1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1997 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- PEGASUS SYSTEMS, INC. (Exact name of registrant as specified in its charter) <TABLE> <S> <C> <C> DELAWARE 7389 75-2605174 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.) </TABLE> 3811 TURTLE CREEK BOULEVARD, SUITE 1100 DALLAS, TEXAS 75219 (214) 528-5656 (Address, including zip code, telephone number, including area code, of registrant's principal executive office) JOHN F. DAVIS, III PEGASUS SYSTEMS, INC. 3811 TURTLE CREEK BOULEVARD, SUITE 1100 DALLAS, TEXAS 75219 (214) 528-5656 (Name, address, including zip code, telephone number, including area code, of agent for service) --------------------- COPIES TO: <TABLE> <S> <C> GUY KERR KENNETH L. GUERNSEY WHIT ROBERTS JAMIE E. CHUNG Locke Purnell Rain Harrell MITCHELL R. TRUELOCK (A Professional Corporation) Cooley Godward LLP 2200 Ross Avenue, Suite 2200 One Maritime Plaza, 20th Floor Dallas, Texas 75201 San Francisco, California 94111 (214) 740-8000 (415) 693-2000 </TABLE> --------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. --------------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE <TABLE> <CAPTION> ================================================================================================================ PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION SECURITIES TO BE REGISTERED REGISTERED SHARE PRICE FEE ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Common Stock, $.01 par value per share.......... 3,416,995(1) $12.00 $41,003,940(2) $12,426 ================================================================================================================ </TABLE> (1) Includes 445,695 shares issuable upon exercise of the underwriters' overallotment option. (2) Estimated solely for purposes of calculating the registration fee in accordance with Rule 457. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED JUNE 5, 1997 PROSPECTUS 2,971,300 SHARES [LOGO] PEGASUS SYSTEMS, INC. COMMON STOCK Of the 2,971,300 shares of Common Stock offered hereby, 2,700,000 shares are being sold by the Company and 271,300 shares are being sold by the Selling Stockholders. The Company will not receive any of the proceeds from the sale of shares by the Selling Stockholders. See "Principal and Selling Stockholders." Prior to this offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price will be between $10.00 and $12.00 per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. The Company has applied to have the Common Stock approved for quotation on the Nasdaq National Market under the symbol PEGS. ------------------ THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 7. ------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. <TABLE> <S> <C> <C> <C> <C> ================================================================================================================== PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS ------------------------------------------------------------------------------------------------------------------ Per Share.............. $ $ $ $ ------------------------------------------------------------------------------------------------------------------ Total(3)............... $ $ $ $ ================================================================================================================== </TABLE> (1) See "Underwriting" for indemnification arrangements with the several Underwriters. (2) Before deducting expenses payable by the Company estimated at $750,000. (3) The Company has granted to the Underwriters a 30-day option to purchase up to 445,695 additional shares of Common Stock solely to cover over-allotments, if any. If all such shares are purchased, the total Price to Public, Underwriting Discount and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ----------------------- The shares of Common Stock are offered by the several Underwriters subject to prior sale, receipt and acceptance by them and subject to the right of the Underwriters to reject any order in whole or in part and certain other conditions. It is expected that certificates for such shares will be made available for delivery on or about , 1997, at the office of the agent of Hambrecht & Quist LLC in New York, New York. HAMBRECHT & QUIST MONTGOMERY SECURITIES VOLPE BROWN WHELAN & COMPANY , 1997 3 [GRAPHIC] Pegasus Systems Inc. logo with caption reading: Created by the hotel industry for the hotel industry. Logos of the following stockholders and customers: Inter-continental Hotels Best Western Hilton Hotels and Resorts Forte Hotels Marriot Choice Hotels International La Quinta Inn TTT Sheraton Hyatt Hotels & Resorts Utell International Reed Travel Group Anasazi HFS Incorporated Promus Hotel Corporation Westin Hotels & Resorts CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2 4 [GRAPHIC] Caption reading: Leading worldwide provider of hotel reservation and commission processing services. Pegasus Systems, Inc. logo with caption reading: Through its services and systems - TravelWeb, THISCO, HCC, Netbooker, UltraDirect and UltraRes-Pegasus Systems provides the technology that facilitates the electronic booking of hundreds of thousands of hotel rooms worldwide. Regardless of whether the reservation comes from a travel agent, a corporate travel department, a meeting planner or conventions and visitors bureau, or directly from the individual traveler via the Internet, it's likely that Pegasus' systems have touched the transactions. Pictures and logos depicting the following transaction flows: 1. Consumer to Travel Agent to Global Distribution System ("GDS") to UltraSwitch-THISCO to Hotel. 2. Consumer to GDS Internet Travel Sites to GDS to UltraSwitch-THISCO to Hotel. 3. Consumer to TravelWeb to UltraSwitch-THISCO to Hotel. 4. Consumer to Partner Web Sites to Pegasus Systems NetBooker to UltraSwitch-THISCO to Hotel. 5. Consumer to Corporate Travel to Pegasus Systems-UltraDirect to UltraSwitch-THISCO to Hotel. 6. Consumer to Conventions, Meetings, Housing to Pegasus Systems-UltraRes to UltraSwitch-THISCO to Hotel. 7. Hotel to HCC-Hotel Clearing Corporation to Travel Agent. THISCO logo with caption reading: THISCO's service is a gateway to more than 25,000 hotels around the world. When a reservation is made via any of the distribution vehicles shown above, THISCO translates the reservation request into the hotel's unique computer format and queries the hotel's database. A confirmed reservation is then transmitted back through THISCO's service and sent to the traveler via the distribution channel. This entire process occurs in a matter of seconds. TravelWeb logo with caption reading: TravelWeb is a leading Internet travel booking service that has quickly established its niche as the largest, interactive site in which consumers can freely research and reserve hotel rooms around the world. Connecting to approximately 15,000 hotels via the THISCO service, TravelWeb enables travelers to directly access hotel central reservation systems to check room rates, features and availability, and to make reservations. Other features on the site, including airline flight reservations, hotel photos, maps, weather and special discount programs, make TravelWeb the "one-stop" travel site for both the leisure and business traveler. HCC logo with caption reading: HCC completes the room reservation transaction for more than 64,000 participating travel agencies, by collecting and consolidating hotel booking commissions due to each agency from more than 11,000 participating hotel properties worldwide. The value-added consolidation and reporting services that HCC provides to both its hotel and travel agency participants help both parties operate more efficiently and effectively. 5 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Prospectus. The Common Stock offered hereby involves a high degree of risk. See "Risk Factors." The terms "Company" and "Pegasus" when used in this Prospectus refer to Pegasus Systems, Inc., a Delaware corporation, and, unless the context requires otherwise, its predecessors and consolidated subsidiaries. THE COMPANY Pegasus is a leading provider of transaction processing services to the hotel industry worldwide. The Company's THISCO(TM) and TravelWeb(R) hotel room reservation services improve the efficiency and effectiveness of the reservation process by enabling travel agents and individual travelers to electronically access hotel room inventory information and conduct reservation transactions. The Company's HCC service, the global leader in hotel commission payment processing, improves the efficiency and effectiveness of the commission payment process for participating hotels and travel agencies by consolidating payments and providing comprehensive transaction reports. The Company's electronic interface business for hotel room reservations was established in 1988 by 16 leading hotel and travel-related companies to address the need for a neutral, reliable third-party source of hotel reservation information and transaction processing services. The Company's commission processing business was founded by substantially the same stockholder group in 1991. Today, the Company's stockholders include 11 of the 15 leading hotel chains in the world based on 1996 total revenues as reported by Business Travel News. The Company's strategic position as a gateway in the hotel room distribution chain, transaction processing capabilities and reputation for reliability and neutrality enable it to offer a range of services delivering industry-wide benefits that would be difficult for any of the participants to achieve individually. The Company's THISCO service provides an electronic interface from hotel central reservation systems to travel agencies through Global Distribution Systems ("GDSs"), which are electronic travel information and reservation systems such as SABRE. Over 25,000 hotel properties worldwide, including those of 13 of the 15 leading hotel chains based on 1996 total revenues, utilize the THISCO service. The Company's TravelWeb service provides individual travelers direct access to more than 40,000 dynamically served pages of online hotel information and the ability to make reservations electronically at approximately 15,000 hotel properties in 140 countries. In January 1997, TravelWeb was ranked the second most popular travel-related Web site, according to PC Meter, L.P., a market research service. In April 1997, a daily average of approximately 20,000 Internet users visited the TravelWeb site, located at www.travelweb.com. In addition, through its recently introduced NetBooker service, the Company offers TravelWeb's comprehensive hotel database and Internet hotel reservation capabilities to third-party Web sites. The Company's HCC service consolidates commissions paid by participating hotels to a participating travel agency into a single monthly payment and provides participants with comprehensive transaction reports. Over 11,000 hotel properties and 64,000 travel agencies worldwide utilize the HCC service to increase the efficiency and reduce costs associated with preparing, paying and reconciling hotel room reservation commissions. Pegasus has structured its service offerings so that it has the opportunity to process and gain fee revenues from most electronic hotel room reservation and commission transactions. The Company derives THISCO and TravelWeb revenues by charging its hotel participants a fee based on the number of net reservations made. The Company derives HCC revenues by charging its travel agency customers a percentage of the dollar amount of commissions paid to the travel agencies and by generally charging hotels a transaction fee. The Company's revenues have grown at a compound annual rate of 54.4% to $15.9 million in 1996 from $2.8 million in 1992, excluding 1992 revenues from the HCC service which was acquired in 1995. The 3 6 Company has entered into contracts with terms generally ranging from two to five years with most of its THISCO, HCC and TravelWeb hotel customers, many of which are Company stockholders. The operations of the global hotel industry include a wide variety of participants and a series of complex information and transaction flows. According to the International Hotel Association, the global hotel industry generated $247 billion in revenues in 1994. The Company believes that costs associated with reserving and distributing hotel rooms, including commissions and fees paid to intermediaries such as travel agencies and GDSs, hotel reservation-related staffing costs and reservation system information technology expenses, represent a significant proportion of total operating costs. The Company's services simplify the complexity of room reservation information and transaction flows, thereby reducing the distribution costs of rooms for the hotel industry. The Company believes that it will benefit from four significant trends in the global hotel industry. First, as hotels and travel agencies increasingly shift from manual to electronic means of making room reservations, the Company can provide them with reservation and commission processing services. Second, as individual travelers increasingly make their hotel reservations over the Internet, the Company is positioned to process these reservations through its own TravelWeb site or through third-party Web sites that use the Company's NetBooker hotel room reservation service, including Web sites operated by Preview Travel, Inc. and Internet Travel Network. Third, as independent hotels and smaller hotel chains increasingly affiliate with large chains, many of which are the Company's customers, the number of hotel properties for which Pegasus processes electronic reservations and commissions increases. Fourth, as travel agencies recognize the importance of hotel reservation commission revenues, the Company believes that travel agencies will generate an increasing volume of electronic hotel room reservations and will increasingly rely on the Company to process hotel commissions. The Company's objective is to capitalize on its central position in the hotel industry information and transaction flow in order to become the leading provider of services and technology that enable the efficient and effective distribution of hotel rooms. To achieve this objective, the Company intends to employ a strategy that includes the following key elements: (i) expanding its customer base; (ii) expanding its service offerings to include virtually all of the electronic hotel room distribution channels; (iii) developing an information service to provide hotels and other industry participants with hotel transaction information for use in strategic analysis, market tracking, improved target marketing and revenue optimization; and (iv) building strategic alliances and pursuing acquisition opportunities. The Company was incorporated in Delaware in 1995, and holds directly or indirectly all of the outstanding capital stock of (i) The Hotel Industry Switch Company ("THISCO"), a Delaware corporation formed in 1988 to operate the electronic interface business between hotel reservation systems and major GDSs; (ii) The Hotel Clearing Corporation ("HCC"), a Delaware corporation formed in 1991 to operate the commission payment processing business; and (iii) TravelWeb, Inc., a Delaware corporation formed in 1995 to operate the online hotel reservation business. The Company's principal executive office is located at 3811 Turtle Creek Boulevard, Suite 1100, Dallas, Texas 75219. Its telephone number is (214) 528-5656. RECENT DEVELOPMENTS In March 1997, the Company entered into an agreement with Marriott International, Inc. ("Marriott") under which Marriott, currently a customer of the Company's THISCO and TravelWeb services, will become a customer of the Company's HCC service commencing in the third quarter of 1997. In May 1997, HFS, Inc. ("HFS") renewed its participation in the Company's HCC service by entering into a new long-term agreement with the Company. In May 1997, the Company entered into a Distribution Services Agreement with Holiday Inn Worldwide ("Holiday Inn") under which Holiday Inn, currently a customer of the Company's HCC service, also will become a customer of the Company's THISCO, TravelWeb, NetBooker, UltraDirect and UltraRes services commencing in 1998. 