $ - $ - $ 14,730
Interest income $ - $ - $ 85,331 $ 85,331
</TABLE>
During 1998, the Company operated only in the travel and related management
services segment.
F-14
<PAGE>
ETRAVNET.COM, INC.
(FORMERLY PLAYORENA, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
11. SUBSEQUENT EVENTS
In February 2000, the Company purchased approximately $2,000,000 of cable
television advertising time in various television markets located
throughout the United States. In return, the Company issued 207,289 shares
of its common stock to the company that will arrange and handle the
schedule and placement of the ads in a media campaign.
The Company intends to enter into a five-year employment agreement with its
Chief Executive Officer ("CEO"). Pursuant to the intended agreement, the
CEO will be paid an annual base salary of $192,500 with annual 10%
increases and a bonus incentive of 10% of all initial franchise fees earned
by the Company. Additionally, the agreement is intended to provide the CEO
certain rights in the event of a change in control of the Company.
F-15
State of New York )
)ss:
Department of State )
I hereby certify that the annexed copy has been compared with the original
document in the custody of the Secretary of State and (hat the same is a true
copy of said original.
Witness my hand and seal of the Department of State on SEP 29, 1999
Seal
DOS-1266 (5/96)
/s/
Special Deputy Secretary of State
<PAGE>
F990928000867
CERTIFICATE OF AMENDMENT TO THE
COMPANY'S CERTIFICATE OF INCORPORATION OF
PLAYORENA INC.
CT-07 CT-07
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
The undersigned President of PLAYORENA INC. ("Corporation"), does hereby
certify and say that:
FIRST: The name of the corporation is PLAYORENA INC.
SECOND: The Certificate of Incorporation was filed by the Department of
State on December 4, 1981.
THIRD: The amendments of the certificate of incorporation of the
Corporation effected by this certificate of amendment are as follows, and to
accomplish the amendments set forth herein, certain Articles of the Certificate
of Incorporation are hereby amended to read as follows:
(a) Article FIRST of the Certificate of Incorporation, which sets forth the
name of the Corporation, is hereby amended to read as follows:
FIRST: The name of the Corporation is ETRAVNET.COM, Inc.
(b) Article SECOND of the Certificate of Incorporation, which sets forth
the purposes for which the Corporation was formed, is hereby amended to read as
follows:
SECOND: The purpose ofthe corporation is to engage in any lawful act or
activity for which corporations may be organized under the New York
Business Corporation Law, other than any act or activity requiring the
consent or approval of any state official, department, agency, board or
other body without such approval or consent first being obtained.
(c) Article THIRD ofthe Certificate of Incorporation, which sets forth the
location ofthe Corporation's office in the State of New York, is hereby amended
to read as follows:
THIRD: The office of the corporation within the State of New York shall be
located in Nassau County.
(d) Article FOURTH of the Certificate of Incorporation, which sets forth
the aggregate number, class, and par value of the shares which the Corporation
shall have the authority to issue, is hereby amended to increase the authorized
number of shares of common stock which the Corporation shall have the authority
to issue and lo authorize the issuance of a new class of preferred stock.
Article FOURTH, as amended hereby, shall read in its entirety as follows:
<PAGE>
FOURTH: The aggregate number of shares which the corporation shall have the
authority to issue is Twenty-Five Million (25,000,000) shares, of which (i)
Twenty Million (20,000,000) shares shall be designated as Common Stock
("Common Stock") and shall have a par value of $.001 per share, and (ii)
Five Million (5,000,000) shares shall be designated as Preferred Stock
("Preferred Stock") and shall have a par value of $.001 per share.
The Preferred Stock may be issued in one or more series, firom time to
time, with each such series to have such designation, relative rights,
preferences or limitations, as shall be stated and expressed in the
resolution or resolutions providing for the issue of such series adopted by
the Board of Directors of the Corporation, subject to the limitations
prescribed by law and in accordance with the provisions hereof, the Board
of Directors being hereby expressly vested with authority to adopt any such
resolution or resolutions. The authority of the Board of Directors with
respect to each series of Preferred Stock shall include, but not be limited
to, the determination or fixing of the following:
i) The distinctive designation and number of shares comprising such
series, which number may (except where otherwise provided by the Board of
Directors in creating such series) be increased or decreased (but not below
the number of shares then outstanding) from time to time by like action of
the Board of Directors;
ii) The dividend rate of such series, the conditions and time upon
which such dividends shall be payable, the relation which such dividends
shall bear to the dividends payable on any other class or classes of stock
or series thereof, or any other series of the same class, and whether such
dividends shall be cumulative or non-cumulative;
iii) The conditions upon which the shares of such series shall be
subject to redemption by the Corporation and the times, prices and other
terms and provisions upon which the shares of the series may be redeemed;
<PAGE>
iv) Whether or not the shares of the series shall be subject to the
operation of a retirement or sinking fund to be applied to the purchase or
redemption of such shares and, if such retirement or sinking fund be
established, the annual amount thereof and the terms and provisions
relative to the operation thereof;
v) Whether or not the shares of the series shall be convertible into
or exchangeable for shares of any other class or classes, with or without
par value, or of any other series of the same class, and, if provision is
made for conversion or exchange, the times, prices, rates, adjustments and
other terms and conditions of such conversion or exchange;
vi) Whether or not the shares of the series shall have voting rights,
in addition to the voting rights provided by law, and, if so, the terms of
such voting rights;
vii) The rights of the shares of the series in the event of voluntary
or involuntary liquidation, dissolution or upon the distribution of assets
of the Corporation;
viii) Any other powers, preferences and relative participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, of the shares of such series, as the Board of
Directors may deem advisable and as shall not be inconsistent with the
provisions of this Certificate of Incorporation.
The holders of shares of the Preferred Stock of each series shall be
entitled to receive, when and as declared by the Board of Directors, out of
funds legally available for the payment of dividends, dividends (if any) at
the rates fixed by the Board of Directors for such series before any cash
dividends shall be declared and paid or set apart for payment, on the
Common Stock with respect to the same dividend period.
The holders of shares of the Preferred Stock of each series shall be
entitled, upon liquidation or dissolution or upon the distribution of the
assets of the Corporation, to such preferences as provided in the
resolution or resolutions creating such series of Preferred Stock, and no
more, before any distribution of the assets of the Corporation shall be
made to the holders of shares of the Common Stock. Whenever the holders of
shares of the Preferred Stock shall have been paid the full amounts to
which they shall be entitled, the holders of shares of the Common Stock
shall be entitled to share ratably in all remaining assets of the
Corporation.
<PAGE>
FOURTH: The foregoing amendments to the Certificate of Incorporation were
authorized by the consent in writing of all of the members of the Board of
Directors of the Corporation, followed by the vote of holders of outstanding
shares of the Corporation entitled to vote on the said amendments of the
Certificate of Incorporation at a meeting of shareholders, having not less than
the minimum requisite proportion of votes.
IN WITNESS WHEREOF, I have subscribed this certificate this 17 day of
September, 1999 and I hereby affirm the statements contained herein as true
under the penalties of per)' ury.
/s/ Lawrence Kaplan
--------------------------
LAWRENCE KAPLAN, PRESIDENT
<PAGE>
F 990928000867
CT-07
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF PLAYORENA INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
1-CC
RECEIVED STATE OF NEW YORK
SEP 28 2 17 PM'99 DEPARTMENT OF STATE
FILED SEP 2 8 1999
TAX $ 10
----------------
BY: /s/
----------------
SUFFOLK
NASSAU
DRAWDOWN
BLAU, KRAMER, WACTLAR & LIEBERMAN, PC
100 JERICHO QUADRANGLE
JERICHO, NY 11753
990928000900
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 1st day of March, 2000, among ETRAVNET.COM, INC.,
a New York corporation ("Employer"), and MICHAEL BRENT, residing at
1530 Palisade Ave., Ft. Lee, NJ 07024 ("Executive").
W I T N E S S E T H:
WHEREAS, Executive has been a key executive officer and employee of
Employer and Employer wishes to retain the services of Executive as an employee
and officer of Employer, and Executive desires to render such services;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties hereto agree as follows:
1. PRIOR AGREEMENTS SUPERSEDED; EFFECTIVENESS.
------------------------------------------
(a) This Agreement supersedes any employment agreements, oral or
written, entered into between Executive and Employer prior to the date of this
Agreement.
2. RETENTION OF SERVICES.
---------------------
The Employer hereby agrees to employ the Executive and the Executive agrees
to accept employment on, and subject to, the terms and conditions hereinafter
set forth.
3. TERM OF EMPLOYMENT.
------------------
Subject to earlier termination in accordance with Section 8 hereof, the
term of this Agreement shall commence effectively on March 1, 2000 and end on
February 28, 2005 ("Term of Employment").
4. DUTIES.
------
(a) During the Term of Employment, the Executive shall be employed by
the Employer as President. The Executive agrees that he will devote his full
business time and best efforts exclusively to the faithful and diligent
performance of all of the duties and responsibilities incident to that position
as well as all such other executive duties and responsibilities for or on behalf
of the Employer and its subsidiaries in that executive capacity as required to
perform from time to time by the Board of Directors.
5. COMPENSATION.
------------
For so long as the Executive is employed by the Employer, in consideration
of the services to be rendered by the Executive hereunder, the Employer agrees
to pay to the Executive during the Term of Employment, and the Executive agrees
to accept as compensation,
(a) a salary of One Hundred Ninety-Two Thousand Five Hundred and
00/100 ($192,500.00) Dollars for the first year of the Agreement to be increased
ten (10%) percent from the prior year's salary each year thereafter (the
"Salary"). The Salary shall be payable in monthly installments or in accordance
with the Employer's normal payroll policies.
(b) In addition to the foregoing, Executive shall be entitled to an
incentive bonus of ten (10%) percent of all front end franchisee fees earned by
the Employer during the Term of Employment.
(c) During the Term of Employment, Executive shall be entitled to the
following benefits and perquisites:
(i) Participation, subject to qualification requirements, in all
medical and hospitalization plans, presently in effect or
hereinafter instituted by the Employer and applicable to its
Executive employees.
<PAGE>
(ii) a term life insurance policy renewable yearly in the principal
amount of $2,000,000.
(iii)$2,000 per month as and for reimbursement of all reasonable and
necessary expenses incurred by the Executive in performing his
employment hereunder.
(iv) the use of a suitable automobile and the payment or reimbursement
of all expenses incidental thereto including fuel, repairs,
insurance and registration and inspection fees.
(v) Vacation and sick leave in accordance with the Employer's
policies in effect from time to time for executives of the
Employer.
(vi) Participation in any Stock Option Plan and/or Stock Purchase
Plans existing now or hereafter instituted by Employer.
(vii)Participation in the existing or any successor pension and profit
sharing plans of the Employer ("Employer's Plans").
(viii) Reimbursement of premiums expended by Executive for Disability
Insurance in the maximum principal amount attainable commensurate
with Executive's Salary.
6. DEATH BENEFIT.
-------------
If Executive dies during the Term of Employment, then, provided the
Executive was not in breach of this Agreement on the date of his death, his
monthly salary shall be continued for a twelve (12) month period following the
date of death and shall be paid to his widow, or to a designee other than his
widow if such designation is made in writing by Executive, or if no widow
survives him and no designation has been made hereunder, then to his estate
provided that such monthly salary shall not be paid for any period beyond the
Term of Employment.
7. DISABILITY.
----------
Subject to Section 8(c)(iii), if during the Term of Employment, the
Executive becomes unable for six (6) consecutive months or more, due to ill
health or other incapacitation, to perform his duties hereunder, then, on at
least thirty (30) days' written notice, the Employer may place him on disability
status (and he shall then receive such disability benefits then provided to
other executive employees of Employer) at the end of any month after said
six-month period at no salary for the remainder of the Term of Employment or
until his disability ends, whichever first occurs.
8. TERMINATION OF EMPLOYMENT.
-------------------------
This Agreement and, accordingly, the Term of Employment, may be terminated
earlier than as specified in Section 3 hereof, upon the happening of any of the
following events:
(a) Whenever Employer and the Executive shall mutually agree in
writing to terminate this Agreement.
(b) Upon the death of the Executive, provided that in such event, the
amounts due under Paragraph 6 will be paid as provided therein.
(c) At the option of the Employer, if the Executive shall:
(i) be in breach of or default under any material provision of
this Agreement for a period of thirty (30) days after notice
of such breach is given by Employer to the Executive; or
(ii) be convicted or have acknowledged the commission of fraud,
misappropriation or embezzlement; or
(iii)become totally incapacitated so as to preclude performance
of the duties of his employment hereunder for a period of
six (6) consecutive months.
<PAGE>
(d) At the Executive's option, if Employer shall be in breach of or
default under any material provision of this Agreement for a period of thirty
(30) days after notice of such breach is given by the Executive to the Employer.
9. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
------------------------------------------
The Executive agrees, that at any time during or after he ceases to be
employed by the Employer, he will not directly or indirectly (except where
authorized by the Board of Directors of the Employer) divulge to any persons,
firms or corporations,(hereinafter referred to collectively as "third parties"),
or use or cause to authorize any third parties to use, any information regarded
as confidential and valuable by the Employer which he knows or should know is
regarded as confidential and valuable by the Employer. The non-disclosure
obligations of this section shall not be imposed with regard to information
which is or subsequently becomes, through no fault of Executive, generally
available to the public or is disclosed as required by court order or by an
order of a Regulatory Agency.
10. NON-COMPETITION.
---------------
(a) During the Term of Employment, the Executive will not, anywhere:
(i) engage, directly or indirectly, either individually or as
stockholder, partner, officer, director, employee,
consultant, agent or otherwise, in any business which is in
competition with the Employer or
(ii) solicit for employment or employ, or cause or authorize
directly or indirectly to be solicited for employment or
employ, for or on behalf of himself or third parties, any
persons who were at the time the Executive's employment
hereunder ended, employees of the Employer.
(b) The Executive agrees that he will not, at any time, remove from
the Employer's premises any drawings, notebooks, data and other documents and
materials relating to the business and procedures of the Employer, except as
reasonably necessary to the discharge of his duties hereunder.
(c) In the event of a breach of this covenant not to compete, the
parties acknowledge that the Employer may be irreparably damaged and may not
have an adequate remedy at law. Therefore, Employer may obtain injunctive
relief, without the necessity of posting a bond, for any breach or threatened
breach of this covenant. The parties hereto further acknowledge that this
covenant not to compete is intended to conform to the extent required with the
laws of the State of New York. Any court of competent jurisdiction is hereby
authorized to expand or contract the geographical, temporal or other
restrictions of this covenant not to compete in order to conform with the laws
of the State of New York so that it shall bind the parties hereto and be
enforceable by that court.
11. INJUNCTIVE RELIEF AND OTHER REMEDIES.
------------------------------------
(a) Executive agrees that any breach or threatened breach by him of
any provision of Sections 9 and 10 shall entitle the Employer, on a non-mutually
exclusive basis, in addition to any other legal remedies available to it, to
apply to any court of competent jurisdiction to enforce specifically the terms
of this Agreement or enjoin such breach or threatened breach. The parties
understand and intend that each restriction agreed to by Executive above and
elsewhere herein will be construed as separable and divisible from every other
restriction and that the unenforceability, in whole or in part, of any other
restriction will not affect the enforceablility of the remaining restriction and
that one or more or all of such restrictions may be enforced in whole or in
part, as the circumstances warrant.
<PAGE>
(b) If any of the covenants contained in Sections 9 and 10 or any
aspects thereof are construed to be invalid or unenforceable, the same shall not
affect the remainder of the covenant or covenants, which shall be given full
effect, without regard to the invalid parts.
12. SUCCESSORS AND ASSIGNS.
----------------------
This Agreement shall inure to the benefit of and shall be binding upon the
parties hereto and the Employer's successors or assigns (whether resulting from
any reorganization, consolidation or merger of the Employer) and the Executive's
heirs, executors and legal representatives.
13. ENTIRE AGREEMENT.
----------------
This Agreement contains the entire agreement and understanding of the
parties with respect to the subject matter hereof, supersedes all prior
agreements and understandings with respect thereto and cannot be modified,
amended, waived or terminated, in whole or in part, except in accordance with
the terms hereof or by a writing signed by all of the parties. No course of
dealings between the parties during the term of this Agreement shall be deemed
to amend or expand the obligations of any of the parties hereto unless
incorporated in a written instrument as aforesaid.
14. NOTICE.
------
Any notice to a party hereto pursuant to this Agreement shall be in
writing, shall be deemed given when received, and be delivered personally or
sent by certified mail return receipt requested, or by nationally recognized
overnight courier service, or by telecopier to the address of such party above
written.
15. GOVERNING LAW.
-------------
This Agreement and all issues regarding the validity, construction,
interpretation, performance and enforceablility thereof, shall be governed and
construed exclusively in accordance with the laws of the State of New York
regardless of the laws that might otherwise govern this Agreement under
applicable conflicts of laws principles.
16. MISCELLANEOUS.
-------------
This Agreement:
(a) may not (except as specifically provided) be assigned by any party
hereto without the prior written consent of the other parties (any purported
assignment hereof in violation of this provision being null and void);
(b) may be executed in various counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument; and
IN WITNESS WHEREOF, the parties hereto have duly executed this employment
agreement this 24 day of March, 2000.
ETRAVNET.COM, INC.
By:/s/
-------------------------
/s/
----------------------------
Michael Brent, Executive
WAL-MART SHOPPING CENTER LEASE AGREEMENT
THIS LEASE is entered into as of the 1st day of July, 1996, by and between
Landlord and Tenant as hereinafter defined.
ARTICLE 1. DEFINITIONS AND CERTAIN BASIC PROVISIONS
1.1 (a) "Landlord": WAL-MART STORES, INC.
(b) Landlord's Address; 701 South Wilton Boulevard
Bentonville, AR 72716
(c) "Tenant": Travel Network_
(d) Tenant's Address: 560 Sylvan Ave
Englewood Cliffs, NJ 07632
Phone: (201)567-8500
(e) Tenant's Trade Name: Vacation Central
(f) "Landlord's Agent": Denise West
(g) "Cooperating Agent": N/A
(h) "Demised Premises": Located in WAL-MART Supercenters with
store numbers, addresses and square footages as outlined in
Exhibit D attached hereto.
(i) Individual Location Lease Term: The term of this Lease as to
each of the Demised Premises shall be two (2) years,
beginning on the date as outlined in Exhibit D (the
"Commencement Date" and ending at midnight on the date
preceding the fifth anniversary of the Commencement Date
(hereinafter referred to as the "Termination Date");
provided that if the Commencement Date is a date other than
the first day of a calendar month , the Lease Term shall be
extended for said number of years and months in addition to
the remainder of the calendar month following the
Commencement Date. Tenant shall have the option to renew the
Lease in accordance with the provisions of Exhibit C.
