UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
Commission File Number: 0-20360
RENO AIR, INC.
(Exact name of registrant as specified in its charter)
Nevada 88-0259913
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
220 Edison Way
Reno, Nevada 89502
(Address of principal executive offices)
(702) 686-3835
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 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
Number of shares of common stock, $.01 par value, of registrant outstanding at
September 30, 1997: 10,542,075.
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RENO AIR, INC.
------------------------------------------------------------------------
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1997 and
December 31, 1996 4
Income Statements -
Three Months and Nine Months Ended
September 30, 1997 and 1996 5
Statements of Cash Flows -
Nine Months Ended September 30, 1997 and 1996 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Opeartions 8
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
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RENO AIR, INC.
CONDENSED BALANCE SHEETS AT
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
September 30, December 31,
1997 1996
-------------- ------------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,905,082 $ 16,221,297
Short-term investments 1,501,607 2,318,407
Accounts receivable, net 30,099,707 18,834,788
Inventories and operating supplies 3,339,088 2,109,364
Prepaid expenses and other 24,514,434 17,033,968
---------- ----------
Total current assets 65,359,918 56,517,824
---------- ----------
PROPERTY AND EQUIPMENT:
Flight equipment 87,026,949 63,974,552
Ground property and equipment 11,031,435 8,377,217
---------- ---------
98,058,384 72,351,769
Less - Accumulated depreciation (18,400,374) (11,253,987)
---------- ----------
Property and equipment, net 79,658,010 61,097,782
---------- ----------
RESTRICTED CASH AND INVESTMENTS 5,025,915 6,519,249
DEPOSITS AND OTHER NONCURRENT ASSETS 22,997,234 19,571,557
---------- ----------
$173,041,077 $143,706,412
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 20,757,962 $ 19,071,306
Accrued liabilities 20,348,152 19,775,738
Air traffic liability 31,477,093 21,392,594
Current maturities of long-term debt and capital leases 11,619,911 5,309,758
Current portion of deferred lease payable 1,090,215 1,465,827
--------- ---------
Total current liabilities 85,293,333 67,015,223
---------- ----------
LONG-TERM DEBT AND CAPITAL LEASES 61,043,858 50,698,058
OTHER NONCURRENT LIABILITIES 13,617,227 13,862,332
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value: 30,000,000 shares authorized;
10,542,075 and 10,333,446 shares issued and outstanding
at September 30, 1997 and December 31, 1996, respectively 105,421 103,334
Additional paid-in capital 33,536,690 32,607,130
Accumulated deficit (20,555,452) (20,579,665)
----------- -----------
Total shareholders' equity 13,086,659 12,130,799
---------- ----------
$173,041,077 $143,706,412
============ ============
The accompanying notes are an integral part of the financial statements.
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INCOME STATEMENTS
RENO AIR, INC.
INCOME STATEMENTS
FOR THE NINE MONTHS AND
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
Nine months ended Three months ended
September 30, September 30,
----------------------------------------- -----------------------------------------
1997 1996 1997 1996
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Passenger $ 275,344,871 $ 251,856,374 $ 99,582,718 $ 96,673,915
Other 16,942,393 12,600,027 5,598,831 4,046,723
--------------- ---------------- ----------------- -----------------
Total operating revenues 292,287,264 264,456,401 105,181,549 100,720,638
---------------- ---------------- ----------------- -----------------
OPERATING EXPENSES:
Salaries, wages and benefits 50,128,276 40,586,441 17,942,853 15,544,614
Aircraft fuel and oil 51,785,986 48,269,372 17,545,414 18,894,508
Aircraft leases 52,138,897 44,713,350 18,022,978 16,233,471
Maintenance 24,798,650 19,705,815 9,150,488 7,575,312
Handling, landing and airport fees 29,472,775 25,633,437 10,305,903 9,340,724
Advertising, sales and distribution 21,974,378 23,346,141 6,899,810 8,662,966
Commissions 15,581,959 14,881,212 5,619,051 5,560,222
Facility leases 10,254,710 8,320,222 3,664,438 2,946,754
Insurance 4,719,137 5,858,525 1,496,509 1,905,683
Communications 4,098,812 3,245,184 1,358,110 1,227,978
Depreciation and amortization 7,311,840 3,976,289 2,610,483 1,608,953
Other 18,848,116 17,571,256 6,164,064 6,940,512
--------------- --------------- ----------------- -----------------
Total operating expenses 291,113,536 256,107,244 100,780,101 96,441,697
--------------- --------------- ----------------- -----------------
OPERATING INCOME 1,173,728 8,349,157 4,401,448 4,278,941
--------------- --------------- ----------------- -----------------
NONOPERATING INCOME (EXPENSE):
Interest expense (3,806,918) (2,842,636) (1,371,769) (1,190,227)
Interest income 1,556,831 2,227,819 531,202 775,433
Gains on sales of fixed assets, net 1,279,272 944,875 1,279,272 944,875
Other, net (178,700) (44,597) (43,044) 138,265
--------------- --------------- ----------------- -----------------
Total nonoperating income (expense) (1,149,515) 285,461 395,661 668,346
--------------- --------------- ----------------- -----------------
NET INCOME BEFORE INCOME TAXES 24,213 8,634,618 4,797,109 4,947,287
INCOME TAX PROVISION - 336,776 - 199,455
-------------- --------------- ----------------- -----------------
NET INCOME $ 24,213 $ 8,297,842 $ 4,797,109 $ 4,747,832
============== =============== ================= =================
NET INCOME PER COMMON SHARE AND COMMON
SHARE EQUIVALENT
PRIMARY $ - $ 0.76 $ 0.44 $ 0.43
============== ============== ================= =================
FULLY DILUTED $ - $ 0.74 $ 0.40 $ 0.39
============== ============== ================= =================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON SHARE EQUIVALENTS OUTSTANDING
PRIMARY 10,695,869 10,896,249 10,850,435 10,993,441
=============== ============== =============== ================
FULLY DILUTED 10,695,869 13,893,574 13,725,435 13,874,921
=============== =============== ================ ================
The accompanying notes are an integral part of the financial statements.
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RENO AIR, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
Nine Months Ended
September 30,
---------------------------------------
1997 1996
------------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 24,213 $ 8,297,842
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 7,311,840 4,349,594
Common stock issued or to be issued for 401(k) Plan 315,300 120,000
Gains on sales of fixed assets, net (1,279,272) (944,875)
Amortization of deferred lease credits (131,579) (118,079)
Amortization of debt issuance costs 177,482 177,504
Changes in operating assets and liabilities:
Increase in accounts receivable (11,264,919) (10,942,463)
Increase in inventories and operating supplies (1,229,724) (532,190)
Increase in prepaid expenses and other current assets (7,480,466) (2,741,474)
Decrease (increase) in restricted cash 1,493,334 (5,425,799)
Increase in deposits and other noncurrent assets (3,603,159) (4,589,852)
Increase in accounts payable 1,686,656 3,188,465
Increase in accrued liabilities 572,414 8,626,255
Decrease in fuel purchase agreement - (1,841,226)
Increase in air traffic liability 10,084,499 10,749,686
(Decrease) increase in deferred leases and other noncurrent liabilities (489,138) 4,559,256
----------- -----------
Net cash (used in) provided by operating activities (3,812,519) 12,932,644
----------- ----------
INVESTING ACTIVITIES:
Proceeds from sales of short-term investments 2,318,407 2,944,188
Proceeds from sales of fixed assets 2,750,000 2,500,000
Purchases of property and equipment (24,525,837) (39,970,633)
Purchases of short-term investments (1,501,607) (1,973,793)
------------ ------------
Net cash used in investing activities (20,959,037) (36,500,238)
------------ -----------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options and warrants 616,347 1,189,376
Proceeds from issuance of notes payable 18,916,798 15,183,000
Repayments of long-term debt and capital leases (5,077,804) (1,178,292)
---------- ----------
Net cash provided by financing activities 14,455,341 15,194,084
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS (10,316,215) (8,373,510)
CASH AND CASH EQUIVALENTS at beginning of period 16,221,297 34,985,808
----------- ----------
CASH AND CASH EQUIVALENTS at end of period $ 5,905,082 $ 26,612,298
=============== =============
The accompanying notes are an integral part of the financial statements.
</TABLE>
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RENO AIR, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. The results of
operations for the three and nine month periods ended September 30, 1997, are
not necessarily indicative of the results that will be realized for the full
year. For further information, refer to the financial statements and notes
thereto contained in the Form 10-K for the year ended December 31, 1996.
Certain reclassifications have been made to the prior periods' financial
statements to conform those statements to the current periods' presentation.
NOTE B - INCOME PER COMMON SHARE
Income per share is computed by dividing the net income available for common
stock by the weighted average number of shares of common stock and dilutive
common stock equivalents assumed outstanding during the period.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted by December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating basic earnings per share, the dilutive effect of
stock options and warrants will be excluded. The impact is expected to result in
a two cent increase and no change, respectively, in primary earnings per share
for the three and nine months ended September 30, 1997, and three cent and five
cent increases, respectively, in the primary earnings per share for the
three and nine months ended September 30, 1996. For fully diluted earnings per
share, the impact is expected to result in a one cent decrease and no
change, respectively, in earnings per share for the three and nine months
ended September 30, 1997, and one cent and two cent decreases, respectively, in
earnings per share for the three and nine months ended September 30, 1996.
NOTE C - COMMITMENTS
In September 1997, Reno Air purchased one of its leased MD-83 aircraft for
$17.5 million in exchange for debt, cash and certain credits from the lessor of
that aircraft. The debt is comprised of a $15.5 million secured note payable
that matures in September 2002. Interest on the note is at 30-day LIBOR plus
2.80 percent.
In September 1997, the Company sold one spare aircraft engine for $2.75
million in cash, and recognized a gain on this sale of approximately $1.3
million, which is included in nonoperating income.
In October 1997, Reno Air entered into a letter agreement to lease two
MD-90 aircraft. The lease terms are 18 years each and are expected to commence
in January 1998.
NOTE D - SHAREHOLDERS' EQUITY
In October 1997, the Company issued 1,400,000 shares of Series A Cumulative
Convertible Exchangeable Preferred Stock, par value $0.001 per share, for $33.6
million, net of issuance discounts of $1.4 million (the "Preferred Stock"). The
issuance excludes 200,000 shares of the Preferred Stock which may be sold
pursuant to an over-allotment option which expires in November 1997. The
Preferred Stock has a liquidation preference value of $25.00 per share and
accrues dividends payable quarterly in arrears beginning December 15, 1997 at
the rate of 9% per annum of such liquidation preference value. The Preferred
Stock may be converted into shares of the Company's common stock at any time at
the option of the holders thereof at a conversion price of $8.625 per share of
common stock, subject to adjustment upon the occurrence of certain events. The
Company may redeem the Preferred Stock, in whole or in part, on or after
December 20, 2000 at prescribed redemption prices. The Preferred Stock is also
exchangeable at the Company's option beginning on December 15, 1999, for the
Company's 9% Convertible Subordinated Debentures, due December 15, 2004.
<PAGE>
Item 2. Management's Discussion and Analysis Of Financial Condition and Results
of Operations
Overview
The Company recognized record profits in the third quarter of 1997;
however, results for the nine months ended September 30, 1997, continued to
reflect the net losses realized in the first half of the year. The Company's
results in the first quarter of 1997 were significantly impacted by unusually
harsh weather and by fuel prices that were substantially higher than in the
first quarter of 1996. The Company's results in the second quarter of 1997 were
significantly impacted by a shortage of engines that forced the Company to
temporarily ground as many as three aircraft at one time. Results in the third
quarter were impacted by the cost of leasing additional spare engines on a
short-term basis. The engine shortage was resolved in the third quarter as
engines were returned from overhaul, which allowed the Company to sell a spare
engine in September 1997.
In the first quarter of 1997, the Company commenced scheduled service
from Gulfport/Biloxi, Mississippi to St. Petersburg, and Sanford, Florida and
Atlanta, Georgia, under a limited revenue guarantee agreement. The Company also
commenced daily service from Reno to Detroit. In the second quarter of 1997, the
Company significantly increased its service to Las Vegas, creating a hub linking
seven existing Reno Air cities in the Southwestern United States. The Company
also increased its service to Detroit and its seasonal summer service to
Anchorage, Alaska, and re-instituted service between Reno and Ontario,
California. In the third quarter of 1997, the Company added service between
Oklahoma City and Las Vegas, with direct and connecting service to the West
Coast.
In 1996, the Company increased its usage of Teletech, Inc. ("Teletech") to
supplement the Company's internal reservations capacity, thus boosting its
direct sales. This significantly increased the Company's call handling
capability. In April 1997, the Company opened its second reservations call
center to replace Teletech. This call center, located in Las Vegas, has the
capacity to more than double the Company's internal call handling capability,
and provides important backup in event of service outages at the Company's Reno
facility. Although the replacement of Teletech with the increased internal
reservations capability of the Las Vegas facility is expected to reduce costs,
the Company incurred increased personnel training and reservations costs in the
second quarter of 1997 as a result of the transition.
The Company has contracted with SABRE to provide the Company's host
reservation database system for a seven-year term. The Company implemented the
SABRE system on November 4, 1997. The transfer has created one-time
implementation costs and temporary disruption in the Company's reservation and
yield management operations, which will negatively impact the Company's results
in the fourth quarter. Management expects to obtain substantial cost savings and
efficiencies as the SABRE system become fully operational.
On April 23, 1997, the Company's flight attendants became represented by
the International Brotherhood of Teamsters ("IBT") and, on September 22, 1997,
the Company's pilots became represented by the Air Line Pilots Associations
("ALPA"). The Company is negotiating a contract with the IBT and anticipates
commencing contract talks with ALPA in January 1998. Management cannot predict
when any contracts might be entered into, or the extent to which such contracts
will contain terms different from the Company's current work and pay rules.
Unionization of the Company's employees restricts the Company's flexibility in
dealing with such employees, which could result in a material increase in its
labor costs. The Company's other employees are not represented by a union.
Congress has adopted changes to the federal transportation excise tax,
which had been 10% of a ticket's fare. The new legislation reduced this tax to
9%, and will eventually reduce this tax to 7.5%; but it also imposes an
additional surcharge of $1, which eventually increases to $3, for each trip
segment flown. This initial structure became effective on October 1, 1997, with
the full changes being phased in through the year 2002. The legislation
increases the taxes on lower fare tickets. Management cannot predict the extent
the new taxes will be passed on to passengers, because fares continue to be
volatile in response to industry conditions and competitors' fare actions. Many
airlines, including the Company, are absorbing some of the per segment charges;
for instance, when a passenger's itinerary includes two or more segments but
could also have been flown with fewer segments.
On October 7, 1997, the Company reduced the commission it pays on most
travel agency sales from 10% to 8% in order to remain competitive with the major
airlines.
In July 1997, the Company introduced its own frequent flyer program,
QQuickmiles(TM). The Company is accruing for frequent flyer reward expense based
on the incremental cost of awards that may be redeemed. Since this program was
implemented during the third quarter, the amount of reward expense recognized
has been minimal.
The Company's fuel prices (including taxes but excluding into-plane fees)
generally decreased from a high of 93 cents per gallon in January 1997 to a low
of 67 cents in July, and have since climbed to 71 cents in September and 74
cents in October 1997.
The Boeing Company has acquired the McDonnell Douglas Company, which
manufactured the Company's MD-80 and MD-90 series aircraft. The Boeing Company
has announced its intention to discontinue production of these aircraft in
mid-1999; however, The Boeing Company announced that it will continue to provide
spare parts and engineering support for these aircraft. Although management does
not expect the Company to suffer any material adverse impact from these events
in the foreseeable future, there can be no assurance that the Company will not
suffer financially or operationally on account of these events.
The Company's business is characterized, as is true for the airline
industry generally, by high fixed costs relative to revenues, and low profit
margins. A slight change in fare levels or load factors can have a substantial
impact on the Company's revenues. Generally, approximately one-half of the
Company's tickets are sold within the two weeks preceding the date of travel.
Accordingly, any changes in the Company's competitive environment (for instance,
changes in fares or service offered by its competitors) can have an immediate
and significant financial impact on the Company. In addition, the Company's
business is highly sensitive to general economic conditions. Any reduction in
airline passenger traffic (whether general or specific to the Company) may
materially and adversely affect the Company's financial position.
The Company has implemented a year 2000 compliance program designed to
ensure that the Company's computer systems and applications will properly manage
dates beyond 1999. The Company believes that it has allocated adequate resources
for this purpose and expects its year 2000 date conversion program to be
completed on a timely basis. However there can be no assurance that the systems
of other parties upon which the Company's businesses also rely will be converted
on a timely basis. The Company's business, financial condition, or results of
operations could be materially adversely affected by the failure of its systems
and applications or those operated by other parties to properly operate or
manage dates beyond 1999.
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Generally,
such statements are indicated by words or phrases such as "anticipate,"
"expect," "intend," "management believes" and similar words or phrases. Such
statements are based on current expectations and are subject to risks,
uncertainties and assumptions. Certain of these risks are described under Item
1. "Cautionary Statements" in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, expected, intended or believed
results.
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Selected Operating Statistics
Quarter Quarter Quarter
Ended Ended Percent Ended Percent
Sept. 30, 1997 Sept. 30, 1996 Change (1) June 30, 1997 Change (2)
------------------------------------------------------------------------ ---------
<S> <C> <C> <C> <C> <C>
Revenue passengers (4) 1,518,293 1,390,089 9.2 1,404,943 8.1
Revenue Passenger Miles (RPMs)(000s)(5) 876,278 848,278 3.3 802,508 9.2
Available Seat Miles (ASMs)(000s)(6) 1,253,986 1,239,825 1.1 1,161,784 7.9
Passenger load factor (percent)(7) 69.88 68.42 2.1 69.08 1.2
Breakeven load factor (percent)(8) 66.51 65.06 2.2 68.91 (3.5)
Passenger revenue per RPM (cents) 11.36 11.40 (0.4) 11.40 (0.4)
Passenger revenues per ASM (cents 7.94 7.80 1.8 7.87 0.9
Operating expenses per ASM (cents) 8.04 7.78 3.3 8.34 (3.6)
Aircraft in service at end of period 30 29 3.4 30 0.0
Average aircraft length of haul (miles) 511 536 (4.7) 513 (0.4)
Average passenger length of haul (miles) 577 610 (5.4) 571 1.1
Average cost of fuel per gallon (9) $ 0.69 $ 0.79 (12.7) $ 0.71 (2.8)
Nine Months Nine Months
Ended Ended Percent
Sept. 30, 1997 Sept. 30, 1996 Change
(3)
----------------- -------------------- -----------
Revenue passengers (4) 4,196,111 3,786,877 10.8
Revenue Passenger Miles (RPMs)(000s)(5) 2,401,404 2,263,359 6.1
Available Seat Miles (ASMs)(000s)(6) 3,532,581 3,356,248 5.3
Passenger load factor (percent)(7) 67.98 67.44 0.8
Breakeven load factor (percent)(8) 67.97 65.22 4.2
Passenger revenue per RPM (cents) 11.47 11.13 3.1
Passenger revenues per ASM (cents) 7.79 7.50 3.9
Operating expenses per ASM (cents) 8.24 7.63 8.0
Aircraft in service at end of period 30 29 3.4
Average aircraft length of haul (miles) 514 541 (5.0)
Average passenger length of haul (miles) 572 598 (4.3)
Average cost of fuel per gallon (9) $ 0.75 $ 0.74 1.4
(1) Percent change from the quarter ended September 30, 1996 to the quarter ended September 30, 1997.
(2) Percent change from the quarter ended June 30, 1997 to the quarter ended September 30, 1997.
(3) Percent change from the nine months ended September 30, 1996 to the nine months ended September 30, 1997.
(4) The number of trip segments flown by paying passengers.
(5) The number of seat miles flown by paying passengers.
(6) The number of seat miles available for paying passengers.
(7) RPMs divided by ASMs.
(8) The passenger load factor that would have resulted in the Company breaking even on a net income basis during the period
assuming yield, other operating revenues and total expenses remained constant.
(9) Jet fuel prices for the respective period, excluding into-plane service charges.
</TABLE>
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Results of Operations - Nine Months Ended September 30, 1997 Compared to Nine
Months Ended September 30, 1996 and Three Months Ended September 30, 1997
Compared to Three Months Ended September 30, 1996
General. The Company's operations (as measured by available seat miles)
increased by 5.3% in the first nine months of 1997 as compared to the first nine
months of 1996. Operating income grew slightly in the third quarter of 1997 as
compared to the third quarter of 1996. The Company's operating income for the
nine-months ended September 30, 1997, was significantly reduced year over year,
as a result of the Company's financial performance in the first two quarters of
1997.
In the first quarter, an historic January flood shut down the Reno, Nevada
airport and the Company's only reservations facility at that time for a two day
period. The closing of the airport and a substantial portion of the Company's
operation occurred during a period of record passenger travel demand during the
New Year's holiday. This caused a substantial reduction in available seat miles
below plan, reducing revenues and increasing costs per seat mile. The Company
also experienced decreased load factors during the quarter due to travelers
avoiding travel to or over Reno as a result of the negative publicity about the
flood.
In the second quarter, the Company grounded up to three aircraft at one
time (losing a total of 143 days of aircraft utilization) as a result of a
shortage of engines. The shortage was attributable to delays in engine overhauls
caused by an industry-wide shortage of spare parts, the sudden recall of two
spare engines leased from another airline, a higher than average frequency of
unscheduled engine changes, and an industry-wide limited availability of
JT8D-219 spare engines for lease. In addition to an increase in maintenance
expenditures, these factors led to a decrease in fleet utilization and an
increase in overall unit costs.
The Company's average aircraft utilization has increased from
approximately 9.4 hours per day in the first quarter of 1997 to 9.5 hours in the
second quarter and to 10.0 hours in the third quarter, each such period
reflecting slightly lower utilization than in the comparable periods of 1996.
Results in the third quarter, although an improvement compared to the third
quarter of 1996, were adversely impacted by increased costs of leasing
additional engines on a short term basis to improve the Company's operational
reliability and a general cost increase resulting from infrastructure
development intended to improve the Company's long-term profitability.
Net Income. For the nine months ended September 30, 1997, the Company
realized net income of $24,213, as compared to net income of $8.3 million
realized in the first nine months of 1996. The significant decline in financial
results was due primarily to unusually harsh weather conditions, the historic
flood in Reno, the engine shortage, increased costs of fuel in the first and
second quarters of 1997, and other operating cost increases. The Company
realized net income of $4.8 million in the third quarter of 1997, including a
gain of $1.3 million on the sale of a spare engine, which is classified as
nonoperating income. For the three months ended September 30, 1996, the Company
realized net income of $4.7 million including a gain of $945,000 on the sale of
a spare engine.
Revenue. The Company's operating revenues increased by 10.5% in the first
nine months of 1997, as compared to the same period of 1996, on a 5.3% increase
in operations, as measured by available seat miles. The Company's year-over-year
growth is primarily attributable to growth in the first quarter of 1997 as
compared to the first quarter of 1996, which resulted from the Company's
significant expansion of operations beginning April 1996. The Company's
operations (as measured by available seat miles) declined slightly in the second
quarter of 1997 as compared to the second quarter of 1996, primarily because the
Company's 1997 summer expansion occurred in May (as compared to early April in
1996), and a significant number of flights were cancelled on account of the
engine shortage. The Company's operations in the third quarter expanded by 1.1%
from 1996 to 1997.
Passenger revenue per available seat mile increased 3.9% from 7.50 cents to
7.79 cents from the first nine months of 1996 to the first nine months of 1997,
primarily due to a 3.1% increase in passenger yield, year over year, and a 0.8
percent increase in load factor. Passenger revenue per available seat mile
increased 1.8% in the third quarter of 1997 as compared to the third quarter of
1996 primarly due to a 2.1 percent increase in load factor, offset by a slight
decline in yields.