4 7 THE OFFERING <TABLE> <S> <C> Common Stock offered by the Company........................ 2,700,000 shares Common Stock offered by the Selling Stockholders........... 271,300 shares Common Stock to be outstanding after the offering.......... 9,429,712 shares(1) Use of proceeds............................................ To repay indebtedness payable to certain stockholders of the Company and for working capital and other general corporate purposes. See "Use of Proceeds" and "Certain Transactions." Proposed Nasdaq National Market symbol..................... PEGS </TABLE> SUMMARY CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> THREE MONTHS YEAR ENDED DECEMBER 31, ENDED MARCH 31, ----------------------------------------------- ----------------- 1992 1993 1994 1995 1996 1996 1997 ------- ------- ------- ------- ------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> CONSOLIDATED STATEMENT OF OPERATIONS DATA(2): Net revenues.......................... $ 2,792 $ 3,938 $ 4,666 $ 9,296 $15,869 $ 3,803 $ 4,377 Operating income (loss)............... (613) 198 168 (2,809) (2,585) (707) (232) Net loss.............................. $(1,179) $ (398) $ (423) $(3,571) $(3,485) $ (967) $ (388) Pro forma net loss per share(3)....... $ (0.48) $ (0.05) Shares used in pro forma net loss per share calculation(3)............... 7,203 7,481 OTHER OPERATING DATA: EBITDA(4)............................. $ 601 $ 1,550 $ 1,687 $ (279) $ 848 $ 154 $ 531 Depreciation and amortization......... 1,212 1,351 1,519 2,477 3,426 909 707 </TABLE> <TABLE> <CAPTION> MARCH 31, 1997 -------------------------- ACTUAL AS ADJUSTED(5) -------- -------------- <S> <C> <C> CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents............. $ 2,441 $ 24,090 Working capital....................... 1,405 23,859 Total assets.......................... 13,601 35,249 Long-term obligations, net of current portion............................ 5,957 1,540 Accumulated deficit................... (14,959) (14,959) Total stockholders' equity............ 1,600 28,471 </TABLE> --------------- (1) Based on the number of shares outstanding as of March 31, 1997. Excludes as of March 31, 1997 (i) 866,667 shares of Common Stock reserved for issuance under the Company's 1996 Stock Option Plan (the "1996 Plan"), of which options to purchase 771,733 shares of Common Stock were outstanding at a weighted average exercise price of $2.39 per share and (ii) 333,333 shares of Common Stock reserved for issuance under the Company's 1997 Stock Option Plan (the "1997 Plan"), which will become effective upon the completion of this offering. In May 1997, the Company issued to Holiday Inn warrants to purchase up to 345,723 shares of Common Stock at an exercise price of $7.20 per share, assuming an initial public offering price of $11.00 per share. See "Business -- Recent Developments" and "Management -- 1996 and 1997 Stock Option Plans." (2) The Company's statement of operations data for 1992, 1993 and 1994 consist of the accounts of THISCO. Statement of operations data for periods thereafter reflect the operations of the Company, including the acquisition of 83.3% of the outstanding capital stock of HCC in July 1995 and the acquisition of the remaining 16.7% of the outstanding capital stock of HCC in June 1996, together with the depreciation and amortization applicable to such acquisitions. Amortization applicable to the acquisition of HCC totaled $645,419, $1,412,499 and $383,511 in 1995, 1996 and the three months ended March 31, 1997, respectively. See Notes 1, 2 and 3 of Notes to Consolidated Financial Statements. (3) See Note 1 of Notes to Consolidated Financial Statements for information concerning the calculation of pro forma net loss per share. (4) EBITDA represents earnings before interest expense, income taxes, depreciation and amortization expense. Management believes EBITDA is a relevant measure of financial performance of the Company. EBITDA does not represent cash flows as defined by generally accepted accounting principles and does not necessarily indicate that cash flows are sufficient to fund all of the Company's 5 8 cash needs. EBITDA should not be considered in isolation or as a substitute for net income, cash from operating activities or other measures of liquidity determined in accordance with generally accepted accounting principles. The calculation of EBITDA is not necessarily consistent among reporting companies. (5) Adjusted to reflect the sale of the 2,700,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $11.00 per share and application of the estimated net proceeds. See "Use of Proceeds" and "Capitalization." --------------------- Except as set forth in the Consolidated Financial Statements and the Notes thereto or as otherwise indicated, the information contained in this Prospectus assumes no exercise of the Underwriters' over-allotment option and gives effect, concurrently with this offering, to (i) a 4-for-3 split of the Company's outstanding Common Stock and Series A Preferred Stock, (ii) the conversion of all outstanding shares of Series A Preferred Stock into shares of Common Stock and (iii) certain amendments to the Company's Certificate of Incorporation and By-laws. This Prospectus contains forward-looking statements that involve risks and uncertainties. The Company's actual results and the timing of certain events could differ materially from those discussed in the forward-looking statements as a result of certain factors, including those set forth under "Risk Factors" and elsewhere in this Prospectus. UltraSwitch(R), TravelWeb(R) and HCC Hotel Clearing Corporation(R) are registered trademarks of the Company. This Prospectus also includes trademarks and tradenames of companies other than the Company, which are the property of their respective owners. 6 9 RISK FACTORS This Prospectus contains forward-looking statements that involve risks and uncertainties. The Company's actual results and the timing of certain events could differ materially from those discussed in the forward-looking statements as a result of certain factors, including those set forth below and elsewhere in this Prospectus. The following risk factors should be considered carefully in evaluating the Company and an investment in the Common Stock offered hereby. Substantial Net Losses. The Company has experienced substantial net losses, including a net loss of $3.5 million in 1996, and had an accumulated deficit of approximately $14.6 million as of December 31, 1996. The Company's HCC and THISCO services have accounted for the majority of the Company's revenues to date, and the Company expects no significant revenues in 1997 from its other services, which are relatively new in their respective markets. Any decrease in the revenues from the HCC or THISCO services, or any increase in expenses related to any of the Company's services substantially above the amounts budgeted therefor, could have a material adverse effect on the Company's financial condition and results of operations. The Company anticipates that its budgeted operating expenses will increase in the foreseeable future as it continues to develop its services, increase its sales and marketing activities and expand its distribution channels. To achieve profitability, the Company must successfully implement its business strategy and increase its revenues while controlling expenses. There can be no assurance as to when or if the Company will achieve profitability. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Competition. -- Electronic Hotel Room Reservation Processing Service. The Company faces significant competition in connection with its THISCO hotel room reservation processing service. The principal competitor of the Company's THISCO service is WizCom International, Ltd. ("WizCom"), which is owned by Avis Rent A Car Systems, Inc. ("Avis"). As a result of the acquisition of Avis by HFS, a stockholder and customer of the Company, in September 1996, WizCom became a wholly owned subsidiary of HFS. Although HFS has recently renewed its participation in the Company's HCC service, HFS has notified the Company that it is moving its electronic hotel room reservation processing from THISCO to WizCom. The Company has an agreement with HFS which requires HFS to pay for a certain minimum level of THISCO processing services annually for the life of the agreement. In 1996, revenues from HFS for electronic hotel room processing services were $512,424 above the annual minimum fee. HFS currently uses and in the future could use the WizCom technology to compete with certain of the Company's current and future services. There can be no assurance that any additional customers will not change their electronic reservation interface to WizCom or to another similar service. Also, hotels can choose to connect directly to one or more GDSs, thereby bypassing the THISCO service and eliminating the need to pay fees to the Company. Such competitors or their affiliates may have greater financial and other resources than the Company. Factors affecting the competitive success of an electronic hotel room reservation processing service include reliability, levels of fees, number of hotel properties on the system, ability to provide a neutral comprehensive interface between hotels and other participants in the distribution of hotel rooms and ability to develop new technological solutions. There can be no assurance that another participant in the hotel room distribution process or a new competitor will not create services with features that would reduce the attractiveness of the Company's services. The Company's inability to compete effectively with respect to these services could have a material adverse effect on the Company's financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business -- Recent Developments" and " -- Competition." The Company charges hotel participants certain fees for processing status messages from hotel central reservation systems to GDSs. Status messages are electronic messages sent by hotels to GDSs to update room rates, features and availability information in GDS databases. The Company intends to reduce certain status message fees in July 1997. In addition, a hotel participant can choose to use the Company's UltraSelect service to provide travel agencies direct access through GDSs to its central reservation system, thereby reducing the need to send status messages through the Company's THISCO service. There can be no assurance that the volume of, and fees generated from, status message processing will remain at the same or a 7 10 higher level in the future. Any significant decrease in the volume of status messages processed or in the amount of status message fees generated could have a material adverse effect on the Company's financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Services." -- Internet Hotel Room Reservation Service. The market for the Company's TravelWeb and NetBooker services is highly competitive. Current competition includes traditional telephone or travel agency reservation methods and other Internet travel reservation services. There are a large number of Internet travel-related services offered by the Company's competitors, and many of these competitors are larger and have significantly greater financial resources and name recognition than the Company. Several competitive Web sites such as Travelocity (a site operated by The SABRE Group Holdings, Inc.) and Expedia (a site operated by Microsoft Corporation) offer a more comprehensive range of travel services than TravelWeb or NetBooker. The Company faces competition in the online hotel room reservation business not only from its current competitors but also from possible new entrants, including other Web sites. The costs of entry into the Internet hotel room reservation business are relatively low. There can be no assurance that the Company's Internet hotel room reservation services will compete successfully. The failure of these services to compete successfully could have a material adverse effect on the Company's financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Competition." -- Commission Processing Service. The market for the Company's HCC service is competitive. The Company's competitors in the commission processing business include National Processing Company ("NPC"), WizCom and Citicorp. NPC, a company that has traditionally provided car rental and cruise line commission processing services, recently began offering its services to hotels and travel agencies. WizCom has recently announced its intention to offer a service that may be competitive with the Company's HCC service. Citicorp provides commission consolidation services to hotel chains. In addition, hotels that are current or prospective customers of the HCC service can decide to process commission payments without, or in competition with, the HCC service. Some of these current or potential competitors have substantially greater financial and other resources than the Company. Furthermore, while the Company has agreements with all of its hotel customers for the HCC service, most of the Company's travel agency customers are not obligated by any agreement with the Company. If a significant percentage of these travel agencies were to cease using the HCC commission processing service, the Company's financial condition and results of operations could be materially adversely affected. See "Management Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Competition." Dependence on Hotel Industry; Consolidation Trends. The Company derives substantially all of its revenues directly and indirectly from the hotel industry. The hotel industry is sensitive to changes in economic conditions that affect business and leisure travel and is highly susceptible to unforeseen events, such as political instability, regional hostilities, recession, gasoline price escalation, inflation or other adverse occurrences that result in a significant decline in the utilization of hotel rooms. Any event that results in decreased travel or increased competition among hotels may lower hotel room reservation volumes, the average daily rates for hotel rooms or both and could have a material adverse effect on the Company's financial condition and results of operations. The hotel industry recently has witnessed a period of consolidation in which hotel chains have acquired or merged with other chains. Such activities may reduce the Company's customer base. Similar consolidation trends have occurred in the GDS industry. After the recent merger between Amadeus and System One, the GDS industry has consolidated to four major GDSs. If further consolidation were to take place, the value provided by the Company to participants in the hotel room distribution process and the benefits to hotel operators of utilizing the THISCO service would be reduced. The Company typically offers volume-based discounting of its fees, which could result in a higher percentage of discounted fees if the consolidation trends in the hotel and GDS industries continue. There can be no assurance that any potential decrease in the Company's customer base or any potential increase in the percentage of discounted fees will not have a material adverse effect on the Company's financial condition and results of operations. 