References to the "Lease Term" shall refer to the original
term and any extensions or renewals thereof.
(j) Minimum Guaranteed Rental: Outlined in Exhibit D on an
individual store basis.
<PAGE>
(k) [OMITTED]
(1) Common Area Maintenance Charge (CAM): Calculated at $2.00
times the square footage divided by 12 months per Section
6.4.
(m) Real Estate Tax Charge: Calculated at $.80 times the square
footage divided by 12 months per Section 18.2.
(n) Prepaid Rental: An amount equivalent to one month's rent (as
outlined in Exhibit D) being rent for the last month of the
Lease Term including appropriate Common Area Maintenance and
Real Estate Tax Charges, due upon execution of this Lease.
(o) Security Deposit: $ N/A.
(p) Permitted Use; Travel Related Services; however, Tenant may
not trade merchandise that conflicts with Landlord's
merchandise without Landlord's written approval.
1.2 Each of the foregoing definitions and basic provisions shall be
construed in conjunction with and limited by the references thereto in the other
provisions of this Lease.
ARTICLE II. GRANTING CLAUSE
2.1 In consideration of the obligation of Tenant to pay rent as herein
provided and in consideration of the other terms, covenants and conditions
hereof., Landlord hereby demises and leases to Tenant, and Tenant hereby takes
from Landlord, the Demised Premises as described in Section 1.1 (h), TO HAVE AND
TO HOLD said Demised Premises for the Lease Term specified in Section i.i (i),
and upon the the terms and conditions set forth in this Lease. Landlord further
agrees that if Tenant shall perform all of the covenants and agreements herein
required to be performed by Tenant, Tenant shall, subject to the terms of this
Lease, at all times during the continuance of this Lease have peaceful and quiet
possession of the Demised Premises.
NOTE: If this Lease provides for construction prior to occupancy, refer to
the appropriate exhibits attached hereto. In such case Article II above shall be
deemed modified to the extent inconsistent with such exhibits.
ARTICLE III. CONSTRUCTION AND ACCEPTANCE OF PREMISES
3.1 Tenant acknowledges having been afforded the opportunity to inspect the
Demised Premises to the fullest extent deemed necessary by Tenant, including but
not limited to inspection and testing for environmental conditions or hazards.
By occupying the Demised Premises, Tenant shall be deemed to have accepted the
same "as is" and to have acknowledged that the same comply fully with Landlord's
covenants and obligations hereunder.
<PAGE>
3.2 If this Lease is executed before the Demised Premises becomes vacant,
or if any present tenant or occupant of the Demised Premises holds over, and
Landlord cannot acquire possession of the Demised Premises prior to the
Commencement Date of this Lease, as above defined, Landlord shall not be deemed
to be in default hereunder, and Tenant agrees to accept possession of the
Demised Premises at such time as Landlord is able to tender the same. Landlord
hereby waives the payment of rent covering any period prior to tender of
possession of the Demised Premises to Tenant hereunder.
3.3 In the event of the Landlord's desire to renovate, relocate and/or
expand any area, facility, prototype or appurtenance, Tenant and Landlord agree
upon thirty (30) days' written notice to coordinate all activities, including
but not limited to business termination date, construction start and completion
dates, milestone dates, relocation, business regrand opening, etc. In such
event, Landlord will utilize its best efforts to expeditiously pursue and
complete the Demised Premises in accordance with the host construction schedule.
Landlord will waive its rental requirements during the construction period and
will sustain, within reason as agreed, relocation expenses incurred by Tenant to
the new demised location. In no event will Landlord be responsible for "loss of
business", "lack of trade", or any other claim resulting out of host's desire to
improve the property.
ARTICLE IV. RENT
4.1 Rent shall be payable to Landlord in care of:
Wal-Mart Stores, Inc.
P.O. Box 500620
St. Louis, MO 63150-0620
4.2 [OMITTED]
4.3 [OMITTED]
4.4 If this Lease should commence on a date other than the first day of a
calendar year or terminate on a date other than the last day of a calendar year,
Percentage Rental for such fractional part of the calendar year following the
Commencement Date or preceding the Termination Date, as the case may be, shall
be paid at the specified rate for all sales made during such fractional part of
a calendar year, after deducting from such Percentage Rental all payments of
Minimum Guaranteed Rental for such fractional period. Such Percentage Rental is
to be paid in monthly installments as provided in Section 4.3 with respect to
full calendar years.
4.5 [OMITTED]
<PAGE>
4.6 In the event that the designation of a Percentage Rental rate in
Section 1.1 (k) of this Lease includes a breakpoint of Gross Sales (e.g., "5% of
Gross Sales over $100,000.00"), then (a) subsection (ii) in the first sentence
of Section 4.3 of this Lease shall be deemed to have been deleted and all other
formula references in Article IV adjusted accordingly; (b) the breakpoint shall
be divided by twelve for purposes of computing monthly Percentage Rental
installments in the second sentence of Section 4.3; and (c) during all periods
when Minimum Guaranteed Rentals are reduced (e.g., pursuant to Section 15.4 or
Section 16.2), the breakpoint shall be reduced proportionately.
4.7 It is understood that the Minimum Guaranteed Rental is payable on or
before the first day of the month (in accordance with Section 4.2) and
Percentage Rental, if any, is payable on or before, the tenth of each calendar
month, without offset or deduction of any nature. In the event any rental is not
received by the due date, it is agreed that the amount thus due shall bear
interest at the maximum contractual rate which could legally be charged in the
event of a loan of such rental to Tenant in the state where the Demised Premises
is located but in no event to exceed 1 1/2% per month, such interest to accrue
continuously on any unpaid balance due to Landlord by Tenant during the period
commencing with the aforesaid due date and terminating with the date on which
Tenant makes full payment of all amounts owing to Landlord at the time of said
payment. Any such increase shall be payable as additional rent hereunder, shall
not be considered as a deduction from Percentage Rental, and shall be payable
immediately on demand.
4.8 If Tenant fails in two (2) consecutive months to make rental payments
within ten (10) days after due, Landlord, in order to reduce its administrative
costs, may require by giving written notice to Tenant (and in addition to any
interest accruing pursuant to Section 4.6 above, as well as any other rights and
remedies accruing pursuant to Article XIX or Article XX, or any other term,
provision or covenant of this Lease), that Minimum Guaranteed Rentals are to be
paid quarterly in advance instead of monthly and that all future rental payments
are to be made on or before the due date by cash, cashier's check, or money
order, and that the delivery of Tenant's personal or corporate check will no
longer constitute a payment of rental as .provided in this Lease . Any
acceptance of a monthly rental payment or of a personal or corporate check
thereafter by Landlord shall not be construed as a. subsequent waiver of said
rights.
4.9 Tenant hereby acknowledges that Tenant ' s business reputation,
intended use of the Demised Premises, potential for payment of Percentage Rent
and ability to generate patronage to the Demised Premises and the Shopping
Center Were all relied upon by Landlord and served as significant and material
inducements contributing to Landlord's decision to execute this Lease with
Tenant. Tenant hereby covenants and agrees: (i) to operate in the Demised
Premises only under the trade name set forth in Section 1.1 (e) and under no
other name or trade name whatsoever without Landlord's prior written consent,
(ii) to continuously use, occupy and operate the whole of the Demised Premises
for the retail sale of its goods or services in accordance with its permitted
use set forth in Section 1.1 (p),. during the hours in which the Shopping Center
<PAGE>
is open for business as designated by Landlord, and for no other purpose
whatsoever, and (iii) not to own, operate or be financially interested in,
either directly or indirectly (by itself or with others), a business like or
similar to the business permitted to be conducted hereunder, or which employs
the same or similar trade name, within a radius of three (3) miles of the
perimeter of the Shopping Center, except for those which Tenant has in operation
as of the date hereof. Without limiting Landlord's other available remedies, in
the event Tenant should violate this (iii) covenant, Landlord may, at its
option, (a) terminate this Lease upon thirty (30) days' written notice to
Tenant, (b) enjoin the operation of the violative store, or(c) include all Gross
Sales generated by any violative store as Gross Sales in calculating the
Percentage Rent due under this Lease.
ARTICLE V. SALES REPORTS AND RECORDS
5.1 [OMITTED]
5.2 Tenant shall keep in the Demised Premises or at some other location in
the city where the Demised Premises are located, a permanent and accurate set of
books and records of all sales of merchandise and revenues derived from business
conducted in the Demised Premises and all supporting records such as tax reports
and banking records. All such books and records shall be retained and preserved
for at least twenty-four (24) months after the end of the calendar year to which
they relate and shall be subject to inspection and audit by Landlord and its
agents at all reasonable times.
5.3 In the event Landlord is not satisfied with the statements of Gross
Sales submitted by Tenant, Landlord shall have the right to have its auditors
make a special audit of all books and records, wherever located, pertaining to
sales made in or from the Demised Premises. If such statements are found to be
incorrect to an extent of more than two percent (2%) over the figures submitted
by Tenant, Tenant shall pay for such audit. Tenant shall promptly pay to
Landlord any deficiency or Landlord shall promptly refund to Tenant any
overpayment, as the case may be, which is established by such audit.
<PAGE>
ARTICLE VI. COMMON AREAS
6.1 The term "Common Area" is defined for all purposes of this Lease as
that part of the Shopping Center intended for the common use of all tenants,
including among other facilities (as such may be applicable to the Shopping
Center) parking area, private streets and alleys, landscaping, curbs, loading
area, floors, doors, side walks, food court, malls and promenades (enclosed or
otherwise), lighting facilities, drinking fountains, meeting rooms, public
toilets, and the like but excluding space in buildings (now or hereafter
existing) designed for rental or commercial purposes, as the same may exist from
time to time, and further excluding streets and alleys maintained by a public
authority. Landlord reserves the right to change from time to time the
dimensions and locations of the Common Area, as well as the identity and type of
any buildings in the Shopping Center. Tenant, and its employees and customers,
and when duly authorized pursuant to the provisions of this Lease, its
subtenants, licensees and concessionaires, shall have the nonexclusive right to
use the Common Area as constituted from time to time, such use to be in common
with Landlord, other tenants to the Shopping Center and other persons permitted
by Landlord to use the same, and subject to such reasonable rules and
regulations governing use as Landlord may from time to time prescribe, including
the designation of specific areas within the Shopping Center or in reasonable
proximity thereto in which automobiles owned by Tenant, its employees,
subtenants, licensees and concessionaires shall be parked. Tenant shall not
solicit business within the Common Area or take any action which would interfere
with the rights of other persons to use the Common Area. Landlord may
temporarily close any part of the Common Area for such periods of time as may be
necessary to make repairs or alterations to prevent the public from obtaining
prescriptive rights.
6.2 Tenant shall furnish to Landlord upon request a complete list of
license numbers of all automobiles operated by Tenant, its employees,
subtenants, licensees or concessionaires, and Tenant agrees that if any
automobile or other vehicles owned by Tenant or any of its employees,
subtenants, licensees or concessionaires shall at any time be parked in any part
of the Shopping Center other than the specified areas designated for employee
parking, Tenant shall pay to Landlord as additional rent upon demand an amount
equal to the daily rate or charge for such parking as established by Landlord
from time to time for each day, or part thereof, such automobile or other
vehicle is so parked. Landlord may from time to time substitute for any parking
area other areas reasonably accessible to Tenant, which areas may be elevated,
surface or underground.
6.3 Landlord shall be responsible for the operation, management, and
maintenance of the Common Area, the manner of maintenance and the expenditures
therefor to be in the sole discretion of Landlord.
<PAGE>
6.4 In addition to rentals and other charges prescribed in this Lease,
Tenant shall pay to Landlord Tenant's proportionate share of the cost of
operation and maintenance of the Common Area (including, among other costs,
those for lighting, painting, cleaning, policing, inspecting, repairing and
replacing, and heating and cooling as described in Appendix B attached hereto)
which may be incurred by Landlord in its discretion, including a reasonable
allowance for Landlord's overhead costs and for depreciation of maintenance
equipment, and the costs of hazard insurance, but excluding general real estate
taxes, assessments, and depreciation of Landlord's original investment. The
proportionate share to be paid by Tenant of the cost of operation and
maintenance of the Common Area shall be computed on the ratio that the total
ground floor area of the Demised Premises bears to the total ground floor
leasable area in the Shopping Center; provided that, in no event shall such
share be less than the amount specified in Section 1.1 (l). Tenant shall make
such payments to Landlord on demand, at intervals not more frequent than
monthly. Landlord may at its option make monthly or other periodic charges based
upon the estimated annual cost of operation and maintenance of the Common Area,
payable in advance but subject to adjustment after the end of the calendar year
on the basis of the actual cost for such calendar year.
ARTICLE VII. USE AND CARE OF DEMISED PREMISES
7.1 The Demised Premises may be used only for the purpose or purposes
specified in Section 1.1 (p), and for no other purposes without the prior
written consent of Landlord. Tenant shall use in the transaction of business in.
the Demised Premises the trade name specified in Section 1.1 (e) and no other
trade name without the prior written consent of Landlord. Tenant shall not at
any time leave the Demised Premises vacant, but shall in good faith continuously
throughout the Lease Term conduct and carry on in the entire Demised Premises
the type of business for which the Demised Premises are leased. Tenant shall
operate its business in an efficient, professional and reputable manner so as to
produce the maximum amount of sales from the Demised Premises, and shall, except
during reasonable periods for repairing, cleaning, and decorating, keep the
Demised Premises open to the public for business with adequate personnel in
attendance on all days and during all hours (including evenings) established by
Landlord from time. to time as store hours for the Shopping Center, and during
any other hours when the Shopping. Center generally is open to the public for
business, except to the extent Tenant may be prohibited from. being open for
business by applicable law, ordinance or governmental regulation. In addition,
Tenant will conduct all business in conjunction with and abiding by Landlord's
philosophies, culture and standards.
7.2 In the event Landlord receives over five (5) customer service
complaints in any form (i.e., telephone, written, oral, etc.) per Tenant
location during a period of one (1) year. Tenant will reimburse Landlord, within
fifteen (15) days of notice of complaint, the amount of Fifty Dollars ($50.00)
per complaint for administrative services. Each one (1) year period will start
<PAGE>
on January I and end December 31. Said charge is not to be construed as a remedy
to other action as called out in this Agreement but as an addition to any or all
remedies.
7.3 Tenant shall provide, at its sole expense, signage with a customer
service "Hot Line" notice including a 800 phone number and principle office
address. The signage shall be in a conspicuous location in full view of all
customers at all times the Shopping Center is open for business. Letters and
numbers are to be a minimum of four inches (4") in scale with a background color
which highlights the color of the characters. Signage is to be located in the
Demised Premises and to complement the surrounding decor.
7.4 Tenant shall not, without Landlord's prior written consent, keep
anything within the Demised Premises or use the Demised Premises for any purpose
which increases the insurance premium cost or invalidates any insurance policy
carried on the Demised Premises or other parts of the Shopping Center. All
property kept, stored or maintained within the Demised Premises by Tenant shall
be at Tenant's sole risk.
7.5 Tenant shall not conduct within the Demised Premises any "fire",
"bankruptcy", "going-out-of-business," "lost-our-lease," or similar sales or
operate within the Demised Premises a "wholesale" or "factory outlet" store, a
cooperative store, a "second hand" store, a "surplus" store or a store commonly
referred to as a "discount house". Tenant shall not permit any objectionable or
unpleasant odors to emanate from Demised Premises; nor place or permit any
radio, television, loudspeaker or amplifier on the roof or outside the Demised
Premises or where the same can be seen or heard from outside the building; nor
place any antenna, awning or other projection on the exterior of the Demised
Premises; nor take any other action which would constitute a nuisance or would
disturb or endanger other tenants of the Shopping Center or unreasonably
interfere with their use of their respective premises; nor do anything which
would tend to injure the reputation of the Shopping Center.
7.6 Tenant shall take good care of the Demised Premises and. keep the same
free from waste at all times. Tenant shall keep the. Demised Premises and
sidewalks, service-ways and loading areas adjacent to the Demised Premises neat,
clean and free from dirt or rubbish at all times. Receiving and delivery of
goods and merchandise and removal of garbage and trash shall be made only in the
manner and areas prescribed by Landlord. Tenant shall not operate an incinerator
or burn trash or garbage within the Shopping Center area.
7.7 Tenant shall maintain all display windows in a neat, attractive
condition and shall keep all display windows lighted during all business hours
as defined above.
<PAGE>
7.8 Tenant shall include the address and indentity of its business
activities in the Demised Premises in all advertisements made by Tenant in which
the address and identity of any similar local business activity of Tenant is
mentioned.
7.9 Tenant shall procure at its sole expense any permits/and licenses
required for the transaction of business in the Demised Premises and otherwise
comply with all applicable laws, ordinances, and governmental regulations.
ARTICLE VIII. MAINTENANCE AND REPAIR OF DEMISED PREMISES
8.1 Landlord shall keep the foundation, the exterior walls, heating, air
conditioning and roof (except plate glass; windows, doors, door closure devices
and other exterior openings, window and door frames, molding, locks and
hardware; special storefronts; lighting, plumbing and other electrical,
mechanical, and electromotive installations, equipment and fixtures; signs,
placards, decorations or advertising media of any type; and interior painting or
other treatment of exterior walls) of the Demised Premises in good repair.
Landlord, however, shall not be required to make any repairs occasioned by the
act or negligence of Tenant or Tenants' agents, employees, subtenants, licensees
and concessionaires; and the provisions of the previous sentence are expressly
recognized to be subject to the provisions of Article XV and Article XVI of this
Lease. In the event that the Demised Premises should become in need of repairs
required to be made by Landlord hereunder, Tenant shall give immediate written
notice thereof to Landlord, and Landlord shall not be responsible in any way for
failure to make any such repairs until a reasonable time shall have elapsed
after receipt by Landlord of such written notice.