The increase in passenger yield from 11.1 cents for the first nine months
of 1996 to 11.5 cents for the first nine months of 1997 was attributable to a
higher fare environment on the West Coast, despite reimposition of the 10%
federal transportation excise tax on March 10, 1997. The tax was not in effect
for seven and a half months in 1996 and for two and a half months in 1997.
Yields declined slightly from the first quarter of 1997 to the second quarter of
1997, due to the reimposition of the 10% excise tax. Yields in the third quarter
of 1997 declined slightly as compared to the second quarter of 1997 and also as
compared to the third quarter of 1996. As discussed above, the excise tax
structure changed on October 1, 1997. Management does not expect this change to
materially impact the Company's results in the fourth quarter of 1997.
The Company's load factor increased in the third quarter and first nine
months of 1997 as compared to the comparable periods in the prior year.
Other revenue accounted for 5.8% of the Company's total revenues during the
first nine months of 1997, as compared to 4.8% for the same period in 1996, due
primarily to increases in charter revenues and rent from the lease of an MD-80
aircraft owned by the Compmany.
Operating Expenses. While the Company's scope of operations (as measured by
available seat miles) increased 5.3% from the first nine months of 1996 to the
first nine months of 1997, the Company's operating expenses increased 13.7%.
Most items of expense, including maintenance, salaries, aircraft leases and
depreciation increased on a percentage basis more than the increase in scope of
operations, due to the unusually high number of flight cancellations
attributable to the flood and the engine shortages (these occurrences reduced
the Company's operations, without a comparable reduction in expense), an
approximately 3% decline in aircraft utilization and a 5.0% decrease in average
aircraft stage length. Salaries also increased in substantial part because the
Company incurred up-front expenses related to future growth, including: hiring
and training over 250 reservation agents for the opening of the Company's second
reservations center in Las Vegas; increases in other staffing levels; and
preparing to switch reservations database systems in the fourth quarter of 1997.
Depreciation and amortization expense almost doubled when compared to the
nine-month period in 1996 primarily as a result of the Company's purchase of a
second aircraft in July 1996 and construction of a hangar in Reno, Nevada, which
was completed in late 1996.
Fuel expenses increased 7.3% from the first nine months of 1996 to the
first nine months of 1997 primarily due to increased fuel prices in the first
quarter of 1997. During the first nine months of 1997, fuel prices (including
taxes but excluding into-plane fees) declined from an average of 93 cents per
gallon in January to 71 cents per gallon in September. The Company purchases
approximately eight million gallons of fuel per month; at that volume, the 22
cents per gallon difference between January 1997 and September 1997 fuel prices
represents a decrease of approximately $1.8 million in the Company's monthly
fuel expense. In June 1997, the Company contracted to purchase 12 million
gallons of fuel for delivery between August 1, 1997 and January 31, 1998, at the
Company's Reno and Las Vegas hubs at an average purchase price of approximately
70 cents per gallon (including taxes but excluding into-plane fees). This
purchase represents approximately 25% of the Company's anticipated fuel
requirement during the delivery period. The Company may enter into similar
advance bulk purchases or utilize fuel price hedges in the future.
The Company's maintenance expense increased during the first nine months of
1997 as compared to the 1996 period as a result of increased overhaul costs
attributable in part to a slight aging of the Company's fleet (which increases
the cost of annual airframe maintenance checks), refurbishment of the interiors
of many of the Company's aircraft and a rate of unscheduled engine removals
higher than the Company's historical average. Insurance costs for the first nine
months of 1997 declined on an absolute basis year-over-year due to the Company's
obtaining lower insurance rates. Commissions expense increased, on a percentage
basis, less than the increases in operations and revenues due to a larger
percentage of the Company's sales being handled internally.
For the reasons discussed above, the Company's cost per available seat mile
increased from 7.6 cents in the first nine months of 1996 to 8.2 cents in the
first nine months of 1997. This cost increase more than offset higher revenue
per ASM experienced during the period, resulting in the Company's breakeven load
factor increasing from 65.2% to 68.0%, period over period. In the third quarter
1997, the Company's cost per available seat mile decreased to 8.0 cents as
compared to 8.3 cents in the second quarter of 1997, but were higher when
compared to 7.8 cents in the third quarter of 1996. Management believes the
increase in unit costs in the third quarter is in part attributable to
infrastructure developments intended to position the Company for further growth.
Management continues to focus on reducing the Company's controllable unit costs
through increased aircraft utilization and other measures.
<PAGE>
<TABLE>
<CAPTION>
Operating Expenses as a Percent of Operating Revenues
The following table sets forth the components of the Company's operating
expenses, expressed as a percentage of operating revenues for the nine months
and three months ended September 30, 1996 and 1997.
Nine Months Three Months
Ended Sept. 30, Ended Sept. 30,
------------------ ----------------
<S> <C> <C> <C> <C>
1996 1997 1996 1997
---- ---- ---- ----
Salaries, wages and benefits 15.3% 17.2% 15.4% 17.1%
Aircraft fuel and oil 18.3 17.7 18.8 16.7
Aircraft leases 16.9 17.8 16.1 17.1
Maintenance 7.5 8.5 7.5 8.7
Handling, landing and airport fees 9.7 10.1 9.3 9.8
Advertising, sales and distribution 8.8 7.5 8.6 6.6
Commissions 5.6 5.3 5.5 5.3
Facility leases 3.1 3.5 2.9 3.5
Insurance 2.2 1.6 1.9 1.4
Communications 1.2 1.4 1.2 1.3
Depreciation and amortization 1.5 2.5 1.6 2.5
Other operating expenses 6.7 6.5 7.0 5.8
---- ---- ---- ----
96.8% 99.6% 95.8% 95.8%
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Operating Expenses per Available Seat Mile
The following table sets forth the Company's unit costs (operating expenses
per available seat mile, in cents) for the nine months and three months ended
September 30, 1996 and 1997.
Nine Months Three Months
Ended Sept. 30, Ended Sept. 30,
---------------- ---------------
<S> <C> <C> <C> <C>
1996 1997 1996 1997
---- ---- ---- ----
Salaries, wages and benefits 1.21 1.42 1.25 1.43
Aircraft fuel and oil 1.44 1.47 1.52 1.40
Aircraft leases 1.33 1.48 1.31 1.44
Maintenance 0.59 0.70 0.61 0.73
Handling, landing and airport fees 0.76 0.83 0.75 0.82
Advertising, sales and distribution 0.70 0.62 0.70 0.55
Commissions 0.44 0.44 0.45 0.45
Facility leases 0.25 0.29 0.24 0.29
Insurance 0.17 0.13 0.15 0.12
Communications 0.10 0.12 0.10 0.11
Depreciation and amortization 0.12 0.21 0.13 0.21
Other operating expenses 0.52 0.53 0.57 0.49
---- ---- ---- ----
7.63(cents) 8.24(cents) 7.78(cents) 8.04(cents)
==== ==== ==== ====
</TABLE>
<PAGE>
Liquidity and Capital Resources
As of September 30, 1997, the Company's cash, cash equivalents and
short-term investments totaled $7.4 million, as compared to $18.5 million at the
beginning of the year. On October 9, 1997, the Company realized approximately
$33.6 million (net of issuance discounts but before deduction of other offering
expenses) from the sale of $35 million liquidation preference of a new series of
preferred stock. The preferred stock accrues dividends at a rate of 9% and is
convertible into common stock at an initial conversion price of $8.625 per
share. The preferred stock is not reflected on the Company's September 30, 1997,
balance sheet. As of September 30, 1997, on a pro forma basis as adjusted for
the completion of the sale of the preferred stock (but not adjusted for
operating results since that date) the Company had cash, cash equivalents and
short-term investments of $41.0 million and stockholder's equity of $46.7
million.
Operating activites accounted for approximately $3.8 million of the decline
in cash from January 1 to September 30, 1997. Increases in accounts receivable
and prepaid expenses, including aircraft maintenance deposits and fuel purchased
for future delivery were offset in part by depreciation charges and increases to
the air traffic liability. During the nine months ended September 30, 1996,
operating activities generated approximately $13.0 million of cash. Net income
contributed $8.3 million and depreciation expense contributed $4.3 million.
Increases in accounts receivable, prepaids and deposits were offset by
corresponding increases in air traffic liability, accounts payable and accruals.
Cash provided by financing activities during the nine-month period totaled
$14.5 million, as proceeds from issuance of $18.9 million of notes payable
(primarily to finance the Company's acquisitions of an aircraft and a spare
aircraft engine), were partly offset by $5.1 million of principal payments made
on the Company's long-term debt and capital leases. Proceeds from exercise of
Company stock options provided $616,000.
Cash used in investing activities during the nine-month period was $21.0
million, as the proceeds from sales of a spare engine and short-term investments
of $3.5 million, net, were offset by the Company's acquisition of $24.5 million
of property and equipment (including the purchase of an aircraft for $17.5
million).
As of August 8, 1997, the Company entered into a Revolving Line of Credit
Loan Agreement (the "Loan Agreement") with U.S. Bank of Nevada. The Loan
Agreement provides for a revolving line of credit (the "Revolving Credit
Facility") in the aggregate principal amount of up to $10 million. The Revolving
Credit Facility bears interest at the Company's option at a rate equal to either
(i) the Prime Rate, plus 0.50% or (ii) LIBOR, plus 2.65%. The Revolving Credit
Facility will mature on August 6, 1998. Prepayments are permitted without
penalty. Repayment of the Revolving Credit Facility is secured by a first
priority lien on the Company's unencumbered spare parts and certain other
assets. The Loan Agreement requires the Company to satisfy certain financial
tests during the term of the Revolving Credit Facility, including minimum debt
service coverage, average funded debt to EBITDA, and adjusted cash flow. As of
November 10, 1997, no amounts were outstanding under such facility.
As of October 1, 1997, the Company's fleet totaled 31 aircraft,
including one aircraft leased to another airline. The Company owned three of
such aircraft, an MD-87 and two MD-83 aircraft, and leased the remainder of the
fleet under operating leases with initial terms of between one and 18 years. One
MD-83 aircraft owned by the Company has been leased to an unaffiliated carrier
through June 1998, at which time the Company expects to place the aircraft in
service. The other MD-83 aircraft was previously leased by the Company and was
purchased in September 1997 using $15.5 million of five year debt financing
bearing interest at LIBOR plus 2.8%. In March 1997, the Company took delivery of
an MD-87 aircraft under a six-year lease. The Company has also renewed four
aircraft leases.
The Company leased one additional spare engine in March 1997, and three
additional spare engines in May and June 1997, for terms ranging from six months
to three years. Also, in June 1997, the Company purchased an additional spare
engine with financing of $2.8 million, due in October 2002. As noted above, the
Company sold a spare engine in September 1997.
In October 1997, the Company agreed to lease two additional MD-90 aircraft
under 18 year leases commencing in January 1998, subject to certain conditions.
The Company is also negotiating to acquire two MD-82 aircraft.
Management believes that the Company's current cash position (including
proceeds from the sale of the Preferred Stock), together with expected cash flow
generated from operations, available lines of credit,and anticipated funding for
capital expenditures mentioned above will be sufficient to meet the Company's
obligations and capital requirements for the next twelve months. Nevertheless,
airline results are highly sensitive to various factors including the price of
fuel and the actions of competing airlines, either of which can materially and
adversely affect the Company's liquidity and cash flows. The Company may seek to
raise additional funds through sales of equity or debt (secured or unsecured)
securities, or the sale and leaseback of assets, including aircraft and spare
engines.
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On October 10, 1997, the Company sold $35 million liquidation
preference value of a new series of Series A Cumulative Convertible Exchangeable
Preferred Stock (the "Preferred Stock"), realizing net proceeds of approximately
$33.6 million. The stock was issued in a private placement to SBC Warburg Dillon
Read, Inc., as initial purchaser, who remarketed the shares to institutional and
other qualified buyers.
The Preferred Stock was sold by the Company at its stated liquidation
preference, less a 4% discount to the initial purchaser. The Company and the
initial purchaser relied on the exemption provided under Rule 144A, based on the
qualifications of the initial purchaser and of the institutions and other
qualified buyers to whom it remarketed the stock.
The information set forth under Item 1 in the Company's Registration
Statement on Form 8-A, dated November 13, 1997, is here incorporated by
reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
3.1 Certificate of Designations for the Company's
Series A Cumulative Convertible Exchangeable
Preferred Stock (Incorporated by reference
to Exhibit 3 to the Company's Form 8-A Registration
Statement filed on November 13, 1997 (the "1997
Form 8-A")
3.2 By-laws of the Company (Incorporated by reference to
Exhibit 2 to the 1997 Form 8-A)
10.1 Revolving Line of Credit Loan Agreement with U.S. Bank
10.1(a) Revolving Line of Credit Promissory Note
10.1(b) Security Agreement
10.2 MultiHost Agreement with The SABRE Group, Inc.
(Confidential treatment has been requested for portions
of this Agreement)
10.3 Reno Air, Inc. Employee Stock Incentive Plan
10.4 Reno Air, Inc. Director Stock Option Plan
10.5 Employment Agreement with B. J. Rone
11 Statement Re: Computation of Earnings Per Share
for the Three and Nine Months ended September 30, 1997
and September 30, 1996
B. Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RENO AIR, INC.
DATE: November 14, 1997 By: B.J. Rone
-----------------------
B. J. Rone
as Chief Financial Officer
and on behalf of Registrant
EXHIBIT 10.1
REVOLVING LINE OF CREDIT
LOAN AGREEMENT
THIS REVOLVING LINE OF CREDIT LOAN AGREEMENT (the "Agreement") is made
effective as of the 8th day of August, 1997, by and between RENO AIR, INC., a
Nevada corporation (the "Borrower"), and U.S. BANK (the "Lender").
W I T N E S S E T H :
WHEREAS, Borrower is a national air carrier providing scheduled air
transportation for passengers, freight, and mail and serving various cities in
the United States and Canada; and
WHEREAS, Lender has agreed to lend to Borrower certain funds (the
"Loan") on a revolving line of credit basis in an amount not to exceed at any
time TEN MILLION AND NO/100THS DOLLARS ($10,000,000.00) (the "Maximum Loan
Amount") for the purpose of providing Borrower with funds to support its
operational needs and to finance the purchase of fixed assets.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and promises
of the parties and subject to the following terms and conditions, Borrower
agrees to borrow from Lender, and Lender agrees to loan to Borrower the Loan for
the purposes provided herein. The Loan shall be evidenced by a Revolving Line of
Credit Promissory Note (the "Note") bearing even date herewith, and repayment
thereof shall be secured by a Security Agreement (the "Security Agreement")
under the terms of which Borrower shall grant to Lender a security interest in
certain collateral described in Section 3 thereof (the "Collateral"). This
Agreement, the Note, the Security Agreement, and any and all other documents now
or hereafter executed by Borrower or any other person or party in connection
with or to evidence or secure payment of the Loan are sometimes hereafter
collectively referred to as the "Loan Documents".
A. DISBURSEMENTS.
A.1 General. Provided that no Event of Default (as hereafter
defined) then exists and is continuing hereunder, Lender shall disburse the Loan
from time to time at the request of Borrower for the purposes provided herein
once the original of this Agreement, the Note, the Security Agreement, and all
other Loan Documents, all fully executed, have been delivered to Lender, and
once Borrower has paid Lender's reasonable attorney's fees and costs incurred in
connection herewith. Lender shall be under no obligation to make any
disbursements under the Loan after August 6, 1998.
A.2 Maximum Availability. The maximum amount available to
Borrower under the Loan at any time (the "Maximum Availability") shall be an
amount equal to the lesser of (a) the Maximum Loan Amount; or (b) the Specified
Value (as defined below) of the Collateral.
For purposes of this Agreement and the other Loan Documents,
the term "Specified Value" shall mean the amount reasonably determined by a
qualified aircraft parts specialist retained by Lender at Borrower's expense
equal to fifty percent (50%) of the fair market value of the Collateral, based
upon an annual evaluation of the items shown on the unencumbered asset listing
provided annually by Borrower to Lender pursuant to Section B.3 below.
A.3 Conditions. Lender shall be under no obligation to make
the initial disbursement under the Loan until Borrower has caused to be provided
to Lender an opinion of Borrower's counsel in all respects acceptable to Lender,
as to the following: (a) that Borrower is duly organized and existing and in
good standing to transact business in Nevada; (b) that all conditions required
by Borrower's organizational documents to authorize Borrower to enter into the
Loan transaction and execute the Loan Documents have been satisfied; (c) that
all licenses, permits and other governmental permits necessary to conduct
Borrower's business (where the failure to maintain the same would have a
material adverse effect upon its operations ("Material Adverse Effect")) as
presently conducted are in effect; (d) that the Loan Documents constitute valid,
legal and enforceable obligations of Borrower in accordance with their terms;
and (e) that Borrower's execution of the Loan Documents and performance of its
obligations thereunder shall not constitute a default by Borrower under the
terms of any license, permit or approval held by Borrower, or any agreement to
which Borrower is a party.
A.4 Loan Fees.
(a) Facility Fee. As a condition of Lender's obligation
to make the initial disbursement under the Loan, Borrower shall pay to Lender a
facility fee in the sum of $25,000.00 upon the execution of this Agreement.
(b) Non-Usage Fee. On the first day of November,
February, May, and August of each year, commencing on the first day of November,
1997, Borrower shall pay to Lender in arrears a non-usage fee in an amount equal
to one-quarter of one percent (0.25%)per annum (i.e. 0.0625% per quarter) of the
difference between the Maximum Loan Amount and average outstanding amount of the
Loan, during the previous three-month period in each case as reasonably
determined by Lender. The calculation of such non-usage fee shall be exclusive
of any out-of-debt periods required under Section A.5 below.
A.5 Out of Debt Requirement. The Loan shall have a zero (0)
balance for two (2) periods of thirty (30) consecutive days each during the term
of the Loan. At lease one of such out of debt periods must occur after the
initial disbursement under the Loan.
A.6 Additional Filings. In the event that Borrower desires to
use proceeds of the Loan for the purchase of aircraft, airframes or aircraft
engines, as a condition thereof Borrower shall execute and deliver to Lender
such documents and instruments as Lender shall reasonably determines are
necessary to insure that Lender has a first lien security interest therein,
including, without limitation, filings with the Federal Aviation Administration.
B. REPRESENTATIONS, COVENANTS, AND WARRANTIES.
Borrower hereby unconditionally represents, covenants and
warrants as follows:
B.l Power. If Borrower or any signatory who signs on its
behalf is a corporation, partnership, limited liability company, or trust, that
it is a corporation duly incorporated, or a partnership, limited liability
company, or trust duly organized, and in any event validly existing under the
laws of the state of its incorporation or origination and duly qualified to do
business in the State of Nevada, with requisite power and authority to (i) incur
the indebtedness evidenced by the Note; (ii) enter into this Agreement and grant
the Security Agreement; (iii) enter into any other Loan Documents executed and
delivered to Lender concurrently herewith; and (iv) conduct its business and to
own and lease its assets.
B.2 Authority. That this Agreement, the Note, the Security
Agreement and all other Loan Documents executed and delivered to Lender
concurrently herewith were executed in accordance with the requirements of law,
and, if Borrower or any signatory who signs on its behalf is a corporation,
partnership, limited liability company, or trust, in accordance with any
requirements of its articles of incorporation, articles of partnership, articles
of organization and/or operating agreement, or declaration of trust, and any
amendments thereto, and that the execution of the same, and the full and
complete performance of the provisions thereof, is authorized by its bylaws,
articles of partnership, articles of organization and/or operating agreement, or
declaration of trust, or a resolution of its board of directors, partners,
members and/or managers or trustees, and will not result in any breach of, or
constitute a default under, or result in the creation of any lien, charge or
encumbrance (other than those contained herein or in any instrument delivered to
Lender concurrently herewith) upon any property or assets of Borrower under any
indenture, mortgage, deed of trust, bank loan or credit agreement or other
instrument or agreement to which Borrower is a party or by which Borrower is
bound or, if applicable, under Borrower's corporate charter, bylaws, articles of
partnership, articles of organization and/or operating agreement, or declaration
of trust. No governmental or other authorization which has not been obtained is
required for the creation of the liens or the enforcement by Lender of its
remedies under the Loan Documents. Each of the Loan Documents, when executed and
delivered, will constitute the legal, valid and binding obligations of Borrower
enforceable against Borrower in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency or other similar
laws affecting the rights of creditors generally.
B.3 Financial Statements. Any and all balance sheets,
statements of income or loss, reconciliation of surplus and financial data of
any other kind heretofore furnished Lender by or on behalf of Borrower are true
and correct in all material respects, and fully and accurately present the
financial condition of the subjects thereof as of the dates thereof, and, except
as otherwise disclosed to Lender in writing, no material adverse change has
occurred in the financial condition reflected therein since the dates of the
most recent financial data submitted to Lender. During the Loan term, Borrower
shall provide Lender with: (i) copies of annual CPA audited financial statements
for Borrower within 120 days following the end of each fiscal year; (ii) copies
of quarterly internally prepared financial statements for Borrower within 60
days following the end of each fiscal quarter; (iii) quarterly and annual
compliance certificates executed by Borrower's chief financial officer
certifying as to Borrower's compliance with the financial covenants described in
Section B.7 below, which certificates shall include calculations demonstrating
such compliance and shall accompany the quarterly and annual financial
statements described in (ii) and (i) above, respectively; (iv) copies of an
annual unencumbered asset list, in form acceptable to Lender, within 60 days
following the end of each year; and (v) such other financial information
relating to Borrower or the Collateral as Lender may reasonably request.
B.4 Litigation. Except as otherwise disclosed in Exhibit "A"
attached hereto, there are no actions, suits or proceedings which Borrower
reasonably considers to be of a material nature (collectively "Proceedings")
pending, or to the knowledge of Borrower threatened, against or affecting
Borrower or Borrower's interest in the Collateral and no event ("Adverse Event")
has occurred (including specifically Borrower's execution of this Agreement, the
Note, the Security Agreement or any of the other Loan Documents) which will
violate, be in conflict with, result in the breach of or constitute (with due
notice or lapse of time, or both) a default under any material Legal Requirement
(as hereafter defined), or result in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever on the Collateral other than the
liens and security interests created by, or referred to in, the Loan Documents.
Borrower shall give Lender written notice of any pending or threatened
Proceedings or any Adverse Event promptly after Borrower obtains knowledge
thereof.
B.5 Documents and Other Information. All documents and other
information delivered to Lender pursuant to any of the Loan Documents are and
will be complete and correct in all material respects at the time of delivery to
Lender.
B.6 Permits. Before requesting, or being entitled to, any
disbursement of the Loan, Borrower shall have complied with all Legal
Requirements. Before requesting, or being entitled to, any disbursement of the
Loan, Borrower shall have complied with all requirements of the governmental
entities with jurisdiction over the Collateral.
B.7 Financial Covenants. During the term of the Loan Borrower
shall:
(a) maintain a Minimum Debt Service Coverage Ratio
(defined as [net income before taxes, depreciation, amortization, interest
expense, and specific aircraft lease expense on leased aircraft that converts to
ownership], [interest expense and current portion of long term debt (excluding
non-cash obligations for current portion of deferred leases payable)]) of not
less than 1.25 to 1.00 to be measured annually; and
(b) maintain an Average Funded Debt to EBITDA Ratio
(defined as [interest bearing indebtedness][earnings before interest, taxes,
depreciation, amortization, and specific aircraft lease expense on leased
aircraft that converts to ownership]) of not greater than 7.00 to 1.00 to be
measured annually;
(c) maintain an Adjusted Cash Flow Ratio (defined as
[earnings before interest, taxes,depreciation, amortization, plus lease expense]
[current portion of long term debt (excluding non-cash obligations for current
portion of deferred leases payable), interest expense and lease expense]) of not
less than 0.85 to 1.00 tobe tested quarterly on a rolling four (4) quarter
basis. This ratio will increase to 1.00 to 1.00 for the rolling four (4)
quarters commencing March 31,1998;
(d) maintain a Minimum Current Ratio(defined as [total
current assets][total current liabilities]) of not less than 0.75 to 1.00 to be
measured quarterly; and
(e) maintain unencumbered Collateral (except for a
security interest in favor of Lender) having a fair market value of not less
than two hundred percent (200%) of the Maximum Loan Amount.