8 11 Fluctuations in Quarterly Operating Results. The Company has experienced in the past and expects to experience in the future significant fluctuations in quarterly operating results. Such fluctuations may be caused by many factors, including but not limited to the introduction of new or enhanced services by the Company or its competitors, the degree of customer acceptance of new services, competitive conditions in the industry, seasonal factors, reduction in client base, changes in pricing, the extent of international expansion, the mix of international and domestic sales and general economic conditions. Because the Company's expense budget is set early in a fiscal year and a significant portion of the Company's operating expenses are relatively fixed in nature, fluctuations in revenues may cause substantial variation in the Company's results of operations from quarter to quarter. Due to the foregoing factors, many of which are beyond the Company's control, quarterly revenues and operating results are difficult to forecast, and the Company believes that period-to-period comparisons of its operating results will not necessarily be meaningful and should not be relied upon as any indication of future performance. It is likely that the Company's future quarterly operating results from time to time will not meet the expectations of securities analysts or investors, which could have a material adverse effect on the market price of the Company's Common Stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Potential Adverse Changes in Hotel Commission Payments. Absent any express arrangement in individual cases, hotels currently are under no contractual obligation to pay room reservation commissions to travel agencies. Hotels could elect to reduce the current industry customary commission rate of 10.0%, limit the maximum commission generally paid for a hotel room reservation or eliminate commissions entirely. In 1995, the airline industry placed a maximum limit on the amount of commissions payable to travel agencies for any domestic airline ticket issued. Recently, certain airlines have capped the dollar amount that they will pay to travel agencies for airline reservations made online. In addition, hotels increasingly are utilizing other direct distribution channels, such as the Internet, or offering negotiated rates to major corporate customers that are non-commissionable to travel agencies. Because a substantial portion of the Company's revenues are dependent on the dollar volume of travel agency commissions paid by hotels, any change in the hotel commission payment system that reduces the commissions payable to travel agencies and any acceleration of the trend towards direct distribution of rooms by hotels could have a material adverse effect on the Company's financial condition and results of operations. See "Business -- Services." Control by Existing Stockholders; Conflicts of Interest. Prior to this offering, a substantial majority of the outstanding shares of the Company's Common Stock was owned by certain hotel industry companies that are customers of the Company. Upon the completion of this offering, the stockholders of the Company before this offering will beneficially own approximately 71.4% of the outstanding Common Stock, including 44.0% that will be owned either by hotel companies or hotel representation firms. As a result, these stockholders, if they act together, will be able to exercise significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. Such concentration of ownership could have the effect of delaying, preventing or deferring a change in control of the Company. The Company's interest in achieving profitability from its services to the hotel industry conflicts with the interests of some of its existing stockholders or their affiliates to lower their costs of utilizing the Company's services. In 1996, services provided by Pegasus to its stockholders directly and indirectly accounted for 75.4% of the Company's revenues. See Note 14 of Notes to Consolidated Financial Statements. Additionally, to the extent TravelWeb and other Web-based services, including the third-party Web sites using the Company's NetBooker service, are successful in causing consumers to shop for and reserve hotel rooms directly, such success could adversely affect the role of travel agencies and correspondingly could materially adversely affect future HCC revenues of the Company. Reed Travel Group, a division of Reed Elsevier Inc. and a stockholder of the Company ("Reed"), holds certain license rights to use the Company's UltraSwitch technology for applications unrelated to the hotel industry, which may limit or otherwise conflict with the Company's ability to expand its service offerings. Any of these conflicts could result in a material adverse effect on the Company's financial condition and results of operations. See "Business -- Technology and Operations," "Certain Transactions" and "Principal and Selling Stockholders." Dependence on Growth of Internet Commerce. The market for electronic hotel reservation services over the Internet is rapidly evolving and depends upon market acceptance of novel methods for distributing services 9 12 and products, which involves a high degree of uncertainty. The success of the Company's TravelWeb and NetBooker services will depend upon the adoption of the Internet by consumers as a widely used medium for commerce. The Internet may not prove to be a viable commercial marketplace for any number of reasons, including inadequate development of the necessary infrastructure or the lack of complementary services and products, such as high speed modems and high speed communication lines. The Internet has experienced, and is expected to continue to experience, significant growth in the number of users and amount of traffic. There can be no assurance that the Internet infrastructure will continue to be able to support the demands placed on it by this continued growth. Moreover, critical issues concerning the commercial use of the Internet (including security, reliability, cost, ease of use, accessibility and quality of service) remain unresolved and may negatively affect the growth or attractiveness of commerce conducted on the Internet. If critical issues concerning the commercial use of the Internet are not favorably resolved, if the necessary infrastructure is not developed or if the Internet does not become a viable commercial marketplace, the Company's financial condition and results of operations could be materially adversely affected. See "Business -- Industry Background" and "-- Services." System Interruption and Security Risks. The Company's operations are dependent on its ability to protect its computer systems and databases against damage or system interruptions from fire, earthquake, power loss, telecommunications failure, unauthorized entry or other events beyond the Company's control. A significant amount of the Company's computer equipment is located at a single site in Phoenix, Arizona. There can be no assurance that unanticipated problems will not cause a significant system outage or data loss. Despite the implementation of security measures, the Company's infrastructure may also be vulnerable to break-ins, computer viruses or other disruptions caused by its customers or others. Any damage to the Company's databases, failure of communication links or security breach or other loss that causes interruptions in the Company's operations could have a material adverse effect on the Company's financial condition and results of operations. See "Business -- Systems Maintenance and Disaster Recovery." Impact of Technological Advances; Delays in Introduction of New Services. The Company's future success will depend, in part, on its ability to develop leading technology, enhance its existing services, develop and introduce new services that address the increasingly sophisticated and varied needs of its current and prospective customers and respond to technological advances and emerging industry standards and practices on a timely and cost effective basis. Although the Company strives to be a technological leader, there can be no assurance that future advances in technology will be beneficial to, or compatible with, the Company's business or that the Company will be able to economically incorporate such advances into its business. In addition, keeping abreast of technological advances in the Company's business may require substantial expenditures and lead time. There can be no assurance that the Company will be successful in effectively using new technologies, adapting its services to emerging industry standards, developing, introducing and marketing service enhancements or new services, or that it will not experience difficulties that could delay or prevent the successful development, introduction or marketing of these services. If the Company incurs increased costs or is unable, for technical or other reasons, to develop and introduce new services or enhancements of existing services in a timely manner in response to changing market conditions or customer requirements, or if new services do not achieve market acceptance, the Company's financial condition and results of operations could be materially adversely affected. See "Business -- Services" and "-- Technology and Operations." Dependence on Key Customers and Third-Party Service Arrangements. The Company's business is dependent upon customer arrangements with its hotel stockholders or their affiliates, other hotel chains and hotel representation firms, travel agencies, travel agency consortia and GDSs. The Company has not entered into written agreements with certain travel agencies relating to the HCC service. There can be no assurance that the Company will be able to continue or renew these arrangements on equal or better terms or initiate new arrangements. Any cancelation or non-renewal of these arrangements that results in a significant reduction in the Company's customer base or revenue sources could materially adversely affect the Company's financial condition and results of operations. In addition, the Company relies on third parties to provide consolidation, remittance and worldwide currency exchange services for its HCC service and facility maintenance and disaster recovery services for computer and communications systems used in all of the 10 13 Company's services. There can be no assurance that these service contracts will be successfully extended upon expiration or that Pegasus can enter into contracts with alternate service providers at the same or lower cost. Any failure by the Company to extend these contracts or to secure alternate service providers could have a material adverse effect on the Company's financial condition and results of operations. See "Business -- Services," "-- Customers," "-- Technology and Operations" and "-- Systems Maintenance and Disaster Recovery." Government Regulation. The Company's primary customers are hotel chains and hotel representation firms. The Company currently has as its stockholders 11 of the 15 leading hotel chains in the world based on 1996 total revenues. While the Company believes that it has been acting since its inception as an entity independent of its stockholders, and its stockholders have not engaged in any anti-competitive activities through or in connection with the Company, there can be no assurance that federal, state or foreign governmental authorities, the Company's competitors or its consumers will not raise anti-competitive concerns regarding the Company's close relationship with its hotel stockholders. Any such action by federal, state or foreign governmental authorities or allegations by third parties could have a material adverse effect on the Company's financial condition and results of operations. While certain aspects of the travel industry are heavily regulated by the United States Government, the services currently offered by the Company, including electronic room reservation processing services, commission processing services and online reservation services, have not been subject to any material industry-specific government regulation. However, there can be no assurance that federal, state or foreign governmental authorities will not attempt to regulate one or more of the Company's current or future services. Due to the increasing popularity of the Internet, it is possible that laws and regulations may be adopted with respect to the Internet, covering issues such as privacy, pricing, content and quality of products and services. The adoption of laws or regulations affecting the Company's lines of business could reduce the rate of growth of the Company or could otherwise have a material adverse effect on the Company's financial condition and results of operations. See "Business -- Government Regulation." Risks Associated with Management of Growth. The Company has in recent years experienced significant growth and anticipates that significant expansion will continue to be required in order to address potential market opportunities. The Company anticipates significantly increasing the size of its Information Technology Group and sales and marketing staff following the completion of this offering. There can be no assurance that if the Company continues to expand, management will be effective in attracting and retaining additional qualified personnel, expanding the Company's physical facilities, integrating acquired businesses or otherwise managing growth. In addition, there can be no assurance that the Company's systems, procedures or controls will be adequate to support any expansion of the Company's operations. The Company's inability to manage growth effectively could have a material adverse effect on the Company's financial condition and results of operations. Risks Associated with International Expansion and Operations. Pursuit of international growth opportunities may require significant investments for an extended period before returns on such investments, if any, are realized. There can be no assurance as to the extent, if at all, that the Company's plans to expand in international markets will be successful. The Company's current international activities and prospects may be