8.2 Tenant shall keep the Demised Premises in good, clean and habitable
condition and shall at its sole cost and expense keep the Demised Premises free
of insects, rodents, vermin and other pests and make all needed repairs and
replacements, including replacement of cracked or broken glass, except for
repairs and replacements required to be made by Landlord under the provisions of
Section 8.1, Article XV and Article XVI. Without limiting the coverage of the
previous sentence, it is understood that 'Tenant's responsibilities therein
include the repair and replacement of all lighting, plumbing and other
electrical, mechanical and electromotive installation, equipment and fixtures
and also include all utility repairs in ducts, conduits, pipes and wiring, and
any sewer stoppage located in, under or above the Demised Premises. If any
repairs required to be made by Tenant hereunder are not made within ten (10)
business days after written notice. delivered to Tenant by Landlord, Landlord
may at its option, make such repairs without liability to Tenant for any loss or
damage which, may result to its stock or business by reason of such repairs; and
Tenant shall pay to Landlord upon demand, as additional rent hereunder, the cost
of such repairs plus ten percent (10%) thereof as an administrative fee to
Landlord plus interest at the maximum lawful rate in the state where the Demised
Premises is located (but in no event to exceed 1 1/2% per month), such interest
to accrue continuously from the date of payment bv Landlord until repayment by
Tenant. At the expiration of this Lease, Tenant shall surrender the Demised
Premises in good condition, excepting reasonable wear and tear and losses
required to be restored by Landlord in Section 8.1, Article XV and Article XVI
of this Lease.
<PAGE>
ARTICLE IX. ALTERATIONS
9.1 Tenant shall not make any alterations, additions or improvements to the
Demised Premises without the prior written consent of Landlord, except for the
installation of unattached, movable trade fixtures which may be installed
without drilling, cutting or otherwise defacing the premises. All alterations,
additions, improvements and fixtures (other than Tenant's unattached, readily
movable furniture and office equipment) which may be made or installed by either
party upon the Demised Premises shall remain upon and be surrendered with the
Demised Premises and become the property of Landlord at the termination of this
Lease, unless Landlord requests their removal in which event Tenant shall remove
the same and restore the Demised Premises to their original condition at
Tenant's expense.
9.2 All construction work done by Tenant within the Demised Premises shall
be performed in a good and workmanlike manner, in compliance with all
governmental requirements, and in such manner as to cause a minimum of
interference with other construction in progress and with the transaction of
business in the Shopping Center. Tenant agrees to indemnify Landlord and hold
Landlord harmless against any loss, liability or damage resulting from such work
and Tenant shall, if requested by Landlord, furnish a bond or other security
satisfactory to Landlord against any such loss, liability or damage.
ARTICLE X. LANDLORD'S RIGHT OF ACCESS: USE OF ROOF
10.1 Landlord shall have the right to enter upon the Demised Premises at
any time for the purpose of inspecting the same or of making repairs,
alterations or additions to adjacent premises, or of showing, the Demised
Premises to prospective purchasers, lessees or lenders.
10.2 Tenant will permit Landlord to place and maintain "For Rent" or "For
Lease" signs on the Demised Premises during the last ninety (90) days of the
Lease Term, it being understood that such signs shall in no way affect Tenant's
obligations pursuant to Section 7.3, Section 11.1, or any other provision of
this Lease.
10.3 Use of the roof above the Demised Premises is reserved to Landlord.
ARTICLE XI. SIGNS: STOREFRONTS
11.l Tenant shall not, without Landlord's prior written consent, which
shall not be unreasonably withheld or denied (a) make any changes to the
storefront or (b) install any exterior lighting, decorations, paintings,
awnings, canopies or the like or (c) erect or install any signs, window or door
lettering placards, decorations or advertising media of any type which can be
<PAGE>
viewed from the exterior of the Demised Premises, excepting only dignified
displays of customary type of its display window. All signs, lettering,
placards, decorations and advertising media shall conform in all respects co the
sign criteria established by Landlord for the Shopping Center from time to time
in the exercise of its sole discretion, and shall be subject to the prior
written approval, of Landlord as to construction, method of attachment, size,
shape, height, lighting, color and general appearance. All signs shall be kept
in good condition and in proper operating order at all times at Tenant's
expense.
11.2 Subject to the restrictions of Section 11.1 above, Tenant agrees to
install and maintain a first-class sign on the front of the Demised Premises
during the Lease Term. At Tenant locations where the Demised Premises' entrance
and exit are to the outside of the Shopping Center, signage to be provided, and
installed by Tenant. At Tenant locations where the Demised Premises' entrance '
and exit are to the inside of the Shopping Center, signage to be provided and
installed by Landlord.
ARTICLE XII. UTILITIES
12.1 Landlord agrees to cause to be provided and maintained the necessary
mains, conduits and other facilities necessary to supply water, gas,
electricity, telephone service and sewerage service to the Demised Premises.
12.2 Landlord shall pay all charges for electricity, water, gas, and
sewerage service furnished to the Demised Premises. Tenant shall pay for
telephone service and other utility service.
12.3 Landlord shall not be liable for any interruption whatsoever in
utility services not furnished by Landlord nor for interruptions in utility
services furnished by Landlord which are due to fire, accident, strike, acts of
God or other causes beyond the control of Landlord or in order to make
alterations, repairs or improvements.
ARTICLE XIII. INDEMNITY AND PUBLIC LIABILITY INSURANCE
13.1 Landlord shall not be liable to Tenant or to Tenant's employees,
agents, or visitors, or to any other person whomsoever for any injury to person
or damage to property on or about the Demised Premises or the Common Area caused
by the negligence or misconduct of Tenant, its employees, subtenants, licensees
or concessionaires, or of any other person entering the Shopping Center under
express or implied invitation of Tenant, or arising out of the use of the
Demised Premises by Tenant and the conduct of its business therein, or arising
out of any breach or default by Tenant in the performance of its obligations
hereunder; and Tenant hereby agrees to defend, indemnify and. hold Landlord
harmless from any loss, expense, including reasonable attorney expenses, or
claims arising out of such damage or injury.
<PAGE>
13.2 Tenant shall procure and maintain throughout the Lease Term a policy
or policies of insurance, at its sole cost and expense, insuring both Landlord
and Tenant against all claims, demands or actions arising out of or in
connection with Tenant's use or occupancy of the Demised Premises, the limits of
such policy or policies to be in an amount not less than $1,000,000.00 in
respect of injuries to or death of any one person, and in an amount not less
than $5,000,000.00 in respect of any one accident or disaster, and in an amount
not less than $1,000,000.00 in respect of property damaged or destroyed, and to
be written by insurance companies satisfactory to Landlord. In addition, Tenant
shall provide products liability and completed operations coverage in an amount
not less than $1,000,000.00. Tenant shall obtain a written obligation on the
part of each insurance company to notify Landlord at least ten (10) days prior
to cancellation of such insurance. Such policies or duly executed certificates
of insurance shall be promptly delivered to Landlord and renewals thereof as
required shall be delivered to Landlord at least thirty (30) days prior to
cancellation or the expiration of the respective policy terms of such insurance.
If Tenant should fail to comply with the foregoing requirements relating to
insurance, Landlord may obtain such insurance and Tenant shall pay to Landlord
on demand as additional rent hereunder the premium cost thereof plus ten percent
(10%) as an administrative fee to Landlord plus interest at the maximum
contractual rate (but in no event to exceed 1 1/2% per month) from the date of
payment by Landlord until repaid by Tenant.
13.3 Tenant agrees to maintain and keep in force, during the Lease Term,
all workers' compensation insurance required under applicable Worker's
Compensation Acts.
ARTICLE XIV. NON-LIABILITY FOR CERTAIN DAMAGES
14.1 Landlord and Landlord's agents and employees shall not be liable to
Tenant for any injury to person or damage to property caused by the Demised
Premises or other portions of the Shopping Center becoming out of repair or by
defect or failure of any structural element of the Demised Premises or of any
equipment pipes or wiring, or broken glass, or by the backing up of drains, or
by gas, water, steam, electricity or oil leaking, escaping or flowing into the
Demised Premises, nor shall Landlord be liable to Tenant for any loss or damage
that may be occasioned by or through the acts or omissions of other tenants of
the Shopping Center or of any other persons whomsoever, excepting only duly
authorized employees and agents of Landlord.
14.2 Tenant and its agent and employees shall not be liable to Landlord for
any injury to person or damage to property caused by the Demised Premises or
other portions of the Shopping Center becoming out of repair or by defect or
failure of any structural element of the Demised Premises or of any equipment,
pipes or wiring, or broken glass, or by the backing up of drains, or by gas,
<PAGE>
water, steam, electricity or oil leaking, escaping or flowing into the Demised
Premises, nor shall Tenant be liable to Landlord for any losses or damage that
may be occasioned by or through the acts or omissions of other tenants of the
Shopping Center or of any other persons whomsoever, excepting only duly
authorized employees and agents of Tenant.
14.3 Landlord and Landlord's agents and employees shall not be liable to
Tenant or to Tenant's employees, agents or visitors, or to any other person
whomsoever, for any injury to person or damage to property on or about the
Demised Premises or the Common Area caused in whole or in part by the negligence
or misconduct os Tenant, its employees, subtenants, invitees, licensees or
concessionaires, or of any other person entering the Shopping Center under
express or implied invitation of Tenant, or arising out of the use of the
Demised Premises by Tenant or the conduct of its business therein, or arising
out of any breach or default by Tenant in the performance of its obligations
under this Lease; and Tenant hereby agrees to defend, indemnify and hold
Landlord harmless from any loss, expense or claim arising out of such damage or
injury.
14.4 Landlord and Tenant each hereby release the other from any and all
liability or responsibility to the other or to any other party claiming through
or under them by way of subrogation or otherwise, for any loss or damage to
property caused by a casualty which is insured under standard fire and extended
coverage insurance; provided, however, that this mutual waiver shall be
applicable only with respect to a loss or damage occurring during the time when
standard fire and extended coverage insurance policies contain a clause or
endorsement to the effect that any such release shall not adversely affect or
impair the policy or the right of the insured party to receive proceeds under
the policy.
ARTICLE XV. DAMAGES BY CASUALTY
15.1 Tenant shall give immediate written notice to Landlord of any damage
caused to the Demised Premises by fire or other casualty.
15.2 In the event that the Demised Premises shall be damaged or destroyed
by fire or other casualty insured under standard fire and extended coverage
insurance, and Landlord does not elect to terminate this Lease as hereinafter
provided, Landlord shall proceed with reasonable diligence, at its sole cost and
expense, to rebuild and repair the Demised Premises. In the event (a) the
Shopping Center shall be destroyed or substantially damaged by a casualty not
covered by Landlord's insurance or (b) the Shopping Center shall be destroyed
and untenantable to an extent in excess of fifty percent (50%) of the floor area
by a casualty covered by Landlord's insurance, or (c) the holder of a mortgage,
deed of trust or other lien on the Demised Premises at the time of the casualty
elects, pursuant to such mortgage, deed of trust or other lien, to require the
use of all or part of Landlord's insurance proceeds in satisfaction of all or
part of the indebtedness secured by the mortgage, deed of trust or other lien,
then Landlord may elect either to terminate this Lease or to proceed to rebuild
and repair the Demised Premises. Landlord shall give written notice to Tenant of
such election within sixty (60) days after the occurrence of such casualty, and
if it elects to rebuild and repair, shall proceed to do so with reasonable
diligence and at its sole cost and expense.
<PAGE>
15.3 Landlord's obligation to rebuild and repair under this Article XV
shall in any event be limited to restoring the Demised Premises to substantially
the condition in which the same existed prior to such casualty, exclusive of any
alterations, additions, improvements, fixtures and equipment installed by Tenant
or Landlord's Work, as described in Exhibit B, if any, to substantially the same
condition in which the same existed prior to the casualty, as the case may be.
Tenant agrees that promptly after completion of such work by Landlord, Tenant
will proceed with reasonable diligence and at Tenant's sole cost and expense to
restore, repair and replace all alterations, additional improvements, fixtures,
signs and equipment installed by Tenant, all items of Tenant's Work as described
in Exhibit: B.
15.4 Tenant agrees that during any period of reconstruction or repair of
the Demised Premises, it will continue the operation of its business within the
Demised Premises to the extent practicable. At Landlord's sole discretion,
during the period from the occurrence of the casualty until Landlord's repairs
are completed, the Minimum Guaranteed Rental shall be reduced to such extent as
may be fair and reasonable under the circumstances.
15.5 Tenant will secure at Tenant's sole cost Property Insurance Coverage
normally covered in a Fire and Extended Coverage Policy. This coverage is to
provide coverage for Tenant's equipment, fixtures, alterations and improvements
and/or betterments. Loss of rents coverage shall also be included.
ARTICLE XVI. EMINENT DOMAIN
16.1 If more than thirty percent (30%) of the floor area of the Demised
Premises should be taken for any public or quasi-public use under any
governmental law, ordinance or regulation or by right of eminent domain or by
private purchase in lieu thereof, this Lease, shall terminate and the rent shall
be abated during the unexpired portion of this Lease, effective on the date
physical possession is taken by the condemning, authority.
16.2 If less than thirty percent (30%)of the floor area of the Demised
Premises should be taken as aforesaid, this Lease shall not terminate, however,
the Minimum Guaranteed Rental (but not Percentage Rental) is payable hereunder
during the unexpired portion of this Lease in proportion to the area taken,
effective on the date physical possession is taken by the condemning authority.
Following such partial taking, Landlord shall make all necessary repairs or
alterations to the remaining premises or, if an Exhibit B is attached hereto,
all necessary repairs or alterations within the scope of Landlord's Work as
described in Exhibit B, as the case may be required to make the remaining
portions of the Demised Premises an architectural whole.
<PAGE>
16.3 If any part of the Common Area should be taken as aforesaid, this
Lease shall not terminate nor shall the rent payable hereunder be reduced,
except that either Landlord or Tenant may terminate .this Lease if the area of
the Common Area remaining following such taking plus any additional parking area
provided by Landlord in reasonable proximity to the Shopping Center shall be
less than seventy percent (70%) of the area of the Common Area immediately prior
to the taking. Any election to terminate this Lease in accordance with this
provision shall be evidenced by written notice of termination delivered to the
other party within thirty (30) days after the date physical possession is taken
by the condemning authority.
16.4 All compensation awarded for any taking (or the proceeds of private
sale in lieu thereof) of the Demised Premises or Common Area shall be the
property of Landlord, and Tenant hereby assigns its interest in any such award
to Landlord; provided, however, Landlord shall have no interest in any award
made to Tenant for Tenant ' s moving and relocation expenses or for the loss of
Tenant ' s fixtures and other tangible personal property if a separate award for
such items is made to Tenant.
ARTICLE XVII. ASSIGNMENT AND SUBLETTING
17.1 Notwithstanding the sale of franchises, Tenant shall not assign or in
any manner transfer this Lease or any estate or interest therein, or sublet the
Demised Premises or any part thereof, or grant any license, concession or other
right of occupancy of any portion of the Demised Premises without the prior
written consent of Landlord. Consent by Landlord to one or more assignments or
sublettings shall not operate as a waiver of Landlord's rights as to any
subsequent assignments and sublettings which will not be unreasonably withheld.
17.2 If Tenant is a corporation and if at any time during the Lease Term
the person or persons who own a majority of either the outstanding voting shares
or all outstanding shares of capital stock of Tenant at the time of the
execution of this Lease cease to own a majority of such shares (except as the
result of transfers by devise or descent), the loss of a majority of such shares
shall be deemed as assignment of this Lease by Tenant and therefore subject in
all respects to the provisions of. Section 17.1 above. The previous sentence
shall not apply, however, if at the time of the execution of this Lease, the
outstanding voting shares of capital stock of Tenant are listed on a recognized
security exchange or over-the-counter market.
17.3 Notwithstanding any assignment or subletting, Tenant and any guarantor
of Tenant's obligations under this Lease shall at all times remain fully
responsible and liable for the payment of the rent herein specified and for
compliance with all of its other obligations under this Lease (even if future
assignments and sublettings occur subsequent to the assignment or subletting by
Tenant and regardless of whether or not Tenant's approval has been obtained for
<PAGE>
such future assignments and sublettings). Moreover, in the event that the rental
due and payable by sublessee (or a combination of the rental payable under such
sublease plus any bonus or other consideration therefor or incident thereto)
exceeds the rental payable under this Lease or if with respect to a permitted
assignment, permitted license or other transfer by Tenant permitted by Landlord,
the consideration payable to Tenant by the assignee, licensee or other
transferee exceeds the rental payable under this Lease, then Tenant shall be
bound and obligated to pay Landlord all such excess rental and other excess
consideration within ten (10) days following receipt thereof by Tenant from such
sublessee, assignee, licensee or other transferee, as the case may be. Finally,
in any event of assignment or subletting, it is understood and agreed that all
rentals paid to Tenant by an assignee or sublessee shall be received by Tenant
in trust for Landlord, to be forwarded immediately to Landlord without offset or
reduction of any kind, and upon election by Landlord, such rentals shall be paid
directly to Landlord as specified in section 4.1 of this Lease (to be applied as
a credit and offset to Tenant's rental obligations.)
17.4 If this Lease is In fact a sublease, Tenant accepts this Lease subject
to all of the terms and conditions of the underlying Lease under which Landlord
holds the Shopping Center as lessee. Tenant covenants that it will do no act or
thing which would constitute a violation by Landlord of his obligation under
such underlying Lease; provided, however, that Tenant's agreement in this regard
is premised on Landlord's assurances to the effect that the terms of this Lease
do not violate such underlying Lease.
17.5 Tenant shall not mortgage, pledge or otherwise encumber its interest
in this Lease or in the Demised Premises.
17.6 In the event of the transfer and assignment by Landlord of its
interest in this Lease and in the Shopping Center to a person expressly assuming
Landlord's obligation under this Lease, Landlord shall thereby be released from
any further obligations hereunder, and Tenant agrees to look solely to such
successor in interest of Landlord for performance of such obligations. Any
security given by Tenant to secure performance of Tenant's obligations hereunder
may be assigned and transferred by Landlord to such successor in interest, and
Landlord shall thereby be discharged of any further obligation relating thereto.
ARTICLE XVIII. TAXES AND INSURANCE
18.1 Tenant shall be liable for all taxes levied against personal property
and trade fixtures placed by Tenant in the Demised Premises. If any such taxes
are levied against Landlord or Landlord's property, and if Landlord elects to
pay the same or if the assessed value of Landlord's property is increased by
inclusion of personal property and trade fixtures placed by Tenant in the
Demised Premises, and Landlord elects to pay the taxes based on such increase.
Tenant shall pay to Landlord upon demand that part of such taxes for which
Tenant is primarily liable hereunder.