The foregoing representations, covenants, and warranties shall
survive until all sums payable pursuant to the Note or this Agreement, or which
are secured by the Security Agreement or any of the other Loan Documents, have
been paid in full.
C. DEFAULT.
C.l Events of Default. Any of the following shall constitute a
default hereunder (an "Event of Default"):
(a) The failure of Borrower to make any payment required
hereunder, under the Note, or under any other Loan Document within fifteen (15)
days after written notice to Borrower that such payment is due;
(b) The false or misleading nature of any representation
or warranty of Borrower contained herein or in any representation to Lender
concerning the financial condition of Borrower;
(c) The failure of Borrower to fully perform or comply
with any and all covenants and agreements hereunder or under the other Loan
Documents; provided, however, that such failure shall notbe an Event of Default
hereunder if such failure is not specifically covered elsewhere in this Section
or in any of the other Loan Documents, such failure does not relate,in the
judgment of Lender, to a matter which is of an emergency nature, and Borrower
performs or complies with such covenant or agreement within thirty(30) days
after performance thereof or compliance therewith is due. If such failure is
specifically covered elsewhere herein or in the Note or any of the other Loan
Documents, the foregoing 30-day grace period shall not be applicable in such a
situation and the grace period, notice requirement and/or cure period, if any,
set forth in such other reference shall control;
(d) The failure of Borrower to perform as required under
any other Loan Document (other than to make a payment due thereunder), subject
to any applicable notice requirement and opportunity to cure; provided, however,
if such other Loan Document contains no such notice requirement, then a thirty
(30) day notice requirement and opportunity to cure shall apply;
(e) The admission by Borrower in writing of its inability
to pay its debts generally as they become due, or the filing by Borrower of a
petition or action for relief under an bankruptcy, reorganization or insolvency
law, or any other law or laws for the relief of, or relating to, debtors;
(f) The filing of any involuntary petition under any
bankruptcy or insolvency law against Borrower, or the appointment of a
custodian, receiver or trustee to take possession of the assets of Borrower,
unless such petition or appointment is or has been set aside or withdrawn within
ninety (90) days from the date of such filing or appointment;
(g) The filing by or against Borrower of a petition
seeking the liquidation or dissolution of such Borrower or the commencement of
any other procedure to liquidate or dissolve such Borrower (if such petition or
procedure is not dismissed or terminated within ninety (90) days after it is
filed or otherwise commenced), or the occurrence of any event, condition or
circumstance which causes the liquidation of such Borrower (if such event,
condition or circumstance is not cured within ninety (90) days after it arises)
or
(h) Any Event of Default by Borrower under that certain
Promissory Note Secured By Deed of Trust in the principal amount of
$2,600,000.00 dated February 11, 1997, or under any loan document executed in
connection therewith.
For the purpose of paragraph C.1, whenever Borrower is provided with a
period of time within which to cure any Event of Default, and such default is
not reasonably susceptible to cure within such period of time, it shall be
deemed cured if Borrower commences curative action within such time period and
diligently pursues such action thereafter.
C.2 Acceleration. Upon the occurrence of an Event of Default
hereunder, the entire unpaid balance of the Note including all accrued interest
shall, at the option of Lender, become immediately due and payable and Lender
shall have such rights of enforcement as may be afforded by law, hereunder, or
under the Note, the Security Agreement or any of the other Loan Documents.
D. REMEDIES.
D.l General. Upon the occurrence of an Event of Default
hereunder (subject to any applicable notice requirement and opportunity to
cure), Lender shall have all rights and remedies available to Lender under the
law, hereunder or under the Note (including but not limited to the right to
accelerate the Note) or any of the other Loan Documents.
D.2 Curing of Defaults by Disbursement. Upon the occurrence of
an Event of Default which may be cured by the payment of money, Lender, without
waiving any right of acceleration or foreclosure under the Note which Lender may
have by reason of such default, or any other right Lender may have against
Borrower because of such default, shall have the right to make such payment from
the Loan, thereby curing the default.
D.3 Remedies are Cumulative. All remedies of Lender provided
for herein are cumulative and shall be in addition to any and all other rights
and remedies provided in the Note, the Security Agreement or any of the other
Loan Documents or by law. The exercise of any rights of Lender hereunder shall
not in any way constitute a cure or waiver of a default hereunder or elsewhere,
or invalidate any act done pursuant to any notice of default, or prejudice
Lender in the exercise of any of its other rights hereunder or elsewhere unless,
in the exercise of said rights, Lender realizes all amounts owed to it hereunder
and under the Note, the Security Agreement and the other Loan Documents.
D.4 Right of Contest. Borrower shall have the right to contest
in good faith any claim, demand, levy, or assessment by a third party, the
assertion of which would constitute an Event of Default hereunder. Any such
contest shall be prosecuted diligently and in a manner not prejudicial to Lender
or the rights of Lender hereunder. In the event that Lender reasonably
determines that such claim, demand, levy or assessment could adversely affect
Lender's interest in the Collateral, upon demand by Lender, Borrower shall
deposit funds with Lender or obtain and record a bond satisfactory to Lender in
an amount sufficient to cover any amounts which may be owing in the event the
contest may be unsuccessful. Borrower shall make such deposit or obtain and
record such bond, as the case may be, within fifteen (15) days after demand
therefor and, if made by payment of funds to Lender, the amount so deposited
shall be disbursed in accordance with the resolution of the contest to Borrower
or the adverse claimant.
D.5 Additional Fee. In the event that the Loan is not paid in
full on the Maturity Date (as defined in the Note), then Borrower agrees to pay
an additional loan fee to Lender upon demand in an amount equal to three percent
(3%) per annum of the then outstanding balance of principal, pro-rated daily
from the Maturity Date to the date of payment in full.
E. MISCELLANEOUS.
E.l No Waiver. No waiver of any Event of Default by Borrower
hereunder shall be implied from any subsequent omission by Lender to take action
on account thereof, and no express waiver shall affect any Event of Default
other than that specified in the waiver and the waiver shall be operative only
for the time and to the extent therein stated. Waivers of any covenant, term, or
condition contained herein shall not be construed as a waiver of any subsequent
breach of the same covenant, term or condition. The consent or approval by
Lender to or of any act by Borrower requiring further consent or approval shall
not be deemed to waive or render unnecessary the consent or approval to or of
any subsequent similar act.
E.2 No Third Parties Benefitted. This Agreement is made and
entered into for the sole protection and benefit of Lender (and any
participating lender) and Borrower. All conditions of the obligations of Lender
to make advances hereunder are imposed solely and exclusively for the benefit of
Lender and may be freely modified by Lender with the concurrence of Borrower or
waived by Lender in whole or in part at any time if in its sole discretion it
deems it advisable to do so. No person other than Borrower shall have standing
to require Lender to make any Loan advances or be a beneficiary of this
Agreement or of any of the advances to be made hereunder.
E.3 Plural Borrowers Jointly and Severally Liable.
[Intentionally Omitted.]
E.4 Notices. All notices or other communications required or
permitted to be given hereunder shall be in writing and shall be considered as
properly given if mailed by first class United States mail, postage prepaid,
registered or certified with return receipt requested, or by delivering the same
by a nationally recognized overnight courier service to the intended addressee,
or by telefax. Notice so mailed shall be effective three (3) business days
following its deposit, and notice by courier service shall be effective on the
first business day after received. Notice given in any other manner shall be
effective only if and when received by the addressee. For purposes of notice,
the addresses of the parties shall be as set forth on the signature page hereof;
provided, however, that either party shall have the right to change its address
for notice hereunder to any other location by the giving of notice to the other
party in the manner set forth above.
E.5 Expenses. Borrower shall pay promptly all costs, charges,
and expenses incurred by Lender in connection with the Loan, including but not
limited to commitment fees, loan fees, reasonable costs of inspection, filing
fees, processing fees, appraisal fees, reasonable attorneys' fees (up to the sum
of $________), personal property taxes and insurance premiums, and any and all
fees in consideration of Lender's commitment to provide the Loan.
E.6 Actions. Lender shall have the right to appear in or
defend any action or proceeding purporting to affect the Collateral, or the
rights, duties, or liabilities of the parties hereunder, or the disbursement of
any funds. In connection therewith, Lender may incur and pay costs and expenses,
including reasonable attorneys' fees, and, if Lender is the prevailing party,
Borrower shall pay to Lender on demand all such costs and expenses and Lender is
authorized to disburse funds from the Loan for such purpose.
E.7 Commissions and Brokerage Fee. The parties hereto each
represent and warrant to the other that there are no commissions, charges or
brokerage fees owed to any third party in connection with the Loan. In the event
that such representation or warranty is incorrect, then the party incurring any
such commission, charge or fee shall pay the same and shall indemnify the other
party from any loss or damage resulting therefrom.
E.8 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of Nevada, except as preempted by federal
law.
E.9 Heirs, Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the heirs, successors, assigns and
personal representatives of the parties hereto; provided, however, that Borrower
shall not assign its rights hereunder in whole or in part without the prior
written consent of Lender, which such consent shall not be unreasonably withheld
by Lender. Any such assignment without consent shall be void. Lender may from
time to time sell participations in the Loan to any person (including affiliates
of Lender) without notice to or the consent of Borrower. In connection with the
sale of participations, Lender is authorized to provide to potential
participants information regarding the Collateral and Borrower which Lender may
have in its possession. No such sale of participations shall, without Borrower's
written consent, relieve Lender of its obligations hereunder.
E.10 Time. Time is of the essence of this Agreementand each
and every provision hereof in which time is an element.
E.11 Legal Requirements. "Legal Requirements" shall mean (i)
any and all present and future judicial decisions, statutes, rulings,
directions, rules, regulations, permits, certificates or ordinances of any
governmental authority in any way applicable to Borrower or the Collateral,
including the ownership, use, possession, operation, maintenance, alteration, or
repair thereof, (ii) Borrower's presently or subsequently effective bylaws and
articles of incorporation or partnership, limited partnership, joint venture,
trust or other form of business association agreement, (iii) any and all terms,
provisions and conditions of any commitment between Lender and Borrower which
are to be performed or observed by Borrower, and (iv) any and all leases and
other contracts (written or oral) of any nature that relate, in any way, to the
Collateral and to which Borrower may be bound, including, but not limited to,
the Lease.
E.12 Relationship of Parties. The relationship between
Borrower and Lender is, and at all time shall remain, solely that of debtor and
creditor, and shall not be, or be construed to be, a joint venture, equity
venture, partnership or other relationship of any nature, and Lender neither
undertakes nor assumes any responsibility or duty to Borrower or to any other
person with respect to the Collateral or the Loan, except as expressly provided
in the Loan Documents; and notwithstanding any other provision of the Loan
Documents: (a) Lender is not, and shall not be construed as, a partner, joint
venturer, alter ego, manager, controlling person or other business associate or
participant of any kind of Borrower or its partners and Lender does not intend
to ever assume such status; (b) Lender shall in no event be liable for any
debts, expenses or losses incurred or sustained by Borrower; and (c) Lender
shall not be deemed responsible for or a participant in any acts, omissions or
decisions of Borrower or its partners.
E.13 Attorneys' Fees and Costs. If any legal action or any
arbitration or other proceeding (including a proceeding in bankruptcy) is
brought for the enforcement of this Agreement or because of an alleged dispute,
Event of Default or misrepresentation in connection with any of the provisions
of this Agreement, the successful or prevailing party shall be entitled to
recover reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which he may be entitled.
E.14 Expiration of Commitment. Lender's obligation to disburse
the Loan is further conditioned upon the execution of this Agreement and the
other Loan Documents on or before August 31, 1997.
E.15 Interpretation. This Agreement shall not be construed
against the party preparing it, but shall be construed as if both parties
jointly prepared this Agreement and any uncertainty and ambiguity shall not be
interpreted against any one party.
E.16 Partial Invalidity. In the event that any of the terms
hereof shall be held to be invalid or unenforceable by any court of competent
jurisdiction, such fact shall not affect the validity or enforceability of the
remaining terms hereof.
E.17 Reasonableness Standard. Except as otherwise provided
herein, whenever Lender's consent or approval is required in this Agreement,
such consent or approval shall not be unreasonably withheld or delayed.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
date first above written.
Reno Air, Inc. RENO AIR, INC., a Nevada corporation,
220 Edison Way
Reno, Nevada 89502 By: B.J. RONE
--------------------------
B.J. RONE
Its: Senior Vice President and
Chief Financial Officer
"Borrower"
U.S. Bank U.S. BANK
Commercial Services Group
1 East Liberty Street
Reno, Nevada 89501
By: JACK W. PRESCOTT
Its: Vice President
"Lender"
<PAGE>
EXHIBIT 10.1(a)
REVOLVING LINE OF CREDIT
PROMISSORY NOTE
$10,000,000.00 August 8, 1997
FOR VALUE RECEIVED, at the times hereinafter stated, the undersigned
(the "Borrower") promises to pay to U.S. BANK, or order ("Lender"), at U.S.
Bank, Commercial Services Group, 1 East Liberty Street, Second Floor, Reno,
Nevada 89501, or at such other place as the holder hereof may from time to time
designate in writing, in legal tender of the United States of America, the
principal sum of TEN MILLION AND NO/100THS DOLLARS ($10,000,000.00), or such
lesser amount as may be outstanding under the loan (the "Loan") advanced
pursuant to the terms of that certain Revolving Line of Credit Loan Agreement of
even date herewith between Lender and Borrower (the "Loan Agreement"), with
interest from the date or dates of disbursement on the unpaid principal balance
from time to time outstanding, at the interest rate per annum (the "Interest
Rate") selected by Borrower pursuant to the terms of Addendum "A" to this Note,
such interest rates being either:
(A) The Prime Rate, plus one-half of one percent (0.50%), as
the same may fluctuate from time to time; or
(B) IBOR, plus two and sixty-five one-hundredths percent
(2.65%).
Interest shall be computed on the basis of a 360-day year for the
actual days elapsed.
All disbursements, repayments and interest rate option selections shall
be entered by Lender on Schedule "I" attached hereto and by this reference made
a part hereof. Any capitalized words or terms used but not otherwise defined
herein shall have the meanings ascribed to such words or terms in Addendum "A"
attached hereto.
Principal and interest shall be due and payable as follows:
(a) Interest on Prime Rate Disbursements. For those portions
of the Loan which bear interest as Prime Rate Disbursements, Borrower shall pay
interest only in arrears on the first day of each month, commencing on the first
day of the first month following the date hereof, and continuing on the first
day of each month thereafter.
(b) Interest on IBOR Rate Disbursements. For those portions of
the Loan which bear interest as IBOR Rate Disbursements, Borrower shall pay
interest only on the last day of applicable IBOR Borrowing Period.
(c) Principal. All accrued and unpaid interest and the
outstanding principal balance shall be due and payable in full on August 6, 1998
(the "Maturity Date"). In addition, in the event that Lender reasonably
determines at any time that the outstanding principal balance exceeds the
Maximum Availability (as defined in the Loan Agreement), Borrower shall within
ten (10) days following written demand by Lender, make a payment of principal
hereunder in an amount necessary to reduce the outstanding principal balance
hereunder to the Maximum Availability.
At no time shall the Interest Rate exceed the legal rate of interest
permitted to be charged by the Lender. In the event any law precludes Lender
from charging the Interest Rate otherwise permitted hereunder, the rate of
interest hereunder for the period during which such rate is unlawful shall be
the highest rate permitted by law. The rate of interest hereunder shall
immediately increase to the rate permitted hereunder as soon as permitted by
law. Any interest which would otherwise have become due to Lender but for the
application of any law, shall, to the extent legally permitted, be repaid to
Lender in equal monthly installments above the interest otherwise due at such
time, so that the interest otherwise due to Lender hereunder, but not permitted
by law, shall be fully repaid to Lender by the Maturity Date. Such payments
shall be made at the time and in the manner set forth herein for the payment of
interest.
This Note is issued pursuant to the Loan Agreement and is secured by,
among other instruments, a Security Agreement (the "Security Agreement") of even
date herewith between Borrower as Debtor and Lender as Secured Party, in which
Borrower grants to Lender a security interest in certain collateral described
therein.
Except as otherwise provided in Addendum "A" hereto with respect to
IBOR Rate Disbursements, Borrower shall have the right to prepay without penalty
all or any portion of the Loan. Upon each such prepayment, Borrower shall also
pay all accrued interest on the principal amount prepaid. All payments on this
Note shall be applied first to accrued interest and the balance to principal and
if interest is unpaid, it shall bear interest like principal at the interest
rate then in effect thereunder. Borrower acknowledges that the foregoing, and
other provisions of this Note, shall result in compounding of interest and
Borrower agrees thereto pursuant to the provisions of Nevada Revised Statutes
99.050.
Borrower agrees with Lender that it would be extremely difficult or
impracticable to fix the actual damages of Lender in the event that any
installment of interest or principal hereunder shall not be paid when due and
that Lender will incur extra administrative expenses and loss of use of funds;
therefore, Borrower agrees to pay Lender, in the event a payment is not made
within fifteen (15) days of the date it was due, an amount equal to 2% of such
late installment. Acceptance of such amount by Lender shall be in lieu of its
actual damages for any such delinquent payment of an installment. Nothing in
this Note shall be construed as an express or implied agreement by Lender to
forbear in the collection of any delinquent payment, or be construed as in any
way giving the Borrower the right, express or implied, to fail to make timely
payments hereunder, whether upon payment of such damages or otherwise. The right
of the holder hereof to receive payment of such damages, and receipt thereof,
are without prejudice to the right of such holder to collect such delinquent
payments and any other amounts provided to be paid hereunder or under any
security for this Note or to declare a default hereunder or under any security
for this Note.
Failure to make any payment of principal and/or interest or to
otherwise perform hereunder or under any other promissory note executed, or to
be executed, by Borrower in favor of Lender, or an Event of Default by Borrower
under the terms of the Loan Agreement, the Security Agreement, any other
agreement or instrument securing the indebtedness evidenced hereby, or any other
obligations of Borrower to the holder hereof, shall constitute a default
hereunder and shall, without notice, at the option of the holder hereof, cause
all of the unpaid principal of this Note, with interest accrued thereon and any
other sums due under the Loan Agreement, the Security Agreement or other
instruments, to become immediately due and payable. Upon the occurrence of an
Event of Default under the Loan Agreement, at the option of the holder hereof,
all amounts then unpaid under this Note, the Loan Agreement, the Security
Agreement or any other instrument securing the Note or the Loan Agreement shall
bear interest from the date of default until such default is cured at a default
rate equal to five percent (5%) above the applicable Interest Rate (the "Default
Rate") and shall be immediately due and payable. Delay or failure to exercise
said options shall not constitute a waiver of the right to exercise same at any
time thereafter or in the event of any subsequent default.
The acceptance of any payment hereunder which is less than payment of
all amounts then due and payable shall not constitute a waiver of any of the
rights or options of the holder hereof or to the exercise of those rights and
options at the time of such acceptance or at any subsequent time. Principal,
interest and any fees hereunder shall be payable in lawful money of the United
States of America in immediately available funds free and clear of, and without
deduction for, any and all present and future taxes, withholdings, and costs or
reserves.
In the event that suit be brought hereon, or an attorney be employed or
expenses be incurred to compel payment of this Note or any portion of the
indebtedness evidenced hereby, whether or not any suit, proceeding or any
judicial or non-judicial foreclosure proceeding be commenced, Borrower promises
to pay all such expenses and reasonable attorneys' fees, including, without
limitation, any attorneys' fees incurred in any bankruptcy proceeding.
This Note shall be construed and enforced in accordance with the laws
of the State of Nevada, except as may be pre-empted by federal law. Borrower
agrees that Lender shall have the rights and remedies available to a creditor
under the laws of the State of Nevada. Borrower consents to the personal
jurisdiction of the appropriate state or federal court located in Reno, Nevada.
No waiver by Lender of any right or remedy shall be effective unless in
writing and signed by Lender, and no such waiver, on one occasion, shall be
construed as a waiver on any other occasion. Borrower waives any right of offset
now or hereafter existing against the holder hereof.
Borrower hereby waives notice of intent to accelerate, demand,
presentment for payment, protest and notice of protest and non-payment of this
Note; waives any and all lack of diligence or delays in the collection or
enforcement hereof; and expressly agrees to remain and continue bound for the
payment of the principal, interest and other sums provided for by the terms of
this Note, the Loan Agreement or the Security Agreement, notwithstanding any
extension of time for the payment of said principal or interest or other sum, or
any change in the amount agreed to be paid under this Note, the Loan Agreement
or in the Security Agreement, or any change by way of release or surrender,
exchange or substitution for any collateral now held or which may hereafter be
held as security for this Note, and waives all and every kind of notice of such
extension, or change, and agrees that the same may be made without notice to or
joinder of Borrower.
RENO AIR, INC., a Nevada corporation,
By: B.J. RONE
<PAGE>
EXHIBIT 10.1(b)
SECURITY AGREEMENT
THIS AGREEMENT, made and entered into this 8th day of August, 1997, at
Reno, Nevada, by and between RENO AIR, INC., a Nevada corporation, whose address
is 220 Edison Way, Reno, Nevada 89502, hereinafter referred to as "Debtor", and
U.S. BANK, whose address is: 1 East Liberty Street, Second Floor, Reno, Nevada
89501, hereinafter referred to as "Secured Party".
W I T N E S S E T H :
1. CREATION OF SECURITY INTEREST. Debtor hereby pledges, assigns and
transfers to Secured Party, and grants to Secured Party a security interest in
and to the collateral described herein (the "Collateral") pursuant to the Nevada
Uniform Commercial Code - Secured Transactions, Nevada Revised Statutes Chapter
104 (the "UCC").
2. OBLIGATIONS SECURED. The obligations secured by said security
interest (the "Secured Obligations") are described as follows:
a. A Revolving Line of Credit Promissory Note of even date
herewith wherein Debtor is maker, and Secured Party is payee, in the original
principal amount of $10,000,000.00, together with any modifications, extensions
or renewals thereof ("the Note");
b. The payment or performance of all of Debtor's obligations
under that certain Revolving Line of Credit Loan Agreement of even date herewith
between Debtor as borrower, and Secured Party as lender, together with any
amendments thereof (the "Loan Agreement");
c. The reasonable expenses and costs incurred or paid by
Secured Party in the preservation, enforcement and realization of the rights of
Secured Party pursuant to the Note, the Loan Agreement and under this Security
Agreement including, without limitation, attorneys' fees, court costs,
litigation expenses, foreclosure expenses, witness fees, and expert witness
fees; and
d. The reasonable expenses and costs incurred or paid by
Secured Party in performing the duties of Debtor pursuant to the Secured
Obligations and under this Security Agreement for the account of Debtor.
3. DESCRIPTION OF COLLATERAL.The Collateral consists of all of Debtor's
right, title and interest in and to all goods, equipment and inventory, now
owned by Debtor or hereafter acquired by Debtor, consisting of: (a) avionics,
ground equipment, engine and airframe parts, and other aircraft parts, which are
not subject to any prior security interest (including any purchase money
security interest) or negative pledge or installed in airframes or engines; (b)
aircraft engines and airframes which are not subject to any prior security
interest (including any purchase money security interest) or negative pledge and
in connection with Secured Party has perfected its security interest under
applicable federal law; and (c) all proceeds, insurance proceeds, substitutions,
replacements, accessions and products of the items described in (a) and (b) or
pertaining thereto.