adversely affected by factors such as policies of the United States and foreign governments affecting foreign trade, privacy issues, investment and taxation, exchange controls, political risks and currency risks. One or more of these factors could materially adversely affect the Company's financial condition and results of operations. See "Business -- Strategy." Dependence on Key Personnel. The Company believes that its success will continue to be dependent upon its ability to attract and retain skilled managers and other key personnel, including its President, John F. Davis, III, its Chief Information Officer, Joseph W. Nicholson, and its other present officers. The loss of the services of any of its present officers could have a material adverse effect on the Company's financial condition and results of operations. Although the Company currently has "key-man" insurance covering Messrs. Davis and Nicholson, there can be no assurance that the amount of such insurance would be adequate to compensate for the loss of the services of the insured officers. The Company believes that its future business results will also depend in significant part upon its ability to identify, attract, motivate and retain additional highly skilled technical personnel. Competition for such personnel in the information technology industry is intense. There 11 14 can be no assurance that the Company will be successful in identifying, attracting, motivating and retaining such personnel, and the failure to do so could have a material adverse effect on the Company's financial condition and results of operations. See "Management." Dependence on Proprietary Technology; Risk of Infringement. The Company's success depends upon its proprietary technology, consisting of both its software and its hardware designs. The Company relies upon a combination of copyright, trade secrets, confidentiality procedures and contractual provisions to protect its proprietary technology. There can be no assurance that the Company's present protective measures will be enforceable or adequate to prevent misappropriation of its technology or independent third-party development of the same or similar technology. Many foreign jurisdictions offer less protection of intellectual property rights than the United States, and there can be no assurance that the protection provided to the Company's proprietary technology by the laws of the United States or foreign jurisdictions will be sufficient to protect the Company's technology. In addition, litigation may be necessary in the future to enforce the Company's intellectual property rights, to protect the Company's trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. Such litigation, whether successful or unsuccessful, could result in substantial cost and diversion of management resources, and a successful claim could effectively block the Company's ability to use or license its technology in the United States or abroad or otherwise have a material adverse effect on the Company's financial condition and results of operations. The Company has found and may in the future find it necessary or desirable to procure licenses from third parties relating to current or future services or technology, but there can be no assurance that the Company will continue to be able to obtain such licenses or other rights or, if it is able to obtain them, that it will be able to do so on commercially acceptable terms. The Company could be placed at a disadvantage if its competitors obtain licenses with lower royalty fee payments or other terms more favorable than those received by the Company. If the Company or its suppliers were unable to obtain licenses relating to current or future services or technology, the Company could be forced to market services without certain technological features. The Company's inability to obtain licenses necessary to use certain technology or its inability to obtain such licenses on competitive terms could have a material adverse effect on the Company's financial condition and results of operations. See "Business -- Proprietary Rights." Risks Associated with Potential Acquisitions. While the Company has no current agreements or negotiations underway with respect to any potential acquisitions, the Company regularly evaluates such opportunities and may make acquisitions of other companies or technologies in the future. Acquisitions involve numerous risks, including difficulties in assimilating acquired operations and products, diversion of management's attention from other business concerns, amortization of acquired intangible assets and potential loss of key employees of acquired companies. The Company has no experience in assimilating acquired nonaffiliated organizations into the Company's operations. There can be no assurance as to the ability of the Company to integrate successfully any operations, personnel or services that might be acquired in the future, and a failure by the Company to do so could have a material adverse effect on the Company's financial condition and results of operations. See "Business -- Strategy." Year 2000 Compliance. The Company has implemented a program designed to ensure that all software used in connection with the Company's services will manage and manipulate data involving the transition of dates from 1999 to 2000 without functional or data abnormality and without inaccurate results related to such dates. However, with regard to travel reservations beginning in the year 2000, any failure on the part of the Company, or its travel vendor customers to ensure that any such software complies with year 2000 requirements, regardless of when such travel reservations occur, could have a material adverse effect on the financial condition and results of operations of the Company. Management's Discretion as to Use of Unallocated Net Proceeds; Benefits to Existing Stockholders. The Company has designated only limited specific use for the net proceeds to the Company from the sale of Common Stock in this offering. The Company expects to use approximately $5.2 million of such net proceeds to retire outstanding indebtedness to certain existing stockholders of the Company and the remainder for working capital and other general corporate purposes. Consequently, the Board of Directors and management 12 15 of the Company will have broad discretion in allocating a significant portion of the net proceeds to the Company from this offering. In addition to the repayment of outstanding indebtedness, existing stockholders will benefit from this offering as a result of an increase in the market value and liquidity of their investments in the Company. See "Use of Proceeds," "Certain Transactions" and "Principal and Selling Stockholders." Future Capital Needs; Uncertainty of Additional Financing. The Company currently anticipates that its available cash resources combined with the net proceeds to the Company from this offering will be sufficient to meet its presently anticipated working capital and capital expenditure requirements for at least the next 12 months. However, the Company may need or choose to raise additional funds in order to support more rapid expansion, develop new or enhanced services, respond to competitive pressures, acquire complementary businesses or technologies or respond to unanticipated requirements. If additional funds are raised through the issuance of equity securities, the percentage ownership of the stockholders of the Company will be reduced, stockholders may experience additional dilution in net book value per share, and such equity securities may have rights, preferences or privileges senior or similar to those of the holders of the Company's Common Stock. There can be no assurance that additional financing will be available when needed on terms favorable to the Company, if at all. If adequate funds are not available on acceptable terms, the Company may be unable to develop or enhance its services, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, any of which could have a material adverse effect on the Company's financial condition and results of operations. See "Dilution" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Shares Eligible for Future Sale. Sales of substantial amounts of shares in the public market following this offering could materially adversely affect the market price of the Common Stock. Immediately following the offering, the Company will have 9,429,712 shares of Common Stock outstanding. Of these shares, 6,458,412 shares will be "restricted securities" as defined by Rule 144 ("Rule 144") adopted under the Securities Act of 1933, as amended (the "Securities Act"). These shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 or Rule 701 ("Rule 701") adopted under the Securities Act. The Company is unable to predict the effect that future sales made under Rule 144, Rule 701 or otherwise will have on the market price of the Common Stock prevailing at that time. The Company, its executive officers and directors who are stockholders, and certain other stockholders including the Selling Stockholders have agreed, subject to certain limited exceptions, not to offer, sell, contract to sell, grant any option to purchase or otherwise dispose of any shares of Common Stock for a period of 180 days after the date of this Prospectus, without the prior written consent of Hambrecht & Quist LLC. Any shares subject to these lock-up agreements may be released at any time by Hambrecht & Quist LLC with or without notice. Pursuant to an agreement between the Company and the holders (or their permitted transferees) of approximately 6,458,412 shares of Common Stock, these holders will be entitled to certain registration rights with respect to such shares. In addition, the Company intends to register the shares of Common Stock reserved for issuance under the Company's 1996 Plan and 1997 Plan. See "Management -- 1996 and 1997 Stock Option Plans," "Description of Capital Stock -- Registration Rights," "Shares Eligible for Future Sale" and "Underwriting." Immediate and Substantial Dilution. Purchasers of Common Stock in this offering will incur immediate and substantial dilution. To the extent that outstanding options or warrants to purchase the Common Stock are exercised, there will be further dilution. See "Dilution." Anti-Takeover Matters. The Company's Second Amended and Restated Certificate of Incorporation ("Certificate") and Amended and Restated By-laws ("By-laws"), each of which become effective contemporaneously with the completion of this offering, contain provisions that may have the effect of delaying, deterring or preventing a potential takeover of the Company that stockholders purchasing shares in this offering may consider to be in their best interests. The Certificate and By-laws provide for a classified Board of Directors serving staggered terms of three years, prevent stockholders from calling a special meeting of stockholders and prohibit stockholder action by written consent. The Certificate also authorizes only the Board of Directors to fill vacancies, including newly created directorships and states that directors of the Company may be removed only for cause and only by the affirmative vote of holders of at least two-thirds of the outstanding shares of the voting stock, voting together as a single class. In addition, the Certificate grants the Board of Directors the authority to issue up to 2,000,000 shares of preferred stock, having such rights, 13 16 preferences and privileges as designated by the Board of Directors, without stockholder approval. Section 203 of the Delaware General Corporation Law, which is applicable to the Company, contains provisions that restrict certain business combinations with interested stockholders, which may have the effect of inhibiting a non-negotiated merger or other business combination involving the Company. See "Description of Capital Stock -- Anti-Takeover Provisions." Absence of a Prior Public Market; Potential Volatility of Stock Price. Prior to this offering, there has been no public market for the Common Stock, and there can be no assurance that an active trading market will develop or be sustained. The initial public offering price of the Common Stock will be determined through negotiations between the Company, the Selling Stockholders and the Underwriters and may not be indicative of the market price for the Common Stock after this offering. See "Underwriting" for a discussion of the factors considered in determining the initial public offering price. The market price for the Common Stock may be highly volatile. The Company believes that factors such as quarterly fluctuations in financial results or announcements by the Company or by its competitors, travel agencies, hotel operators or other hotel industry participants could cause the market price of the Common Stock to fluctuate substantially. In addition, the stock market may experience extreme price and volume fluctuations which often are unrelated to the operating performance of specific companies. Market fluctuations or perceptions regarding the hotel industry, as well as general economic or political conditions, may adversely affect the market price of the Common Stock. In the past, following periods of volatility in the market price for a company's securities, securities class action litigation has often been instituted. Such litigation could result in substantial costs and a diversion of management attention and resources, which could have a material adverse effect on the Company's financial condition and results of operations. 14 17 USE OF PROCEEDS The net proceeds to the Company from the sale of the 2,700,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $11.00 per share are estimated to be $26,871,000 ($31,430,460 if the Underwriters' over-allotment option is exercised in full), after deducting the underwriting discount and estimated offering expenses payable by the Company. The Company will not receive any of the proceeds from the sale of Common Stock by the Selling Stockholders. See "Principal and Selling Stockholders." The Company anticipates that, of such net proceeds, approximately $5.2 million will be used to repay indebtedness outstanding under notes payable to certain stockholders of the Company (the "Stockholder Debt"). The Stockholder Debt bears interest at such rates and matures on such dates as are set forth in "Certain Transactions." The Company expects that the remainder of the net proceeds to the Company from this offering will be used for general corporate purposes, including working capital, increased staffing expenses, increased promotional expenses and the purchase of additional equipment. Pending application of the net proceeds as described above, the Company intends to invest such proceeds in short-term marketable securities. See "Risk Factors -- Management's Discretion as to Use of Unallocated Net Proceeds; Benefits to Existing Stockholders," "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and "Certain Transactions." DIVIDEND POLICY To date, the Company has neither declared nor paid any cash dividends on shares of its Common Stock. The Company currently intends to retain its earnings in the future to support operations and finance its growth and, therefore, does not intend to pay cash dividends on the Common Stock in the foreseeable future. The payment of cash dividends in the future will be at the discretion of the Board of Directors and subject to certain limitations under the Delaware General Corporation Law and will depend upon factors such as the Company's earnings levels, capital requirements, financial condition and other factors deemed relevant by the Board of Directors. There can be no assurance that the Company will pay any dividends in the future. 