<PAGE>
18.2 Except as provided in Section 18.1, Landlord shall pay or cause to be
paid all general real estate taxes, general and special assessments, parking
surcharges and other governmental charges (hereinafter collectively referred to
as the "General Taxes") levied against the Shopping Center for each real estate
tax year. Tenant shall pay to Landlord in addition to the rentals and other
charges prescribed in this Lease, its proportionate share of all General Taxes
levied against the Shopping Center. The proportionate share which is
attributable to the Demised Premises during any lease/tax year shall be the
product of the aggregate of General Taxes times a fraction of the numerator of
which is the total square feet included in the Demised Premises and the
denominator of which is the total ground floor area in the Shopping Center;
provided that, in no event shall such share be less than the amount specified in
Section 1.1 (m). Tenant shall make such payments to Landlord on demand, at
intervals not more frequent than monthly. See Section 18.5 for payment rights.
18.3 If at any time during the Lease Term, a tax or excise on rents or
other tax however described (except any franchise, estate, inheritance, capital
stock, income or excess profits tax imposed upon Landlord) is levied or assessed
against Landlord by any lawful taxing authority on account of Landlord's
interest in this Lease or the rents or other charges reserved hereunder, as a
substitute in whole or in part, or in addition to the General Taxes described in
section 18.2 above, Tenant agrees to pay to Landlord upon demand, and in
addition to the rentals and other charges prescribed in this Lease, the amount
of such tax or excise. In the event any such tax or excise is levied or assessed
directly against Tenant, then Tenant shall be responsible for and shall pay the
same at such times and in such manner as the taxing authority shall require. See
Section 18.5 for payment rights.
18.4 Landlord shall pay or cause to be paid all the premiums for liability
insurance, fire and extended coverage insurance, or both, carried by Landlord
covering the Shopping Center (hereinafter referred to as "Insurance Premiums").
Tenant shall pay to Landlord upon demand, and in addition to the rentals and
other charges prescribed in this Lease, its proportionate share of all Insurance
Premiums for insurance insuring the Shopping Center. The proportionate share
which is attributable to the Demised Premises during any lease/insurance year
shall be the product of the aggregate of Insurance Premiums times a fraction of
the numerator of which is. the total square feet included in the Demised
Premises and the denominator of which is the total ground floor are in the
Shopping Center at the tine the Insurance Premiums are due. Tenant shall make
such payments to Landlord on demand, at intervals not more frequent than
monthly. See Section 18.5 for payment rights.
<PAGE>
18.5 If at any time during the Lease Term Landlord has reason to believe
that at some time within the immediately succeeding twelve (12) month period
Tenant will owe Landlord a payment pursuant to one or more of the preceding
sections of this Article XVIII, Landlord may direct that Tenant prepay monthly a
prorata portion of the prospective future payment (i.e., the prospective future
payment divided by the number of months before the prospective future payment
will be due). Tenant agrees that any such prepayment directed by Landlord shall
be due and payable monthly on the same day that Minimum Guaranteed Rental is
due.
ARTICLE XIX. DEFAULT BY TENANT AND REMEDIES
19.1 The following events shall be deemed to be events of default by Tenant
under this Lease:
1) Tenant shall fail to pay any installment of rent or any other
obligations hereunder involving the payment of money and such failure
shall continue for a period of thirty (30) days after the date due .
(2) Tenant shall fail to comply with any term, provision or covenant of
this Lease other than as described in subsection (1) above and shall
not cure such failure within thirty (30) days after written notice
thereof to Tenant.
(3) Tenant or any guarantor of Tenant's obligations under this Lease shall
become insolvent, or shall make a transfer in fraud of creditors, or
shall make an assignment for the benefit of creditors.
(4) Tenant or any guarantor of Tenant's obligations under this Lease shall
file a petition under any section or chapter of the National
Bankruptcy Act, as amended, or under any similar law or statute of the
United States or any State thereof; or Tenant or any guarantor of
Tenant's obligations under this Lease shall be adjudged bankrupt or
insolvent in proceedings filed against: Tenant or any guarantor of
Tenant ' s obligations under this Lease thereunder.
(5) A receiver or trustee shall be appointed for the Demised Premises or
for all or substantially all of the assets of Tenant or. any guarantor
of Tenant's obligations under this Lease.
(6) Tenant shall desert or vacate or shall commence to desert or vacate
the Demised Premises or any substantial portion of the Demised
Premises or shall remove or attempt to remove, without the prior
written consent of Landlord, all or a substantial value of Tenant's
goods, wares, equipment, fixtures, furniture, or other personal
property.
(7) Tenant shall not do or permit to be done anything which creates a lien
upon the Demised Premises.
<PAGE>
Upon the occurrence of any such events of default, Landlord shall have the
option to pursue either of the following alternative remedies:
A. Without any notice or demand whatsoever. Landlord may take any one or
more of the actions permissible at law to insure performance by Tenant
of Tenant's covenants and obligations under this Lease. In this
regard, it is agreed that if Tenant deserts or vacates the Demised
Premises, Landlord may enter upon and take possession of the Demised
Premises in order to protect them from deterioration and continue to
demand from Tenant the monthly rentals and other charges provided in
this Lease, without any obligation to relet; but that if Landlord
does, at its sole discretion, elect to relet the Demised Premises,
such action by Landlord shall not be deemed as an acceptance of
Tenant's surrender of the Demised Premises unless Landlord expressly
notifies Tenant of such acceptance in writing pursuant to Subsection B
of this Section 19.1. Tenant hereby acknowledges that Landlord shall
otherwise be reletting as Tenant ' s agent and Tenant furthermore
hereby agrees to pay to Landlord on demand any deficiency that may
arise between the monthly rentals and other charges provided in this
Lease and that actually collected by Landlord. It is further agreed in
this regard that in the event of any default described in Subsection
(2) of this Section 19.1, Landlord shall have the right to enter upon
the Demised Premises by force if necessary without being liable for
prosecution of any claim for damages therefor, and do whatever Tenant
is . obligated to do under the terms of this Lease; and Tenant agrees
to reimburse Landlord on demand for any expenses which Landlord may
incur in thus effecting compliance with Tenant's obligations under
this Lease; and Tenant further agrees that Landlord shall not be
liable for any damages resulting to Tenant from such action.
B. Landlord, may terminate this Lease by written notice to Tenant, in
which event Tenant shall immediately surrender the Demised Premises to
Landlord, and if Tenant fails to do so. Landlord may, without
prejudice to any other remedy which Landlord may have for possession
or arrearages in rent (including any interest which may have accrued
pursuant to Article IV of this Lease), enter upon and take possession
of the Demised Premises and expel or remove Tenant and any other
person who may be occupying said premises or any part thereof, by
force if necessary without being liable for prosecution or any claim
for damages therefor. Landlord agrees to provide ten (10) days written
notice and Tenant hasten (10) days to correct, modify and make whole
<PAGE>
any obligation. Tenant hereby waives any statutory requirement of
prior written notice for filing eviction or damage suits for
nonpayment of rent. In addition, Tenant agrees to pay to Landlord on
demand the amount of all loss and damage which Landlord may suffer by
reason of any termination effected pursuant to this Subsection (7)B,
said loss and damage to be determined by either of the following
alternative measures of damage.
(i) Until Landlord is able, through reasonable efforts, the nature of
which efforts shall be at the sole discretion of Landlord, to
relet the Demised Premises, Tenant shall pay to Landlord on or
before the first day of each calendar month, the monthly rentals
and other charges provided in this Lease. After the Demised
Premises have been relet by Landlord, Tenant shall pay to
Landlord on the twentieth day of each calendar month the
difference between the monthly rentals and other charges provided
in this Lease for the preceding calendar month and that actually
collected by Landlord for such month. If it is necessary for
Landlord to bring suit in order to collect a deficiency, Landlord
shall have a right to allowsuch deficiencies to accumulate and to
bring an action on several or all of the accrued deficiencies at
one time. ' Any such suit shall not prejudice in any way the
right of Landlord to bring a similar action for any subsequent
deficiency or deficiencies. Any amount collected by Landlord from
subsequent tenants for any calendar month, in excess of the
monthly rentals and other charges provided in this Lease, shall
be credited to Tenant in reduction of Tenant's liability for any
calendar month for which the amount collected by Landlord will be
less than the monthly rentals and other charges provided in this
Lease; but Tenant shall have no right to such excess other than
the above described credit.
(ii) When Landlord desires. Landlord may demand a final settlement.
Upon demand for a final settlement, Landlord shall have a right
to, and Tenant hereby, agrees to pay, the difference between the
total of all monthly rentals, and Other charges provided in this
Lease for the remainder of the term and the reasonable rental
value of the Demised Premises for such period, such difference to
be discounted to present value at a rate equal to the rate of
interest which is allowed by law, in the state designated by
Section 27.10 of this Lease, when the parties to a contract have
not agreed on any particular rate of interest (or, in the absence
of such law, ac the rate of six percent (6%) per annum).
<PAGE>
If Landlord elects to exercise the remedy prescribed in
subsection (7) A above, this election shall in no wav prejudice
Landlord's right at any time thereafter to cancel said election
in favor of the remedy prescribed in Subsection (7) B above,
provided that at the time of such cancellation Tenant is still in
default. Similarly, if Landlord elects to compute damages in the
manner prescribed by Subsection (7) B (i) above, this election
shall in no way prejudice Landlord's right at any time thereafter
to demand a final settlement in accordance with Subsection (7) B
(ii) above. Pursuit of any of the above remedies shall not
preclude pursuit of any other remedies prescribed in other
sections of this Lease and any other remedies provided by law.
Forbearance by Landlord to enforce one or more of the remedies
herein provided upon an event of default shall not be deemed or
construed to constitute a waiver of such default.
19.2 It is expressly agreed that in determining "the monthly rentals and
other charges provided in this Lease, "as that term is used throughout
Subsection (7) A and (7) B of Section 19.1 of the Lease, there shall be added to
the Minimum Guaranteed Rental (as specified in Section 1.1 (j) of this Lease) a
sum equal to the charges for maintenance of the Common Area (as specified ir
Section 6.4 of this Lease), the charges for taxes and insurance (as specified in
Article XVIII of the Lease) plus one twenty-fourth (1/24) of the total of all
percentage rentals required to be paid by Tenant (pursuant to Section 4.3 .and
4.4 of this Lease) because of Gross Sales during the two full calendar years
immediately preceding the date Landlord initiated action pursuant to said
subsection (or, if two full calendar years have not then elapsed, to the
corresponding fraction of all percentage rentals required to be paid because of
Gross Sales during the period commencing with the Commencement Date of this
Lease and concluding with the date on which Landlord initiated such action).
19.3 It is further agreed that, in addition to payments required pursuant
to Subsections (7) A and (7) B of Section 19.3 of this Lease, Tenant shall
compensate Landlord for all reasonable expenses incurred by Landlord in
repossession (including among other expenses, any increase in Insurance Premiums
caused by the vacancy of the Demised Premises), all expenses incurred by
Landlord in reletting (including among other expenses, repairs, remodeling,
replacements, advertisements and brokerage fees), all concessions granted to a
new tenant upon reletting (including among other concessions, renewal options),
all losses incurred by Landlord as a direct or indirect result of Tenant's
default (including among other losses, any adverse reaction by Landlord's
mortgagee or by other tenants or potential tenants of the Shoppins Center), and
a reasonable allowance for Landlord's administrative efforts, salaries and
overhead attributable directly or indirectly to Tenant's default and Landlord's
pursuing the rights and remedies provided herein and under applicable law.
<PAGE>
19.4 Landlord may restrain or enjoin any breach or threatened breach of any
covenant, duty or obligation of Tenant, herein contained without the necessity
of or proving the inadequacy of any legal remedy or irreparable harm. The
remedies of Landlord hereunder shall be deemed cumulative and not exclusive of
each other.
19.5 If on account of any breach or default by Tenant in its obligations
hereunder. Landlord shall employ an attorney is present, enforce or defend any
of Landlord's rights or remedies hereunder. Tenant agrees to pay any reasonable
attorney's fees incurred by Landlord in such connection.
19.6 Landlord hereby acknowledges receipt from Tenant of the sum stated in
Section 1.1 (n), to be applied to the last accruing installment of rent.
Landlord further acknowledges receipt from Tenant of the sum stated in Section
1.1 (o) to be held by Landlord without interest as security for the performance
by Tenant of Tenant's covenants and obligations under this Lease, it being
expressly understood that such deposit may be commingled with Landlord ' s other
funds and is not an advance payment of rental or a measure of Landlord's damages
in case of default by Tenant. Upon the occurrence of any event of default by
Tenant, Landlord may, from time to time, without prejudice to any other remedy
provided herein or provided by law, use such funds to the extent necessary to
make good any arrears of rentals and any other damages, injury, expense or
liability caused to Landlord by such event or default, and Tenant shall pay to
Landlord on demand the amount so applied in order to restore the security
deposit to its original amount. If Tenant is not then in default hereunder, any
remaining balance of such deposit shall be returned by Landlord to Tenant upon
termination of this Lease (subject to the provisions of Section 17.5).
ARTICLE XX. LANDLORD'S CONTRACTUAL SECURITY INTEREST
20.1 In addition to the statutory Landlord's Lien, Landlord shall have at
all times a valid security interest to secure payment of all rentals and other
sums of money becoming due hereunder from Tenant and to secure payment of any
damages or losses which Landlord may suffer by reason of the breach by Tenant of
any covenant, agreement or. condition contained herein, upon all goods, wares,
equipment, fixtures, furniture, improvements and other personal property of
Tenant presently, or which may. hereafter be, situated on the Demised .Premises,
and all proceeds. therefrom,, .and such property shall not be removed without
the consent of Landlord until all arrearages in rent as well as any and all
other sums of money then due to Landlord or to become due to Landlord hereunder
shall first have been paid and discharged and all the covenants, agreements and
conditions hereof have been. fully complied with and performed by Tenant. Upon
the occurrence of an event of default by Tenant, Landlord may, in addition to
any other remedies provided, enter upon the Demised Premises and take possession
of any and all goods, wares, equipment, fixtures, furniture, improvements and
other personal property of Tenant situated on the Demised Premises, without
liability for trespass or conversion, and sell the same at public or private
sale, with or without having such property at the sale, after giving Tenant
reasonable notice of the time and place of any public sale or of the time after
which any private sale is to be made, at which sale Landlord or its assigns may
purchase unless otherwise prohibited by law. Unless otherwise provided by law,
and without intending to exclude any other manner of giving Tenant reasonable
noticed the requirement of reasonable notice shall be met if such notice is
<PAGE>
given in the manner prescribed in this Lease at least seven (7) days before the
time of sale. Any sale made pursuant to the provision of this paragraph shall be
deemed to have been a public sale conducted in a commercially reasonable manner
if held in the above described premises or where the property is located after
the time, and place and method of sale and a general description of the types of
property to be sold have been advertised in a daily newspaper published in the
county in which the property is located for five (5) consecutive days before the
date of the sale. The proceeds from any such disposition, less any and all
expenses connected with the taking of possession, holding and selling of the
property (including reasonable attorney's fees and legal expenses), shall be
applied as a credit against the indebtedness secured by the security interest
granted in this paragraph. Any surplus shall be paid to Tenant or as otherwise
required by law; Tenant shall pay any deficiencies forthwith. Upon request by
Landlord, Tenant agrees to execute and deliver to Landlord a financing statement
in form sufficient to perfect the security interest of Landlord in the
aforementioned property and proceeds thereof under the provision of the Uniform
Commercial Code (or corresponding state statute or statutes) in force in the
state in which the property is located, as well as any other state the laws of
which Landlord may at any time consider to be applicable.
20.2 Notwithstanding Section 20.1, Landlord agrees that it will subordinate
its security interest and Landlord's Lien to the security interest of Tenant's
supplier or institutional financial source, provided that Landlord approves the
transaction as being reasonably necessary for Tenant's operations at the Demised
Premises, and further provided that the subordination must be limited to a
specified transaction and specified items of the fixtures, equipment or
inventory involved in the transaction.
ARTICLE XXI. HOLDING OVER
21.1 In the event Tenant remaining in possession of the Demised Premises
after the expiration of this Lease and without the execution of a new lease, it
shall be deemed to be occupying the Demised Premises as a tenant from month to
month at a monthly rental rate equal to the current Minimum Guaranteed Rental
plus other charges (including any Percentage Rental) herein provided plus fifty
percent (50%) of such amount and otherwise subject to all the conditions,
provisions and obligations of this Lease insofar as the same are applicable to a
month to month tenancy.
<PAGE>
ARTICLE XXII. SUBORDINATION AND ATTORNMENT
22.1 Tenant accepts this Lease subject and subordinate to any mortgage,
deed of trust or other lien presently existing or hereafter placed upon the
Demised Premises or the Shopping Center as a whole and to any renewals and
extensions thereof. Tenant agrees that any such mortgagee shall have the right
at any time to subordinate such mortgage, deed of trust or other lien to this
Lease; provided, however, notwithstanding that this Lease may be (or made to be)
superior to mortgage, deed of trust or other lien, the provisions of mortgage,
deed of trust or other lien relative to the rights of the mortgagee with respect
to proceeds arising from an eminent domain taking (including a voluntary
conveyance by Landlord) and/or arising from insurance payable by reason of
damage to or destruction of the Demised Premises shall be prior and superior to
any contrary provisions contained in this instrument with respect to the payment
or usage thereof. Landlord is hereby irrevocably vested with full power and
authority to subordinate this Lease to any mortgage, deed of trust or other lien
hereafter placed upon the Demised Premises or the Shopping Center as a whole,
and Tenant agrees upon demand to execute such further instruments subordinating
this Lease as Landlord may request; provided, however, that upon Tenant's
written request and notice to Landlord, Landlord shall use good faith efforts to
obtain from any such mortgagee a written agreement that the rights of Tenant
shall remain in full force and effect during the Lease Term as long as Tenant
shall continue to recognize and perform all of the covenants and conditions of
this Lease.
22.2 At any time when the holder of an outstanding mortgage, deed of trust
or other lien covering Landlord's interest in the Demised Premises has given
Tenant written notice of its interest in this Lease, Tenant may not exercise any
remedies for default by Landlord hereunder unless and until the holder of the
indebtedness secured by such mortgage, deed of trust or other lien shall have
received written notice of such default and a reasonable time for curing such
default shall thereafter have elapsed.
22.3 Tenant agrees that it will from time to time upon request by Landlord
execute and deliver to Landlord a written statement addressed to Landlord (or to
a party designated by Landlord), which statement shall identify Tenant and this
Lease, shall certify that this Lease is unmodified and in full force and effect
(or if there have been modifications, that the same is in full force and effect
as so modified), shall confirm that Landlord, is not in default as to any
obligations of Landlord under this Lease (or if Landlord Is in. default,
specifying any default.), shall confirm Tenant's agreements contained above in
this Article XXII, shall confirm the Commencement and Termintion Dates of this
Lease, and shall contain such other information or confirmations as Landlord may
reasonably require. Landlord is hereby irrevocably appointed and authorized as
the agent and attorney-in-fact of Tenant to execute and deliver any such written
statement on Tenant's behalf if Tenant fails to do so within seven (7) days
after the delivery of a written request from Landlord to Tenant. Landlord may
treat such failure as an event of default.