4. PURCHASE MONEY. Debtor acknowledges that the proceeds of the Secured
Obligations may be used to enable Debtor to acquire rights in, or the use of, or
to refinance debt used to acquire, certain of the Collateral.
5. CLASSIFICATION OF Collateral. Debtor acknowledges that, at the time
said security interest attaches, the Collateral consists of goods, being
inventory and equipment and the proceeds thereof.
6. TAXES, ASSESSMENTS AND LIENS. Debtor agrees to pay prior to
delinquency all taxes, charges, encumbrances, liens and assessments against the
Collateral unless Debtor is contesting the payment thereof in good faith and,
upon the failure of Debtor to do so, Secured Party may, at its option after an
Event of Default, pay any of the same and shall be the sole judge of the
legality or validity thereof and the amount necessary to discharge the same.
Debtor shall reimburse Secured Party on demand for any amounts paid by Secured
Party pursuant to this paragraph 6, together with interest thereon at the
highest rate of interest then in effect under the Note from the date of payment
until the date of reimbursement.
7. OPERATION AND MAINTENANCE. Debtor will operate, maintain,
protect and care for the Collateral. Without limiting the generality of the
foregoing, Debtor will:
a. Except as to obsolete Collateral, service, repair, keep in
good running order and condition, store and shelter the Collateral;
b. Operate the Collateral in a careful manner and in
compliance with all applicable laws, rules and regulations, all conditions and
requirements of the insurance required under paragraph 11 hereof and all
manufacturer's instructions and warranty requirements, where the failure to so
operate the Collateral would have a material adverse effect thereon; and
c. Not make any alterations or additions which detract from
the Collateral's economic value or functional utility except as may be required
by law.
8. INSPECTION RIGHTS. Secured Party, through its employees, agents and
representatives, shall have the right to inspect the Collateral at reasonable
times during normal business hours and upon reasonable notice to Debtor.
9. TRANSFER OF COLLATERAL. Without the prior written consent of Secured
Party, Debtor shall not sell or transfer nor suffer any sale or transfer of the
Collateral, nor any part thereof, nor any interest of Debtor therein, if after
giving effect to any such sale or transfer, the aggregate Specified Value (as
defined in the Loan Agreement) of the remaining Collateral would be less than
two hundred percent (200%) of the Maximum Loan Amount (as defined in the Loan
Agreement), on such date. In the event that the foregoing Specified Value test
is maintained, then upon sale or transfer of a portion of the Collateral the
security interest created hereunder shall be deemed to be released. In the event
that Debtor desires to sell or transfer any specific Collateral or interest
therein, provided that Debtor certifies to Secured Party quarterly that the
Specified Value of the remaining Collateral is at least equal to two hundred
percent (200%) of the Maximum Loan Amount, and Secured Party has no reasonable
basis to conclude that such certification is incorrect, Secured Party shall
execute and deliver such documents as are reasonably required by Debtor to
release the Secured Party's security interest in and to that portion of the
Collateral to be sold or transferred. Debtor shall pay all reasonable costs,
expenses and fees incurred by Secured Party in connection with such releases.
10. DEBTOR'S REPRESENTATIONS, COVENANTS AND WARRANTIES. In addition to
any other representations, covenants and warranties contained herein, Debtor
hereby represents, covenants and warrants to Secured Party as follows:
a. That Debtor is the owner of the Collateral, has not
previously assigned, transferred or granted any other security interest in the
Collateral or any portion thereof (and shall not do so in the future such that
giving effect to any such assignment, transfer or security interest the
aggregate Specified Value of the Collateral is less than two hundred percent
(200%) of the Maximum Loan Amount), has full right, power and authority and
capacity to grant to Secured Party a security interest in the Collateral, and
shall defend the Collateral against the claims and demands of all persons other
than Secured Party;
b. That Debtor is on the date hereof storing or using the
Collateral at Reno and Las Vegas, Nevada, San Jose and Los Angeles, California,
and Gulfport, Mississippi, and (except for portions of the Collateral shipped to
Debtor's vendors for repairs or portions of the Collateral moved to another
location for immediate installation on an airframe or engine at such location or
removed from an airframe or engine at another location pending prompt shipment
to Debtor's Vendors for repair or to one of the locations listed above) shall
not permanently move the Collateral to any other location, except that Debtor
may permanently move the Collateral to any other domestic location served by
Debtor if Debtor provides Secured Party 15 days advance notice of such
relocation and agrees to pay the reasonable cost of Secured Party perfecting its
security interest in the Collateral located in such other location.
c. That Debtor shall give Secured Party prior written notice
of any proposed change in the name or entity under which Debtor is conducting
its business.
11. INSURANCE. Debtor shall provide and maintain in full force and
effect, until all obligations secured hereby have been paid in full, a policy or
policies of insurance on the Collateral in an amount or amounts customarily
insured against by corporations engaged in the same or similar business and
similarly situated as Debtor. Such policy or policies shall name Secured Party
as a loss payee as its interest may appear and shall insure against loss
resulting from fire and such other hazards as are customarily insured against
with respect to property which is similar to the Collateral in function, value
and use. Such policy or policies shall be in form, content and amount, and be
issued by a company or companies acceptable to Secured Party. Debtor shall
provide Secured Party with evidence of such policy or policies and shall provide
Secured Party with evidence of renewal of such policy or policies at least ten
(10) days prior to expiration. Any such policy shall provide that it may not be
canceled without at least thirty (30) days prior written notice to Secured
Party.
Within ten (10) days after obtaining knowledge of any damage
to any portion of the Collateral in excess of $250,000.00, Debtor shall so
notify Secured Party in writing.
Provided that no Event of Default then exists hereunder or
under any Secured Obligation hereby, Secured Party shall release any insurance
proceeds resulting from such damage for the purpose of assisting Debtor in
repairing such Collateral or replacing such Collateral with goods the quality,
value and function of which is at least equal to that of the Collateral which
has been damaged. In the event that the cost of repairing or replacing any
damaged Collateral is estimated to exceed the insurance proceeds available for
such purpose, Debtor agrees to pay such excess cost unless it reasonably
determines that such repair or replacement is not necessary for its ongoing
operations and Secured Party may condition its release of the insurance proceeds
upon the receipt of evidence acceptable to Secured Party of Debtor's ability to
pay any such excess cost (the "Excess Cost").
If an Event of Default has occurred and is continuing, then
Secured Party may apply the insurance proceeds to the payment of any Secured
Obligation, in such order as Secured Party may determine in its sole discretion.
12. EVENTS OF DEFAULT. The occurrence of an Event of Default under
the terms of the Loan Agreement shall constitute a default hereunder (an "Event
of Default").
13. ACCELERATION. Upon the occurrence of an Event of Default, Secured
Party may, at its option, declare immediately due and payable all of the Secured
Obligations, and the same shall thereupon become immediately due and payable
without notice to or demand on Debtor.
14. REMEDIES. The rights, powers and remedies given to Secured Party by
this Agreement shall be in addition to all rights, powers and remedies given to
Secured Party by virtue of any statute or rule of law, including all rights and
remedies of a secured party under the UCC, and, in addition, shall include, but
not be limited to, the right to require Debtor to assemble the Collateral and to
make it available to the Secured Party at a place to be designated by the
Secured Party which is reasonably convenient to the Debtor and Secured Party.
Any forbearance or failure or delay by Secured Party in exercising any right,
power or remedy hereunder shall not be deemed to be a waiver of any other right,
power or remedy, nor as a continuing waiver.
15. POWERS OF ATTORNEY. Debtor appoints Secured Party the attorney in
fact of Debtor to prepare, sign, file and record one or more financing
statements, applications for registration or certificate of ownership or title,
and like papers, and to take any other action after the occurrence and
continuance of an Event of Default deemed necessary, useful or desirable by
Secured Party to perfect and preserve Secured Party's security interest
hereunder.
16. TIME. Time is of the essence of this Agreement.
17. BINDING EFFECT. This Agreement shall inure to the benefit of, and
be binding upon, the heirs, assigns, transferees, personal representatives and
successors in interest, in any capacity, of the parties hereto.
18. NOTICES. Any notice which either party hereto deems necessary,
useful or desirable to give the other may be given by telefax or by depositing
the notice or a copy thereof in the United States mails addressed to such other
party at the address shown herein. Receipt thereof by the addressee is
conclusively presumed on the business day next following the dispatch thereof.
For purposes of Nevada Revised Statutes ("NRS") 104.9504(3), the parties agree
that mailing a written notice to Debtor at the address set forth on page 1 of
this Security Agreement as the address of Debtor's chief place of business, or
at such other address as Debtor has notified Secured Party in writing, which
notice specifies the time and place of any public or private sale of the
Collateral, 30 days before the date such sale is to take place shall be deemed
to be reasonable notification of such sale.
19. DEBTOR'S OBLIGATION TO MAKE COLLATERAL AVAILABLE TO SECURED PARTY.
Upon the occurrence and continuance of an Event of Default, the Secured Party
may require Debtor to assemble the Collateral and make it available to Secured
Party at a place within Washoe County, Nevada, to be designated by Secured Party
which is reasonably convenient to both parties. Without removal Secured Party
may dispose of the Collateral on the Debtor's premises under NRS 104.9504.
20. ADDITIONAL RIGHTS OF SECURED PARTY. If said Collateral or any
portion thereof now or hereafter consists of instruments, documents, chattel
paper, accounts, general intangibles, or goods in the possession of Secured
Party, then upon the occurrence and continuance of an Event of Default:
a. At any time, and following fifteen (15) days written notice
to Debtor given in the manner provided in paragraph 18 above, and at the expense
of Debtor, Secured Party, in its name or in the name of its nominee or of
Debtor, may, but shall not be obligated to:
(i) notify any person obligated on any security
instrument or other paper subject to this Agreement of its
rights hereunder;
(ii) collect by legal proceedings or otherwise all
dividends, interest, principal and other sums now or hereafter
payable upon or on account of the Collateral;
(iii) perform any obligation of Debtor hereunder.
b. Protest is waived.
c. Debtor waives any right to require Secured Party to:
(i) proceed against third persons;
(ii) proceed against or exhaust any Collateral,or
(iii) pursue any remedy available to Secured Party.
d. Debtor warrants:
(i) that the Collateral is true, genuine and all
that it purports on its face to be;
(ii) that the persons whose names appear on the
Collateral were the persons who executed the
Collateral;
(iii) that the Collateral is not overdue nor in
default; and
(iv) that there are no issuer's restrictions or liens
on the Collateral except pursuant to the
Indenture Agreement or otherwise permitted
hereunder nor on the transferability of the
Collateral.
IN WITNESS WHEREOF, the parties have executed and delivered this
Security Agreement the day and year first above written at the place specified.
RENO AIR, INC., a Nevada corporation,
By: B. J. RONE
B.J. RONE
Its: Senior Vice President and
Chief Financial Officer
"Debtor"
U.S. BANK
By: JACK W. PRESCOTT
Its: Vice President
"Secured Party"
<PAGE>
EXHIBIT 10.2
MULTIHOST AGREEMENT
between
RENO AIR, INC.
and
THE SABRE GROUP, INC.
Confidential treatment is being requested for portions of this exhibit under
Rule 246.2 promulgated under the Securities and Exchange Act of 1934, as
amended. *** indicates where information has been omitted and filed separately
with the Securities and Exchange Commission pursuant to the request for
confidential treatment.
<PAGE>
TABLE OF CONTENTS
1 Definitions........................................................1
2 Term...............................................................5
3 Licenses Granted...................................................5
3.1 License to Use SABRE......................................5
3.2 License to Copy SABRE Documentation.......................6
3.3 License to Use the SDT and SABRE Marks....................6
4 Implementation and Acceptance......................................7
4.1 Time of Essence...........................................7
4.2 SABRE Implementation Timeline.............................7
4.3 Designated Responsible Personnel..........................7
4.4 Equipment Type Acceptance.................................7
4.5 Hardware/Software Certification...........................8
4.6 SDT to Establish Customer Database........................8
4.7 Pre-Commencement Testing..................................9
4.8 SABRE Testing and Acceptance..............................9
4.9 Customer Not Ready.......................................10
4.10 Customer Equipment.......................................10
4.11 System Cutover Support...................................10
4.12 Communication with SABRE.................................11
4.13 Communications Protocol..................................11
4.14 Schedule Changes.........................................11
5 Training..........................................................12
5.1 Initial Training.........................................12
5.2 Additional Training......................................12
5.3 SABRE-Assisted Instruction ("SAI").......................12
6 SABRE Documentation...............................................13
6.1 SABRE Training Manuals...................................13
6.2 SABRE Operating Manual...................................13
7 Customer's Use of SABRE...........................................13
7.1 SABRE for Internal Use Only..............................13
7.2 Customer Employees to Use SABRE..........................14
7.3 Restrictions on Installation/Use of Reservations
Terminals................................................14
7.4 Customer Locations and Equipment Notice..................14
8 Database Support..................................................15
8.1 The Customer Database....................................15
8.2 Passenger Name Record Database...........................15
8.3 SDT to Maintain Customer and SABRE Databases.............15
8.4 Flight Availability Information..........................16
8.5 Access to SABRE Restricted...............................16
8.6 SDT Database Suppliers...................................17
9 SABRE System Performance..........................................17
9.1 Performance Standards....................................17
9.2 Routine SABRE Downtime...................................17
9.3 Extended Downtime........................................18
9.4 SABRE Errors and Problems................................18
9.5 SABRE Performance Reports and Logs.......................18
10 Additional Services...............................................19
10.1 ***......................................................19
10.2 ***......................................................19
10.3 Enhancement Program Hours................................19
10.4 ***......................................................20
10.5 ***......................................................20
10.6 ***......................................................20
11 Release and Indemnification.......................................20
11.1 Release..................................................20
11.2 Indemnification of SDT...................................20
11.3 Indemnification of Customer..............................21
11.4 Notification of Claim....................................22
11.5 No Implied Warranties....................................22
11.6 Consequential Damages....................................22
11.7 Limitation on Liability..................................23
12 SABRE Enhancements, New Functions and Modifications...............23
12.1 SDT Changes to SABRE.....................................23
12.2 Customer Changes to SABRE................................23
12.3 SABRE Enhancement and New Function Implementation........24
12.4 SDT Test of Enhancements and New Functions...............24
13 Charges...........................................................25
13.1 Database Initiation Fee..................................25
13.2 Implementation Fees......................................25
13.3 PNRs.....................................................25
13.4 Revenue Accounting System................................25
13.5 Pricing..................................................26
13.6 Minimum Monthly Fee......................................26
13.7 Increase Provision.......................................26
13.8 PNR for Past Date Investigation on CD-ROM................27
13.9 Labor and Materials Rate.................................27
13.10 Third Party Charge.......................................28
13.11 Out of Cycle Processing..................................28
13.12 Reimbursement to SDT for Travel Expenses.................28
13.13 Deposit..................................................29
13.14 Currency.................................................29
14 Taxes.............................................................29
14.1 Taxes....................................................29
14.2 Documentation of Taxes...................................29
15 Payment...........................................................30
15.1 Projected Passengers Boarded.............................30
15.2 Initial Invoice..........................................30
15.3 Monthly Invoices.........................................31
15.4 Monthly Invoice for System Changes.......................31
15.5 Method of Payment........................................31
15.6 Interest Charges.........................................31
16 Force Majeure.....................................................32
17 Title.............................................................32
18 Nondisclosure.....................................................32
18.1 Proprietary Information..................................32
18.2 Nondisclosure............................................33
18.3 Return of Proprietary Information........................33
18.4 Disclosure of Agreement..................................33
18.5 Survival of Nondisclosure Duty...........................34
19 Injunctive Relief.................................................34
20 Termination and Default...........................................34
20.1 Default..................................................34
20.2 Rights Upon Termination..................................35
20.3 Bankruptcy...............................................35
21 Duty to Cooperate.................................................36
22 Assignment........................................................36
23 Corporate Changes.................................................36
24 Relationship of Parties...........................................37
25 Exclusivity.......................................................37
26 Notices...........................................................37
27 Governing Law.....................................................38
28 Waiver............................................................38
29 Captions..........................................................38
30 Severability......................................................38
31 Additional Covenants..............................................39
32 No Third Party Beneficiaries......................................39
33 Surviving Sections................................................39
34 Entire Agreement..................................................40
EXHIBIT A: FUNCTIONAL DEFINITION..........................................A-1
EXHIBIT B: STANDARD RATES.................................................B-1
EXHIBIT C: ACKNOWLEDGMENT.................................................C-1
EXHIBIT D: APPROVED LOCATIONS FOR INSTALLATION OF
SABRE RESERVATIONS TERMINALS..........................D-1
<PAGE>
MULTIHOST AGREEMENT
THIS MULTIHOST AGREEMENT (this "Agreement") is made this 14th day of
April, 1997, by and between The SABRE Group, Inc. ("TSG"), a Delaware
corporation, by and through its SABRE Decision Technologies division ("SDT") and
Reno Air, Inc., a Nevada corporation ("Customer").
RECITALS
WHEREAS, SDT provides multihost data processing services to commercial
airlines. Such services include computerized reservations, inventory control
flight operations, communications, and other services.
WHEREAS, Customer is a scheduled air carrier and, as such, requires
multihost data processing services that SDT can provide using SABRE, and will,
by this Agreement, procure such services exclusively from SDT.
WHEREAS, SDT is willing to provide such data processing services to
Customer in accordance with the terms of this Agreement.
NOW, THEREFORE, SDT and Customer agree as follows:
1 Definitions
For the purposes of this Agreement, the following terms shall have the
meanings set forth below:
1.1 "ATPCO" shall mean Airline Tariff Publishing Company.
1.2 "Central Site" shall mean the data processing facility located in
Tulsa, Oklahoma.
1.3 "Customer Codeshare Partners" shall mean any airline which
operates regularly scheduled, passenger air transportation
services marketed under Customer's "QQ" designator code and
whose participation under this Agreement has been approved in
advance and in writing by SDT.
1.4 "Customer Database" shall mean information stored in SABRE
that relates to Customer and to Customer's air schedules,
fares, and passengers, including, but not limited to,
inventory records of Customer's flights, and passenger name
records that include airline segments.
1.5 "Equipment" shall mean the communications terminals, terminal
controllers, printers and modems, including any software
protocols that modify the operation of such hardware, used by
Customer to communicate with SABRE.
1.6 "Funnel Flight" shall mean a flight (a)(i) for which a through
flight number has been assigned to two (2) or more connecting
flights, and (ii) for which the through flight number is
different from the flight numbers of the component flights, or
(b) for which the assigned flight number has a single point of
origin and multiple destinations or multiple points of origin
and a single destination.
1.7 "Message" shall mean each time an enter key is pressed to send
information to the system and/or when information is generated
from an answerback or protected device.
1.8 "New Function" shall mean any modification to SABRE that
adds a capability not resident in SABRE on the SABRE
Implementation Date.
1.9 "Other Customer" shall mean any other air carrier which
obtains services from SDT which are substantially similar to
those received by Customer.
1.10 "Passenger Boarded" shall mean a fare-paying passenger, either
confirmed space, space available, or standby, who is boarded
on a Customer flight or on a flight operated by a Customer
Codeshare Partner under Customer's "QQ" designator code or a
charter flight operated under Customer's "QQ" designator code
and processed through SABRE. A Passenger Boarded on a direct
flight that makes one (1) or more intermediate stops, whether
or not including a change of equipment, shall be counted as
one (1) Passenger Boarded. A passenger traveling on a Funnel
Flight shall be regarded as more than one (1) Passenger
Boarded. A passenger making a connection at an intermediate
point by deplaning from one (1) flight and boarding another
flight shall be considered as more than one (1) Passenger
Boarded.
1.11 "Performance Standards" shall have the meaning assigned to it in
Article 9.1.
1.12 "SABRE" shall mean TSG's computerized reservations system and
related data processing services used in relation to the
provision of air transportation services. As provided to
Customer hereunder, SABRE shall initially provide all of the
functions listed in Exhibit A to this Agreement.
1.13 "SABRE Acceptance Criteria" shall mean the criteria that
SABRE must meet, as specified in Article 4.8 below, prior to
acceptance of SABRE by Customer.
1.14 "SABRE Acceptance Date" shall mean the date on which
Customer and SDT jointly agree that the SABRE Acceptance
Criteria have been met.
1.15 "SABRE Commencement Month" shall mean the month in which
SABRE shall become operational for Customer.
1.16 "SABRE Commencement Year" shall mean the calendar year in
which SABRE shall become operational for Customer.
1.17 "SABRE Database" shall mean information stored in SABRE with
respect to air transportation, including, but not limited to,
inventory records of airline flights, passenger name records,
fare and schedule information and other information. The SABRE
Database includes the Customer Database and similar databases
for other air carrier users of SABRE.
1.18 "SABRE Enhancements" shall mean any modification to existing
SABRE functions that would change the method of operation or
display of the functions specified in Exhibit A.
1.19 "SABRE Implementation Date" shall mean the date, mutually
agreed between SDT and Customer (but which date shall, in any
event, be no later than November 7, 1997), by which (i) SDT
gives Customer access to the SABRE system for operational use,
and (ii) SDT billing of Customer for use of the SABRE system
begins.
1.20 "Standard Rates" shall have the meaning set out in Exhibit B.
1.21 "State" shall mean any of the fifty (50) states of the United
States of America.
1.22 "TCN" shall mean Ticket Control Notification Capability.
1.23 "TCP/IP" shall mean Transmission Control Protocol/Interface
Processes.
2 Term
This Agreement shall become effective upon execution and shall
continue for a term of seven (7) years after the SABRE Implementation
Date.
3 Licenses Granted
3.1 License to Use SABRE. SDT hereby grants to Customer and
Customer accepts from SDT, for the term of this Agreement, a
non-exclusive and non-transferable license to use SABRE. Such
license shall include the use of SABRE (i) in connection with
all of Customer's air transportation operations, as currently
constituted and as they may from time to time be constituted
during the term of this Agreement; (ii) for any SABRE
Enhancements or New Functions; and (iii) on any additional
Equipment of Customer which may from time to time be installed
by Customer, provided, however, that the Equipment has been
certified by SDT as acceptable for use with SABRE.
3.2 License to Copy SABRE Documentation. SDT hereby grants to
Customer, for the term of this Agreement, a non-exclusive and
non-transferable license to copy for Customer's internal use
any documentation provided to Customer hereunder. Customer
agrees that it shall not sell, transfer or otherwise disclose
such documentation to any third party.
3.3 License to Use the SDT and SABRE Marks. SDT hereby grants to
Customer, for the term of this Agreement, a non-exclusive and
non-transferable license to use the "SABRE" trade name and
trademark or the then current trade name or trademark being
used by SDT to describe its multihost products (collectively
referred to as the "Trademarks"). The Trademarks may be used
for advertising, public relations, or other similar purposes
consistent with this Agreement, provided, however, that the
use of such Trademarks shall conform with SDT's graphical
standards. SDT shall provide to Customer the appropriate
graphical standards for use of the Trademarks. SDT may
supervise Customer's use of the Trademarks to ensure that such
use is in conformance with SDT's registrations and with the
purposes for which this license has been granted.
4 Implementation and Acceptance
4.1 Time of Essence. SDT and Customer shall provide the resources
necessary to complete all of their respective responsibilities
under this Agreement and shall use reasonable efforts to meet
the SABRE Implementation Date.
4.2 SABRE Implementation Timeline. SDT and Customer will prepare
an implementation project plan, mutually agreeable to SDT and
Customer, for Customer's multihost implementation in SABRE.