15 18 CAPITALIZATION The following table sets forth the capitalization of the Company as of March 31, 1997 (i) on an actual basis, (ii) on a pro forma basis adjusted to reflect the conversion of all shares of outstanding Series A Preferred Stock into shares of Common Stock and (iii) as adjusted to give effect to the sale by the Company of the 2,700,000 shares of Common Stock offered hereby at an assumed initial public offering price of $11.00 per share and the application of the estimated net proceeds therefrom as set forth in "Use of Proceeds." This table should be read in conjunction with the Consolidated Financial Statements and Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus. <TABLE> <CAPTION> MARCH 31, 1997 ------------------------------ PRO AS ACTUAL FORMA ADJUSTED -------- -------- -------- (IN THOUSANDS) <S> <C> <C> <C> Current portion of long-term obligations(1)................. $ 1,896 $ 1,896 $ 1,090 ======== ======== ======== Long-term obligations, net of current portion(1)............ 5,957 5,957 1,540 -------- -------- -------- Stockholders' equity: Preferred Stock, $.01 par value, 2,000,000 shares authorized; 1,538,463 shares issued and outstanding (actual); no shares outstanding (pro forma and as adjusted).............................................. 15 -- -- Common Stock, $.01 par value, 100,000,000 shares authorized; 5,191,249 shares issued and outstanding (actual); 6,729,712 shares issued and outstanding (pro forma); 9,429,712 shares issued and outstanding (as adjusted)(2)........................................... 53 68 95 Additional paid-in capital................................ 16,968 16,968 43,812 Unearned compensation expense............................. (451) (451) (451) Accumulated deficit....................................... (14,959) (14,959) (14,959) Less treasury stock (116,484 shares, at cost)............. (26) (26) (26) -------- -------- -------- Total stockholders' equity........................... 1,600 1,600 28,471 -------- -------- -------- Total capitalization.............................. $ 7,557 $ 7,557 $ 30,011 ======== ======== ======== </TABLE> ------------------------------ (1) See "Certain Transactions" and Notes 6 and 7 of Notes to Consolidated Financial Statements. (2) Excludes as of March 31, 1997 (i) 866,667 shares of Common Stock reserved for issuance under the Company's 1996 Plan, of which options to purchase 771,733 shares of Common Stock were outstanding at a weighted average exercise price of $2.39 per share and (ii) 333,333 shares of Common Stock reserved for issuance under the Company's 1997 Plan, which will become effective upon the completion of this offering. In May 1997, the Company issued to Holiday Inn warrants to purchase 345,723 shares of Common Stock at an exercise price of $7.20 per share, assuming an initial public offering price of $11.00 per share. See "Business -- Recent Developments" and "Management -- 1996 and 1997 Stock Option Plans." 16 19 DILUTION As of March 31, 1997, the Company had a net tangible book deficiency of approximately $1.8 million or $0.27 per share on a pro forma basis. Pro forma net tangible book deficiency per share is determined by dividing the net tangible book deficiency (tangible assets less liabilities) of the Company by the number of shares of Common Stock outstanding on a pro forma basis, after giving effect to (i) a 4-for-3 split of the Company's outstanding Common Stock and Series A Preferred Stock to be effected concurrently with this offering and (ii) the conversion of all shares of outstanding Series A Preferred Stock into an equal number of shares of the Company's Common Stock. After giving effect to the issuance and sale of the 2,700,000 shares of Common Stock offered by the Company hereby (at an assumed initial public offering price of $11.00 per share), after deduction of the underwriting discounts and estimated offering expenses payable by the Company and the application of the estimated net proceeds therefrom as set forth in "Use of Proceeds," the adjusted net tangible book value of the Company as of March 31, 1997 would have been approximately $25.1 million or $2.66 per share. This represents an immediate increase in net tangible book value of $2.93 per share to existing stockholders and an immediate dilution of $8.34 per share to new investors purchasing shares of Common Stock in this offering. The following table illustrates this per share dilution: <TABLE> <S> <C> <C> Assumed initial public offering price per share............. $11.00 Pro forma net tangible book deficiency per share as of March 31, 1997......................................... $(0.27) Increase per share attributable to new investors.......... 2.93 ------ Adjusted net tangible book value per share after the offering.................................................. 2.66 ------ Dilution per share to new investors......................... $ 8.34 ====== </TABLE> The following table summarizes, on a pro forma basis as of March 31, 1997, the differences between the number of shares of Common Stock purchased from the Company, the aggregate consideration paid and the average price per share paid by existing stockholders and new investors purchasing shares of Common Stock in this offering (based upon an assumed initial public offering price of $11.00 per share): <TABLE> <CAPTION> SHARES PURCHASED(1) TOTAL CONSIDERATION -------------------- ---------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE --------- ------- ----------- ------- ------------- <S> <C> <C> <C> <C> <C> Existing stockholders(2).... 6,729,712 71.4% $17,010,488 36.4% $ 2.53 New investors(2)............ 2,700,000 28.6 29,700,000 63.6 11.00 --------- ----- ----------- ----- Total............. 9,429,712 100.0% $46,710,488 100.0% ========= ===== =========== ===== </TABLE> ------------------------------ (1) The foregoing computations assume no exercise of stock options or warrants. As of March 31, 1997, options to purchase 771,733 shares of Common Stock were outstanding under the Company's 1996 Plan at a weighted average exercise price of $2.39 per share. In May 1997, the Company issued to Holiday Inn warrants to purchase 345,723 shares of Common Stock at an exercise price of $7.20 per share, assuming an initial public offering price of $11.00 per share. To the extent these options or warrants are exercised, there will be further dilution to new investors. See "Business -- Recent Developments" and "Management -- 1996 and 1997 Stock Option Plans." (2) Sales by the Selling Stockholders in this offering will reduce the number of shares held by existing stockholders to 6,458,412 shares, or approximately 68.5% of the total shares of Common Stock outstanding after this offering, and will increase the number of shares held by new investors to 2,971,300, or approximately 31.5% of the total shares of Common Stock outstanding after this offering. See "Principal and Selling Stockholders." 17 20 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data as of and for the year ended December 31, 1996 are derived from the Consolidated Financial Statements of the Company that have been audited by Price Waterhouse LLP, independent accountants, and are included elsewhere in this Prospectus. The financial data as of and for the years ended December 31, 1995 and the consolidated financial data as of and for the year ended December 31, 1994 are derived from the financial statements of the Company that have been audited by Belew Averitt LLP, independent accountants, and are included elsewhere in this Prospectus. The financial data as of and for the year ended December 31, 1993 are derived from the Company's financial statements that have been audited by Belew Averitt LLP, but are not included herein. The financial data as of and for the year ended December 31, 1992 are derived from the Company's financial statements that were audited by other independent accountants, but are not included herein. The selected consolidated financial data for the three months ended March 31, 1996 and 1997 are derived from unaudited consolidated financial statements. The unaudited consolidated financial statements include all adjustments, consisting of normal recurring accruals, which the Company considers necessary for a fair presentation of the financial position and the results of operations for these periods. Operating results for the three months ended March 31, 1997 are not necessarily indicative of the results that may be expected for all of 1997. The data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the Company's Consolidated Financial Statements and Notes thereto. <TABLE> <CAPTION> THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, --------------------------------------------- --------------- 1992 1993 1994 1995 1996 1996 1997 ------- ------ ------ ------- ------- ------ ------ (IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> <C> <C> <C> <C> CONSOLIDATED STATEMENT OF OPERATIONS DATA(1): Net revenues................................. $ 2,792 $3,938 $4,666 $ 9,296 $15,869 $3,803 $4,377 Operating expenses: Cost of services........................... 1,172 1,266 1,546 3,883 6,199 1,638 1,558 Research and development................... 303 397 238 2,063 2,206 627 623 General and administrative expenses........ 652 709 1,065 2,770 3,799 692 856 Marketing and promotion expenses........... 66 17 130 912 2,824 644 865 Depreciation and amortization.............. 1,212 1,351 1,519 2,477 3,426 909 707 ------- ------ ------ ------- ------- ------ ------ Total operating expenses.............. 3,405 3,740 4,498 12,105 18,454 4,510 4,609 ------- ------ ------ ------- ------- ------ ------ Operating income (loss)...................... (613) 198 168 (2,809) (2,585) (707) (232) Other (income) expense: Interest expense........................... 568 597 591 815 893 212 212 Interest income............................ (2) (1) -- -- (114) -- (56) ------- ------ ------ ------- ------- ------ ------ Loss before income taxes and minority interest................................... (1,179) (398) (423) (3,624) (3,364) (919) (388) Income taxes................................. -- -- -- -- 15 -- -- ------- ------ ------ ------- ------- ------ ------ Loss before minority interest................ (1,179) (398) (423) (3,624) (3,379) (919) (388) Minority interest............................ -- -- -- 53 (106) (48) -- ------- ------ ------ ------- ------- ------ ------ Net loss..................................... $(1,179) $ (398) $ (423) $(3,571) $(3,485) $ (967) $ (388) ======= ====== ====== ======= ======= ====== ====== Pro forma net loss per share(2).............. $ (0.48) $(0.05) ======= ====== Weighted average shares used in the pro forma net loss per share calculation(2).......... 7,203 7,481 Supplemental pro forma net loss per share(2)................................... $ (0.38) $(0.03) ======= ====== Weighted average shares used in the supplemental pro forma net loss per share calculation(2)............................. 7,744 8,006 </TABLE> 18 21 <TABLE> <CAPTION> DECEMBER 31, MARCH 31, ------------------------------------------------ -------------------------- 1992 1993 1994 1995 1996 1997 AS ADJUSTED(3) ------- ------- ------- ------- -------- -------- --------------- (IN THOUSANDS) <S> <C> <C> <C> <C> <C> <C> <C> CONSOLIDATED BALANCE SHEET DATA: Working capital (deficit).............. $ (103) $ (126) $ (844) $(1,560) $ 2,068 $ 1,405 $ 23,859 Total assets............. 5,490 4,872 4,150 10,316 13,892 13,601 35,249 Accounts payable and accrued liabilities.... 423 415 690 1,941 2,689 2,640 2,640 Short-term borrowings, including current portion of long-term debt................... 407 459 1,392 1,049 1,834 1,896 1,090 Long-term obligations, net of current portion................ 6,488 6,224 4,718 6,994 6,353 5,957 1,540 Minority interest........ -- -- -- 1,340 -- -- -- Accumulated deficit...... (6,693) (7,091) (7,514) (11,085) (14,570) (14,959) (14,959) Total stockholders' equity (deficit)....... (1,828) (2,226) (2,649) (2,380) 1,954 1,600 28,471 </TABLE> ------------------------------ (1) The Company's statement of operations data for 1992, 1993 and 1994 consist of the accounts of THISCO. Statement of operations data for periods thereafter reflect the operations of the Company, including the acquisition of 83.3% of the outstanding capital stock of HCC in July 1995 and the acquisition of the remaining 16.7% of the outstanding capital stock of HCC in June 1996, together with the depreciation and amortization applicable to such acquisitions. Amortization applicable to the acquisition of HCC totaled $645,419, $1,412,499 and $383,511 in 1995, 1996 and the three months ended March 31, 1997, respectively. See Notes 1, 2 and 3 of Notes to Consolidated Financial Statements. (2) See Note 1 of Notes to Consolidated Financial Statements for information concerning the calculation of pro forma net loss per share and supplemental pro forma net loss per share. (3) Adjusted to reflect the sale of 2,700,000 shares of Common Stock offered by the Company hereby at an assumed offering price of $11.00 per share and the application of the estimated net proceeds therefrom. See "Use of Proceeds" and "Capitalization." 