<PAGE>
22.4 Tenant shall attorn to and be bound to any of Landlord's successors
under all the terms, covenants and conditions of this Lease for the balance of
any remaining Lease Term.
ARTICLE XXIII. MERCHANTS ASSOCIATION
23.1 In the event that Landlord shall organize a merchants association
composed of tenants in the Shopping Center, Tenant agrees that it will join and
maintain membership in such association, will pay such dues and assessments as
may be fixed and determined from time to time by the association and will comply
with such other bylaws, rules and regulations as may be adopted from time to
time by the association.
ARTICLE XXIV. DIRECTION OF TENANT'S ENERGIES
24.1 Tenant acknowledges that Tenant's monetary contribution to Landlord
(in the form of rentals) and Tenant's general contribution to commerce within
the Shopping Center (also important in Landlord's determination to execute this
Lease with Tenant) will be substantially reduced if during the Lease Term,
either Tenant or any person, firm or corporation, directly or indirectly
controlling, controlled by or under common control with Tenant shall directly or
indirectly operate, manage, conduct or have any interest in any establishment
within commercial proximity of the Shopping Center. Accordingly, Tenant agrees
that during the Lease Term neither Tenant nor any person, firm or corporation,
directly or indirectly controlling, controlled by or under common control with
Tenant (and also, in the event Tenant is a corporation, if any officer or
director thereof or shareholder owning more than ten percent (10%) of the
outstanding stock thereof, or parent, subsidiary or related or affiliated
corporation) shall directly or indirectly operate, manage, conduct or have any
interest in any commercial establishment within three (3) miles of the Shopping
Center, except that any such commercial establishment existing at the date of
this Lease may continue to be operated, managed, conducted and owned in the same
manner as on the date of this Lease, provided there is no change in the size or
trade name of such commercial establishment.
ARTICLE XXV. NOTICES & CORRESPONDENCE
25.1 Wherever, any notice or correspondence is required or permitted
hereunder, such notice shall be in writing. Any notice or document required or
permitted to be delivered hereunder shall be deemed to be delivered when
actually received by the designated addressee or, if earlier and regardless of
whether actually received or not, when deposited in the United States Mail,
postage prepaid, Certified Mail, Return Receipt Requested, addressed to the
parties hereto at the respective addresses set out below:
<PAGE>
LANDLORD: Wal-Mart Stores, Inc.
Attn: Property Management 8707
701 S. Walton Boulevard
Bentonville, AR 72716-8707
TENANT: The Travel Network
Attn: Michael Brent
560 Sylvan. Ave.
Englewood Cliffs, NJ 07632
cc: Attorney Harold Kestenbaum
170 Old Country Rd.
Mineola, NY 115 01
or at such other addresses as they have theretofore specified by written notice.
25.2 If and when included within the term "Landlord", as used in this
instrument, there are more than one person, firm or corporation, all shall
jointly arrange among themselves for their joint execution of such notice
specifying some individual at some specific address for the receipt of notices
and payments to Landlord; if and when included within the term "Tenant", as used
in this instrument, there are more than one person, firm or corporation, all
shall jointly arrange among themselves for their joint execution of such a
notice specifying some individual at some specific address for the receipt of
notices and payments to Tenant. All parties included within the terms "Landlord"
and "Tenant", respectively, shall be bound by notices and payments given in
accordance with the provisions of this Article to the same effect as if each had
received such notice or payment.
ARTICLE XXVI. REGULATIONS
26.1 Landlord and Tenant acknowledge that there are in effect federal,
state, county and municipal laws, orders, rules, directives and regulations
(collectively referred to hereinafter as the "Regulations") and that additional
Regulations may hereafter be enacted or go into effect, relating to or affecting
the Demised Premises or the Shopping Center, and concerning the impact on the
environment of construction, land use, maintenance and operation of structures,
and conduct of business. Subject to the express rights granted to Tenant under
the terms of this Lease, Tenant will not cause, or permit to be caused, any act
or practice, by negligence, omission,, or otherwise, that would adversely affect
the environment, or do anything to permit anything to be done that would violate
any of said laws, regulations, or guidelines. Moreover, Tenant shall have no
claim against Landlord by reason of any changes Landlord may make in the
Shopping Center or the Demised Premises regulations or any charges imposed upon
customers or other invitees pursuant to same.
26.2 If by reason of any Regulations the payment to or collection by
Landlord of any rental or other charges (collectively ,referred to hereinafter
as "Lease Payments") payable by Tenant: to Landlord pursuant to the provisions
of this Lease is in excess of the amount permitted therefor by the Regulations
(the "Maximum Charge"), then Tenant, during the period when the Regulations
<PAGE>
shall be in force and effect (the "Freeze Period") shall not be required to pay,
nor shall Landlord be permitted to collect, any sum in excess of the Maximum
Charge. Upon the earlier of (i) the expiration of the Freeze Period or (ii) the
issuance of a final order or judgment of a court of competent jurisdiction
declaring the Regulations to be invalid or not applicable to the provisions of
this Lease, Tenant, to the extent not then prescribed by law, and commencing
with the first day of the month immediately following, shall pay to Landlord as
additional rental, in equal monthly installments during the balance of the Lease
Term, a sum equal to the cumulative difference between the Maximum Charge and
the Lease Payments during the Freeze Period. If any provisions of this Section
26.2, or the application thereof, shall to any extent be declared to be invalid
and unenforceable, the same shall not be deemed to affect any of. the other
provisions of this Section 26.2 or of this Lease, all of which shall be deemed
valid and unenforceable to the fullest extent permitted by law.
ARTICLE XXVII. MISCELLANEOUS
27.1 Nothing herein contained shall be deemed or construed by the parties
hereto, nor by any third party, as creating the relationship of principal and
agent or of partnership or of joint venture between the parties hereto, it being
understood and, agreed that neither the method of computation of rent, nor any
other provision contained herein, nor any acts of the parties hereto, shall be
deemed to create any relationship between the parties hereto other than the
relationship of Landlord and Tenant.
27.2 Tenant shall not for any reason withhold or reduce Tenant's required
payments of rentals and other charges provided in this Lease, it being agreed
that the obligations of Landlord hereunder are independent of Tenant ' s
obligations except as may be otherwise expressly provided. In this regard it is
specifically understood and agreed that in the event Landlord commences any
proceedings against Tenant for nonpayment of rentals or any other sum due and
payable by Tenant hereunder. Tenant will not interpose any counterclaim or other
claim against Landlord of whatever nature or description in any such
proceedings; and in the event that Tenant interposes any such counterclaim or
other claim against Landlord in such proceedings. Landlord and Tenant stipulate
and agree that, in addition to any other lawful remedy of Landlord, upon motion
of Landlord, such counterclaim or other claim asserted by Tenant shall be
severed out of the proceedings instituted by Landlord. Landlord may proceed to
final judgment separately and apart from and without consolidation with or
reference to the status of such counterclaim or any other claim asserted by
Tenant.
27.3 The liability of Landlord to Tenant for any default by Landlord under
the terms of this Lease shall be limited to the proceeds of sale on execution of
the interest of Landlord in the Demised Premises; and Landlord shall not: be
personally liable for any deficiency, except that Landlord shall, subject to the
provisions of Section 17.5 hereof, remain personally liable to account to Tenant
for any security deposited hereunder. This clause shall not be deemed to limit
or deny any remedies which Tenant may have in the event of default by Landlord
hereunder, which do not involve the personal liability of Landlord.
<PAGE>
27.4 Except as may be otherwise herein provided, in all circumstances under
this Lease where prior consent or permission of one party ("First Party"),
whether it be Landlord or Tenant, is required before the other party ("Second
Party") is authorized to cake any particular type of action, the matter of
whether to grant such consent or permission shall be within the sole and
exclusive. judgment and discretion of the First Party; and it shall not
constitute any nature of breach by the First Party hereunder or any defense to
the performance of any covenant, duty or obligation of the Second Party
hereunder that the First Party delayed or withheld the granting of such consent
or permission, whether or not the delay or withholding of such consent or
permission was, in the opinion of the Second Party, prudent or reasonable or
based on good cause.
27.5 One or more waivers of any covenant, term, or condition of this Lease
by either party shall not be construed as a waiver of a subsequent breach of the
same covenant, term or condition. The consent or approval by either party to or
of any act by the other party requiring such consent or approval shall not be'
deemed to waive or render unnecessary consent to or approval of any subsequent
similar act.
27.6 Whenever a period of time is herein prescribed for action to be taken
by Landlord, Landlord shall not be liable or responsible for, and there shall be
excluded from the computation of any such period of time, any delays due to
strikes, riots, acts of God, shortages of labor or materials, war, governmental
laws, regulations or restrictions or any other causes of any kind whatsoever
which are beyond the reasonable control of Landlord.
27.7 The laws of the state in which the Demised Premises are located shall
govern the interpretation, validity, performance and enforcement of this Lease.
If any provision of this Lease should be held to be invalid or unenforceable,
the validity and enforceability of the remaining provisions of this Lease shall
.not be affected thereby. Venue, for any action under this Lease, shall be the
county in which rentals are due pursuant to Section 4.1 and Section I.I of this
Lease.
27.8 The captions used herein are for convenience only and do not limit or
amplify the provisions hereof.
27.9 Whenever here the singular number is used, the same shall include the
plural, and words of any gender shall include each other gender.
<PAGE>
27.10 The terms, provisions and covenants contained in this Lease shall
apply to, inure to the benefit of and be binding upon the parties hereto and
their respective heirs, successors in interest and legal representatives except
as otherwise herein expressly provided.
27.11 This Lease contains the entire agreement between the parties, and no
agreement shall be effective to change, modify or terminate this Lease in whole
or in part unless such is in writing and duly signed by the party against whom
enforcement of such change, modification or termination is sought. Landlord and
Tenant hereby acknowledge that they are not relying on any representation or
promise of the other, or of the Agent or Cooperating Agent, except as maybe
expressly set forth in this Lease. Oral agreements in conflict with any of the
terms of this Lease shall be without force and effect.
27.12 This Lease consists of twenty-seven (27) Articles and ____ attached
pages, including Exhibits A through E (any space left blank will be deemed to
have been completed with the word "none"). With the exception of Article VI, in
the event any provision of an Exhibit or other attached page shall be
inconsistent with a provision in the body of the Lease, the provision as set
forth in the Exhibit shall be deemed to control.
27.13 Notwithstanding anything herein to the contrary, it is specifically
agreed between Landlord and Tenant that if Tenant's quality of merchandise,
method of operation or merchandise variety is not sufficient in the sole
discretion of Landlord, then Landlord shall give Tenant written notice of the
deficiencies and Tenant shall have thirty(30) days to correct the deficiencies,
and if the deficiencies are not corrected in the sole discretion of Landlord,
then Landlord may cancel this Lease by giving Tenant ten (10) days notice to
vacate the Demised Premises within which time Tenant shall vacate the premises
and Landlord shall also have the right, but not the obligation, to purchase from
Tenant all or some of the following:
A. The leasehold improvements made by Tenant Upon the Demised Premises at
book value less straight-line depreciation based on a ten (10) year
life; and
B. Any of the merchandise, equipment, furniture or fixtures of Tenant
located upon. the Demised Premises at Tenant's net invoice cost,
provided that Tenant shall. be required to substantiate said net
invoices. In the event Landlord elects to terminate the Lease and
exercise, the right, to purchase from Tenant any of .the items set
forth above, all inventory of all improvements, merchandise,
equipment, furniture or fixtures (hereinafter referred to as "Goods")
to be purchased by Landlord shall be made thirty-one (31) days
following the date of Landlord's notice of termination. The inventory
shall be pursuant to inventory procedures mutually agreed upon by the
parties hereto. The cost of the inventory shall be borne by Landlord.
Landlord shall not accept, purchase, nor include in inventory the
following:
<PAGE>
1. Any merchandise which has been repackaged or is not in its
original container.
2. Any merchandise which is discolored, opened or has its packaging
defaced in any manner.
3. Any equipment, furniture or fixtures which is damaged and
unusable.
4. Support facilities and systems.
5. Valuation.
27.14 Notwithstanding anything herein to the contrary. Tenant agrees to the
cancellation of this Lease and agrees to vacate the Demised Premises, on the
date the Shopping Center ceases doing business in and at that location.
27.15 Notwithstanding anything herein to the contrary, it is further agreed
and understood that Landlord shall have the option for one hundred and twenty
(120). days prior to the expiration of the Lease Term to terminate the Lease.
Landlord may exercise this option by giving Tenant written notice of termination
pursuant to Article XXV of this Lease. If Landlord exercises this option, it
shall also have the right but pot the obligation to purchase from Tenant all or
some of the following.
A. The leasehold improvements made by Tenant upon the Demised Premises
at: book value less straight line depreciation based on a ten(10) year
life, and
B. Any of the merchandise, consumable supplies, equipment, furniture or
fixtures of Tenant located upon the Demised Premises at Tenant's net
invoice cost. Landlord shall also pay Tenant an amount equal to three
percent (3%) of Tenant's Gross Sales for the twelve (12) month period
preceding Landlord's exercise of this option. If Tenant has not been
in operation for a twelve-month period, Landlord will pay three
percent (3%) of the Gross Sales for the period Tenant has been in
operation. In the event Landlord elects to terminate the Agreement and
exercise the right to purchase, from Tenant any of the' items set
forth above, all inventory of all improvements, merchandise,
equipment, furniture or fixtures (hereinafter referred to as "Goods")
to be purchased by Landlord shall be made thirty-one (31) days
following the date of Landlord's notice of termination. The inventory
shall be pursuant to inventory procedures mutually agreed upon by the
parties hereto. The cost of the inventory shall be borne by Landlord.
Landlord shall not accept, purchase, nor include in inventory the
following:
<PAGE>
1. Any merchandise which has been repackaged or is not in its
original container.
2. Any merchandise which is discolored, opened or has its packaging
defaced in any manner.
3. Any equipment, furniture or fixtures which is damaged and
unusable.
4. Support facilities and systems.
5. Valuation.
The transfer of Goods shall take place on the Inventory Date, and the Bill
of Sale shall bear that date. Payment for the Goods, however, shall not be made
earlier than thirty-one (31) days thereafter in conformity with the provisions
of the Bulk Sales Act (which date shall hereinafter be referred to as the
"Closing Date").
The purchase price shall be used first to pay all creditors of Tenant ' s
current business operation on the Demised Premises. The balance of the purchase
price shall be paid to Tenant. If the purchase price is insufficient to pay all
creditors, all secured creditors shall be paid in full, then all unsecured
creditors shall receive a prorata share of the balance. Tenant shall be
responsible for any and all debts in excess of the purchase price, and Landlord
shall take the Goods free of same.
Pursuant to the provisions of the Bulk Sales Act, Landlord shall have the
right to withhold such payment and deliver same or portions thereof to those
individuals entitled thereto as set forth on the Bulk Sales Transfer Form
(hereinafter "Form"). Tenant shall prepare and provide to Landlord such Form and
list thereon all of its existing creditors, including each creditor's name,
address and the amount owed, if known. Such Form shall also, contain the name
and address of all persons known to Tenant to assert claims against it even
though such claims are disputed. In addition, the Form shall be dated, signed by
Tenant and notarized. Further, Landlord and Tenant shall prepare a Schedule of
Goods Transferred (the "Schedule") which contains information sufficient to
identify said Goods. Landlord must preserve the Form and Schedule for six (6)
months following the transfer and permit inspection of either or both and
copying therefrom at all reasonable hours by any creditor of Tenant. In
addition. Landlord shall provide written .notice of this transfer to each listed
creditor of Tenant in compliance with he State Bulk Sales Laws. If Landlord
exercises its option to terminate the Lease, Tenant agrees that it will, prior
to the date it vacates the Demised Premises, take whatever steps are necessary
to have the telephone number for the Demised Premises transferred by the local
telephone company from its name to that of Landlord.
<PAGE>
EXECUTED AS OF THE DATE HEREINABOVE STATED.
WITNESS: LANDLORD: WAL-MART STORES, INC.
Title: Director Wal-Mart Realty
/s/ /s/
- ------------------------- ----------------------------------
WITNESS: TENANT:/S/
---------------------------
/s/ TRAVEL NETWORK. LTD.
- ------------------------- ----------------------------------
KATHERINE M. CARRAJAL Title: President 7/17/96
--------------------------
<PAGE>
EXHIBIT A*
CONSTRUCTION AND ACCEPTANCE OF DEMISED PREMISES
1. Subject to the provisions below. Landlord agrees that it will proceed to
construct a store unit upon the Demised Premises as shown and outlined on the
plan attached hereto as Exhibit D, in compliance with the "Description of
Landlord's Work" in Exhibit B attached hereto, with such minor variations as
Landlord may deem advisable, and tender the Demised Premises to Tenant. The
Demised Premises shall be deemed to be "ready for occupancy" when Landlord's
Work on the Demised Premises as described in Exhibit B (except for minor
finishing jobs) has been substantially completed. If Landlord should for any
reason fail to complete such work prior to the Estimated Completion Date,
Landlord shall not be deemed to be in default hereunder or otherwise liable in
damages to Tenant, nor shall the Lease Term be affected, except that if for any
reason the Demised Premises are not ready for occupancy within eighteen (18)
months following the Estimated Completion Date, Tenant may, at its option,
cancel and terminate this Lease by written notice to Landlord delivered within
thirty (30) days following the expiration of such eighteen (18) month period, in
which event neither party shall have any further liabilities or obligations
hereunder, except that Landlord shall repay to Tenant any prepaid rent or
security deposit. When the Demised Premises are ready for occupancy (which,
unless Tenant objects and Wal-Mart Staff Architect or General Contractor fails
to certify to the date selected by Landlord, shall be the date Landlord delivers
to Tenant the keys for the Demised Premises with a statement to the effect that
they are ready for occupancy), Tenant agrees to accept possession thereof and to
proceed with due diligence to perform the work described under "Description of
Tenant's Work" in Exhibit B, and to install its fixtures, furniture and
equipment. In the event of any dispute as to work performed or required to be
performed by Landlord or Tenant, the certificate of Wal-Mart Staff Architect or
General Contractor shall be conclusive. By occupying the Demised Premises,
Tenant shall be deemed to have accepted the same and to have acknowledged that
the same fully comply with Landlord's covenants and obligations hereunder.