4.3 Designated Responsible Personnel. SDT and Customer hereby
agree to designate project managers for the implementation of
SABRE. Each project manager is authorized to establish test
procedures for SABRE, to establish training schedules and
training outlines for Customer personnel training, to be
responsible for database construction, and otherwise to
coordinate the implementation of SABRE. Each party may rely
upon the representations and agreements of the project manager
designated by the other party. A party may designate a
successor project manager at any time by providing notice of
such successor to the other party.
4.4 Equipment Type Acceptance. All Equipment used by Customer to
access Customer's database in SABRE must be certified by SDT.
SDT shall consult with and provide assistance to Customer
regarding the certification requirements. SDT shall use
reasonable efforts to complete certification within ten (10)
business days after Customer notifies SDT that the hardware
and software are ready for certification, provided that (i)
SDT receives three (3) weeks prior written notice of the date
that the hardware and software shall be ready for
certification; (ii) SDT receives the hardware in Tulsa,
Oklahoma, at Customer's expense, at least one (1) week prior
to testing; (iii) customer provides at least one (1) person to
assist with testing; and (iv) the software provided to SDT for
testing is free of all defects.
4.5 Hardware/Software Certification. Provided that Customer
complies with Article 4.4, SDT will certify (at the then
prevailing SDT Standard Rates) Customer's in-house automation
hardware and software as acceptable for use on the SABRE
network or, for any hardware or software that cannot be
certified as such, identify alternative hardware/software
reasonably acceptable to Customer.
4.6 SDT to Establish Customer Database. SDT shall establish the
Customer Database using data provided by Customer from its
current reservation system. SDT shall establish a Customer
Database for test and training purposes prior to the SABRE
Implementation Date, and shall thereafter reestablish the
Customer Database on the SABRE Implementation Date using the
most current data from Customer's current reservation system.
The databases to be created include SABRE reservations and
airport processing. Other databases may also be created as
required by SDT for the full functioning of SABRE. Customer
shall cooperate with SDT in obtaining the requisite data from
Customer's current reservation system or from other sources as
SDT may require.
4.7 Pre-Commencement Testing. Prior to the SABRE Implementation
Date, SDT shall conduct such tests as are reasonably
practicable to ensure that SABRE shall meet the SABRE
Acceptance Criteria promptly after the SABRE Implementation
Date and that the transfer from Customer's current reservation
system to SABRE shall take place with as little disruption as
may be reasonably practicable under the circumstances.
4.8 SABRE Testing and Acceptance. Customer and SDT shall agree,
within thirty (30) days after the execution of this Agreement,
on testing and demonstration procedures to be carried out
prior to the SABRE Implementation Date to determine how the
SABRE Acceptance Criteria shall be met. The SABRE Acceptance
Criteria shall have been met when Customer and SDT jointly
agree that (i) SABRE is functional on Customer's Equipment;
and (ii) all critical functions as identified in Exhibit A are
fully operational within Customer's Database. The testing and
demonstration procedures shall be carried out by the SABRE
Implementation Date on a random sample of the Equipment at a
representative number of Customer locations. The date on which
Customer and SDT agree that the SABRE Acceptance Criteria have
been met shall be the SABRE Acceptance Date and such agreement
shall constitute acceptance of SABRE by Customer. If SDT
believes that the SABRE Acceptance Criteria have been met and
Customer does not concur, Customer shall specify within five
(5) days, in reasonable detail, in what respect(s) SABRE has
failed to meet the SABRE Acceptance Criteria. SDT shall
promptly take all reasonable steps necessary to remedy any
defects with which SDT agrees.
4.9 Customer Not Ready. If Customer fails or is unable to
implement SABRE by the SABRE Implementation Date identified
under Article 1.15, unless such failure or inability is caused
in whole or in part by SDT or a vendor working on behalf of
SDT, Customer shall pay SDT the minimum monthly fee referred
to in Article 13.6 until SABRE is implemented. After the SABRE
Implementation Date, Customer shall pay SDT a monthly fee as
calculated in accordance with Article 13.5. Payment for all
fees, due and owing to SDT under this Article 4.9, shall be
collected from Customer in accordance with procedures
identified in Article 15. If Customer does not implement SABRE
within twelve (12) months from the date of execution of this
Agreement, then SDT has the right to terminate the Agreement
in accordance with Article 20 and Customer shall forfeit all
fees paid to SDT under Article 13.
4.10 Customer Equipment. Customer shall be responsible for
obtaining, installing, and maintaining the Equipment, at its
own expense, including any modification to existing
communications protocol, as defined in Article 4.12. SDT shall
cooperate with Customer to facilitate the connection of
Customer's Equipment to SDT's Central Site facilities.
4.11 System Cutover Support. To facilitate Customer's access to the
SABRE System for operational use, SDT will provide onsite
cutover coverage support, including technical support of SDT
if necessary, at no charge to Customer, other than travel and
incidental expenses, for a period of no more than seven (7)
days from the SABRE Implementation Date. If additional support
is required beyond that period in connection with Customer's
newly installed hardware and software systems, SDT shall
provide technical support as necessary (at the then prevailing
SDT standard rates) to Customer.
4.12 Communication with SABRE. Unless SDT and Customer otherwise
agree under a separate agreement, Customer will order, install
and maintain all telecommunications lines and peripheral
hardware to its reservations offices and airport stations, at
its own expense. Such hardware must be certified to SDT's
specifications prior to installation. To facilitate Customer's
multihost implementation in SABRE, SDT shall provide technical
support (at the then prevailing SDT Standard Rates) in
connection with Customer's newly installed hardware and
software system operational upon reservations system cut over.
4.13 Communications Protocol. SDT shall implement any new TCP/IP
for communications protocols between SDT and Customer
concurrently with, or prior to, SDT implementing these TCP/IP
between SABRE and other multihost customers.
4.14 Schedule Changes. Customer shall provide schedule information
and changes to the Customer Database by inputting them through
Customer's Equipment in accordance with SDT's established
procedures, which may be modified from time to time at SDT's
discretion with at least ten (10) days advance notice to
Customer. Such procedures shall be provided to Customer.
Customer shall be responsible for the accuracy of Customer's
schedule information and changes.
5 Training
5.1 Initial Training. SDT shall provide training in the operation
and use of SABRE to a maximum of ten (10) supervisory,
instructor and noninstructor personnel designated by Customer.
Such personnel shall be divided into no more than two (2)
classes, and each class shall not exceed twenty (20) business
days in duration. Training shall occur prior to the SABRE
Implementation Date on dates mutually acceptable to Customer
and SDT. All training specified in this Article 5.1 shall be
conducted at Dallas/Fort Worth, Texas, or at some other
location acceptable to Customer and SDT. Customer shall
reimburse SDT for applicable costs and expenses incurred in
connection with such training as identified in Article 13.12.
5.2 Additional Training. SDT shall from time to time provide
additional training for Customer's supervisory and instructor
personnel, and, at Customer's request, additional special
training to non-instructor personnel. The exact timing of such
additional training shall be subject to instructor
availability, and charges for such training shall be no higher
than the then current SDT standard rate for such training.
Such additional training shall be conducted at a location
acceptable to SDT and Customer.
5.3 SABRE-Assisted Instruction ("SAI"). SAI courses within SABRE
shall be available to Customer at no charge to Customer. If
Customer wishes to modify such courses or develop additional
courses, SDT shall provide assistance at the then prevailing
Standard Rate.
6 SABRE Documentation
6.1 SABRE Training Manuals. SDT shall provide training materials
to all Customer personnel who are to become trainers of SABRE.
In addition, SDT shall provide two (2) sets of training
materials in reproducible form to allow Customer to make
sufficient copies of such materials to train its personnel.
6.2 SABRE Operating Manual. SDT shall provide one (1)SABRE
Operating Manual containing operating instructions for
Customer's use in developing internal operating procedures for
use of SABRE. After the SABRE Implementation Date, Customer
shall have access to the SABRE operating manual in softcopy
form for display on Customer's Equipment.
7 Customer's Use of SABRE
7.1 SABRE for Internal Use Only. Customer shall use SABRE for its
own internal use and only for the purposes contemplated by
this Agreement. Customer's internal use shall include the use
of SABRE in conjunction with other Customer's Codeshare
Partners, if any, which Customer Codeshare Partner shall be
disclosed to SDT as and when they become Customer's Codeshare
Partners. Customer shall use SABRE only in accordance with the
SDT operating rules and procedures. Customer shall not sell,
lease, sublicense or otherwise convey SABRE or any SABRE
services to any third party, nor shall it misuse SABRE or
engage in unethical business practice in connection therewith.
Intentional misuse shall be considered a material breach of
this Agreement.
7.2 Customer Employees to Use SABRE. Customer shall restrict
access to SABRE to Customer's employees, to employees of
Customer's Codeshare Partners, and to responsible
subcontractors authorized by Customer to conduct telephone
passenger reservations services, reservations data management
services or airport passenger services, in each case on behalf
of Customer. Customer shall take reasonable precautions to
prevent unauthorized access to SABRE, and Customer shall
obtain from any Customer Codeshare Partners, who have access
to use, or on whose behalf SABRE is used, under this
Agreement, an acknowledgment, in the form attached as Exhibit
C, to be bound by all the terms and conditions of this
Agreement and any Exhibits hereto. Customer shall provide such
agreements to SDT upon request.
7.3 Restrictions on Installation/Use of Reservations Terminals.
Customer may install SABRE reservations terminals for use by
specific corporate accounts, tour operators, travel
wholesalers, third party reservations services, and others, as
identified in Exhibit D. Customer is prohibited from
installing SABRE reservations terminals in any retail travel
agency that subscribes to SABRE.
7.4 Customer Locations and Equipment Notice. After the SABRE
Implementation Date, Customer shall notify SDT prior to using
SABRE at a new location or with additional Equipment. Customer
shall not connect to SABRE or use in connection with SABRE any
Equipment unless the installation or connection of such
Equipment meets SDT's specifications and has been certified by
SDT.
8 Database Support
8.1 The Customer Database. SDT acknowledges that the Customer
Database contains information proprietary to Customer. The
Customer Database shall be and remain the sole property of
Customer and only Customer Equipment, and those SDT terminals
mutually agreed upon by SDT and Customer, shall be able to
access the Customer Database, provided, however, that SDT's
data processing personnel shall have access to the Customer
Database to ensure the integrity and performance of SABRE. All
SDT data processing personnel having access to the Customer
Database, including for this purpose the personnel of any
company controlled by, controlling, or under common control
with SDT, shall be made aware of their duty to maintain the
confidentiality of the Customer Database and of their duty to
use such access only for purposes contemplated by this
Agreement. Customer acknowledges that the location of the
Customer Database may be physically separate from the
databases of Other Customers of SDT.
8.2 Passenger Name Record Database. SDT shall provide to Customer
a passenger name record ("PNR") database as set out in
Exhibit A.
8.3 SDT to Maintain Customer and SABRE Databases. SDT shall
maintain, or cause to be maintained, the SABRE Database, the
contents of which shall be determined by SDT and used by
Customer (if dedicated to Customer's use) or alternatively,
used jointly by Customer and other Customers (if not so
dedicated). SDT shall also maintain, or cause to be maintained
the Customer Database, and shall make backup archival copies
of the Customer Database at least once in each twenty-four
(24) hours (but not less frequently than for any Other
Customer) so that if the Customer Database is for any reason
erased or destroyed, SDT shall be able promptly to recover it.
8.4 Flight Availability Information. Information with respect to
the availability of flights of airlines other than Customer
shall be displayed within the Customer Database pursuant to
agreements between SDT and such other airlines. If Customer
requires the display of availability for any airline with
which SDT does not have an availability agreement, Customer
must comply with SDT's availability loading procedures. These
procedures shall be provided to Customer upon request.
8.5 Access to SABRE Restricted. Access to data contained within
SABRE is restricted by functional identification ("Duty
Codes") to ensure data security. Customer agrees that the Duty
Codes used by Customer unless otherwise agreed to by SDT,
shall be identical to those used by SDT. SDT shall use the
same security procedures to protect Customer's Database from
unauthorized access as it uses for its own most confidential
data. If SDT adheres to such security procedures, there shall
be a presumption that SDT has satisfied its obligation to
protect the confidentiality of Customer's Database. SDT
reserves the right to modify its regulations and procedures
from time to time to improve such protection. Should
Customer's Database be lost or destroyed, SDT shall, at its
own expense, reconstruct Customer's Database within *** of
such loss or destruction. To the extent that reconstruction of
the Customer Database requires data solely in Customer's
possession, SDT shall reconstruct such Database within
twenty-four (24) hours of receiving such data from Customer.
8.6 SDT Database Suppliers. SDT'S use of the SABRE Database is, or
may be, subject to certain restrictions and covenants set
forth in agreements with database suppliers. Customer agrees
to comply with such restrictions and covenants provided that
copies of the agreements in which they are contained are
provided to Customer promptly upon execution of this
Agreement, with respect to existing agreements, and fifteen
(15) days prior to the effective date of any such restriction
or covenants that are imposed on SDT thereafter. In providing
copies of such agreements to Customer, SDT may delete pricing
or other commercially sensitive information. To the extent
that information from such database suppliers becomes
unavailable, SDT is relieved of its obligations to provide
such data to Customer; however, SDT will use reasonable
efforts to supply economical replacement data.
9 SABRE System Performance
9.1 Performance Standards. SDT's Central Site hardware and
software shall be maintained ***per day, ***per week, by SDT
and/or by other parties with whom SDT has agreements to
maintain its hardware and software, subject to SABRE downtime
referred to in Articles 9.2 and 9.3.
9.2 Routine SABRE Downtime. SDT may from time to time schedule
SABRE downtime for system maintenance and software
modifications. Except for operational necessity, scheduled
downtime shall occur between 1800 and 0700 United States
Central Time ("CT"). SDT shall give Customer not less than
twenty-four (24) hours notification of scheduled downtime and
expected duration.
9.3 Extended Downtime. SABRE may also be unavailable for longer
periods for hardware upgrades, facility modification and
repair, reorganization of the SABRE Database, and similar
reasons. Unless emergency conditions require otherwise, there
shall be no more than one (1) such downtime every six (6)
months. SDT shall use its best reasonable efforts to ensure
that such downtime does not exceed eight (8) hours, and occurs
between the hours of 2100 and 0700 CT if on weekdays, and 1900
and 0700 CT if on weekends or on a U.S. holiday. SDT shall
consult with Customer in scheduling such downtime and shall
use its best reasonable efforts to accommodate Customer with
respect to scheduling. Although SDT shall use its best
reasonable efforts to avoid unscheduled downtime and to
maintain uptime at an industry competitive level, such
downtime may occur despite such efforts.
9.4 SABRE Errors and Problems. After receiving notice from
Customer of any problems with SABRE, SDT shall attempt to
correct the problem within a reasonable period of time. SDT
shall accord to Customer the same priority, speed of response,
and degree of effort that it accords or would accord to any
Other Customer or American for a similar problem.
9.5 SABRE Performance Reports and Logs. Operating logs and
performance reports maintained in connection with the services
herein performed shall be available for Customer's review upon
forty-eight (48) hours notice during business hours at the
Central Site. Absent a showing of good cause, the review shall
take place no more frequently than once every twelve (12)
months.
10 Additional Services
10.1 ***
10.2 ***
10.3 Enhancement Program Hours. SDT will provide Customer, ***,
with an annual allocation of *** of programming time for
system enhancements requested by Customer during the term of
this Agreement. For the avoidance of doubt: (i) no more than
***of programming time may be rolled to the next calendar
year; (ii) no more than ***of programming time may be used in
any one calendar year; and (iii) Customer will not receive any
monetary or other credit for unused programming time.
10.4 ***
10.5 ***
10.6 ***
11 Release and Indemnification
11.1 Release. SDT shall not be liable to Customer (i) for delays,
errors, malfunctions or breakdowns of SABRE, unless such
delays, errors, malfunctions or breakdowns are attributable to
or the result of SDT'S willful misconduct; or (ii) with
respect to any action or omission taken or not taken in
accordance with this Agreement or pursuant to instructions
properly received from Customer, unless such action or
omission, as the case may be, is attributable to or the result
of SDT's willful misconduct.
11.2 Indemnification of SDT. Customer shall indemnify, defend and
hold SDT, TSG, American and AMR Corporation and their
respective officers, directors, employees, and agents
(collectively, the "Indemnified Party") harmless from and
against any and all losses, claims, damages, judgments,
liabilities or expenses (including without limitation
reasonable counsel fees and expenses) (collectively "Claims")
arising under, out of, or in connection with this Agreement or
the services provided hereunder and made against the
Indemnified Party by any passenger or other person doing
business with Customer, specifically including without
limitation those Claims which arise out of the Indemnified
Party's sole, joint or contributory negligence, but
specifically excluding those Claims which arise out of the
gross negligence or willful misconduct of the Indemnified
Party.
11.2.1 It is the express intent of Customer and SDT that
Customer indemnify, defend and hold harmless the
Indemnified Party against those Claims identified in
Article 11.2 above which arise from the negligence
(active or passive) of the Indemnified Party. SDT's
decision to enter into this Agreement and to provide
the services identified herein are in exchange for
SDT's limited liability referred to in Article 11.2
above. SDT would not have entered into this Agreement
for the consideration provided herein but for
Customer's agreement to indemnify, defend and hold
harmless SDT as provided above.
11.3 Indemnification of Customer. SDT shall indemnify, defend and
hold Customer and its officers, directors, employees and
agents harmless from and against any and all Claims arising
under, out of, or in connection with the misappropriation,
violation or infringement of any proprietary rights, trade
secrets, patent rights, copyrights, trademarks or service
marks with respect to the use of SABRE, except for intentional
misappropriation, violation or infringement of such items by
Customer or its affiliates.
11.4 Notification of Claim. The Indemnified Party or Customer, as
the case may be, shall give prompt written notice to the other
party of the receipt of any claim or the commencement of any
action which is or may be covered by the applicable indemnity
under this Article 11, but the failure to so notify such party
shall not relieve the indemnifying party of any liability that
it may have under this Article 11 except to the extent that
the defense of such action is prejudiced thereby. Upon receipt
of such notice, the indemnifying party shall immediately
assume the defense thereof with counsel reasonably
satisfactory to the other party. No compromise or settlement
thereof may be effected by the indemnifying party without the
other party's prior written consent (unless such compromise or
settlement would not prejudice the interests of the other
party, in which case such consent shall not be required).
11.5 No Implied Warranties. The warranties and representations
contained in this Agreement are exclusive, and SDT DISCLAIMS
AND CUSTOMER HEREBY WAIVES, ANY AND ALL OTHER WARRANTIES,
WHETHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR INTENDED USE, OR,
EXCEPT AS OTHERWISE STATED HEREIN, ANY LIABILITY IN CONTRACT,
NEGLIGENCE, OR TORT WITH RESPECT TO THE DATA, PRODUCTS AND/OR
SERVICES FURNISHED HEREUNDER. SDT warrants that SABRE shall
have the functionality set forth in this Agreement.
11.6 Consequential Damages. SDT SHALL NOT BE LIABLE TO CUSTOMER
FOR CONSEQUENTIAL, INCIDENTAL, OR SPECIAL DAMAGES UNDER ANY
CIRCUMSTANCES.
11.7 Limitation on Liability. SDT shall not be liable, under any
circumstances, for any claim which exceeds the total amount of
payments which have been made by Customer to SDT under this
Agreement during the six (6) month period prior to the date
such claim arose.
12 SABRE Enhancements, New Functions and Modifications
12.1 SDT Changes to SABRE. From time to time, SDT may modify the
functionalities referred to in Exhibit A by creating SABRE
Enhancements, and may add New Functions. If SDT offers these
SABRE Enhancements or New Functions without charge to
Customer, then Customer agrees to accept them for use with
SABRE, ***.
12.2 Customer Changes to SABRE. SDT may at its option approve and
develop SABRE Enhancements and New Functions requested by
Customer, provided that the cost of developing such SABRE
Enhancements or New Functions may, at SDT's discretion, be
charged to Customer. If the cost of developing a SABRE
Enhancement or New Function is to be paid for by Customer, SDT
shall provide Customer,*** with (i) a gross estimate based on
SDT's Standard Rates; and (ii) a tentative schedule for
developing the SABRE Enhancement or New Function. Within
*** days following the submission of the gross
estimate and schedule to Customer, Customer shall affirm or
cancel its request for the proposed SABRE Enhancement or New
Function, and SDT shall take no action with respect to the
proposed SABRE Enhancement or New Function until Customer so
affirms or cancels its request in writing. If SDT and Customer
agree on the price, development schedule and other terms, SDT
shall process Customer's request for a SABRE Enhancement or
New Function in accordance with SDT's internal procedures for
developing a SABRE Enhancement or New Function for its own
use. Notwithstanding Customer's agreement to pay for SABRE
Enhancements and New Functions that it requests, SDT shall use
reasonable efforts to secure the financial participation of
Other Customers.
12.3 SABRE Enhancement and New Function Implementation. SDT shall
provide Customer with prior notice of the scheduled
implementation of SABRE Enhancements and New Functions. Such
notice shall be provided to Customer in the same manner and at
the same time as such notice is provided to SDT personnel. SDT
shall provide training materials to Customer with respect to
such SABRE Enhancements and New Functions. The training
materials shall be substantially similar to those which SDT
provides to its own personnel or to any Other Customer.
12.4 SDT Test of Enhancements and New Functions. Except when
precluded by operational emergencies, SDT shall test all SABRE
system capabilities, including without limitation, SABRE
Enhancements and New Functions, under an internal test
environment. Customer acknowledges that despite such internal
testing, conditions may develop that lead to error conditions,
malfunctions, or a breakdown in the operation of SABRE. Should
any of the foregoing occur, SDT shall use its best reasonable
efforts to correct any such condition with the same degree of
effort afforded a similar problem affecting any Other
Customer.
13 Charges
13.1 Database Initiation Fee. ***
13.2 Implementation Fees. *** Such fees relate to:
13.2.1 Assistance in establishing all necessary data feeds
to support the system and programs needed pursuant to
this Agreement; or
13.2.2 Implementing feeds to Customer's revenue accounting
system, which feeds consist of SABRE TCN data and
electronic ticketing flown file information.
13.3 PNRs. ***
13.4 Revenue Accounting System. ***
13.5 Pricing. All services referenced herein (with the exception of
the Revenue Accounting System in Article 13.4 which is priced
separately as provided therein) shall be provided to Customer
at the following charges with respect to all fare-paying
passengers handled on flights operated by Customer or operated
under Customer's flight designator code:
13.5.1 ***
13.5.2 ***
13.6 Minimum Monthly Fee. The minimum monthly fee payable by
Customer under this Agreement (and irrespective of the actual
number of Passengers Boarded) is *** per month.
13.7 Increase Provision. On ***, SDT may, at its option, increase,
on a going-forward basis, each of the rates and amounts
payable under Articles 13.5 and 13.6 by a percentage specified
by SDT, not to exceed the applicable percentage set forth
below (the "Maximum R/A Percentage Increase"), over the rates
and amounts which were previously in effect. ***
13.8 PNR for Past Date Investigation on CD-ROM. SDT shall
send to Customer, on a weekly basis, one (1) set of
Customer PNRs on CD-ROM purged from the system during the
previous week, at no charge to Customer.
13.9 Labor and Materials Rate. For labor (excluding "Enhancement
Program Hours" as hereafter defined), materials, and supply
costs, for Customer requested SABRE system enhancements,
Customer will receive a fifteen percent (15%) discount off the
then prevailing SDT standard rates. SDT labor rates for
programing/system development are currently *** per hour. SDT
Standard Rates for all other services as of October 1996 are
as listed in Exhibit B of this Agreement. SDT shall obtain
prior written approval from Customer for any charges that will
exceed the *** rates.
13.10 Third Party Charge. Customer shall also pay SDT an additional
charge for use of a SABRE database in those instances where
SDT is required to pay a third party an incremental charge as
a result of Customer's use of SABRE. Any incremental charge
that SDT is required to pay as a result of Customer's use of
SABRE shall be repaid to SDT by Customer in accordance with
Article 15, provided that Customer is given advance notice
that Customer's use of SABRE shall require that SDT impose
such additional charge on Customer.