19 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with "Selected Consolidated Financial Data" and the Consolidated Financial Statements and Notes thereto included elsewhere in this Prospectus. This Prospectus contains certain forward-looking statements that involve risks and uncertainties. The Company's actual results and the timing of certain events could differ materially from those discussed in the forward-looking statements as a result of certain factors including those set forth under "Risk Factors" and elsewhere in this Prospectus. OVERVIEW Pegasus is a leading provider of transaction processing services to the hotel industry worldwide. The Company's THISCO and TravelWeb hotel room reservation services improve the efficiency and effectiveness of the hotel reservation process by enabling travel agents and individual travelers to electronically access hotel room inventory information and conduct reservation transactions. The Company's HCC service, the global leader in hotel commission payment processing, improves the efficiency and effectiveness of the commission payment process for participating hotels and travel agencies by consolidating payments and providing comprehensive transaction reports. Historically, the Company has derived a majority of its revenues from its THISCO and HCC services. In 1996, approximately 51.3% of the Company's consolidated revenues was derived from its electronic hotel reservation processing services, including 42.5% from the THISCO service and 8.8% from the TravelWeb service, and approximately 48.7% of the Company's consolidated revenues was derived from its HCC service. The Company has experienced substantial growth since its inception. Revenues increased at a compound annual rate of 54.4% to $15.9 million in 1996 from $2.8 million in 1992, excluding 1992 revenues from the HCC service which was acquired in 1995. However, there can be no assurance that the Company will experience the same rate of revenue growth in the future. Any significant decrease in the rate of revenue growth could have a material adverse effect on the Company's financial condition and results of operations. Of the hotel customers for the Company's THISCO and HCC services in 1995, all continued to be customers in 1996. Hotels generally enter into long-term contracts for the Company's THISCO service that specify minimum annual transaction and payment commitments. The Company's revenues are predominantly transaction-based. The Company derives its revenues from its THISCO service by charging its hotel participants a fee based on the number of reservations made, less the number canceled ("net reservations"), and a fee for "status messages" processed through the THISCO service. Status messages are electronic messages sent by hotels to GDSs to update room rates, features and availability information in GDS databases. As a hotel's cumulative volume of net reservations increases during the course of the calendar year, its fee per transaction decreases after predetermined transaction volume hurdles have been met. As a result, for higher volume customers, unit transaction fees are higher at the beginning of the year, when cumulative transactions are lower. The Company recognizes revenues based on the expected fee per transaction to be earned for services to be provided to the customer during the entire year. This process of recognizing revenues results in a deferred revenue balance being created during early periods of the year, which will be reflected in interim balance sheets and be fully utilized and eliminated by the end of each year. Additionally, Pegasus generally charges new participants in the THISCO service a one-time set-up fee for work associated with the implementation of the interface with the THISCO service. The Company also charges certain GDSs a fee based on the number of net reservations to compensate for the management and consolidation of multiple interfaces. In July 1997, the Company intends to reduce certain of the fees that it charges hotels for transmitting status messages. See "Risk Factors -- Competition --Electronic Hotel Room Reservation Processing Service." Pegasus derives its revenues from its HCC service by charging a participating travel agency a fee based on a percentage of the dollar amount of commissions paid to that agency through the HCC service. The Company also generally charges a participating hotel a fee based on the number of commissionable transactions arising from that hotel. Revenues from HCC travel agency fees can vary substantially from period 20 23 to period based on the fluctuations of the average daily room rates. Pegasus recognizes revenues from its HCC service in the month in which the hotel stay occurs and collects and pays commissions to travel agencies by the 15th business day of the following month. If a hotel fails to deliver funds to the Company, the Company is not obligated to deliver commission payments on behalf of the hotel to travel agencies. HCC revenues also include amortization of a $2.0 million payment received by the Company in June 1993 in exchange for a five-year noncancelable data processing contract. This payment was initially recorded as unearned income and is being recognized as revenue over the life of the contract. The amount recognized in 1996 was $431,000. See Note 11 of Notes to Consolidated Financial Statements. The Company offers two services, TravelWeb and NetBooker, that provide hotel reservation capability to individual travelers through the Internet. During 1996, Pegasus derived the substantial majority of its TravelWeb revenues from fees related to the creation of Web pages for hotels and for maintaining these pages on the TravelWeb site. During 1997, the Company is transitioning its fee structure to begin charging participating hotels subscription fees based on the number of their properties included in the database and transaction fees based on the number of net reservations made at their properties through the TravelWeb service. The Company is not in a position to forecast the effect that this change in fee structure will have on its TravelWeb revenues. There can be no assurance that such a change will not have a material adverse effect on the Company's financial condition and results of operations. The Company also derives revenues through the sale of advertising space on the TravelWeb site. Pegasus realizes revenues from NetBooker, the Company's hotel room reservation service provided to third-party Web sites, by charging third-party Web sites an initial development and licensing fee and by charging hotels a fee based on the number of net reservations made through the NetBooker service. The Company has not received a material amount of revenues for the TravelWeb service or the NetBooker service to date, and there can be no assurance that either of these services will produce a material amount of revenues in the future. See "Risk Factors -- Competition" and "-- Dependence on Growth of Internet Commerce." The Company has developed or is in the process of developing several new services, including UltraRes, UltraDirect and Pegasus Travel Information Services, to capitalize on its existing technology and customer base to provide additional electronic hotel reservation capabilities and information services to existing Pegasus customers and to other participants in the hotel room distribution process. The Company intends to derive revenues from UltraRes, a service that automates the processing of hotel bookings for large meetings and conventions, by charging participating hotels and meeting organizers transaction-based fees for net reservations made. The Company intends to derive revenues from UltraDirect, a service that automates the hotel room reservation process for corporate travelers, by charging hotels transaction-based fees for net reservations. The Company has not received any material revenues for any of these services, and there can be no assurance that any of these services will produce a material amount of revenues in the future. See "Risk Factors -- Competition" and "-- Impact of Technological Advances; Delays in Introduction of New Services." The Company's future success will depend, in part, on its ability to develop leading technology, enhance its existing services, develop and introduce new services that address the increasingly sophisticated and varied needs of its current and prospective customers, and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis. Although the Company strives to be a technological leader, there can be no assurance that future advances in technology will be beneficial to, or compatible with, the Company's business or that the Company will be able to economically incorporate such advances into its business. In addition, keeping abreast of technological advances in the Company's business may require substantial expenditures and lead time. There can be no assurance that the Company will be successful in effectively using new technologies, adapting its services or products to emerging industry standards, developing, introducing and marketing service enhancements or new services, or that it will not experience difficulties that could delay or prevent the successful development, introduction or marketing of these services. If the Company incurs increased costs or is unable, for technical or other reasons, to develop and introduce new services or enhancements of existing services in a timely manner in response to changing market conditions or customer requirements, or if new services do not achieve market acceptance, the Company's financial condition and results of operations could be materially adversely affected. See "Risk Factors -- Impact of Technological Advances; Delays in Introduction of New Services." 21 24 The Company's cost of services consists principally of: (i) personnel costs relating to information technology; (ii) facilities and equipment maintenance costs and (iii) fees paid to Citicorp for the processing of travel agency commissions. Research and development costs consist principally of personnel costs, related overhead costs and fees paid to outside consultants. General and administrative expenses are primarily personnel, office, legal and accounting related. Most of these expenses, by their nature, do not fluctuate directly with net revenues on a short-term basis. Marketing and promotion expenses consist primarily of personnel costs, advertising, public relations and participation in trade shows and other industry events. The Company anticipates that it will incur substantially higher marketing costs in the foreseeable future due to the Company's plan to spend heavily on promotional activities in support of its TravelWeb service. Depreciation and amortization expense includes: (i) computer equipment depreciation; (ii) office furniture, equipment and leasehold improvement depreciation expense; (iii) amortization of software, including software acquired as part of the acquisition of HCC and (iv) goodwill amortization. Interest expense includes notes payable to certain stockholders of the Company and payments made under capital equipment leases. Minority interest represents certain former minority interests in subsidiaries that have been wholly owned by the Company since June 1996. See Notes 1, 2, 3 and 7 of Notes to Consolidated Financial Statements. All costs incurred in the internal development of computer software used in the delivery of the Company's services are expensed until a product design and a working model of the software have been tested and completed. Thereafter, any further development or production costs are capitalized. Maintenance and customer support costs are expensed as incurred. Prior to 1996, the capitalized development costs were being amortized over three to five years using the straight-line method. However, in 1996 the Company changed the estimated life of all internally and externally developed computer software to three years. The result of such change in estimated life was to increase net losses for 1996 by approximately $292,000. See Note 1 of Notes to Consolidated Financial Statements. On July 21, 1995, the Company acquired 83.3% of outstanding capital stock of HCC in exchange for 2,242,800 shares of the Common Stock for an aggregate purchase price of $2.7 million, resulting in a $6.5 million excess of purchase price over net assets acquired. At the time of the acquisition, $1.2 million was allocated to research and development that had not reached technological feasibility and had no probable alternative future use, and this amount was expensed in the quarter ending September 30, 1995. At the time of the acquisition, $3.5 million was allocated to software which is being amortized over a three year period ending June 30, 1998, and the balance of the purchase price, $1.7 million, was recorded as excess of cost over the fair value of net assets acquired (goodwill) and is being amortized on a straight line basis through June 2010. On June 25, 1996, the Company purchased the remaining 16.7% of outstanding capital stock of HCC in exchange for $2.0 million and 89,733 shares of Common Stock, resulting in a $833,000 excess of purchase price over net assets acquired. At the time of the acquisition of this minority interest, $245,000 was allocated to research and development that had not reached technological feasibility and had no probable alternative future use, and this amount was expensed in the quarter ending June 30, 1996. At the time of the acquisition of the 16.7% interest in June 1996, $470,000 was allocated to software which is being amortized over a two year period ending June 30, 1998 to correspond to the amortization period of the software relating to the acquisition that occurred in July 1995, and the balance of the purchase price, $119,000, was recorded as excess of cost over the fair value of net assets acquired (goodwill) and is being amortized on a straight line basis through June 2010 to correspond to the amortization period of the goodwill relating to the acquisition that occurred in July 1995. See Notes 1, 2 and 3 of Notes to Consolidated Financial Statements. The Company has recorded unearned compensation and compensation expense for the difference between the exercise price and the deemed fair value of the Company's Common Stock with respect to 503,333 shares issuable upon exercise of options granted in 1996. These amounts are initially recorded as unearned compensation and amortized to cost of services and general and administrative expense over the vesting periods of the options, generally four years. Unearned compensation amortized to expense in 1996 was $65,000. Amortization of unearned compensation will adversely affect the Company's reported operating results through the third quarter of 2000. See Note 9 of Notes to Consolidated Financial Statements. As of December 31, 1996, the Company had net operating loss carryforwards for federal income tax purposes of approximately $14.6 million, which expire in various years beginning in 2003. The net deferred tax 22 25 asset is fully reserved because of uncertainty regarding its realizability. See Note 10 of Notes to Consolidated Financial Statements. In connection with its efforts to continue its growth, in both its traditional and recently introduced service offerings, the Company anticipates significantly increasing the size of its information technology and sales and marketing organizations. Because certain of the costs related to the introduction of such new service offerings are largely fixed in nature, and as a result of spending on development and marketing of such new service offerings, the Company has not realized in the past, and anticipates that it will not realize in the foreseeable future, gross margins on the provision of such recently introduced services comparable to the gross margins it realizes on its THISCO and HCC service offerings. Such lower gross margin contribution from newly introduced service offerings and the associated marketing and development expenses have been significant components of the losses incurred by the Company and are expected to continue to have a detrimental effect on the Company's operating results for the foreseeable future. The Company has experienced substantial net losses, including a net loss of $3.5 million in 1996, and had an accumulated deficit of approximately $14.6 million as of December 31, 1996. The Company anticipates that its operating expenses will increase substantially in the foreseeable future as it continues the development of its services, increases its sales and marketing activities and expands its distribution channels. To achieve profitability, the Company must successfully implement its business strategy and increase its revenues while controlling expenses. There can be no assurance as to when or if the Company will achieve profitability. There also can be no assurance that if the