2. Tenant agrees to-open the Demised Premises to the public simultaneously
with the host "Soft Opening". Soft opening is defined as the first day the host
will be open to the: public and will be termed "Commencement Date". The premises
will be ready for occupancy during the construction period. Landlord and Tenant
each agree that prior to the Commencement Date, (termed "Possession Date") to
execute and deliver a recordable short form lease containing the basic
provisions of this Lease, acknowledging that Tenant has accepted possession, and
reciting the exact Commencement Date and Termination Date of this Lease.
<PAGE>
3. Tenant agrees to participate in a joint opening of the Shopping Canter
if requested to do so by Landlord.
4. Landlord shall not be obligated to proceed with construction on the
Demised Premises unless and until financing acceptable to Landlord is obtained.
Unless commitments for such financing satisfactory to Landlord have been
obtained and all conditions to such commitments (other than construction of the
shopping Center) shall have been fulfilled within twelve (12} months following
the Estimated Completion Date, Landlord may so notify Tenant in writing within
thirty (30) days following the expiration of such twelve (12) month period, and
this Lease shall thereupon cease and terminate and each of the parties hereto
shall be released and discharged from any and all liability and responsibility
hereunder. If Landlord can obtain financing only upon the basis of modification
of the terms and provisions of this Lease, Landlord shall have the right to
cancel this Lease if Tenant refuses to approve in writing any such modification
within the fifteen (15) days after Landlord's request therefor. If such right to
cancel is exercised, this Lease shall thereafter be null and void, any security
deposited hereunder shall be returned to Tenant, and neither party shall have
any liability to the other by reason of such cancellation.
* To be attached to Shopping Center Lease, and to be incorporated
and made a part: thereof if said agreement provides for a
building to be constructed by Landlord for Tenant.
INITIALED:
LANDLORD /S/
---------------------
TENANT /S/
---------------------
<PAGE>
EXHIBIT B
STORE CONDITION
Wal-Mart Shopping Center License Agreement will deliver the location, tile
floor, painted walls, recess lighting and store gate* Electricity and telephone
are the responsibility of Tenant.
<PAGE>
EXHIBIT C
RENEWAL OPTION
Tenant is granted the option (s) to extend the term of this Lease for One
(1) consecutive term of Three (3) years followed by One (1) consecutive term of
Five (5) years, provided (a) Tenant is not in default at the time of exercise of
the respective option, (b) Tenant gives written notice, pursuant to Article XXV
of this Lease, of its exercise of the respective option at least one hundred
eighty (180) days prior to the expiration of the original Lease Term or the
expiration of the then existing term and (c) Landlord does not elect to buy out
Tenant pursuant to Section 27.15 of the Lease. Each extension term shall be upon
the same terms, conditions and rentals, except (i) Tenant shall have no further
right of renewal after the last of the extension terms prescribed above and (ii)
the monthly Minimum Guaranteed Rental and other charges shall be as set out
below.
INITIALED:
LANDLORD /S/
---------------------
TENANT /S/
---------------------
<PAGE>
WAL*MART
- -------------------------------------------------------------------------------
WAL-MART STORES. INC. - 701 SOUTH WALTON BLVD. - BENTONVILLE,AR 72716
August 21,19S6
Michael Brent
Travel Network
560 Sylvan Avenue
Englewood Cliffs, NJ 07632
Dear Michael,
This is to clarify that in Exhibit C of the lease between Wal-Mart Stores Inc,
and Travel Network, LTD Renewal Option 1 pertains to years 3,4 and 5 of the
lease. Renewal Option 2 pertains to years 6,7,8,9,and 10 of the lease.
Please contact me with any questions you may have.
/s/ Denise West
DeniseWest
Leasing Manager
<PAGE>
WAL-MART SUBLEASE AGREEMENT
---------------------------
<PAGE>
TRAVEL NETWORK, LTD
LICENSE AGREEMENT
SUBLEASE AGREEMENT
------------------
THIS SUBLEASE made as of this ___ day of___________, 19__ ("Sublease"), by
and between Travel Network, Ltd., a New Jersey corporation having its office at
560 Sylvan Avenue, Englewood Cliffs, New Jersey 07632 (hereinafter "Sublessor"),
and _______________________, having his/her principal residence at
_______________ _______________(hereinafter "Sublessee"):
1. Sublease:
--------
(a) This Sublease is subject to and subordinate in all respects to the
Wal-Mart Shopping Center Lease Agreement (hereinafter "Head Lease") heretofore
entered into between the Sublessor herein as the Lessee and Wal-Mart Stores,
Inc., as the Lessor, a copy of which Head Lease in is attached hereto as Exhibit
"A"; and by this reference made a part hereof as if fully set forth herein.
(b) Sublessee agrees that nothing herein contained shall be deemed to grant
Sublessee any rights which would conflict with any of the covenants and
conditions of said Exhibit "A" and Sublessee agrees that he/she will do nothing
in, on or about the demised premises or fail to do anything which would result
in a breach of Sublessor of its undertakings and obligations under the Head
Lease.
(c) Nothing contained herein shall be construed as a guarantee by Sublessor
of any of the obligations, covenants, warranties, agreements, or undertakings of
Lessor in the Head Lease nor as an absolute or unconditional undertaking by
Sublessor to perform the obligations of Lessor on the same terms as are
contained in the Head Lease.
2. Premises:
--------
(a) Sublessor hereby subleases to Sublessee and Sublessee hires from
Sublessor, the premises known as Wal-Mart Supercenter #_______ and the space
located therein (hereinafter "Premises"), to be used by Sublessee only as a
licensee of Travel Network, Ltd. (hereinafter "Licensor") for the sole purpose
of operating a Travel Network Vacation Central" agency ("Agency") subject to the
terms of a certain License Agreement entered into by and between Sublessor and
Sublessee, dated __________________. 19___ ("License Agreement").
(b) Sublessee acknowledges that the Premises are not presently suitable for
use as an Agency and agrees to complete those leasehold improvements at
Sublessee's sole cost and expense in conformity with all of the terms of the
Head Lease and in general conformity with the prototype plans and designs for
the Agency.
(c) Sublessee shall promptly execute and comply with all statutes,
ordinances, rules, orders, regulations and requirements of federal, state and
local governments and of any and all their departments and bureaus applicable to
said Premises.
(d) Before commencing any work or installing any fixtures or equipment in
connection with repair or alteration of the Premises, Sublessee shall:
1. Obtain the necessary consents, authorizations and licenses from the
federal, state and/or municipal authorities asserting jurisdiction over the work
to be done, and no work shall be started or equipment installed unless and until
all such necessary consents, authorizations and licenses shall first have been
duly obtained by the Sublessee and/or his/her contractor or other persons doing
the work or installing the equipment on behalf of Sublessee. The foregoing shall
not apply if Sublessor assumes responsibility for obtaining the foregoing;
<PAGE>
2. Subject to the prior approval of the Lessor, enter into proper contracts
with contractors, subcontractors and materialmen, which contracts will provide,
among other things, that said work shall be done and equipment installed in good
workmanlike manner and in accordance with the plans and specifications
previously approved, and consents, authorizations and licenses previously
obtained, and which contracts shall provide that the contractor or other persons
referred to above will look solely to the Sublessee for payment and will hold
the Sublessor and the Premises free from all liens and claims of any persons
furnishing labor or furnishing materials. therefor, or both, and will also
provide similar waivers or rights to file liens obtained from any and all of
said contractors, subcontractors and materialmen; copies of said contracts
together with duly executed waivers of the right to file liens executed by the
contractors or other persons referred to above shall be furnished to the
Sublessor;
3. Sublessee shall also indemnify and save harmless Sublessor against any
and all bills for labor performed and equipment, fixtures and material furnished
to Sublessee in connection with said work as aforesaid, and against any and all
liens, bills or claims therefor or against the Premises; and within twenty (20)
days, bond or discharge any such liens, the failure to do so shall be deemed a
material breach of this Sublease; and
4. Sublessee, at his/her own cost and expense, with respect to any repairs
or alterations made by him, shall promptly comply with all laws, ordinances,
orders, rules and regulations of each and every department and bureau of the
city and state and the United States and any other lawful authority asserting
jurisdiction over the Premises, as well as all rules and regulations contained
in the Head Lease and shall reimburse Sublessor for any expenses incurred on
account of failure by Sublessee to comply with any such requirements, and any
expenses so incurred by Sublessor as aforesaid, shall be deemed "additional
rent" under this Sublease and due and payable by Sublessee to Sublessor on the
first day of the month following the payment of same by Sublessor. Sublessee, or
any contractors employed by Sublessee, or any other persons who will do the work
or install the equipment as aforesaid, shall be fully covered by Worker's
Compensation Insurance and liability insurance in the minimum amount of
$l,000,000/$2,000,000 and certificates thereof shall be furnished to Sublessor
before commencement of any work by any such contractor or persons as aforesaid.
(e) If Sublessee requests Sublessor to guarantee an obligation to the
architect 6r contractor commissioned by Sublessee for the improvements, and
Sublessor agrees to do so in a separate instrument. Sublessee agrees that any
default in payment by Sublessee to the architect or contractor shall constitute
a material breach hereof and shall be treated as though Sublessee has defaulted
in the payment of rent hereunder. Sublessee acknowledges that any such guarantee
will be given by Sublessor merely as an accommodation to Sublessee and Sublessee
agrees to hold Sublessor harmless thereunder. This provision shall not be
construed to be an agreement by Sublessor to make such a guarantee, which can
only be made in a separate instrument.
3. Term:
----
(a) This Sublease shall commence on the date hereof and shall end one day
prior to the end of the Head Lease.
(b) Sublessee shall have such options to renew this Sublease as are
provided to Sublessor in the Head Lease to renew same, if any, which options
shall be conditioned upon Sublessor exercising in each instance, the option in
the Head Lease to which Sublessee's option relates and shall be conditioned upon
the License Agreement being in full force and effect and Sublessee being in full
compliance therewith.
(c) Each option period, if any, shall run for one (1) day less than the
period available to Sublessor under the Head Lease and shall therefore expire
one (1) day prior to the end of the then-current term.
4. Rental:
------
(a) The fixed rental payable by Sublessee shall be __________________
Dollars ($______________________); the fixed common, area maintenance payable by
Sublessee shall be _______________ Dollars ($________________); the fixed real
estate taxes payable by Sublessee shall be __________________ Dollars
($______________).
<PAGE>
The above rental, common area maintenance and real estate taxes are the net
payments and shall be absolutely net to the Sublessor without any right of
offset, claim or withholding,, payable during the initial term of the Head Lease
and shall increase during any renewal terms thereof.
(b) In the event the Head Lease contains a provision which may result in
the rental payable by Sublessor under the Head Lease being adjusted on the basis
of percentage rent charges, or being adjusted during the term hereof or in any
renewal term because of cost of living index changes or other incremental
increases, and in the event such an adjustment is in fact made under the Head
Lease, the fixed minimum rental payable hereunder shall be adjusted by the same
percentage as the rent under the Head Lease is adjusted.
(c) The fixed monthly rental installments and additional rents and charges
shall be paid directly to Sublessor via a direct debit system implemented by the
Sublessor. This procedure shall be conducted pursuant to a written agreement
entered into between Sublessee and Sublessor which will-permit Sublessor to
automatically deduct Sublessee's rental payments via electronic funds transfer.
This mechanism for payment of rent cannot be altered or cancelled by Sublessee
without the prior written consent of the Sublessor.
(d) Any monies due to Licensor from Sublessee or other payments to be made
by Sublessee pursuant to the License Agreement shall be deemed additional rent
hereunder.
(e) All rent payments and other amounts which Sublessee is required to pay
to Sublessor hereunder shall bear interest from and after their respective due
dates until paid in full at a rate equal to eighteen (18%) percent per annum,
calculated and payable weekly. Sublessee acknowledges that this section shall
not constitute Sublessor's agreement to accept such payments after they are due
or a commitment by Sublessor to extend credit to or otherwise "finance"
Sublessee's Agency. Further, Sublessee acknowledges that his/her failure to pay
all amounts when due will constitute a breach of this Sublease as provided in
Section 10, notwithstanding the provisions of this section. Further, acceptance
of any interest payment shall not be construed as a waiver by the Sublessor of
its right in respect of the default giving rise to such payment and shall be
without prejudice to the Sublessor's right to terminate this Sublease in respect
of such default.
5. Sublessee's Franchise from Licensor:
-----------------------------------
(a) Simultaneously with, or prior to, execution of this Sublease, Sublessee
has also entered into the License Agreement solely for the operation of the
Agency at the Premises. Sublessee agrees that if the aforesaid License Agreement
shall be terminated either by Sublessee or by Licensor for any reason. Sublessor
shall, in either event, then have the unqualified and absolute right to
terminate this Sublease upon five (5) days' written notice, and at the end of
said five (5) day notice period, the Sublessor may re-enter or may institute
summary or holdover proceedings to evict Sublessee and all those in possession
of the Premises by reason of the termination of this Sublease as herein
provided.
(b) Any uncured default under the License Agreement by Sublessee shall
constitute a material default hereunder and shall entitle Sublessor to re-enter
the Premises, without being liable for trespass, or institute summary or
holdover proceedings to evict Sublessee and all those in possession in the event
such default remains uncured, and, wherever the default under the License
Agreement shall pertain to the payment of money by Sublessee, such default
thereunder shall constitute a default in the payment of rent hereunder and
Sublessee shall have all remedies available to it hereunder as though the same
were a default in the payment of the fixed minimum rental.
(c) Any uncured default hereunder shall constitute a material default under
the License Agreement and shall entitle the Licensor to terminate the License
Agreement on the basis of such default.
6. Head Lease Inclusions and Exclusions;
------------------------------------
(a) The parties hereby agree that all of the other covenants and agreements
by the Licensor or Sublessor, including all extra charges and obligations, if
any, which are contained in the aforesaid Head Lease, including all riders and
addenda hereto (being Exhibit "A" hereto) are hereby assumed by Sublessee and by
this reference are made a part hereof and included in this Sublease as if herein
fully written and as if the words "Sublessor" and "Sublease: were originally
wherever the words "Lessor" and "Lessee" appear therein.
<PAGE>
(b) With reference to the included paragraphs of said Head Lease,
pertaining to the insurance obligations of Sublessor which along with all others
are hereby taken over from the Sublessor and assumed by Sublessee, it is agreed
that the insured parties under all of said insurance policies shall be as their
interest may appear (in addition to Sublessee).
(c) It is further understood by and between the Sublessor and Sublessee
hereto that the Licensor/Sublessor shall have no liability whatsoever if
Sublessee defaults under the terms of the Head Lease and the Lessor elects to
cancel said Head Lease for the Premises.
7. Tax and Security Deposits:
-------------------------
(a) When and if requested. Sublessee agrees to pay to Sublessor in advance,
on each monthly rental payment date, an additional amount equal to one twelfth
(1/12) of the annual taxes and assessments levied against the demised Premises
for the period for which collected. Sublessor shall use such monies for payment
of such taxes or assessments as they become due and payable. In the event such
monies are insufficient for such purpose. Sublessee shall immediately, upon
notice, pay the difference to Sublessor. In remitting such taxes or assessments.
Sublessor shall not be responsible for their validity, accuracy or
reasonableness and shall not be required to make advances thereof. Sublessor
shall not be required to pay any interest on any payments made hereunder by
Sublessee and Sublessee hereby expressly waives any right, statutory or
otherwise, to have Sublessor pay interest on said payment.
(b) Upon execution of this Sublease, Sublessee shall be required to remit
to Sublessor a security deposit equal to ______( ) months rent Said security
deposit shall be held by Sublessor, throughout the term of this Sublease,
without liability for interest, as security for the faithful performance by
Sublessee of all of the terms, covenants and conditions of this Sublease by said
Sublessee to be kept and performed during the term hereof.
(i) In the event of the failure of Sublessee to keep and perform any of the
terms, covenants and conditions of this Sublease to be kept and performed by
Sublessee, then Sublessor at its option and without notice may appropriate and
apply said entire deposit, or so much thereof as may be necessary, to compensate
Sublessor for loss or damage sustained or suffered by Sublessor due to such
breach on the part of Sublessee. Should the entire deposit, or any portion
thereof, be appropriated and applied by Sublessor for the payment of overdue
rent or other sums due and payable to Sublessor by Sublessee hereunder, then
Sublessee shall, upon the written demand of Sublessor, forthwith remit to
Sublessor a sufficient amount in cash to restore said security to the original
sum deposited, and Sublessee's failure to do so within ten (10) days after
receipt of such demand shall constitute a breach of this.Sublease. Should
Sublessee comply with all of said terms, covenants and conditions and promptly
pay all of the rental herein provided for as it falls due, and all other sums
payable by Sublessee to Sublessor hereunder, the said deposit shall be returned
in full to Sublessee at the end of the term of this Sublease, or upon the
earlier termination of this Sublease.
(ii) Sublessor may deliver the funds deposited hereunder by Sublessee to
the purchaser of Sublessor's interest in the Premises, in the event that such
interest be sold, and thereupon Sublessee agrees that Sublessor shall be
discharged from any further liability with respect to such deposit.
8. Assignment and Subletting:
-------------------------
(a) Sublessee shall not sell, transfer, convey, mortgage, quitclaim,
pledge, assign or sublet or otherwise grant any party any interest in this
Sublease or the Premises, in whole or in part, except in conjunction with a
transfer of the License Agreement and upon the terms and conditions relating to
transfers contained in the License Agreement and the Head Lease. This Sublease
and the Sublessee's interest herein shall not be assignable by operation of law.
(b) Sublessor may at any time assign this Sublease and its rights,
privileges, duties and obligations hereunder.
<PAGE>
9. Notices:
-------
All notices to be given to the Sublessor or Sublessee may be given in
writing personally or by certifie mail, return receipt requested, postage
prepaid; sent to Sublessee at the Demised Premises and to the Sublessor at 560
Sylvan Avenue, Englewood Cliffs, New Jersey 07632. Delivery thereof shall be
conclusively presumed as having bee made within three (3) days from the date of
mailing.
10. Termination, Default, and Remedies:
----------------------------------
(a) Notwithstanding anything to the contrary herein or elsewhere expressed
or implied, Subless* shall have the right to terminate this Sublease upon
written notice hereof to Sublessee upon the occurrence of any oi or more of the
following events or conditions: .