13.11 Out of Cycle Processing. For any request for out of cycle
off-line processing or for any request for new programs and
additional data that require off-line processing, Customer
shall pay SDT at SDT's then prevailing rates.
13.12 Reimbursement to SDT for Travel Expenses. Customer shall
reimburse SDT for all food, lodging and related expenses
incurred by SDT in connection with this Agreement ("Per
Diem"). Per Diem amounts will be reimbursed by Customer at the
rate published from time to time by the U.S. government for
the city where the work is performed ("CONUS/OCONUS").
Customer shall reimburse SDT for actual air and local
transportation expenses. SDT shall utilize Customer's air
services for such air transportation (via "positive must ride
passes") whenever reasonably possible.
13.13 Deposit. Customer shall not be responsible to provide to SDT
with a deposit.
13.14 Currency. All charges referred to in this Agreement shall be
in United States dollars. All payments shall be made in
United States dollars.
14 Taxes
14.1 Taxes. Customer shall pay on behalf of SDT, or reimburse SDT
as an additional fee, for (i) all taxes, including but not
limited to, withholding taxes, value added taxes, municipal
taxes, personal property taxes, franchise taxes, net worth
taxes, sales and use taxes, registration fees, excise taxes,
stamp taxes and importation and custom duty taxes
(collectively, the "Taxes") imposed on SDT arising from this
Agreement, excluding Taxes imposed by the United States of
America, based on SDT's net income; and (ii) any additional
Taxes, including United States of America and State income
taxes, imposed on SDT as a result of any reimbursements under
clause (i) or (ii) of this Article 14. Customer shall hold SDT
harmless for any and all tax payments made.
14.2 Documentation of Taxes. To the extent any Taxes are paid by
Customer to the applicable taxing authority on behalf of SDT,
Customer shall provide SDT with documentation of Taxes,
evidencing that such Taxes were, in fact, paid to the
applicable taxing authority. Documentation of Taxes shall mean
either the original, a duplicate original or a duly certified
or authenticated copy of the receipt or return required to be
included by the applicable taxing authority with the payment
of Taxes.
15 Payment
15.1 Projected Passengers Boarded. Within two (2) weeks of the
SABRE Implementation Date, Customer shall provide SDT, by
facsimile transmission or via Administrative Message Switching
("AMS") to HDQIHAA and HDQLFAA, Attention: Senior Accountant,
the projected number of Passengers Boarded for each remaining
month of the SABRE Commencement Year. On December 1st of that
year and each year thereafter, Customer shall provide SDT with
the projected number of Passengers Boarded for each month of
the following calendar year. Any time during the term of this
Agreement, Customer may modify the projected number of
Passengers Boarded for the then current calendar year but such
modification must be submitted to SDT within thirty (30)
business days of the applicable adjusted month(s). The
projected amounts of Passengers Boarded for each month and any
modifications thereof, shall not be less than the actual
monthly average of Passengers Boarded during the previous
twelve (12) month period or during the SABRE Commencement Year
if applicable.
15.2 Initial Invoice. SDT shall submit an initial invoice to
Customer, within five (5) business days of the SABRE
Implementation Date, reflecting fees based on the projected
number of Passengers Boarded for the SABRE Commencement Month
and the succeeding month calculated in accordance with
Articles 13.5 and 15.1, as well as all other fees due and
payable on the SABRE Implementation Date.
15.3 Monthly Invoices. Five (5) business days following the end of
the month, Customer shall provide SDT, via AMS to HDQIHAA and
HDQLPAA, Attention: Senior Accountant, with a statement of the
actual number of Passengers Boarded through the end of the
preceding month. Thereafter, SDT shall submit an invoice to
Customer reflecting fees based on the projected number of
Passengers Boarded for the succeeding month pursuant to
Article 15.1, as well as adjusted charges to the previous
month's invoice based on the actual number of Passengers
Boarded, fixed charges, additional charges or taxes incurred
by Customer during the previous month during the term of this
Agreement, or any extension thereof, within ten (10) business
days following the end of each month.
15.4 Monthly Invoice for System Changes. Each month SDT shall
submit to Customer an invoice reflecting the charges incurred
through the end of the preceding month for work performed in
connection with the change and modifications to SABRE which
Customer has requested and SDT has agreed to perform.
15.5 Method of Payment. All Customer invoices shall be settled via
wire transfer to First National Bank of Chicago, Main Branch,
Chicago, Illinois, ABA routing number 071000013, AMR
Information Services account number 5811309, within ten (10)
business days of receipt of invoice.
15.6 Interest Charges. *** Interest shall accrue on invoiced
amounts (other than those portions referenced in the preceding
sentence), from the date due, at a rate equal to the ***United
States Treasury Bill rate as published on the first business
day of each month (and regardless of when any auction for such
bills occurred) in the "Money Rates" section of The Wall
Street Journal.
16 Force Majeure
SDT shall not be liable to Customer for a failure or delay in the
performance of SABRE or any limitation placed upon the functional
capabilities and/or the data volumes of SABRE if such failure, delay,
or limitation arises from any cause beyond SDT's reasonable control,
including, but not limited to, acts of God, acts of federal, state, or
local governments or any agencies thereof, fire, the elements, flood,
earthquakes, explosions, accidents, mechanical or electrical failures,
acts of the public enemy, war, civil disturbance, rebellion and
insurrection.
17 Title
Title and full and complete ownership rights to all software owned or
developed by SDT and contained in SABRE and used in the performance of
this Agreement shall remain with SDT. Customer acknowledges that such
software is a trade secret and SDT's proprietary information, whether
or not any portion thereof is or may be validly copyrighted or
patented.
18 Nondisclosure
18.1 Proprietary Information. The documentation, programs,
procedures, and services supplied to Customer hereunder by SDT
are SDT's proprietary information, and the Customer Database
and all related files, reports, input materials and other data
supplied by Customer or generated pursuant to this Agreement
are Customer's proprietary information. The proprietary
information of SDT and Customer shall be collectively referred
to as the "Proprietary Information". No Proprietary
Information of either party shall be subject to the
obligations imposed by this Article 18 if such Proprietary
Information is in the public domain, is lawfully obtained by
the disclosing party from another source, or is disclosed
pursuant to subpoena or other legal process.
18.2 Nondisclosure. Neither party shall disclose Proprietary
Information of the other party to any third person except in
furtherance of the purposes of this Agreement. Each party
shall ensure that all of its employees and agents, and any
third person employed by such party in furtherance of this
Agreement, recognize that the proprietary information of the
other party is subject to this nondisclosure obligation. Each
party shall use the same degree of care to safeguard the
Proprietary Information of the other party as it uses to
safeguard the confidentiality of its most confidential
information.
18.3 Return of Proprietary Information. Upon termination of this
Agreement for any cause or reason, each party shall deliver to
the other party all of such other party's Proprietary
Information then in its possession including all copies
thereof. Customer shall, after a diligent search, certify to
SDT that all copies of information that pertain to software
contained in SABRE have been returned to SDT or destroyed.
18.4 Disclosure of Agreement. Neither party shall disclose the
terms of this Agreement to any third party, unless required to
do so by law or by a court of competent jurisdiction.
18.5 Survival of Nondisclosure Duty. The provisions of this
Article 18 shall survive the termination of this Agreement
and shall be continuing.
19 Injunctive Relief
Each party acknowledges and agrees that the other party shall have no
adequate remedy at law if there is a breach or threatened breach of
Article 18 and, accordingly, that the other party shall be entitled to
an injunction against such breach. Nothing herein shall be construed as
a waiver of any other legal or equitable remedies which may be
available to either party if the other party breaches Article 18.
20 Termination and Default
20.1 Default. The occurrence of any one (1) or more of the
following events shall constitute an event of default (the
"Event of Default") pursuant to the terms of this Agreement:
20.1.1 Customer fails to pay or cause to be paid any amount
due hereunder as it becomes due in accordance with
the terms of this Agreement and such failure
continues for a period of *** days after receipt by
Customer of written notice thereof from SDT.
20.1.2 Either party terminates or cancels this Agreement or
any portion hereof, except as expressly permitted
hereunder.
20.1.3 Either party fails to punctually and properly perform
any covenant, agreement, representation, obligation,
term or condition contained herein and such failure
continues for a period of thirty (30) days after
receipt by the defaulting party of written notice
thereof from the other party.
20.1.4 Either party materially misrepresents any
representation, warranty, or covenant given by it in
this Agreement.
20.2 Rights Upon Termination. Upon the occurrence of Event of
Default, the non-defaulting party shall have the right to (i)
immediately terminate this Agreement, and, if Customer is the
defaulting party, Customer's access to SABRE; and (ii) seek
all legal and equitable remedies to which it is entitled,
including without limitation, all actual and direct damages it
may have suffered by virtue of the defaulting party's breach.
Customer's obligation to pay the minimum fee referred to in
Article 13.6 shall not be construed as a limit of SDT's
damages.
20.3 Bankruptcy. If bankruptcy or insolvency proceedings are
commenced with respect to either party and if this Agreement
has not otherwise terminated, then the non-bankrupt party may
suspend all further performance of this Agreement until the
trustee in bankruptcy (or its equivalent) assumes or rejects
this Agreement pursuant to applicable bankruptcy or insolvency
laws. Any such suspension of further performance by the
non-bankrupt party pending the trustee in bankruptcy's (or its
equivalent) assumption or rejection shall not be a breach of
this Agreement and shall not affect the non-bankrupt party's
right to pursue or enforce any of its rights under this
Agreement or otherwise.
21 Duty to Cooperate
After notice of termination is given by either party for any reason
under Article 2 or Article 20 above, SDT shall cooperate with Customer
in creating records of the Customer Database in magnetic form and
otherwise as reasonably requested by Customer to insure the timely and
orderly installation of a successor computer reservation system.
Customer shall pay for the creation of such records in accordance with
the provisions of Article 13.11.
22 Assignment
Customer shall not sell, assign, license, franchise, sublicense (except
as provided herein), subcontract under, or otherwise convey this
Agreement to any third person without SDT's prior consent.
23 Corporate Changes
If, on or after the date of this Agreement: (i) Customer merges with or
into any corporation or other entity; (ii) Customer sells or otherwise
transfers all or substantially all of its assets to any individual,
corporation or other entity; or (iii) any individual, corporation or
other entity (or any group of individuals, corporations or other
entities who have agreed to act or are acting in concert) acquires
beneficial ownership of fifty percent (50%) or more of the outstanding
voting securities of Customer (and, for purposes of this clause (iii),
the terms "group" and "beneficial ownership" shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder), then
in any such event, SDT shall have the option to terminate this
Agreement upon providing at least *** prior written notice to Customer.
24 Relationship of Parties
Nothing in this Agreement is intended or shall be construed to create
or establish the relationship of partners between SDT and Customer or
to constitute either party as the agent or representative of the other
for any purpose.
25 Exclusivity
***
26 Notices
All notices, requests, demands, or other communications hereunder shall
be in writing, shall be sent by overnight courier or by facsimile
transmission followed by registered or certified mail, return receipt
requested, or by Telecopy/Telex/ARINC/SITA or SABRE and shall be deemed
to have been given when received at the following addresses:
If to SDT:........ The SABRE Group Inc.
SABRE Decision Technologies division
P.0. Box 619295, MD 4340
DFW Airport, Texas 75261-9295
or ......... 4255 Amon Carter Boulevard
Fort Worth, Texas 76155
Attn: Vice President, Sales & Service
Transportation Automation Services
ARINC/SITA code: HDQLFAA
Facsimile Number: (817) 963-3276
If to Customer:... Reno Air, Inc.
220 Edison Way
Reno, Nevada 89502
Attn: Vice President and
Chief Financial Officer
Facsimile Number: (702) 686-3806
with copy to:..... Reno Air, Inc.
220 Edison Way
Reno, Nevada 89502
Attn: General Counsel
Facsimile Number: (702) 686-3875
27 Governing Law
This Agreement and any disputes arising hereunder shall be governed and
interpreted by the laws of the State of Texas, without giving effect to
its conflicts of laws rules.
28 Waiver
No waiver of a breach of any provision of this Agreement by either
party shall constitute a waiver of any subsequent breach of the same or
any other provision hereof, and no waiver shall be effective unless
made in writing.
29 Captions
The captions appearing in this Agreement have been inserted as a matter
of convenience and in no way define, limit, or enlarge the scope of
this Agreement or any of the provisions hereto.
30 Severability
If one or more provisions of this Agreement shall be determined to be
invalid, unenforceable or illegal, such invalidity, illegality and
unenforceability shall not affect any other provisions of this
Agreement, and the Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.
31 Additional Covenants
Customer covenants, represents and warrants as follows:(i) Customer has
full authority to enter into this Agreement; (ii) no representation or
warranties of Customer, nor any statements, written or oral, made or
furnished to SDT either herein or with respect to the organization or
business of Customer, contains any untrue statement of a material fact
or omits a material fact necessary to make the representation,
warranty, or statement not misleading; (iii) this Agreement constitutes
a legal, valid, and binding agreement of Customer, enforceable in
accordance with its respective terms; (iv) Customer has the full right
and authority to submit to the jurisdiction of the courts of the State
of Texas; and (v) Customer's execution and delivery of this Agreement
does not violate the laws of Texas. If SDT so requests, Customer agrees
to provide to SDT an opinion of counsel with respect to the matters set
forth herein. Such opinion shall be relied upon by SDT solely in
connection with this Agreement.
32 No Third Party Beneficiaries
All rights, remedies and obligations of the parties shall accrue and
apply solely to the parties and their successors and permitted assigns
and there is no intent to benefit any third parties.
33 Surviving Sections
Unless specifically provided in this Agreement, the obligations of SDT
and Customer hereto shall survive any termination or expiration of this
Agreement, when necessary, to effect the intent of SDT and Customer as
herein expressed.
34 Entire Agreement
This Agreement and all Exhibits hereto contain the entire Agreement
between SDT and Customer and shall supersede any understanding or
previously executed agreements between SDT and Customer with respect
hereto. Any amendment must be in writing and executed by each party.
SDT and Customer acknowledge and agree that this Agreement is the
Multihost Agreement entered into between SDT and Customer pursuant to
Section 6 of the Master Agreement, dated May 24, 1993, among Customer,
American and TSG (then known as AMR Information Services, Inc.).
The parties have executed this Agreement as of the date first above
written.
RENO AIR, INC. ......... THE SABRE GROUP, INC.
by and through its
SABRE Decision Technologies
division
By: /s/ J. T. Fisher By: /s/ Thomas M. Cook
Name: J. T. Fisher........ Name: Thomas M. Cook
Title: Vice President..... Title: President, SDT
<PAGE>
EXHIBIT A
FUNCTIONAL DEFINITION
DATA PROCESSING SERVICES: The following data processing services are
to be provided under this Agreement:
RESERVATIONS / INVENTORY / TICKETING
1. Agent Sign-In and Security
2. Automated Reference System (FOCUS)
3. Automated Ticketing
4. Automated Prepaids
5. Automated Passenger Protection
6. AVS Tables
7. Blocked Space Group Bookings (BSG)
8. Commuters
9. Credit Authorization
10. Dynamic Schedule Change
11. Flight Information - FLIFO
12. Hotel and Car Availability System
13. Inventory Control and Displays
14. Inventory Authorization (FLP)
15. Market Tariff Table
16. Name List Displays
17. Overlap Flights
18. Passenger Name Record (PNR)
19. PNR Past Date Microfiche
20. Pre-Reserved Seat Selection
21. Queue Package (AAQUARIUS)
22. SABRE Assisted Instructions (SAI)
23. SABRE Sales Guide
24. Special Travelers Account Record System (STARS)
25. Teletype Reject Message Handling
26. Worldfare Package and Fare Quote
27. Waitlisting Process
AIRPORT PROCESSING
1. Advance Check-In (ACI)
2. Airport Check-In System (ACS)
3. Automated Boarding Passes
4. Baggage Security
5. Catering Messages and Displays
6. Passenger Name List (PNL/ADL)
7. Post Departure Control
8. Seats Available List (SAL)
MANAGEMENT REPORTS
1. Advanced Booking Report
2. Interline Booking Report
3. On-Line Dupe Check Facility
4. SABRE Performance Summary Report
5. Daily Bookings Report
OTHER FUNCTIONS
1. Administrative Message Switching (AMS)
2. Calculator Functions
3. Currency Conversion
4. Encode/Decode Functions
5. Direct Communications Link
6. Minimum Connect Times
7. SABRE Atlas
8. Sine In Message
9. OUS/OUB Messages
10. Weather System
ADDITIONAL FEATURES
1. Quest Direct
2. Ticketless Travel
3. Private Fares Inventory Database
4. PNR Database
MULTIHOST SABRE SYSTEM FEATURES
I. RESERVATIONS / INVENTORY / TICKETING
1. AGENT SIGN-IN AND SECURITY
a. A stored Employee Profile Record which contains
individual employee number, unique passcode and
authorizations
b. User controlled creation, modifications, activation and
transfer
c. Agent restricted by self-controlled passcode
d. Automatic sign-out interval signs agent out after
specified period of inactivity
e. Display sign(s) currently in work area(s)
f. Display authorizations by employee ID
g. Display city sign table with qualifiers to delimit response
h. Decode agent sign to determine agent name
i. Display sign(s) being used at a specific CRT
j. Sign-in access to six work areas with capability to change
work area
k. Sign-in to alternate area with different duty code
2. AUTOMATED REFERENCE SYSTEM (FOCUS)
a. An Automated Reference System which contains over 100
topics ranging from SABRE entries to Help Desk phone
numbers
b. Frequent broadcast of changes and enhancements to the SABRE
system via a revision table
c. Contains 3 levels of information; Main Function List,
Specific Functions which contains detailed formats and
Detailed Information which contains more specific format
information
d. User friendly, easy and fast access
e. Blank FOCUS manual provided for carrier internal use
f. Access to a specific entry/format by use of qualifiers
g. Capability to send message to FOCUS updaters
3. AUTOMATED TICKETING
a. Automatic ticket issuance for priceable itineraries
b. Group ticketing, passenger type and name select options
c. Infant ticketing
d. Industry reduced rate ticketing
e. Edit credit card form-of-payment for authorization code
when entered as part of the ticketing procedure
f. Optional override of credit card authorization check
h. Create retainable fill-in-the-blank ticketimagefor non-auto
priceable itineraries
i. Enter exchanged ticket data and other reissue transaction
requirements in automated ticketing transaction
j. Enter endorsements information in automated ticketing
transactions
k. Specify printing of "non-refundable" on ticket
4. AUTOMATED PREPAIDS
a. Prepaid data is entered into the PNR
b. 14 digit PTA number is required and will be edited when
entered in PNR
c. PTA data includes, purchaser, form of payment, fare
routing and construction, fare amount, PTA number,
message routing, special remarks
d. Point of sale override, stop PTA action, partial/full
refund, PTA cancellation
e. Display of PTA data only in PNR
5. AUTOMATED PASSENGER PROTECTION
a. User defined passenger protection when schedules are
modified
b. Level of Service Table used to set criteria for APP
c. A pool of candidate flights are chosen for the
reaccommodation process
d. Notification table defines parameters for queue placement
after reaccommodation
6. AVS TABLES
a. User updated AVS tables for First Posting, Segment and
Mixed Posting type agreements
b. User defines by flight number or specify all flights
c. Status messages of AS, CL, CN, and CR are sent based on
type of agreements with each carrier
d. Full AVS recaps to be sent must be requested through SDT.