Company continues to expand, management will be effective in attracting and retaining additional qualified personnel, expanding the Company's physical facilities or otherwise managing growth. In addition, there can be no assurance that the Company's systems, procedures or controls will be adequate to support any expansion of the Company's operations. The Company's inability to manage growth effectively could have a material adverse effect on the Company's financial condition and results of operations. See "Risk Factors -- Substantial Net Losses" and " -- Risks Associated with Management of Growth." All statements contained in this Prospectus other than statements of historical fact, including statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" concerning the Company's financial position and liquidity, results of operations, prospects for continued growth, ability to maintain or improve transaction volumes, net sales or profit margins and other matters are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct. Factors that could cause the Company's results to differ materially from the results discussed in or contemplated by such forward-looking statements include the risks described under "Risk Factors," including without limitation substantial net losses, competition, dependence on the hotel industry, consolidation trends, fluctuations in quarterly operating results, potential adverse changes in hotel commission payments, control by existing stockholders, conflicts of interest, dependence on growth of Internet commerce, system interruption and security risks, impact of technological advances, delays in introduction of new services, dependence on key customers and third-party service arrangements, government regulation, management of growth, international expansion and operations, dependence on key personnel, dependence on proprietary technology, infringement, potential acquisitions, year 2000 compliance, management's discretion as to use of unallocated net proceeds, benefits to existing stockholders, future capital needs, uncertainty of additional financing, shares eligible for future sale, immediate and substantial dilution, anti-takeover matters, absence of a prior public market and potential volatility of stock price. All forward-looking statements in this Prospectus are expressly qualified in their entirety by the cautionary statements in this paragraph, in "Risk Factors" and elsewhere in this Prospectus. 23 26 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage relationship of certain items from the Company's statement of operations to net revenues: <TABLE> <CAPTION> PERCENTAGE OF NET REVENUES ----------------------------------------- THREE MONTHS YEAR ENDED ENDED DECEMBER 31, MARCH 31, ----------------------- -------------- 1994 1995 1996 1996 1997 ----- ----- ----- ----- ----- <S> <C> <C> <C> <C> <C> Net revenues............................ 100.0% 100.0% 100.0% 100.0% 100.0% Operating expenses: Cost of services...................... 33.1 41.8 39.1 43.1 35.6 Research and development.............. 5.1 22.2 13.9 16.5 14.2 General and administrative expenses... 22.8 29.8 23.9 18.2 19.5 Marketing and promotion expenses...... 2.8 9.8 17.8 16.9 19.8 Depreciation and amortization......... 32.6 26.6 21.6 23.9 16.2 ----- ----- ----- ----- ----- Total operating expenses...... 96.4 130.2 116.3 118.6 105.3 ----- ----- ----- ----- ----- Operating income (loss)................. 3.6 (30.2) (16.3) (18.6) (5.3) Other (income) expense: Interest expense...................... 12.7 8.8 5.6 5.6 4.9 Interest income....................... -- -- (0.7) -- (1.3) ----- ----- ----- ----- ----- Loss before income taxes and minority interest.............................. (9.1) (39.0) (21.2) (24.2) (8.9) Income taxes............................ -- -- 0.1 -- -- ----- ----- ----- ----- ----- Loss before minority interest........... (9.1) (39.0) (21.3) (24.2) (8.9) Minority interest....................... -- 0.6 (0.7) (1.2) -- ----- ----- ----- ----- ----- Net loss................................ (9.1)% (38.4)% (22.0)% (25.4)% (8.9)% ===== ===== ===== ===== ===== </TABLE> THREE MONTHS ENDED MARCH 31, 1996 AND 1997 Net revenues. Net revenues increased by $573,000, or 15.1%, to $4.4 million in the three months ended March 31, 1997 from $3.8 million in the three months ended March 31, 1996. THISCO revenues increased as a result of a 17.8% increase in net reservations made in the three months ended March 31, 1997 as compared to the three months ended March 31, 1996. Additionally, the average fee paid by hotels using the THISCO service increased during the three months ended March 31, 1997 as a result of an increase in total status messages processed. HCC revenues grew as a result of a 12.3% increase in hotel commission transactions processed during the three months ended March 31, 1997 as compared to the three months ended March 31, 1996 due in part to the addition of hotel properties and travel agencies participating in the HCC service. The net revenues to the Company per commissionable transaction increased in the three months ended March 31, 1997 because of an increase in overall hotel average daily rates. Revenues contributed by the TravelWeb service declined 51.5% in the three months ended March 31, 1997 as compared to the three months ended March 31, 1996. This decrease resulted primarily from the Company's transitioning its hotels participating in the TravelWeb service to a subscription fee arrangement and the Company's increasing reliance on subscription fees and recurring transaction fees rather than page building and set-up fees. Cost of services. Cost of services was consistent at $1.6 million in the three months ended March 31, 1997 compared to the three months ended March 31, 1996. Costs of services related to the Company's THISCO and HCC services did not change materially for the period, reflecting the relatively high fixed-cost component of providing these services. Research and development. Research and development expenses decreased $4,000, or 0.7%, to $623,000 in the three months ended March 31, 1997 from $627,000 in the three months ended March 31, 1996. 24 27 General and administrative expenses. General and administrative expenses increased $164,000, or 23.6%, to $856,000 in the three months ended March 31, 1997 from $692,000 in the three months ended March 31, 1996. This increase was due to greater office related costs and personnel costs. Marketing and promotion expenses. Marketing and promotion expenses increased $221,000, or 34.4%, to $865,000 in the three months ended March 31, 1997 from $644,000 in the three months ended March 31, 1996. Marketing and promotion expenses grew primarily due to the promotion of the TravelWeb service and to a lesser degree the promotion of the THISCO and HCC services. Depreciation and amortization. Depreciation and amortization expenses decreased $202,000, or 22.2%, to $707,000 in the three months ended March 31, 1997 from $909,000 in the three months ended March 31, 1996. This decrease was primarily due to the completion in 1996 of the amortization of previously capitalized software. Interest expense. Interest expense remained unchanged at $212,000. The expense reflects interest accrued on promissory notes payable to certain stockholders of the Company and payments made under capital equipment leases. Interest income. During the three months ended March 31, 1997 the Company realized $56,000 in interest income as a result of short term investments of operating cash balances on the proceeds from the sale of shares of the Company's Series A Preferred Stock in June 1996. YEARS ENDED DECEMBER 31, 1995 AND 1996 Net revenues. Net revenues increased by $6.6 million, or 70.7%, to $15.9 million in 1996 from $9.3 million in 1995. THISCO revenues increased as a result of a 27.0% increase in net reservations made in 1996 as compared to 1995. Additionally, the average fee paid by hotels using the THISCO service increased during 1996 as a result of an increase in total status messages processed. HCC revenues grew as a result of the acquisition by the Company of HCC in July 1995 and the subsequent growth in hotel commission transactions processed due, in part, to the addition of hotel properties and travel agencies participating in the HCC service. The net revenues to the Company per commissionable transaction increased in 1996 because of a change in the hotel customer mix and an increase in overall hotel average daily rates. To the extent that the total volume of commissions processed by the HCC service increases, the average ratio of net revenue to total commissions collected will decrease. Revenues contributed by the TravelWeb service increased 57.6% in 1996 as compared to 1995, which resulted primarily from amounts charged to hotels for Web page building and maintenance fees and less significantly from advertising and promotions and from fees charged to hotels for net reservations processed through the TravelWeb service. Beginning in 1997, Pegasus is transitioning its hotels participating in the TravelWeb service to a subscription fee arrangement, whereby, in addition to paying fees for net reservations made through this service, participating hotels will remit monthly fees per property listing in the TravelWeb service. See "-- Overview." Cost of services. Cost of services increased $2.3 million, or 59.7%, to $6.2 million in 1996 from $3.9 million in 1995. This increase was due to the acquisition by the Company of HCC in July 1995 and operating expenses for TravelWeb, including expenses for contract Web site page building, software development and the employment of additional technical personnel. Research and development. Research and development expenses increased $143,000, or 6.9%, to $2.2 million in 1996 from $2.1 million in 1995. After eliminating the effect of the one-time charges taken in 1995 and 1996 for research and development expenses relating to the acquisition of HCC, research and development expenses increased $1.2 million, or 133%, to $2.0 million in 1996 from $840,000 in 1995. This increase was due to increased development expenses primarily related to TravelWeb. General and administrative expenses. General and administrative expenses increased $1.0 million, or 37.1%, to $3.8 million in 1996 from $2.8 million in 1995. This increase was due to greater office-related costs, personnel costs, legal and accounting fees and travel-related costs. 25 28 Marketing and promotion expenses. Marketing and promotion expenses increased $1.9 million, or 209.6%, to $2.8 million in 1996 from $912,000 in 1995. As a percentage of net revenues, marketing and promotion expense increased to 17.8% in 1996 from 9.8% in 1995. Marketing and promotion expenses grew primarily due to the promotion of the TravelWeb service and to a lesser degree the promotion of the THISCO and HCC services. Depreciation and amortization. Depreciation and amortization expenses increased $949,000, or 38.3%, to $3.4 million in 1996 from $2.5 million in 1995. In 1996, the Company changed the estimated life of capitalized software from five years to three years. The effect of this change was to increase depreciation by $292,000 in 1996. Also, in 1996 the Company recognized a full year of amortization of software and goodwill relating to the Company's acquisition in July 1995 of 83.3% of the outstanding capital stock of HCC and began to amortize software and goodwill that resulted from the purchase by the Company in June 1996 of the remaining 16.7% of the outstanding capital stock of HCC. Interest expense. Interest expense increased $77,000, or 9.5%, to $893,000 in 1996 from $816,000 in 1995. The expense includes interest accrued on promissory notes payable to certain stockholders of the Company and payments made under capital equipment leases. Interest income. During 1996, the Company realized $114,000 in interest income as a result of short term investments of operating cash balances on the proceeds from the sale of shares of the Company's Series A Preferred Stock in June 1996. Income taxes. Income taxes reflect foreign income taxes payable with respect to the taxable earnings of the Company's United Kingdom subsidiary, which reports earnings on a cost-plus basis. Currently, the United Kingdom office reports taxable earnings equal to 10.0% of the total operating cost of the office. YEARS ENDED DECEMBER 31, 1994 AND 1995 Net revenues. Net revenues increased $4.6 million, or 99.2%, to $9.3 million in 1995 from $4.7 million in 1994. This increase was due in part to the acquisition by the Company of HCC in July 1995 and its subsequent growth and to the growth in the THISCO service. Revenues from the THISCO service increased approximately 15.5% primarily as a result of growth in net reservations, which was due to increased use of the service by the Company's existing customer base and the addition of new customers. During 1995, the average fee paid per THISCO transaction by hotels decreased as a result of a 15% reduction (effective July 1, 1994) in net reservation fees charged to hotels. Revenues for the TravelWeb service increased primarily as a result of Web page building and maintenance fees charged to hotels in connection with the commencement of the TravelWeb service in July 1994. Cost of services. Cost of services increased $2.4 million, or 151.1%, to $3.9 million in 1995 from $1.5 million in 1994. Operating expense as a percentage of sales increased to 41.8% in 1995 from 33.1% in 1994. This increase was due to the acquisition by the Company of HCC in July 1995 greater personnel costs from the growth in the number of technical personnel employed by Pegasus, costs incurred in connection with an upgrade of hardware used in the Company's UltraSwitch technology, expenses incurred with respect to Web page building and costs related to the acquisition by the Company of HCC and other organizational matters. See Note 2 of Notes to Consolidated Financial Statements. Research and development. Research and development expenses increased $1.8 million, or 766.2%, to $2.1 million in 1995 from $238,000 in 1994. This increase was due to a $1.2 million write-off of in-process research and development related to the Company's acquisition of 83.3% of the outstanding capital stock of HCC and to THISCO, TravelWeb and HCC software development. General and administrative expenses. General and administrative expenses increased $1.7 million, or 160.1%, to $2.8 million in 1995 from $1.1 million in 1994. This increase was due to acquisition by the Company of HCC and other organizational matters, higher office costs and greater personnel costs arising from increases in number of personnel. 26 29 Marketing and promotion expenses. Marketing and promotion expenses increased $782,000, or 599.2%, to $912,000 in 1995 from $130,000 in 1994. Marketing and promotion expenses grew primarily due to the promotion of the TravelWeb service. Depreciation and amortization. Depreciation and amortization increased $958,000, or 63.1%, to $2.5 million in 1995 from $1.5 million in 1994. As a percentage of sales, depreciation and amortization decreased to 26.6% in 1995 from 32.6% in 1994. The increase in depreciation and amortization is related to new hardware purchased for the Company's UltraSwitch technology in 1995 and amortization of software and goodwill related to the Company's acquisition of 83.3% of the outstanding capital stock of HCC in 1995. Interest expense. Interest expense increased $225,000, or 38.0%, to $816,000 in 1995 from $591,000 in 1994. Interest expense includes interest accrued on certain promissory notes payable to stockholders of the Company and payments made under capital equipment leases. The increase in interest expense also was primarily related to the new hardware purchased for the Company's UltraSwitch technology, which was financed through a lease in 1995. 