(i) Any failure by Sublessee to pay any rental or other amount due
hereunder when and as the same may be due and payable and failure to cure such
default within five (5) days following receipt of written notice of default from
Sublessor;
(ii) Any other failure by Sublessee to comply with any other provision of
this Sublease. and failure to cure such default within fifteen (15) days
following receipt of written notice of default from Sublessoor
(iii) Any action or inaction by Sublessee, or the sufferance of any act or
condition I Sublessee, which would constitute a default by the Sublessor under
the Head Lease, regardless of whether or not the Landlord seeks to enforce the
applicable default provisions of the Head Lease.
(b) Upon termination of this Sublease for any reason whatsoever. Sublessee
shall immediate. surrender the Premises to Sublessor in the same condition as
existed on the commencement of this Sublease, reasonable wear and tear excepted,
and shall immediately vacate the Premises leaving all furniture, fixtures and
equipment. Six (60) days following said termination, and provided Sublessee
increases the amount of security held by Sublessor cover the shortfall on the
guaranteed rental payments by Sublessee, Sublessor will release to Sublessee the
furniture movable and unattached fixtures and equipment ("FF&E"). In the event
Sublessee fails to put up the additional security to cover the rental for the
balance of the term of the Head Lease, Sublessor shall have the right to assume
ownership of the FF&E, after crediting Sublessee with the depreciated value of
same. This credit shall be added to the security deposit that is in Sublessor's
possession. If the amount that this sum equals or is greater than the rental
due, Sublessee shall be paid the balance. Sublessor shall use its best efforts
to find a replacement sublessee/licensee. If there is deficiency at the time a
replacement sublessee/licensee is found. Sublessee shall be personally
responsible for th deficiency. If no deficiency exists. Sublessee shall be paid
what is owed to him. The depreciated value shall I calculated by reducing the
value of the FF&E by 50% at the time of purchase of same, and then depreciating
the FF&E by 20% each year, with a minimum depreciated value of 10% of the
original purchase price. By way of example, if the cost of the FF&E is $12,000,
the immediate depreciation is $6,000 and each year thereafter it shall
depreciate by 20% or a pro rata amount depending on the months involved if not a
full year. Sublessor shall have the right to file appropriate Uniform Commercial
Code forms for the purpose of perfecting its security interest in the FF&E.
Sublessee shall nevertheless be obligated to pay the monthly rental until such
time as Sublessor secures a substitu licensee/sublessee for the Premises.
Sublessor shall have the right to deduct such monthly rental from the security
deposit, which now includes the FF&E credit discussed herein, being held by
Sublessor until a substitute is found. Once a new sublessee has been secured,
Sublessee shall be paid the balance that is left over for the FF&E, less the
depreciation, the rental paid, after deducting same from the security deposit.
In the event the FF&E has been leased through a third party leasing company.
Sublessor's lien shall be subordinated to the prior lienholder.
(c) In the event this Sublease is terminated due to a default of its terms
and not as a result of default under the License Agreement and Sublessee elects
to remain in the Travel Network system. Sublessor, at its absolute discretion
may permit Licensee to do so, provided the new agency is at least five (5) miles
away from the Premises. In the event that this occurs, Licensee shall have the
right to continue to solicit his/her customer base, but wi not have any rights
in and to the telephone number of the Agency, as per the License Agreement.
<PAGE>
(d) In addition to the remedies of Sublessor specified in the aforesaid
paragraphs, the parties hereto agree that the only notices necessary to
terminate this Sublease and License Agreement are those enumerated herein, with
all other notices and demands required by statute or law being hereby waived by
Sublessee, and further that .this Sublease and the License Agreement may also be
terminated at the election of Sublessor without farther notice or demand in the
following event:
(i) If Sublessee establishes a pattern of repeated defaults in that
Sublessee fails to make any payment of money under this Sublease when due, or
defaults in the performance of any covenants, undertakings, or obligations other
than for the payment of money required by this Sublease to be performed by
Sublessee, in three (3) consecutive calendar months or in any four (4) months
during the same calendar year (whether the same or different failures or
defaults are involved), then notwithstanding that Sublessee has cured within the
times prescribed for any such failures and defaults occurring in the first two
(2) consecutive months or in any three (3) months in the same calendar year, it
is nevertheless agreed that the occurrence of such failure of default for the
third consecutive calendar month or for the fourth month in the same calendar
year shall be conclusively deemed to be an immediate material breach of this
Sublease permitting termination without further demand or notice of any kind and
without any right on the part of Sublessee to cure; and
(ii) If Sublessee willfully falsifies any statement or report required to
be submitted to Sublessor under the terms of this Sublease.
11. Right of Entry and/or Possession:
--------------------------------
If, for any reason. Sublessee should be in default of his/her obligations
hereunder or in his/her obligations under the License Agreement, or any
stipulation signed by Sublessee, the Sublessor shall have the right to enter
upon the Premises of Sublessee at any hour, not just Sublessee's business hours,
to take possession of the Agency and Sublessee agrees that the Sublessor shall
not be required to obtain prior permission to enter upon the premises and
operate the Agency; Sublessee hereby grants the Sublessor the limited power of
attorney to obtain an order and judgment in the Sublessee's behalf in any court
of competent jurisdiction to order and authorize the entry of the Sublessor on
the premises and the operation of the Agency. Licensee further agrees that if
the Sublessor is forced to resort to this procedure by any interference with the
Sublessors rights hereunder or for any other reason. Sublessee shall pay all
attorney's fees and other costs associated with the Sublessor's obtaining such
order and judgment on its behalf.
12. Insurance:
---------
Sublessee shall, at his/her sole cost and expense, obtain and maintain the
insurance required by the Head Lease and License Agreement with respect to the
Premises. Sublessee expressly agrees to be bound by all of the terms of the
License Agreement and the Head Lease with respect to such insurance coverage
requirements, including without limitation, the duty to name Sublessor,
Licensor, the Landlord and any other required parties as additional insureds
and/or loss payees as their respective interests may appear. This obligation
includes securing an Errors and Omissions policy with at least a $1,000,000
policy limit.
13. Guaranty By Sublessee:
---------------------
In consideration of the making of this Sublease by Sublessor, the
undersigned Sublessee does hereby guarantee to Sublessor the payment of all
rent, additional rent, impositions and charges of any kind required herein to be
paid by Sublessee and the performance by Sublessee of all of the terms and
conditions of this Sublease. Sublessee hereby waives any notices hereunder or
acceptance hereof and consents to any extension of time, indulgence or waivers
granted by Sublessor to Sublessee or any other action or modification of the
Sublease terms regardless of whether they affect the extent or nature of the
obligations of the Sublessee and Sublessee agrees to pay all of the Sublessor's
expense, including attorneys fees incurred by Sublessor in enforcing this
Guaranty or the obligations of the Sublessee herein.
<PAGE>
14. Dispute Resolution:
------------------
Arbitration: Any and all controversies or disputes arising out of, or
relating to, this Sublease or performance Agreement or interpretation thereof,
shall be submitted to final and binding arbitration as the sole and exclusive
remedy for any such controversy or dispute including any claim of persons in
privity with or claiming through, on behalf of or in the right of Sublessee
including, but are not limited to, spouses and other family members, heirs,
executors, representatives, successors and assigns.
Unless prohibited by applicable law, any claim by Sublessee or its
representatives against Sublessor and its affiliates, officers, directors, and
employees, shall be made by filing a written demand for arbitration within one
(1) year following the conduct, act or other event or occurrence first giving
rise to the claim. Failure by Franchisee to file a claim within one (1) year
will result in the loss and waiver forever of any such claim. The Federal
Arbitration Act, as amended, governs the rights and duties in any arbitration.
Arbitration shall take place according to the commercial arbitration rules
of the American Arbitration Association in effect as of the date the demand for
arbitration is filed. The arbitration shall take place at a location in Bergen
County, New Jersey selected by the American Arbitration Association.
Arbitration shall be conducted before one arbitrator appointed by the
American Arbitration Association. The prevailing party in any such arbitration
proceeding shall be entitled to recover its expenses, including reasonable
attorney's fees and accounting fees, in addition to any other relief to which it
is found entitled, including, without limitation, all administrative fees and
expenses, arbitrator's compensation, rental fees for hearing room and other
costs associated with the arbitration. The arbitrator shall have no authority to
amend or modify the terms of this Agreement.
Each party farther agrees that, unless such a limitation is prohibited by
applicable law, the other party shall not be liable for punitive or exemplary
damages and the arbitrator shall have no authority to award the same. The award
or decision by the arbitrator shall be final and binding on the parties and may
be enforced by court judgment or order. The parties consent to the exercise of
personal jurisdiction over them and to the propriety of venue set forth herein
for the purpose of carrying out this provision; and they waive any objections
that they would otherwise have-to the same.
In the event any provision in this Section is determined by a court of
competent jurisdiction to be legally invalid or unenforceable under the law
applicable in a particular case, then it is tile intention of the parties to
this Agreement that such provision be deemed inoperative and stricken from this
Agreement, and that the remainder of this Section, to the extent not legally
invalid or unenforceable under applicable law, be enforced as written and as if
the invalid or unenforceable provision or provisions had not been included in
this Section 14.
Sublessor shall have die right to seek from any court of competent
jurisdiction, provisional remedies including, but not limited to, temporary
restraining orders or preliminary injunctions before, during or after
arbitration. Sublessor need not await the outcome of the arbitration before
seeking provisional remedies. Seeking any such remedies shall not be deemed to
be a waiver of either party's right to compel arbitration. The parties consent
to the exercise of personal jurisdiction and to the propriety of venue in any
such courts for the purpose of carrying out this provision; they waive any
objections that they would otherwise have to the same; and they waive the right
to have any such action decided by a jury.
15. Miscellaneous:
-------------
(a) The words "Sublessor" and "Sublessee" shall mean respectively all
parties of Sublessor or Sublessee, regardless of number, and the word "he" or
"she" shall be synonymous with "she", "its" and "their".
(b) All remedies of the parties hereto are cumulative.
(c) No waiver by Sublessor of any provision or undertaking hereunder shall
be valid unless in writing signed by an authorized officer of Sublessor. No
waiver by either party hereto of any provision of default hereunder, whether in
a single instance or repeatedly, shall be deemed a future waiver of such
provision or default Receipt of acceptance of rent by Sublessor shall not be
deemed a waiver of any default under the covenants, agreements, terms,
provisions and conditions of this Sublease, or of any right which Sublessor may
be entitled to exercise under this Sublease.
<PAGE>
(d) All provisions set forth in the License Agreement, where appropriate,
shall apply to this Sublease, be incorporated herein by reference and bind
Sublessor and Sublessee as if the same were set forth herein.
(e) As between Sublessor and Sublessee, in the event there is a conflict
between the terms of the Head Lease and this Sublease, the terms of this
Sublease shall control. Whenever in the Head Lease the term "Tenant/Lessee" or
an equivalent term is used, the term "Sublessee" shall be substituted therefor,
and whenever the term "Landlord"/"Lessor" or an equivalent term is used, the
term "Sublessor" shall be substituted therefor except that Sublessor shall not
be deemed to be assuming the obligations of the Landlord/Lessor under the Head
Lease. Sublessor will make reasonable efforts to enforce the obligations of
Landlord/Lessor under the Lease.
(f) Any provision of this Sublease and/or License Agreement which imposes
obligations which survive the termination or expiration hereof, shall survive
such termination or expiration.
(g) All provisions of this Sublease are severable and this Sublease shall
be interpreted and enforced as if all completely invalid or unenforceable
provisions were not contained herein and partially valid and enforceable
provisions shall be enforced to the extent valid and enforceable. If any
applicable and binding law or rule of any jurisdiction requires a greater prior
notice of termination of or refusal to renew this Sublease than is required
hereunder, or if under any applicable and binding law or rule of any
jurisdiction, any provision of this Sublease is invalid or unenforceable, the
prior notice requirements hereof, or such invalid or unenforceable provision,
shall be modified to the extent required to be valid and enforceable. Such
modifications to this Sublease shall be effective only in such jurisdiction and
shall be enforced as originally made and entered into in all other
jurisdictions.
(h) This Sublease shall be governed by and construed in accordance with the
laws of the State of New Jersey.
(i) This Sublease shall take effect upon the date of Sublessor's execution
and delivery of this Sublease to Sublessee.
IN WITNESS WHEREOF, die parties have executed this instrument the day and
year first above written.
SUBLESSOR:
TRAVEL NETWORK, LTD. SUBLESSEE
(NAME):
BY:____________________________________ (SIGNATURE)______________________
MICHAEL Y. BRENT, PRESIDENT WITNESS:
WTTNTNESS: WTTNTNESS:
- --------------------------------------- ----------------------------------
<PAGE>
EXHIBIT "A"
-----------
Copy of Head Lease
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, made and entered into as of the 17th day of
September, 1999 ("Agreement"), by and between ETRAVNET.COM, INC., a New York
corporation (the "Corporation", which term shall include any one or more of its
subsidiaries where appropriate), and ________________ ("Indemnitee"):
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors or as officers or in other capacities
unless they are provided with adequate protection through insurance or adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to, and activities on behalf of, such corporations;
and
WHEREAS, the statutes and judicial duties regarding the duties of
officers and directors are often difficult to apply, ambiguous or conflicting
and therefore fail to provide such directors and officers with adequate and
reliable knowledge of legal risks to which they are exposed or information
regarding the proper cause of action to take; and
WHEREAS, the current impracticability of obtaining adequate insurance
and the uncertainties relating to indemnification have increased the difficulty
of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Corporation (the "Board of
Directors") has determined that the difficulty in attracting and retaining such
persons is detrimental to the best interests of the Corporation's stockholders
and that the Corporation should act to assure such persons that there will be
increased certainty of such protection in the future; and
WHEREAS, the Corporation believes it is unfair for the directors and
officers to assume the risk of huge judgments and other expenses which may occur
in cases in which the director or officer acted in good faith; and
WHEREAS, Article 7 of the Business Corporation law of New York ("Article
7") under which the Corporation is organized, empowers the Corporation to
indemnify its officers and directors by agreement and expressly provides that
the indemnification provided by Article 7 is not exclusive; and
WHEREAS, it is reasonable, prudent and necessary for the Corporation
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Corporation free from undue concern that they will not be so indemnified; and
<PAGE>
WHEREAS, Indemnitee is willing to serve, continue to serve and/or to
take on additional service for or on behalf of the Corporation on the condition
that he be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Corporation and Indemnitee do hereby covenant and agree as
follows:
1. DEFINITIONS FOR PURPOSES OF THIS AGREEMENT:
(a) "Change in Control" means a change in control of the
Corporation of a nature that would be required to be reported in response to
Item 5(f) of Schedule 14A of Regulation 14A (or in response to any similar item
or similar schedule or form) promulgated under the Securities Exchange Act of
1934 (the "Act"), whether or not the Corporation is then subject to such
reporting requirement; provided, however, that, without limitation, such 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 Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Corporation representing 20% or more of the
combined voting power of the Corporation's then outstanding securities without
the prior approval of at least two-thirds of the members of the Board of
Directors in office immediately prior to such person attaining such percentage
interest; (ii) the Corporation is a party to a merger, consolidation, sale of
assets or other reorganization, or a proxy contest, as a consequence of which
members of the Board of Directors in office immediately prior to such
transaction or event constitute less than two-thirds of the Board of Directors
thereafter; (iii) during any period of twenty-four (24) consecutive months,
individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose election or
nomination for election by the Corporation's stockholders was approved by a vote
of at least two-thirds of the directors then still in office who were directors
at the beginning of such period) cease for any reason to constitute at least
two-thirds of the Board of Directors; or (iv) the stockholders of the
Corporation approve a plan of complete liquidation of the Corporation or an
agreement for the sale or disposition by the Corporation (in one transaction or
a series of transactions) of all or substantially all of the Corporation's
assets.
(b) "Potential Change in Control" shall be deemed to have occurred
if (i) the Corporation enters into an agreement, the consummation of which would
result in the occurrence of a Change in Control; (ii) a person (including the
Corporation) publicly announces a legitimate intention to take or to consider
taking actions which if consummated would constitute a Change in Control; (iii)
any person, other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Corporation or a corporation owned, directly or
indirectly, by the shareholders of the Corporation in substantially the same
proportions as their ownership of stock of the Corporation, who is or becomes
the beneficial owner, directly or indirectly, of securities of the Corporation
representing 9.5% or more of the combined voting power of the Corporation's then
outstanding Voting Securities, increases his beneficial ownership of such
securities by five percentage points or more over the percentage so owned by
such person; or (iv) the Board of Directors adopts a resolution to the effect
that, for purposes of this Agreement, a Potential Change in Control has
occurred.
<PAGE>
(c) "Corporate Status" describes the status of a person who is or
was or has agreed to become a director, officer, employee or agent of the
Corporation, or served at the request of the Corporation as a director, officer,
employee, trustee or agent of another corporation, partnership, joint, venture,
trust or other enterprise.
(d) "Disinterested Director" means a director of the Corporation
who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
(e) "Proceeding" includes any threatened, pending or completed
inquiry, action, suit, arbitration, alternate dispute resolution mechanism,
investigation, administrative hearing or any other proceeding, whether civil,
criminal, administrative or investigative, except one initiated by an Indemnitee
pursuant to Section 12(a) of this Agreement to enforce his rights under this
Agreement.
(f) "Expenses" includes all direct and indirect costs of any type
or nature whatsoever (including, without limitation, all attorneys' fees and
related disbursements, other out-of-pocket costs and reasonable compensation for
time spent by the Indemnitee for which he is not otherwise compensated by the
Corporation or any third party, provided that the rate of compensation and
estimated time involved is approved in advance by the Board of Directors),
actually and reasonably incurred by the Indemnitee in connection with either the
investigation, defense or appeal of a Proceeding (including amounts paid in
settlement by or on behalf of Indemnitee), or the prosecution of an action or
proceeding, including appeals, to establish or enforce a right to
indemnification under this Agreement, Article 7 or otherwise. Expenses as
defined herein, shall not include any judgments, fines or penalties actually
levied against the Indemnitee.
(g) "Independent Counsel" means (i) any law firm or member of a law
firm which the Board of Directors may designate from time to time provided that
the law firm or member of the law firm so designated is experienced in matters
of corporation law and neither presently is, nor in the past five years has
been, retained to represent: (A) the Corporation or Indemnitee in any matter
material to either such party, or (B) any other party to the Proceeding giving
rise to a claim for indemnification hereunder. Notwithstanding the foregoing,
the term "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 Corporation or Indemnitee in an
action to determine Indemnitee's rights under this Agreement arising on or after
the date of this Agreement, regardless of when the Indemnitee's act or failure
to act occurred.