7. BLOCKED SPACE GROUP BOOKINGS (BSG)
a. Capability to block a specific number of seats in a BSG PNR
with no names
b. BSG PNR becomes the controlling PNR and seats are deducted
and placed in an Associate PNR
c. The Associate PNR is referenced to the BSG PNR and seats
will be decremented from the BSG
d. Associated reference field identifies theoriginal number
of seats, current, available and sold seats
8. COMMUTERS
a. Commuter flights are assigned flight numbers from a
specific flight range
b. Accommodates up to 15 additional airlines in addition to
the host airline
c. Commuter flights are identified by an asterisk (*)
d. Decode/Encode commuter carrier name
9. CREDIT AUTHORIZATION
a. For major credit cards that host carrier accepts
b. Validates card numbers for accuracy, when input as
forms of payment for ticketing and for guarantees/deposits
for hotel bookings
c. Computes and validates the check digit
d. Credit authorization includes a blacklist check for all
cards, either a credit limit check or creditavailable check
e. Floor limits or credit limits may vary with each carrier
f. Automatic approval code check may be overridden by agent
g. Accelerated Credit Card Billing ("ACCB") capability
10. DYNAMIC SCHEDULE CHANGE
a. Schedule Change entries allow the user to dynamically add
new flight schedules into the SABRE system
b. New host flights will be automatically displayed
c. Provides capability to modify, cancel and reinstate
current host flight schedules
d. Features include: base nested table, seat authorization
table, automatic passenger protection, level of service
table, AVS posting tables and shared leg table
e. Automatic queue placement of modified schedules for host
booked PNRs
f. Message generation of schedule change notification to
other CRS systems, when PNR contains other airline
space or booked by travel agency or OA
11. FLIGHT INFORMATION - FLIFO
a. Provides simple displays of departure and arrival time, In
and Out times, Out and Off time
b. Complete scheduled routing with times are appended to
each display
c. System defaults date to current date
d. Flifo information is appended to segment sell entries
and displayed PNRs
e. Flifo cancellation due to weather or holiday schedules are
displayed in City Pair Availability
12. HOTEL AND CAR AVAILABILITY SYSTEM
a. SHAARP Plus (SABRE Hotels Availability And Rate
Program) provides property and rate information to
more than 180 hotel companies with more than 27,000
hotel properties
b. 50 car rental companies represented in over 100 countries
c. Hotel rates are loaded directly into SABRE's Database
d. Features included confirmation numbers, property
description, room rates and points of interest closest
to hotel
e. Hotels may be displayed by point of interest, city
codes, hotel name and/or code, airport location and
many more features that limit response to meet
customers criteria
f. Guarantee and deposit requirements listed in hotel
description
g. CARS Plus offers a dynamic car availability and rate system
h. Over 500 stored car types with accurate defined car types
i. Precise rates with comprehensive rules information which
can be displayed from any rate quote
j. International and non-airport locations included
k. Daily, weekly, weekend, standard and promotional rates
l. Encode/Decode hotel and car companies
m. Modification capabilities
13. INVENTORY CONTROL AND DISPLAYS
a. Inventory calculation is based on the concept of base and
nested classes
b. Classes of service are indicated by a single alpha
character
c. Display detailed sales and waitlist counts for a leg of
a specific flight or board point (total boardings out of
each station, regardless of destination)
d. Display detailed inventory by class of service for a
given flight and board point, with unticketed
passenger counts, inbound connecting passenger
counts, and large party counts, as well as counts of
those passengers who have been confirmed from waiting lists
e. Display all flight legs or flight numbers with sales
above or below a specified percentage of the
authorized compartment authorization for one flight, all
flights, or a range of flight numbers and onedate or a
range of dates
f. Display market activity and passenger loads for any one
date during the immediate period
g. Adjust inventory by compartment code for flight leg or
segment
h. Limit sales by leg or segment for one date or a range of
dates
i. Inhibit or reopen waitlist clearance by board point,
segment, or for all segments
j. Inhibit or reopen sales by board point, segment, or for all
segments
k. Inhibit overbooking on flight for date or date range for a
leg or all legs
l. Create extra section or "stub" flight operation
m. Adjust scheduled flight to add unscheduled intermediate
landing, overflight, or segment cancellation
n. On-line entry to reconcile all flight inventories for a
given date
o. Display flight inventory history, recapping all adjustments
and modifications
p. Spoilage alert messages and overbooking alerts generated to
a special revenue control queue
q. All inventory adjustment actions are recorded with agent
city/sign and time/date
14. INVENTORY AUTHORIZATION (FLP)
a. Flight Load Prediction (FLP) System loads authorizations
for all detailed flights in the system
b. Loads either predetermined calculations or calculates new
authorizations
c. Manual entries exist to either change or override the
authorizations
d. A feature of FLP is automatic large party scaling within
ninety days of departure
e. Another feature allows the ability to carry forward
authorizations or booking levels through a schedule change
15. MARKET TARIFF TABLE
This table is used to control various functions associated with a
class of service:
a. Primary function is to inhibit the sale of a discount fare
during a specified number of days or time of day
b. Market Tariff Table rules can apply to a specific market,
to all markets or to specified airports
c. User controllable functions: time and day class is
inhibited, inhibit class by flight number, specific
connect point, departure effective date, departure
discontinuation date, non-stop flights, multi-stop
flights or connections
d. User controlled tables
16. NAME LIST DISPLAYS
The following list displays are available and are restricted
by duty code:
a. Passenger Name List, Large Party Name List,
Inbound/Outbound Name List, Waitlisted Name List,
Corporate Name List, Special Meal Name List,
Prereserved Seat Name List, Cancellation Name List,
Unticketed Count List, Passengers Affected by PDC
List, Waitlist Confirmation Name List
17. OVERLAP FLIGHT CREATION CAPABILITY
a. Limit sales is used to suppress one flight, only one
flight (secondary) will appear in City Pair Availability
for the overlapped leg
18. PASSENGER NAME RECORD (PNR)
a. PNR will store reservations transactions and passenger data
b. Following PNR fields are mandatory and reservation can not
be completed without the following items:
Passenger Name, Itinerary, Ticketing or Time Limit, Phone
Number and Received From
c. Non-mandatory or optional items are: Special Service
Request (SSR), Other Service Information (OSI),
Pre-reserved seats, Remarks and Address field
d. Fare Storage is an optional item and can be required as a
mandatory item
e. PNRs are tagged with creation time/date/year, agent sign
and location where it was created
f. PNR changes are stored in History, including schedule
changes
g. PNR modifications include PNR field changes: name, phone,
ticketing, itinerary, pre-reserved seats, OSI/SSR, remarks
h. PNR can be reduced in number of party and divided out by
passenger name
i. Reorder itinerary segments in a single command, insert
additional segments
j. Cancel and rebook itinerary segments in one entry
k. Display PNR by flight, date and name or by record locator
19. PNR PAST DATE INVESTIGATION ON CD-ROM
For information please refer to Article 13.8 of the Agreement
20. PRE-RESERVED SEAT SELECTION
a. User friendly formats for ease of request
b. Allows seats to be reserved for up to 331 days in advance
c. Allows seating by area preference or seat number preference
d. Allows seating by area of preference on all segments
e. Cancellation by segment, specific seat number and by all
segments without canceling itinerary
f. Tags segments with HRS (Holding Reserve Seat) indicator
g. Maximum number of seats per segment request is 60 so
groups can be accommodated
h. PNR pre-reserved seat history
i. Pre-reserved seats are name associated in the PNR
21. QUEUE PACKAGE (AAQUARIUS)
a. Automatic storing of PNRs requiring special handling
b. 227 user assigned queues, 31 queues are defined and system
controlled
c. Place manifest/name list on queue
d. Close a queue, automatically rerouting all placement
actions to an alternate queue
e. Display list of file addresses (PNR numbers)for all
PNRs on queue
f. Queue sorting by use of qualifiers or specific PNR
functions
g. Prefatory Instructions which indicate reason for PNR to be
on queue
h. Queue move and queue transfer capabilities allow complete
files to be moved or transferred from one queue to another
or different cities/locations
i. Create or modify user defined prefatory instruction code
j. Queue count includes number of PNRs on deferred (left
message to call, unable to reach) queues
k. Queue analysis displays counts of items on queue,
removed, transferred, removed by end transaction, and
ignored during processing, as well as those deferred by
"left message" and "unable to reach" action
l. Queue history
22. SABRE ASSISTED INSTRUCTIONS (SAI)
SABRE Assisted Instructions is a series of lessons created to
train on SABRE functionality:
a. Lessons are itemized by course, with a maximum of 40
lessons per course
b. Each lesson page is numbered to permit students to leave a
lesson and later return to the same page
c. Each lesson contains a HELP system to assist the student
d. Each lesson has a subject index to list topics contained in
the lesson
23. SABRE SALES GUIDE
a. SABRE Sales Guide Database contains over 986,000 worldwide
city pairs, with 651 airline schedules in the database
b. Over 350 participating carriers
c. Choice of hierarchy displays: direct flights, connections,
through flights
d. Host airline services are displayed prior to the
introduction of other airline services
e. Header line displays departure date and day of week,
board/off point time zones and difference betweenthem in
hours
f. Direct and connecting services integrated in single
displays
g. Flights which have already departed are excluded from
availability displays
h. Displays services both before and after time in request
i. Other airline schedules updated 5 times a week via OAG tape
load
j. Sequencing of CPA based on systemwide display parameters
k. Capability to override CPA system parameters for specific
markets
l. Date defaults to current day
m. User defined departure time default
n. Display elapsed time, enroute stops, time on ground from
availability display
o. Append fare quote display to CPA or schedules
24. SPECIAL TRAVELERS ACCOUNT RECORDS SYSTEM (STARS)
a. A source for storing frequently used information,
procedures, training data, station or city information
b. User defined STAR identification
c. Up to 200 lines of information are allowed per STAR
d. Retention of creation date
e. Retention of last update date/agent sign
f. Historical retention of most recent revisions
g. Allow automatic transfer of lines directly to a PNR
h. Comment line may be added to STAR by unauthorized/
untrained agents to alert controlling office of
required updates
i. STAR can be created from retrieved or newly created PNR
j. STAR Security Package provides the option and capability to
restrict the display and/or update of STARS
k. STAR Security is an optional feature
l. Restriction of STARS display or update parameters: duty
code, home station, password, employee number or a
combination of these
25. TELETYPE REJECT MESSAGE HANDLING
a. Rejected teletype messages are queue placed for manual
handling
b. Teletype rejects are sorted by departure date and placed
on High Priority, Medium Priority and Low Priority queues
c. Date range of each queue is determined by the user
d. Agents working teletype rejects are required to have a
special duty code, restricting access to other agents
e. Reason or Rejection List for teletype rejects
f. Unmatchable inbound "confirmed" segment messages treated as
"if not holding, sell" action request
g. Large party bookings are sent to a specific queue for group
desk action
26. WORLDFARE PACKAGE AND FARE QUOTE
a. Worldfare database contains more than 45 million fares
b. Information is submitted by the Airline Tariff Publishing
Co., ABC International and Speedwing
c. Comprehensive rule data based on filed tariff rules
d. Worldwide currencies Bankers Buying Rates
e. Worldwide IATA sector mileages
f. Display fares for future or past purchase and/or travel
date or specific booking class
g. Display fares in specified currency
h. Display base fare/tax by fare quote display line number
i. Display comparison ("shopper") display of fares
j. Price PNR itinerary by alternate purchase currency
(U.S./Canadian dollars)
k. Price PNR itinerary by specific fare basis code,
combination of fare basis codes, or combination of ticket
designators
l. Price PNR itinerary by ticket designator (AD75, ID50, etc.)
m. Capability of calculating least expensive fares (both
available and potentially offerable) for a booked
itinerary
n. Optional automatic rebooking of booked itinerary to lower
fare booking classes
o. Fare retention allows fare quoted to be stored in PNR
p. A count is maintained of all price retention entries
q. Same display as pricing is stored in the fare retention
27. WAITLISTING PROCESS
a. Supports main waitlist and priority waitlist
b. Waitlist clearance processed by times
c. Waitlist clearance inhibit options, by class of service
and markets
d. Waitlist clearance inhibited during schedule change
II. AIRPORT PROCESSING
1. ADVANCE CHECK-IN (ACI)
a. Specific seat selection and assignmentis permitted up to
30 days into the future at any host location that issues
boarding passes
2. AIRPORT CHECK-IN SYSTEM (ACS)
a. Applicable PNR information is collected 3 days in advance
and a Passenger Name Manifest is created for ACS
b. Flights are initialized automatically by the system
allowing flight status and counts to be displayed
c. ACS is duty code and keyword restricted
d. Overlap and change-of-gauge flights are automatically
handled
e. Following functions are included: passenger check-in, seat
assignment, pre- and post-departure control processing,
automated flight reconciliation, stand-by processing,
equipment changes, seat blocks, no-record passengers, group
check-in
f. Display current station activity (flight status)
3. AUTOMATED BOARDING PASSES
a. Boarding passes may be used for up to 30 days into the
future
b. Specific segments or all segments in itinerary may have
boarding passes issued
c. One entry is used to check-in a passenger and issue a
boarding pass
d. Boarding Pass Issue (BPI) indicator is placed in PNR
e. Either group name or passenger name may be printed on
boarding passes
4. BAGGAGE SECURITY
a. Bag Tag Editfunctions allow the addition of bag tag numbers
to check-in entries, creates a manifest with number of
bags and passenger's name
b. Display outbound connections for baggage sort, upline
stations can pre-sort baggage
c. User controlled function (turn on/off) bag tag edits
d. Positive passenger baggage reconciliation
e. On-demand bag tag printing
5. CATERING MESSAGES AND DISPLAYS
a. Generate a Preliminary and Final catering message with meal
counts
b. All special meals SSR information is appended to the
response and it is sorted by leg and segment
c. May use up to 20 destination addresses
6. PASSENGER NAME LIST
a. IATA PNL format is used to transmit a passenger name
list to a teletype address(es) to a carrier handling
a flight other than the host carrier
b. Name list will appear in alpha groups
c. Up to 6 teletype addresses may be included
d. IATA PNL includes outbound connection data
e. Add and Delete list of changes to original PNL
7. POST DEPARTURE CONTROL
a. PNRs are automatically adjusted by Post Departure
processing to provide accurate passenger boarded
statistics
b. Transfer of flights to downline stations and send passenger
load messages
c. Offload of all pre-reserved seat no-show passengers
d. Display of oversold and inconvenienced passengers
e. Post departure station report
8. SEATS AVAILABLE LIST (SAL)
a. IATA SAL message will transmit routing, seating
configuration and the space remaining for sale by class
and leg
b. Message will be generated after the final ADL message is
sent
III. MANAGEMENT REPORTS
1. ADVANCED BOOKING REPORT
a. Provides total number of passengers booked by: board and
offpoints, specified date range and/or future dates.
b. Can also be used as a summary of total passengers
boarded by date, per station, and to assist airport manning
projections.
2. INTERLINE BOOKING REPORT
a. Provides daily booking activity for host and other airline
bookings.
b. Collect daily booking counts made by other airlines on the
host, host airline on itself, and host airline on all other
airlines.
3. ON-LINE DUPE CHECK FACILITY
a. Provides names and PNR record locators as suspected
duplicate bookings.
b. May be requested for specific flight in a market, specific
date or date range.
c. Can be limited to search only corporate or BSG PNRs.
4. SABRE PERFORMANCE SUMMARY REPORT
Brings the SABRE performance data on-line.
5. DAILY BOOKINGS REPORT
a. Contains booking counts on host airline flights, classified
by date.
b. Report can be retrieved by requesting one or more of the
following parameters: specific commuter, specific board
and/or off point or and/or specific month or month range
up to a 7 month maximum
IV. OTHER FUNCTIONS
1. ADMINISTRATIVE MESSAGE SWITCHING (AMS)
a. Provides the capability to send teletype messages to user
defined locations within the airline as well as other
airlines
b. Carrier may select from six transmission priority codes
c. Information in message may be deleted, changed and added
prior to sending message
d. System edit for invalid use of characters
e. "Ignore" capability allows complete cancellation of message
prior to transmitting or ending the message
f. Teletype addresses are verified for valid cities
g. An EPR is required for AMS messages
h. Help Screen for quick assistance to AMS formats
2. CALCULATOR FUNCTIONS
a. Multiple arithmetic calculations (addition, subtraction,
multiplication and division)
b. Calculation and displays of monthly calendars
c. Determine past and future dates (useful in calculation of
advance purchase fares)
d. Convert Celsius and Fahrenheit, metric and decimal
e. Calculate time difference
3. CURRENCY CONVERSION
a. Display of Bankers Buyer Rate for IATA documents
b. Alpha listing of all countries for BBR
c. Currency conversion for BBR
d. Display and conversion of currency at market rate (for
non-IATA usage)
4. ENCODE/DECODE FUNCTIONS
a. Encode/decode city and airport code, airline name,
equipment type, car and hotel vendor
5. DIRECT COMMUNICATIONS LINK CAPABILITIES
a. SABRE system messages to and from other travel
industry systems are routed directly over dedicated
data circuits relieving volume to ARINC and SITA
(additional fee may apply)
b. Current links to over 30 U.S. and International airlines,
hotel chains and car companies, ARINC, ACARS, American
Express, ITT and SITA (additional fee may apply)
6. MINIMUM CONNECT TIMES
a. Display of minimum connecting times
b. Verification of minimum connect times in PNR
c. City Pair connect time override
7. SABRE ATLAS
a. Display of 10 closest airports to a city
b. Display of 10 closest airports to a military base
c. Display point to point miles between two places
8. SINE-IN MESSAGE
a. Sine-in messages display automatically after agent signs-in
to CRT
b. Create, delete and add sine-in messages
c. EPR keyword controlled
d. Messages may vary by location/city
9. OUS/OUB MESSAGES
a. Unsolicited message alerts generate messages to a specific
CRT address or all CRTs on a specific line
b. EPR keyword controlled
10. WEATHER SYSTEM
a. Provides access to the National Weather Service for current
conditions and three and five day forecast
b. Current city temperature as well as the forecast for
highs/lows temperature
V. ADDITIONAL FEATURES
1. "QUEST DIRECT"
a. Website Creation
b. Consumer Shopping
- Schedules
- Fare Quotes
c. Consumer Booking
- Availability
- Pricing
- Passenger data required in the PNR
- Ticket by Mail
- "EZ Trip" Ticketless Travel
d. Variable Booking Parameters
- Percent of inventory designated for Internet
booking
- Flexible ticketing time limits
e. Flight Information
- Schedules
- Flight Progress
f. Marketing Data
- Number of visits to each web page
- Number of queries per specific page
2. "TICKETLESS TRAVEL"
a. No Paper Tickets
- travelers are enabled to book, purchase, and
check-in for travel without receiving any
paper tickets
- system will normally print auditor's passenger
receipt and passenger itinerary (in accordance
with ATA and IATA requirements)
b. Virtual Coupon Record (VCR)
- customer service agents have easy on-line, real
time access to VCR
- used VCRs (i.e., all segments are flown) remain
on-line for seven (7) days after the last segment
is flown
- partially used VCRs remain on-line for thirteen
(13) months from the date of the last flown segment
- totally unused VCRs reside in real-time for
thirteen (13) months from the date of the first
segment
- real-time tape of all VCRs, when a flight is closed
c. Issuance of Boarding Passes at ATOs
- supports issuance of boarding passes at all ATOs
(if desired), provided an ATB printer is available
d. ATM-Style Passenger Check-In Kiosks
- system supports the IER Electronic Gate Reader
model 1801, which issues boarding passes with the
use of a credit card
- system supports ATM-style passenger check-in
Kiosks, that issue boarding cards to ticketless
passengers
3. "PRIVATE FARES INVENTORY DATABASE"
a. Customer may file a private fare with ATPCO and
secure it to one or more AAA cities. The fare may be
further secured to a specific duty code. However,
anyone in SABRE who has the ability to AAA into that city
with that duty code has access to the privately filed fare.
b. When the private fare is filed, there must be a fare type
code associated with the fare. Then when a fare quote is
requested, this code is appended to the request.
c. A list of the fare type codes is presently programmed in
SABRE. These fare type codes have passenger types
associated with the, however, they can be used for
other purposes. These are only the historical uses for
them. In addition, a passenger type is associated with the
privately filed fare for pricing purposes. There is a
passenger type for every fare type code.
d. The ability of an agent to AAA into a particular city or
duty code is governed by the agent's EPR. Customer may
choose to use an existing AAA city to secure private
fares or they may use a non-IATA assigned AAA city.
4. "PNR DATABASE"
a. SDT will provide Customer with access to a relational PNR
database. The database will be populated with summary
information from all PNRs in the multihost partition.
Access to the database is provided via a suite of
predefined management reports available on the Internet.
b. The process for capturing data and populating it is as
follows:
(1) Every time a PNR is created or modified,
selective PNR data fields will be captured.
(2) The data will then be transported to the
"open-system" platform.
(3) Once on the open-system, the data will be passed
through a filter to remove SABRE-specific
information (pointers, etc.) and mapped to the
relational database model.
(4) Lastly, the data will be populated into the
relational database.
c. As new reports and features are developed, SDT will
make them available to Customer at a cost to be
determined by SDT.
<PAGE>
EXHIBIT B
STANDARD RATES
"Standard Rates" shall mean, during 1997, the following SDT hourly
billing rates:
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Job Title Rates (USD)
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***
Technical Writer
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***
Consultant
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***
Senior Consultant
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***
Principal
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***
Senior Principal
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***
Vice President
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SDT may modify the Standard Rates, but no more than once per calendar year, by
a percentage not to exceed twelve percent (12%) per annum.
<PAGE>
EXHIBIT C
ACKNOWLEDGMENT
In consideration for The SABRE Group, Inc., by and through its SABRE
Decision Technologies ("SDT") division permitting the use of SABRE for the
benefit of [NAME OF AIRLINE], effective upon the date of such use, [NAME OF
AIRLINE] hereby agrees, for the benefit of SDT, to be bound by the obligations
of Customer contained in Article 7 and Article 11 of the SABRE Multihost
Agreement between The SABRE Group, Inc. and Reno Air, Inc. It is expressly
acknowledged that SDT is an intended beneficiary of this Acknowledgment.
[NAME OF AIRLINE]
By: _____________________
Name: __________________
Title: ___________________
<PAGE>
EXHIBIT D
APPROVED LOCATIONS FOR INSTALLATION
OF SABRE RESERVATIONS TERMINAL
Customer shall within fifteen (15) days from the date first written
above provide SDT with a list of the locations at which Customer desires to have
SABRE reservations terminals installed pursuant to this Agreement. Such list is
subject to the approval of SDT, with such approval not to be unreasonably
withheld.
<PAGE>
EXHIBIT 10.3
RENO AIR, INC.
EMPLOYEE STOCK INCENTIVE PLAN
The Reno Air Employee Stock Incentive Plan is a restatement of the Reno Air 1992
Stock Option Plan. Options granted under the Reno Air Stock Option Plan prior to
its restatement are governed by the terms of the Plan as in existence prior to
its restatement. Shares previously subject to options granted under the Reno Air
Stock Option Plan, which become available for grant due to lapse or forfeiture
of such options, become available for grant under the plan as restated.
SECTION 1. Purposes
The purposes of the Reno Air Employee Stock Incentive Plan
(the "Plan") are to enable Reno Air, Inc. (including any consolidated
subsidiaries, the "Company") to attract, retain and reward employees and
consultants and strengthen the existing mutuality of interests between such
persons and the Company's stockholders by offering such persons an equity
interest in the Company.
SECTION 2. Types of Awards
2.1 Awards under the Plan may be in the form of (i) Stock
Options; (ii) Stock Appreciation Rights; and/or (iii) Restricted Stock. An
eligible employee may be granted one or more types of awards.
SECTION 3. Administration
3.1 The Plan shall be administered by the Company's Board of
Directors (the "Board") or such committee of directors as the Board shall
designate (the "Committee"), which shall consist of not less than two directors
each of whom is (a) a non-employee director, as such term is defined in Rule
16b-3 under the Securities Exchange Act of 1934 or any successor rule, and (b)
an outside director satisfying the requirements of Section 162(m) of the
Internal Revenue Code of 1986, as amended, or any successor thereto (the
"Code"). The members of the Committee shall serve at the pleasure of the Board.
In the event and to the extent the Board does designate such a Committee,
references herein to the Board shall be references to the Committee.
3.2 The Board shall have the following authority with respect
to awards under the Plan: to grant awards to eligible employees under the Plan;
to adopt, alter and repeal such administrative rules, guidelines and practices
governing the Plan as it shall deem advisable; to interpret the terms and
provisions of the Plan and any award granted under the Plan; and to otherwise
supervise the administration of the Plan. In particular, and without limiting
its authority and powers, the Board shall have the authority:
(a) to determine whether and to what extent any award
or combination of awards will be granted hereunder, including whether
any awards will be granted in tandem with each other;
(b) to select the employees to whom awards will be
granted;
(c) to determine the number of shares of the common
stock of the Company (the "Stock") to be covered by each award granted
hereunder subject to the limitations contained herein;
(d) to determine the terms and conditions of any
award granted hereunder, including, but not limited to, any vesting or
other restrictions based on such performance objectives (the
"Performance Objectives") and such other factors as the Board may
establish, and to determine whether the Performance Objectives and
other terms and conditions of the award are satisfied;
(e) to determine the treatment of awards upon an
employee's retirement, disability, death, termination for cause or
other termination of employment, to the extent not otherwise set forth
herein;
(f) to determine pursuant to a formula or otherwise
the fair market value of the Stock on a given date; provided, however,
that if the Board fails to make such a determination, fair market value
of the Stock on a given date shall be the last reported sales price of
the Stock on the Nasdaq National Market (or the principal exchange upon
which the Stock is traded) on the last preceding date on which such
price was reported;
(g) to determine that amounts equal to the amount of
any dividends declared with respect to the number of shares covered by
an award (i) will be paid to the employee currently or (ii) will be
deferred and deemed to be reinvested or (iii) will otherwise be
credited to the employee, or that the employee has no rights with
respect to such dividends;
(h) to determine whether, to what extent, and under
what circumstances Stock and other amounts payable with respect to an
award will be deferred either automatically or at the election of an
employee, including providing for and determining the amount (if any)
of deemed earnings on any deferred amount during any deferral period;
(i) to provide that the shares of Stock received as a
result of an award shall be subject to a right of first refusal,
pursuant to which the employee shall be required to offer to the
Company any shares that the employee wishes to sell, subject to such
terms and conditions as the Board may specify; and
(j) to amend the terms of any award, prospectively or
retroactively; provided, however, that no amendment shall impair the
rights of the award holder without his or her written consent, and
further provided that no such amendment shall alter the price at which
an option is exercisable, or shorten the vesting provisions, or relax
the restrictions applicable to a grant (other than as contemplated by
the terms of the grant.)
3.3 If the Plan is administered by the Committee, the
Committee shall have the right to designate awards as "Performance Awards."
Awards so designated shall be granted and administered in a manner designed to
preserve the deductibility of the compensation resulting from such awards in
accordance with Section 162(m) of the Code. The grant or vesting of a
Performance Award shall be subject to the achievement of Performance Objectives
established by the Committee based on one or more of the following criteria, in
each case applied to the Company on a consolidated basis and/or to a business
unit and which the Committee may use as an absolute measure, as a measure of
improvement relative to prior performance, or as a measure of comparable
performance relative to a peer group of companies: sales, costs, operating
profits, operating profits before interest expense and taxes, net earnings,
earnings per share, return on equity, debt to equity ratio, market share, stock
price, economic value added, and market value added employee retention/turnover.
The Performance Objectives for a particular Performance Award
relative to a particular fiscal year shall be established by the Committee in
writing no later than 90 days after the beginning of such year. The Committee's
determination as to the achievement of Performance Objectives relating to a
Performance Award shall be made in writing.
3.4 All determinations made by the Board pursuant to the
provisions of the Plan shall be final and binding on all persons, including the
Company and Plan participants.
SECTION 4. Stock Subject to Plan
4.1 The total number of shares of Stock which may be issued
under the Plan shall be 4,600,000 shares (subject to adjustment as provided
below). Such shares may consist of authorized but unissued shares or treasury
shares. The exercise of a Stock Appreciation Right for cash or the payment of
any other award in cash shall not count against this share limit.
4.2 To the extent a Stock Option terminates without having
been exercised, or an award terminates without the employee having received
payment of the award, or shares awarded are forfeited, the shares subject to
such option or award shall again be available for distribution in connection
with future awards under the Plan. Shares of Stock equal in number to the shares
surrendered in payment of the option price, and shares of Stock which are
withheld in order to satisfy federal, state or local tax liability, shall not
count against the above limit, and shall again be available for grants under the
Plan.
4.3 No employee shall be granted Stock Options, Stock
Appreciation Rights, and/or Restricted Stock or any combination of the foregoing
with respect to more than 250,000 shares of Stock in any fiscal year (subject to
adjustment as provided in Section 4.4).
4.4 In the event of any merger, reorganization, consolidation,
sale of substantially all assets, recapitalization, Stock dividend, Stock split,
spin-off, split-up, split-off, distribution of assets or other change in
corporate structure affecting the Stock, a substitution or adjustment, as may be
determined to be appropriate by the Board in its sole discretion, shall be made
in the aggregate number of shares reserved for issuance under the Plan, the
number of shares as to which awards may be granted to any individual in any
fiscal year, the number of shares subject to outstanding awards and the amounts
to be paid by award holders or the Company, as the case may be, with respect to
outstanding awards; provided, however, that no such adjustment shall increase
the aggregate value of any outstanding award.
SECTION 5. Eligibility
5.1 Employees of the Company, including officers, are eligible
to be granted awards under the Plan. Directors of the Company who are not
employees are not eligible to be granted awards under the Plan. The participants
under the Plan shall be selected from time to time by the Board, in its sole
discretion, from among those eligible. As used throughout this Plan, the term
employee includes paid consultants to the Company, except that consultants shall
not be eligible to receive Incentive Stock Options.
SECTION 6. Stock Options
6.1 The Stock Options awarded to employees under the Plan may
be of two types: (i) Incentive Stock Options within the meaning of Section 422
of the Code or any successor provision thereto; and (ii) Non-Qualified Stock
Options. To the extent that any Stock Option does not qualify as an Incentive
Stock Option, it shall constitute a Non-Qualified Stock Option.
6.2 Subject to the following provisions, Stock Options awarded
to employees under the Plan shall be in such form and shall have such terms and
conditions as the Board may determine:
(a) Option Price. The option price per share of Stock
purchasable under a Stock Option shall be determined by the Board, but
shall not be less than the fair market value of the Stock on the date
of the award of the Stock Option.
(b) Option Term. The term of each Stock Option shall
be fixed by the Board, but shall not be more than ten (10) years from
the date the option is granted.
(c) Exercisability. Stock Options shall be
exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Board. The Board may waive
such exercise provisions at any time in whole or in part.
(d) Method of Exercise. Stock Options may be
exercised in whole or in part at any time during the option period by
giving written notice of exercise to the Company specifying the number
of shares to be purchased, accompanied by payment of the purchase
price. Payment of the purchase price shall be made in such manner as
the Board shall permit, which may include cash (including cash
equivalents), delivery of shares of Stock already owned by the optionee
or subject to awards hereunder, "cashless exercise", any other manner
permitted by law determined by the Board, or any combination of the
foregoing. If the Board determines that a Stock Option may be exercised
using shares of Restricted Stock, then unless the Board provides
otherwise, the shares received upon the exercise of a Stock Option
which are paid for using Restricted Stock shall be restricted in
accordance with the original terms of the Restricted Stock award.
(e) No Stockholder Rights. An optionee shall have
neither rights to dividends or other rights of a stockholder with
respect to shares subject to a Stock Option until the optionee has
given written notice of exercise and has paid for such shares.
(f) Surrender Rights. The Board may provide that
options may be surrendered for cash upon any terms and conditions set
by the Board.
(g) Non-transferability. Unless otherwise provided by
the Board, (i) Stock Options shall not be transferable by the optionee
other than by will or by the laws of descent and distribution, and (ii)
during the optionee's lifetime, all Stock Options shall be exercisable
only by the optionee or by his or her guardian or legal representative.
(h) Termination of Employment. Following the
termination of an optionee's employment with the Company, the Stock
Option shall be exercisable to the extent determined by the Board. The
Board may provide different post-termination exercise provisions with
respect to termination of employment for different reasons. The Board
may provide that, notwithstanding the option term fixed pursuant to
Section 6.2(b), a Stock Option which is outstanding on the date of an
optionee's death shall remain outstanding for an additional period
after the date of such death.
6.3 No Incentive Stock Option shall be awarded more than ten
years after the effective date of the Plan specified in Section 13. No Incentive
Stock Option granted to an employee who owns more than 10% of the total combined
voting power of all classes of stock of the Company or any of its parent or
subsidiary corporations, as defined in Section 424 of the Code, shall (A) have
an option price which is less than 110% of the fair market value of the Stock on
the date of award of the Incentive Stock Option or (B) be exercisable more than
five years after the date such Incentive Stock Option is awarded.
SECTION 7. Stock Appreciation Rights
A Stock Appreciation Right awarded to an employee shall
entitle the holder thereof to receive payment of an amount, in cash, shares of
Stock or a combination thereof, as determined by the Board, equal in value to
the excess of the fair market value of the number of shares of Stock as to which
the award is granted on the date of exercise over an amount specified by the
Board. Any such award shall be in such form and shall have such terms and
conditions as the Board may determine. The grant shall specify the number of
shares of Stock as to which the Stock Appreciation Right is granted.
SECTION 8. Restricted Stock
Subject to the following provisions, all awards of Restricted
Stock to employees shall be in such form and shall have such terms and
conditions as the Board may determine:
(a) The Restricted Stock award shall specify the
number of shares of Restricted Stock to be awarded, the price, if any,
to be paid by the recipient of the Restricted Stock and the date or
dates on which, or the conditions upon the satisfaction of which, the
Restricted Stock will vest. The grant and/or the vesting of Restricted
Stock may be conditioned upon the completion of a specified period of
service with the Company, upon the attainment of specified Performance
Objectives or upon such other criteria as the Board may determine.
(b) Stock certificates representing the Restricted
Stock awarded to an employee shall be registered in the employee's
name, but the Board may direct that such certificates be held by the
Company on behalf of the employee. Except as may be permitted by the
Board, no share of Restricted Stock may be sold, transferred, assigned,
pledged or otherwise encumbered by the employee until such share has
vested in accordance with the terms of the Restricted Stock award. At
the time Restricted Stock vests, a certificate for such vested shares
shall be delivered to the employee (or his or her designated
beneficiary in the event of death), free of all restrictions.
(c) The Board may provide that the employee shall
have the right to vote or receive dividends on Restricted Stock. Unless
the Board provides otherwise, Stock received as a dividend on, or in
connection with a stock split of, Restricted Stock shall be subject to
the same restrictions as the Restricted Stock.
(d) Except as may be provided by the Board, in the
event of an employee's termination of employment before all of his or
her Restricted Stock has vested, or in the event any conditions to the
vesting of Restricted Stock have not been satisfied prior to any
deadline for the satisfaction of such conditions set forth in the
award, the shares of Restricted Stock which have not vested shall be
forfeited, and the Board may provide that (i) any purchase price paid
by the employee shall be returned to the employee or (ii) a cash
payment equal to the Restricted Stock's fair market value on the date
of forfeiture, if lower, shall be paid to the employee.
SECTION 9. Election to Defer Awards
The Board may permit an employee to elect to defer receipt of
an award for a specified period or until a specified event, upon such terms as
are determined by the Board.
SECTION 10. Tax Withholding
10.1 Each employee shall, no later than the date as of which
the value of an award first becomes includible in such person's gross income for
applicable tax purposes, pay to the Company, or make arrangements satisfactory
to the Board regarding payment of, any federal, state, local or other taxes of
any kind required by law to be withheld with respect to the award. The
obligations of the Company under the Plan shall be conditional on such payment
or arrangements, and the Company shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
employee.
10.2 To the extent permitted by the Board, and subject to such
terms and conditions as the Board may provide, an employee may elect to have the
withholding tax obligation, or any additional tax obligation with respect to any
awards hereunder, satisfied by (i) having the Company withhold shares of Stock
otherwise deliverable to such person with respect to the award or (ii)
delivering to the Company shares of unrestricted Stock. Alternatively, the Board
may require that a portion of the shares of Stock otherwise deliverable be
applied to satisfy the withholding tax obligations with respect to the award.
SECTION 11. Amendments and Termination
The Board may discontinue the Plan at any time and may amend
it from time to time, provided, that any amendment to the Plan increasing the
number of authorized shares or providing a material increase in the value of
awards granted under the Plan or materially increasing the cost of the Plan to
the Company shall require shareholder approval. No amendment or discontinuation
of the Plan shall adversely affect any award previously granted without the
award holder's written consent.
SECTION 12. General Provisions
12.1 Each award under the Plan shall be subject to the
requirement that, if at any time the Board shall determine that (i) the listing,
registration or qualification of the Stock subject or related thereto upon any
securities exchange or under any state or federal law, or (ii) the consent or
approval of any government regulatory body or (iii) an agreement by the
recipient of an award with respect to the disposition of Stock is necessary or
desirable (in connection with any requirement or interpretation of any federal
or state securities law, rule or regulation) as a condition of, or in connection
with, the granting of such award or the issuance, purchase or delivery of Stock
thereunder, such award shall not be granted or exercised, in whole or in part,
unless such listing, registration, qualification, consent, approval or agreement
shall have been effected or obtained free of any conditions not acceptable to
the Board.
12.2 Nothing set forth in this Plan shall prevent the Board
from adopting other or additional compensation arrangements. Neither the
adoption of the Plan nor any award hereunder shall confer upon any employee of
the Company any right to continued employment.
12.3 Determinations by the Board under the Plan relating to
the form, amount, and terms and conditions of awards need not be uniform, and
may be made selectively among persons who receive or are eligible to receive
awards under the Plan, whether or not such persons are similarly situated.
12.4 No member of the Board or the Committee, nor any officer
or employee of the Company acting on behalf of the Board or the Committee, shall
be personally liable for any action, determination or interpretation taken or
made with respect to the Plan, and all members of the Board or the Committee and
all officers or employees of the Company acting on their behalf shall, to the
extent permitted by law, be fully indemnified and protected by the Company in
respect of any such action, determination or interpretation.
SECTION 13. Effective Date of Plan
The Plan was effective on April 29, 1992. This restatement
shall be effective on May 22, 1997, subject to approval by the Company's
stockholders at the 1997 Annual Meeting of Stockholders.
<PAGE>
EXHIBIT 10.4
RENO AIR, INC.
DIRECTORS STOCK OPTION PLAN
SECTION 1. Purposes
The purposes of the Reno Air Directors Stock Option Plan (the "Plan")
are to enable Reno Air, Inc. (including any consolidated subsidiaries, the
"Company") to attract and retain directors of the Company and strengthen the
existing mutuality of interests between such directors and the Company's
stockholders by offering such directors an equity interest in the Company.
SECTION 2. Authorization
2.1 The total number of shares of common stock of the Company (the
"Stock") which may be issued under the Plan shall be 300,000 shares (subject to
adjustment as provided below). Such shares may consist of authorized but
unissued shares or treasury shares.
2.2 To the extent a stock option terminates without having been
exercised, the shares subject to such option shall again be available for
distribution in connection with future awards under the Plan.
2.3 In the event of any merger, reorganization, consolidation, sale of
substantially all assets, recapitalization, Stock dividend, Stock split,
spin-off, split-up, split-off, distribution of assets or other change in
corporate structure affecting the Stock, a substitution or adjustment, as may be
determined to be appropriate by the Board in its sole discretion, shall be made
in the aggregate number of shares reserved for issuance under the Plan, the
number of shares as to which awards may be granted to any individual in any
fiscal year, the number of shares subject to outstanding awards and the amounts
to be paid by optionees or the Company, as the case may be, with respect to
outstanding awards; provided, however, that no such adjustment shall increase
the aggregate value of any outstanding award.
SECTION 3. Administration
3.1 The Plan shall be administered by the Company's Board of Directors.
3.2 Each person who is not a member of the Board of Directors of the
Company and who first becomes a director of the Company after May 22, 1997 (a
"Qualified Director"), shall be granted, on the first trading day coincident
with or immediately following the date of his or her election as a director, an
option to purchase 30,000 shares of common stock. On the first trading day of
June of each year commencing in June 1998, each Qualified Director then serving
on the Board who has served for at least the preceding six months, and each
other director of the Company who has served for at least the preceding three
years, shall be granted an option to purchase an additional 10,000 shares of
Stock. For purposes of this section, the term trading day shall mean a day on
which the Stock is traded on a national securities exchange, on the Nasdaq
National Market, or in the over-the-counter market. Notwithstanding the
foregoing, if on any date on which stock options are to be granted, the
remaining shares available for issuance under the Plan are insufficient to
satisfy the grants then due, each director entitled to an option shall receive
an option to purchase his or her pro rata portion of the remaining shares.
3.3 Each option granted under the Plan shall have the following terms:
(a) General. The option shall be a non-qualified option.
(b) Option Price. The option price shall be the fair market value of
the shares on the date of grant, determined as the last reported sales price of
the Stock on the Nasdaq National Market (or the principal exchange upon which
the Stock is listed) on the last preceding date for which such price was
reported.
(c) Term of Option. The option term shall be ten years from the date of
grant (the "Option Expiration Date"), unless earlier terminated under section
(e).
(d) Vesting. The option shall vest as to one-third of the shares
subject to the option on each anniversary of the grant date.
(e) Termination of Option. The option may be exercised at any time
after it vests and prior to the first of the following to occur:
(i) Thirty (30) days after the termination of the optionee's membership
on the Board of Directors for any reason except the optionee's death or
disability; provided that the Board of Directors of the Corporation may extend
such thirty (30) day period up to a period not to exceed two years, but in no
event beyond the Option Expiration Date, and
(ii) Six (6) months after the termination of the optionee's membership
on the Board of Directors by reason of the optionee's death of disability,
provided that the Board of Directors of the Corporation may extend such six (6)
month period up to a period not to exceed two years, but in no event beyond the
Option Expiration Date.
(f) Payment of Exercise Price. The option price may be payable by
cashier's or certified check, personal check (if acceptable to the Company),
shares of common stock owned by the optionee, surrender of vested options (if
approved by the Board of Directors) or for such other types of consideration as
may have been approved by the Board of Directors.
(g) Method of Exercise. The option may be exercised in whole or in part
at any time during the option period by giving written notice of exercise to the
Company specifying the number of shares to be purchased, accompanied by payment
of the purchase price.
(h) Non-transferability. No option shall be transferable by the
optionee other than by the laws of descent and distribution. During the
optionee's lifetime, all options shall be exercisable only by the optionee or by
his or her guardian or legal representative.
(i) No Stockholder Rights. An optionee shall have neither rights to
dividends nor other rights of a stockholder with respect to shares subject to an
option until the optionee has given written notice of exercise and has paid for
such shares.
SECTION 4. Tax Withholding
4.1 Each optionee shall, no later than the date as of which the value
of an award first becomes includible in such person's gross income for
applicable tax purposes, pay to the Company, or make arrangements satisfactory
to the Board regarding payment of, any federal, state, local or other taxes of
any kind required by law to be withheld with respect to the award. The
obligations of the Company under the Plan shall be conditional on such payment
or arrangements, and the Company shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
optionee.
4.2 To the extent permitted by the Board, and subject to such terms and
conditions as the Board may provide, an optionee may elect to have the
withholding tax obligation, or any additional tax obligation with respect to any
awards hereunder, satisfied by (i) having the Company withhold shares of Stock
otherwise deliverable to such person with respect to the award or (ii)
delivering to the Company shares of unrestricted Stock. Alternatively, the Board
may require that a portion of the shares of Stock otherwise deliverable be
applied to satisfy the withholding tax obligations with respect to the award.
SECTION 5. Amendments and Termination
The Board may discontinue the Plan at any time and may amend it from
time to time. No amendment or discontinuation of the Plan shall adversely affect
any award previously granted without the award holder's written consent.
SECTION 6. General Provisions
6.1 Each award under the Plan shall be subject to the requirement that,
if at any time the Board shall determine that (i) the listing, registration or
qualification of the Stock subject or related thereto upon any securities
exchange or under any state or federal law, or (ii) the consent or approval of
any government regulatory body or (iii) an agreement by the recipient of an
award with respect to the disposition of Stock is necessary or desirable (in
connection with any requirement or interpretation of any federal or state
securities law, rule or regulation) as a condition of, or in connection with,
the granting of such award or the issuance, purchase or delivery of Stock
thereunder, such award shall not be granted or exercised, in whole or in part,
unless such listing, registration, qualification, consent, approval or agreement
shall have been effected or obtained free of any conditions not acceptable to
the Board.
6.2 Nothing set forth in this Plan shall prevent the Board from
adopting other or additional compensation arrangements. Neither the adoption of
the Plan nor any award hereunder shall confer upon any optionee of the Company,
any right to a continued position with the Company or membership on the Board.
6.3 Determinations by the Board under the Plan relating to awards need
not be uniform, and may be made selectively among persons who receive awards
under the Plan, whether or not such persons are similarly situated.
6.4 No member of the Board or the Board, nor any officer or employee of
the Company acting on behalf of the Board or the Board, shall be personally
liable for any action, determination or interpretation taken or made with
respect to the Plan, and all members of the Board or the Board and all officers
or employees of the Company acting on their behalf shall, to the extent
permitted by law, be fully indemnified and protected by the Company in respect
of any such action, determination or interpretation.
SECTION 7. Effective Date of Plan
The Plan shall be effective on May 22, 1997, subject to approval by the
Company's stockholders at the 1997 Annual Meeting of Stockholders.
<PAGE>
EXHIBIT 10.5
July 3, 1997
Robert W. Reding
President & CEO
Direct 702/686-3837
simile 702/686-3875
Mr. B.J. Rone
3000 St. Germain Drive
McKinney, TX 75070
Dear B.J.:
Reno Air is pleased to offer you the position of Sr. Vice President, Finance and
Administration, and CFO reporting to me. I look forward to your participation in
Reno Air's future success.
The specifics of the offer are as follows:
Title: Sr. Vice President, Finance and Administration & C.F.O.
Salary: $180,000/annum, paid $7,500 semi-monthly (24 pa6y periods per
annum). Salary to Commence when you report to work on your
"Start Date."
Benefits: Standard Reno Air Benefit Plan
Bonus: You will be eligible to participate in the Reno Air Executive
Incentive Bonus Plan, based upon the successful attainment of
defined individual and corporate objectives. At 100%
attainment of Plan you will be eligible to receive a bonus of
30% of annual base salary earned during the calendar year.
Stock Option: Should you report to work next week, you will have the
option to purchase 180,000 Common Shares from the Reno Air
Incentive Stock Option Plan, exercisable at $7 7/16, which was
the closing market value of the stock when your employment was
approved at the telephonic Board meeting held on June 25,
1997. The options come with a 60-month vesting period, vesting
on a straight line basis annually.
Further, you will be eligible to participate in a Performance
Accelerated stock (PASOP) Plan for 50,000 shares. A copy of
the Plan is included for your review. The option price for the
PASOP plan will be determined and approved at the next Board
meeting.
Relocation: As your new position requires relocation to Reno, Nevada, we
will provide the following relocation assistance:
Up to 452,000 for documented and reasonable relocation costs
including the closing costs associated with the sale of your
home in McKinney, Texas. Additionally, you will be reimbursed
$1,500 per month for temporary housing in Reno, Nevada, for up
to a maximum of six (6) months, or until your home in
McKinney, Texas, is sold, whichever comes first.
If your employment terminates voluntarily, or if you are
terminated for "cause" prior to completing one year's service,
all reimbursed moving expenses must be repaid to the Company
on a pro-rated basis.
If you are terminated "without cause", the Company will
provide the costs of your relocation back to McKinney, Texas,
or equivalent location of your choice.
Change of
Control: The Board of Directors, will consider a management recommended
Change of Control Agreement for all Executive and "Key"
Officers at Reno Air at its next scheduled board meeting on
July 25, 1997.
Termination
"Without Cause":
If you are terminated without cause, you will be provided
termination benefits while you are unemployed including up to
twelve months of continuing bi-monthly salary and health care
benefits for yourself and eligible dependents.
I am delighted to have you join the Reno Air team and look forward to a
beneficial and positive relationship. If these terms are agreeable to you,
please indicate the date next week that you plan to report to work in Reno and
return a signed copy of this letter to me at fax 702/686-3875.
Sincerely,
/s/ Robert W. Reding
Robert W. Reding
President & CEO
Accepted by:
/s/ B. J. Rone 7-7-97 7-8-97
B. J. Rone Date Start Date
<TABLE>
<CAPTION>
Exhibit 11
Statement Re: Computation of Per Share Earnings
For the Nine Months Ended For the Three Months Ended
September 30, September 30,
------------------------------ ----------------------------------
1997 1996 1997 1996
---------------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
Primary:
Weighted Average Shares Outstanding 10,449,715 10,211,249 10,529,196 10,322,972
Common Stock Equivalents:
Options 246,154 619,757 321,239 607,698
Warrants - 65,243 - 62,771
-------------- -------------- --------------- -------------
10,695,869 10,896,249 10,850,435 10,993,441
============== =============== =============== ============
Net Income Applicable to Common Stock $ 24,213 $ 8,297,842 $ 4,797,109 $ 4,747,832
============== =============== =============== ============
Per Share Earnings $ - $ 0.76 $ 0.44 $ 0.43
============== =============== =============== =============
Fully diluted:
Weighted Average Shares Outstanding 10,449,715 10,211,249 10,529,196 10,322,972
Common Stock Equivalents:
Options 246,154 736,654 321,239 612,872
Warrants - 65,243 - 62,771
Other Dilutive Securities:
7.25% Subordinated convertible notes not applicable 5,428 not applicable 1,306
9% Senior convertible notes anti-dilutive 2,875,000 2,875,000 2,875,000
------------- -------------- -------------- -------------
10,695,869 13,893,574 13,725,435 13,874,921
============= ============== ============== =============
Net Income Applicable to Common Stock $ 24,213 $ 8,297,842 $ 4,797,109 $ 4,747,832
Interest expense addback - 9% senior
convertible notes anti-dilutive 1,942,397 638,014 652,192
------------- ------------- -------------- -------------
$ 24,213 $ 10,240,239 $ 5,435,123 $ 5,400,024
============ ============= ============== =============
Per Share Earnings $ - $ 0.74 $ 0.40 $ 0.39
============ ============== ============== =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Sep-30-1997
<CASH> 5,905,082
<SECURITIES> 1,501,607
<RECEIVABLES> 30,099,707
<ALLOWANCES> 0
<INVENTORY> 3,339,088
<CURRENT-ASSETS> 24,514,434
<PP&E> 98,058,384
<DEPRECIATION> (18,400,374)
<TOTAL-ASSETS> 173,041,077
<CURRENT-LIABILITIES> 85,293,333
<BONDS> 61,043,858
0
0
<COMMON> 105,421
<OTHER-SE> 12,981,238
<TOTAL-LIABILITY-AND-EQUITY> 173,041,077
<SALES> 0
<TOTAL-REVENUES> 292,287,264
<CGS> 0
<TOTAL-COSTS> 291,113,536
<OTHER-EXPENSES> (2,657,403)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,806,918
<INCOME-PRETAX> 24,213
<INCOME-TAX> 0
<INCOME-CONTINUING> 24,213
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,213
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