2. SERVICES BY INDEMNITEE.
Indemnitee agrees to serve or continue to serve as a Director of
the Corporation so long as he is duly appointed or elected and qualified in
accordance with the applicable provisions of the By-Laws of the Corporation or
the By-Laws of any subsidiary of the Corporation or until such time as he
tenders his resignation in writing. This Agreement shall not impose any
obligation on the Indemnitee or the Corporation to continue the Indemnitee's
position with the Corporation beyond any period otherwise applicable, nor to
create any right to continued employment of the Indemnitee in any capacity.
<PAGE>
3. GENERAL.
The Corporation shall indemnify, and shall advance Expenses to
Indemnitee as provided in this Agreement and to the fullest extent permitted by
law.
4. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE
CORPORATION.
Indemnitee shall be entitled to the rights of indemnification
provided in this Section 4 if, by reason of his Corporate Status, he is, or is
threatened to be made, a party to any Proceeding, other than a Proceeding by or
in the right of the Corporation. Pursuant to this Section 4, Indemnitee shall be
indemnified against Expenses, including amounts paid in settlement, as well as
any judgments, fines and penalties levied or awarded against him in connection
with such Proceeding or any claim, issue or matter therein, if he acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the Corporation, and, with respect to any criminal Proceeding,
had no reasonable cause to believe his conduct was unlawful.
5. PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION.
Indemnitee shall be entitled to the rights of indemnification
provided in this Section 5, if, by reason of his Corporate Status, he is, or is
threatened to be made, a party to any threatened, pending or completed
Proceeding brought by or in the right of the Corporation to procure a judgment
in its favor. Pursuant to this Section, Indemnitee shall be indemnified against
Expenses actually incurred by him or on his behalf in connection with such
Proceeding if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation. Notwithstanding
the foregoing, no indemnification against such Expenses shall be made in respect
of any claim, issue or matter as to which Indemnitee shall have been adjudged to
be liable to the Corporation if such indemnification is not permitted by the
laws of the State of New York or other applicable law; provided, however, that
indemnification against Expenses nevertheless shall by made by the Corporation
in such event to the extent that the courts of the State of New York, or the
court in which such Proceeding shall have been brought or is pending, shall
determine.
6. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR PARTLY
SUCCESSFUL.
Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually incurred by him or on his behalf in
connection therewith. If Indemnitee is not wholly successful in such Proceeding
but is successful, on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding, the Corporation shall
indemnify Indemnitee against all Expenses actually incurred by him or on his
behalf in connection with each successfully resolved claim, issue or matter. For
<PAGE>
purposes of this Section, but without limitation, the termination of any claim,
issue or matter in such a Proceeding by dismissal or withdrawal, with or without
prejudice, shall be deemed to be a successful result as to such claim, issue or
matter.
7. ADVANCE OF EXPENSES.
The Corporation shall advance all reasonable Expenses incurred by
or on behalf of Indemnitee in connection with any Proceeding within twenty days
after the receipt by the Corporation of a statement or statements from
Indemnitee requesting such advance or advances from time to time, whether prior
to or after final disposition of such Proceeding. Such statement or statements
shall evidence or reflect the Expenses incurred by Indemnitee and shall include
or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to
repay any Expenses advanced if it is determined ultimately that Indemnitee is
not entitled to be indemnified against such Expenses.
8. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
(a) To obtain indemnification under this Agreement, Indemnitee
shall submit to the Corporation a written request, including therein or
therewith such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. Promptly upon receipt of such a
request for indemnification, the Secretary of the Corporation shall advise the
Board of Directors in writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant
to Section 8(a) hereof, a determination, if required by applicable law, with
respect to Indemnitee's entitlement thereto shall be made in the specific case
as follows: (i) if a Change in Control shall have occurred, by Independent
Counsel in a written opinion to the Board of Directors, a copy of which shall be
delivered to Indemnitee (unless Indemnitee shall request that such determination
be made by the Board of Directors, in which case the determination shall be made
in the manner provided below in clauses (ii) or (iii)); (ii) if a Change of
Control shall not have occurred, (A) by the Board of Directors by a majority
vote of a quorum consisting of Disinterested Directors, or (B) if a quorum of
the Board of Directors consisting of Disinterested Directors is not obtainable
or, even if obtainable, if such quorum of Disinterested Directors so directs, by
Independent Counsel in a written opinion to the Board of Directors, a copy of
which shall be delivered to Indemnitee; (iii) as provided in Section 9(b) of
this Agreement; and, if it is determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within ten (10) days after
such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or Expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating shall be borne by the Corporation (regardless of
the determination as to Indemnitee's entitlement to indemnification) and the
Corporation hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
<PAGE>
(c) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 8(b) of
this Agreement, and no counsel shall have been designated previously by the
Board of Directors or the Independent Counsel so designated is unwilling or
unable to serve, then, (i) if no Change of Control shall have occurred, the
Independent Counsel shall be selected by the Board of Directors and the
Corporation shall give written notice to Indemnitee advising him of the identity
of the Independent Counsel so selected; (ii) if a Change of Control shall have
occurred, the Independent Counsel shall be selected by Indemnitee (unless
Indemnitee shall request that such selection be made by the Board of Directors,
in which event the preceding sentence shall apply), and Indemnitee shall give
written notice to the Corporation advising it of the identity of the Independent
Counsel so selected. In either event, Indemnitee or the Corporation, as the case
may be, may, within 7 days after such written notice of selection shall have
been given, deliver to the Corporation or to Indemnitee, as the case may be, a
written objection to such selection. Such objection may be asserted only on the
ground that the Independent Counsel so selected does not meet the requirement of
"Independent Counsel" as defined in this Agreement, and the objection shall set
forth with particularity the factual basis of such assertion. If such written
objection is made, the Independent Counsel so selected may not serve as
Independent Counsel unless and until a court has determined that such objection
is without merit. If, within 20 days after submission by Indemnitee of a written
request for indemnification pursuant to Section 8(a) hereof, no Independent
Counsel shall have been selected or if selected, shall have been objected to, in
accordance with this Section 8(c), either the Corporation or Indemnitee may
petition the courts of the State of New York or other court of competent
jurisdiction for resolution of any objection which shall have been made by the
Corporation or Indemnitee to the other's selection of Independent Counsel and/or
for the appointment as Independent Counsel of a person selected by the Court or
by such other person as the Court shall designate, and the person with respect
to whom an objection is favorably resolved or the person so appointed shall act
as Independent Counsel under Section 8(b) hereof. The Corporation shall pay any
and all reasonable fees and expenses of Independent Counsel incurred by such
Independent Counsel in connection with the performance of his responsibilities
pursuant to Section 8(b) hereof, and the Corporation shall pay all reasonable
fees and Expenses incident to the implementation of the procedures of this
Section 8(c), regardless of the manner in which such Independent Counsel was
selected or appointed. Upon the due commencement of any judicial proceeding or
arbitration pursuant to Section 12 of this Agreement, Independent Counsel shall
be discharged and relieved of any further responsibility in such capacity
(subject to the applicable standards of professional conduct then prevailing).
9. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person, persons or entity making such determination shall presume that the
Indemnitee is entitled to indemnification under this Agreement if the Indemnitee
has submitted a request for indemnification in accordance with Section 8(a) of
this Agreement, and the Corporation shall have the burden of proof to overcome
that presumption in connection with the making of any determination contrary to
that presumption by any person, persons or entity.
<PAGE>
(b) If within 30 days after receipt by the Corporation of the
request for indemnification, the Board shall not have made a determination under
Section 8(b)(i) or 8(b)(ii)(A) with regard thereto, the requisite determination
of entitlement to indemnification shall be deemed to have been made in favor of
the Indemnitee who then shall be entitled to such indemnification. The foregoing
provisions of this Section 9(b) shall not apply if the determination of
entitlement to indemnification is to be made by Independent Counsel pursuant to
Section 8(b)(i) or 8(b)(ii)(B) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue or
matter therein by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not (except as otherwise expressly
provided in this Agreement) of itself adversely affect the right of the
Indemnitee to indemnification or create a presumption that the Indemnitee did
not act in good faith and in a manner which he reasonably believed to be in, or
not opposed to, the best interests of the Corporation or, with respect to any
criminal Proceeding, that the Indemnitee had reasonable cause to believe that
his conduct was unlawful.
10. ASSUMPTION OF DEFENSE.
In the event the Corporation shall be obligated to pay the Expenses
of any Proceeding against the Indemnitee, the Corporation, if appropriate, shall
be entitled to assume the defense of such Proceeding, with counsel reasonably
acceptable to the Indemnitee, upon the delivery to the Indemnitee of written
notice of its election to do so. After delivery of such notice, approval of such
counsel by the Indemnitee and the retention of such counsel by the Corporation,
the Corporation will not be liable to the Indemnitee under this Agreement for
any fees of counsel subsequently incurred by the Indemnitee with respect to the
same Proceeding, provided that (i) the Indemnitee shall have the right to employ
his counsel in such Proceeding at the Indemnitee's expense; and (ii) if (a) the
employment of counsel by the Indemnitee has been previously authorized in
writing by the Corporation, (b) the Corporation shall have reasonably concluded
that there may be a conflict of interest between the Corporation and the
Indemnitee in the conduct of any such defense, or (c) the Corporation shall not,
in fact, have employed counsel to assume the defense of such Proceeding, the
fees and Expenses of the Indemnitee's counsel shall be at the expense of the
Corporation.
11. ESTABLISHMENT OF A TRUST.
(a) In the event of a Potential Change in Control, the Corporation,
upon written request by the Indemnitee, shall create a trust for the benefit of
the Indemnitee and from time to time upon written request of the Indemnitee
shall fund such trust in an amount sufficient to satisfy any and all Expenses
which at the time of each such request it is reasonably anticipated will be
<PAGE>
incurred in connection with a Proceeding for which the Indemnitee is entitled to
rights of indemnification under Section 4 or 5 hereof, and any and all
judgments, fines, penalties and settlement amounts of any and all proceedings
for which the Indemnitee is entitled to rights of indemnification under Section
4 or 5 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 party who would
be required to make the determination of the Indemnitee's right to
indemnification under Section 8(b) hereof (the "Reviewing Party"). 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 two 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 Corporation under
Section 7 hereof), (iii) the trust shall continue to be funded by the
Corporation 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
Corporation upon a final determination by the Reviewing Party or a court of
competent jurisdiction, as the case may be, that Indemnitee has been fully
indemnified under the terms of this Agreement. The trustee shall be an
institutional trustee with a highly regarded reputation chosen by the
Indemnitee. Nothing in this Section 11 shall relieve the Corporation of any of
its obligations under this Agreement.
(b) Nothing contained in this Section 11 shall prevent the Board of
Directors of the Corporation in its discretion at any time and from time to
time, upon request of the Indemnitee, from providing security to the Indemnitee
for the Corporation's obligations hereunder through an irrevocable line of
credit or other collateral. Any such security, once provided to the Indemnitee,
may not be revoked or released without the prior consent of the Indemnitee.
12. REMEDIES OF INDEMNITEE.
(a) In the event that any one or more of the following events shall
have occurred: (i) a determination is made pursuant to Section 8 of this
Agreement that Indemnitee is not entitled to indemnification under this
Agreement; (ii) Expenses are not advanced timely in accordance with Section 7 of
this Agreement; (iii) the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 8(b) of this Agreement and
such determination shall not have been made and delivered in a written opinion
within 90 days after receipt by the Corporation of the request for
indemnification; (iv) payment of indemnification is not made pursuant to Section
6 of this Agreement within ten days after receipt by the Corporation of a
written request therefor; (v) payment of indemnification is not made within ten
days after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 9(b) of this Agreement; and/or (vi) the Corporation fails to comply with
its obligations under Section 11(a) with regard to the establishment or funding
of a trust for Expenses, the Indemnitee shall be entitled to an adjudication of
his entitlement to such indemnification, advancement of Expenses or the
establishment and funding of the trust in an appropriate court of the State of
New York, or in any other court of competent jurisdiction. Alternatively,
<PAGE>
Indemnitee, at his option, may seek an award in arbitration to be conducted by a
single arbitrator pursuant to the rules of the American Arbitration Association.
Indemnitee shall commence such proceeding seeking an adjudication or an award in
arbitration within 180 days following the date on which Indemnitee first has the
right to commence such proceeding pursuant to this Section 12. The Corporation
shall not oppose Indemnitee's right to seek any such adjudication or award in
arbitration.
(b) Whenever a determination is made pursuant to Section 8 of this
Agreement that Indemnitee is not entitled to indemnification, the judicial
proceeding or arbitration commenced pursuant to this Section 12 shall be
conducted in all respects as a de novo trial, or arbitration, on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination. If a
Change of Control shall have occurred, the Corporation shall have the burden of
proving that Indemnitee is not entitled to indemnification or advancement of
Expenses, as the case may be, in any judicial proceeding or arbitration
commenced pursuant to this Section 12.
(c) If a determination shall have been made or deemed to have been
made pursuant to Section 8 of this Agreement that Indemnitee is entitled to
indemnification, the Corporation shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 12 absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
(d) The Corporation shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section 12 that
the procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Corporation is bound by all the provisions of this Agreement.
(e) In the event that Indemnitee, pursuant to this Section 12,
seeks a judicial adjudication or an award in arbitration to enforce his rights
under, or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Corporation, and shall be indemnified by the
Corporation against, any and all expenses (of the types described in the
definition of Expenses in this Agreement) actually incurred by him in connection
with obtaining such judicial adjudication or arbitration, but only if he
prevails therein. If it shall be determined in said judicial adjudication or
arbitration that Indemnitee is entitled to receive part but not all of the
indemnification or advancement of Expenses sought, the Expenses incurred by
Indemnitee in connection with such judicial adjudication or arbitration shall be
appropriately prorated.
13. NON-EXCLUSIVITY; DURATION OF AGREEMENT; INSURANCE: SUBROGATION.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Corporation's certificate of incorporation or by-laws, any other
agreement, a vote of stockholders or a resolution of directors, or otherwise.
This Agreement shall continue until and terminate upon the later of: (a) 10
years after the date that Indemnitee shall have ceased to serve as an officer or
director of the Corporation, or (b) the final termination of all pending
<PAGE>
Proceedings in respect of which Indemnitee is granted rights of indemnification
or advancement of Expenses hereunder and of any proceeding commenced by
Indemnitee pursuant to Section 12 of this Agreement relating thereto. This
Agreement shall be binding upon the Corporation and its successors and assigns
and shall inure to the benefit of Indemnitee and his heirs, executors and
administrators.
(b) (i) To the extent that the Corporation maintains an insurance
policy or policies providing liability insurance for directors and officers of
the Corporation, Indemnitee shall be covered by such policy or policies in
accordance with the terms thereof to the maximum extent of the coverage
available for any such director or officer under such policy or policies. The
Corporation shall take all necessary or appropriate action to cause such
insurers to pay on behalf of the Indemnitee all amounts payable as a result of
the commencement of a proceeding in accordance with the terms of such policy.
(ii) For a period of three years after the date the Indemnitee
shall have ceased to serve as an officer or director of the Corporation, the
Corporation will provide officers and directors liability insurance for
Indemnitee on terms no less favorable than the terms of the liability insurance
which the Corporation then provides to the current officers and directors;
provided, that the Corporation provides officers and directors liability
insurance to its current officers and directors; and provided further, that the
annual premiums for the liability insurance to be provided to the Indemnitee do
not exceed by more than 50% the premium charged for the coverage available for
any of the Corporation's current officers and directors.
(c) In the event of any payment under this Agreement, the
Corporation 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 take
all action necessary to secure such rights, including execution of such
documents as are necessary to enable the Corporation to bring suit to enforce
such rights.
(d) The Corporation shall not be liable under this Agreement to
make any payment of amounts otherwise indemnifiable hereunder if and to the
extent that Indemnitee otherwise actually has received such payment under any
insurance policy, contract, agreement or otherwise.
14. SEVERABILITY.
If any provision or provisions of this Agreement shall be held to
be invalid, illegal or unenforceable for any reason whatsoever: (a) the
validity, legality and enforceability of the remaining provisions of this
Agreement (including without limitation, each portion of any Section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and (b) to the fullest extent
possible the provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
<PAGE>
15. EXCEPTION TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT OF EXPENSES.
Except as otherwise provided specifically herein, Indemnitee shall
not be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any Proceeding, or any claim herein, brought or made
by him against the Corporation.
16. HEADINGS.
The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction thereof.
17. MODIFICATION AND WAIVER.
This Agreement may be amended from time to time to reflect changes
in New York law or for other reasons. 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 provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
18. NOTICE BY INDEMNITEE.
Indemnitee agrees promptly to notify the Corporation in writing
upon being served with any summons, citation, subpoena, complaint, indictment,
information or other document relating to any Proceeding or matter which may be
subject to indemnification or advancement of Expenses covered hereunder;
provided, however, that the failure to give any such notice shall not disqualify
the Indemnitee from indemnification hereunder.
19. NOTICES.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if (i) delivered
by hand to the party to whom said notice or other communication shall have been
directed, (ii) mailed by certified or registered mail with postage prepaid or
(iii) delivered by facsimile transmission electronically confirmed.
<PAGE>
(a) If to Indemnitee, to:
(b) If to the Corporation, to:
ETRAVNET.COM, INC.
560 Sylvan Avenue
Englewood Cliffs, New Jersey 07632
with a copy to:
BLAU, KRAMER, WACTLAR & LIEBERMAN, P.C.
100 Jericho Quadrangle
Jericho, New York 11753
Attn: David H. Lieberman
Fax No: (516) 822-4824
or to such other address as may have been furnished to Indemnitee by the
Corporation or to the Corporation by Indemnitee, as the case may be.
20. GOVERNING LAW.
The parties agree that this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
ETRAVNET.COM, INC.
By:
-------------------------------
Name:
Title:
INDEMNITEE:
-------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated condensed financial statements for the twelve month period ended
December 31, 1999 and is qualified in its entirety by reference to such
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 19,813
<SECURITIES> 1,009,956
<RECEIVABLES> 493,416
<ALLOWANCES> (74,955)
<INVENTORY> 0
<CURRENT-ASSETS> 1,619,727
<PP&E> 109,947
<DEPRECIATION> 36,862
<TOTAL-ASSETS> 3,603,296
<CURRENT-LIABILITIES> 345,626
<BONDS> 0
0
0
<COMMON> 2,922,776
<OTHER-SE> (487,862)
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 5,922,776
<CGS> 0
<TOTAL-COSTS> 6,446,125
<OTHER-EXPENSES> (85,331)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (438,018)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (438,018)
<EPS-BASIC> (.09)
<EPS-DILUTED> (.09)
</TABLE>