27 30 SELECTED QUARTERLY RESULTS OF OPERATIONS The following table sets forth certain unaudited statement of operations data for each of the Company's last eight quarters ended March 31, 1997, as well as such data expressed as a percentage of the Company's total net revenues for the periods indicated. This data has been derived from the Company's unaudited financial statements that, in management's opinion, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of such information when read in conjunction with the audited Consolidated Financial Statements of the Company and the Notes thereto appearing elsewhere in this Prospectus. The Company believes that quarter-to-quarter comparisons of its financial results are not necessarily meaningful and should not be relied upon as any indication of future performance. See "Risk Factors -- Fluctuations in Quarterly Operating Results." <TABLE> <CAPTION> QUARTER ENDED --------------------------------------------------------------------------------------- JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, 1995 1995 1995 1996 1996 1996 1996 1997 -------- --------- -------- -------- -------- --------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> <C> <C> <C> <C> <C> Net revenues............................ $1,556 $ 2,966 $ 3,337 $3,803 $ 4,005 $3,976 $ 4,085 $4,377 Operating expenses: Cost of services...................... 535 1,237 1,644 1,638 1,483 1,564 1,514 1,558 Research and development.............. 196 1,504 243 627 565 399 615 623 General and administrative expenses... 442 1,009 1,008 692 1,120 913 1,074 856 Marketing and promotion expenses...... 34 426 387 644 693 647 840 865 Depreciation and amortization......... 445 797 849 909 924 769 824 707 ------ ------- ------- ------ ------- ------ ------- ------ Total operating expenses........ 1,652 4,973 4,131 4,510 4,785 4,292 4,867 4,609 ------ ------- ------- ------ ------- ------ ------- ------ Loss from operations.................... (96) (2,007) (794) (707) (780) (316) (782) (232) Other (income) expense: Interest expense...................... 217 195 218 212 188 221 272 212 Interest income....................... -- -- -- -- (4) (55) (55) (56) ------ ------- ------- ------ ------- ------ ------- ------ Loss before income taxes and minority interest.............................. (313) (2,202) (1,012) (919) (964) (482) (999) (388) Income taxes............................ -- -- -- -- -- -- 15 -- ------ ------- ------- ------ ------- ------ ------- ------ Loss before minority interest........... (313) (2,202) (1,012) (919) (964) (482) (1,014) (388) Minority interest....................... -- 65 (11) (48) (58) -- -- -- ------ ------- ------- ------ ------- ------ ------- ------ Net loss................................ $ (313) $(2,137) $(1,023) $ (967) $(1,022) $ (482) $(1,014) $ (388) ====== ======= ======= ====== ======= ====== ======= ====== Pro forma net loss per share............ $(0.14) $ (0.15) $(0.06) $ (0.13) $(0.05) ====== ======= ====== ======= ====== Weighted average shares used in the pro forma net loss per share calculation........................... 6,826 6,834 7,572 7,572 7,481 Supplemental pro forma net loss per share(1).............................. $(0.11) $ (0.12) $(0.04) $ (0.11) $(0.03) ====== ======= ====== ======= ====== Weighted average shares used in the supplemental pro forma net loss per share calculation(1).................. 7,360 7,371 8,111 8,113 8,006 </TABLE> <TABLE> <CAPTION> Percentage of Net Revenues --------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Net revenues............................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Operating expenses: Cost of services...................... 34.4 41.7 49.3 43.1 37.0 39.3 37.0 35.6 Research and development.............. 12.6 50.7 7.3 16.5 14.1 10.0 15.0 14.2 General and administrative expenses... 28.4 34.0 30.2 18.2 28.0 23.0 26.3 19.6 Marketing and promotion expenses...... 2.2 14.3 11.6 16.9 17.3 16.3 20.6 19.8 Depreciation and amortization......... 28.6 26.9 25.4 23.9 23.1 19.3 20.2 16.1 ------ ------- ------- ------ ------- ------ ------- ------ Total operating expenses........ 106.2 167.6 123.8 118.6 119.5 107.9 119.1 105.3 ------ ------- ------- ------ ------- ------ ------- ------ Loss from operations.................... (6.2) (67.6) (23.8) (18.6) (19.5) (7.9) (19.1) (5.3) Other (income) expense: Interest expense...................... 13.9 6.6 6.5 5.6 4.7 5.6 6.7 4.8 Interest income....................... -- -- -- -- (0.1) (1.4) (1.3) (1.2) ------ ------- ------- ------ ------- ------ ------- ------ Loss before income taxes and minority interest.............................. (20.1) (74.2) (30.3) (24.2) (24.1) (12.1) (24.5) (8.9) Income taxes............................ -- -- -- -- -- -- 0.3 -- ------ ------- ------- ------ ------- ------ ------- ------ Loss before minority interest........... (20.1) (74.2) (30.3) (24.2) (24.1) (12.1) (24.8) (8.9) Minority interest....................... -- 2.2 (0.3) (1.2) (1.4) -- -- -- ------ ------- ------- ------ ------- ------ ------- ------ Net loss................................ (20.1)% (72.0)% (30.6)% (25.4)% (25.5)% (12.1)% (24.8)% (8.9)% ====== ======= ======= ====== ======= ====== ======= ====== </TABLE> ------------------------------ See footnote on following page. 28 31 --------------- (1) Supplemental pro forma net loss per share is based on the weighted average number of shares of Common Stock used in the calculation of pro forma net loss per share, plus the shares that the Company would have had to issue in the offering to repay indebtedness outstanding under notes payable to certain stockholders of the Company. For purposes of computing supplemental pro forma net loss per share, the pro forma net loss was reduced by the elimination of related interest expense on such notes payable. See "Use of Proceeds," Note 1 of Notes to Consolidated Financial Statements and Note 4 of Notes to Consolidated Interim Financial Statements (Unaudited). The Company does not believe that inflation has materially impacted results of operations during the past three years. Substantial increases in costs and expenses could have a significant impact on the Company's results of operations to the extent such increases are not passed along to customers. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its cash requirements for operations and investments in equipment primarily through private sales of capital stock, borrowings from stockholders and capital lease financing. Cash flows from the sale of capital stock amounted to $7.5 million in 1996, of which $2.0 million was used to purchase a minority interest in a subsidiary and $235,000 was used to repay notes payable to stockholders. Cash flows from the sale of capital stock amounted to $571,000 in 1995. Net cash provided by operating activities amounted to $979,000, $496,000, $410,000 and $213,000 in 1994, 1995, 1996 and the quarter ended March 31, 1997, respectively. Net cash used in investing activities for the purchase of software, furniture and equipment amounted to $185,000, $639,000, $362,000 and $407,000 in 1994, 1995 and 1996 and the quarter ended March 31, 1997, respectively. In addition, the Company purchased $2.7 million of marketable securities in 1996 and realized net proceeds of $1.3 million in the three months ended March 31, 1997 from the purchase and sale of marketable securities. The Company's principal sources of liquidity at December 31, 1996 included cash and cash equivalents of $1.8 million, short term investments of $2.7 million and restricted cash of $690,000, which represents funds for travel agency commission checks that have not cleared HCC's processing bank and are returned to HCC. Any of such amounts which are not remitted to travel agencies will be escheated to the appropriate state, as required. The Company believes that the net proceeds from this offering, along with current cash and cash equivalents, will be sufficient to fund its working capital and capital expenditure requirements for at least the next twelve months. Thereafter, if cash generated from operations is insufficient to satisfy the Company's liquidity requirements, the Company may seek to issue additional equity or debt securities or establish a credit facility. The issuance of additional equity or convertible debt securities could result in additional dilution to the Company's stockholders. There can be no assurance that financing will be available to the Company in amounts or on terms acceptable to the Company. Although the Company has no material commitments for capital expenditures, it anticipates purchasing approximately $1.5 million of property and equipment in 1997, primarily for computer equipment, furniture and fixtures. Some portion of these capital expenditures may be financed through capital leases. See "Risk Factors -- Future Capital Needs; Uncertainty of Additional Financing." RECENTLY ISSUED ACCOUNTING STANDARDS Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123), encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has elected to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related Interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the fair market value of the Company's stock at the date of the grant over the amount the employee must pay to acquire the stock. 29 32 In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings per Share" (FAS 128), was issued. FAS 128 specifies the computation, presentation and disclosure requirements for earnings per share ("EPS") for entities with publicly held common stock or potential common stock. FAS 128 simplifies the standards for computing EPS previously found in Accounting Principles Board Opinion No. 15, "Earnings per Share" (APB 15), and makes them comparable to international EPS standards. It replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the statement of operations for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. FAS 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods; earlier application is not permitted. FAS 128 requires restatement of all prior-period EPS data presented. The Company will adopt FAS 128 in its consolidated financial statements as of and for the year ending December 31, 1997 and, based on current circumstances, does not believe the effect of adoption will be material. 30 33 BUSINESS OVERVIEW Pegasus is a leading provider of transaction processing services to the hotel industry worldwide. The Company's THISCO and TravelWeb hotel room reservation services improve the efficiency and effectiveness of the hotel reservation process by enabling travel agents and individual travelers to electronically access hotel room inventory information and conduct reservation transactions. The Company's HCC service, the global leader in hotel commission payment processing, improves the efficiency and effectiveness of the commission payment process for participating hotels and travel agencies by consolidating payments and providing comprehensive transaction reports. The Company's services benefit many of the participants in the hotel room distribution process, including hotels, hotel representation firms, Global Distribution Systems ("GDSs"), travel agencies, convention and other large meeting organizers, corporate travel departments and Web sites with travel-related features. In 1996 approximately 51.3% of the Company's consolidated revenues was derived from its hotel reservation processing services, including 42.5% from the THISCO service and 8.8% from the TravelWeb service, and approximately 48.7% was derived from its HCC service. The Company's electronic interface business for hotel room reservations was established in 1988 by 16 leading hotel and travel-related companies to address the need for a neutral, reliable third-party source of hotel reservation information and transaction processing services. The Company's commission processing business was founded by substantially the same stockholder group in 1991. Today, the Company's stockholders include 11 of the 15 leading hotel chains in the world based on 1996 total revenues. The Company's strategic position as a gateway in the hotel room distribution chain, transaction processing capabilities and reputation for reliability and neutrality enable it to offer a range of services delivering industry-wide benefits that would be difficult for any of the participants to achieve individually. Over the past several years, the Company has expanded its services to include virtually all electronic distribution channels through which hotel room reservations are made. Over 25,000 hotel properties worldwide, including those of 13 of the 15 leading hotel chains in the world based on 1996 total revenues, currently participate in the Company's THISCO service. The number of net reservations booked through the THISCO service has increased to approximately 13.9 million in 1996 from 1.1 million in 1990. TravelWeb provides individual travelers direct access to more than 40,000 dynamically served pages of online hotel information and the ability to make reservations at approximately 15,000 hotel properties in 140 countries. In April 1997, a daily average of approximately 20,000 Internet users visited the TravelWeb site. The Company's NetBooker service offers operators of third-party Web sites the same comprehensive information contained on TravelWeb and a simple and fast method of making a hotel reservation online. The THISCO and TravelWeb services utilize the Company's UltraSwitch technology. This technology can facilitate the distribution of hotel rooms through virtually all of the automated distribution channels by offering hotels a single, seamless electronic interface to: - over 120,000 travel agencies through all of the leading GDSs; - individual travelers directly through the Internet; - third-party Web sites; - convention and other large meeting organizers; and - corporate travel departments through travel management software and service providers. Pegasus provides the HCC commission processing service to over 64,000 travel agencies and 11,000 hotel properties worldwide. In 1996, the Company processed over $111.7 million in gross commission payments, an increase of 49.9% as compared to 1995, including commission payments made in 1995 prior to the acquisition of HCC by Pegasus. 31 34 The Company charges for its services generally on a per-transaction or commission basis. The Company has increased its revenue at a compound annual growth rate of 54.4% to $15.9 million in 1996 from $2.8 million in 1992, excluding 1992 revenues from the HCC service which was acquired in 1995. The revenue growth has reflected growth in the THISCO service, the introduction of the TravelWeb service and the acquisition and growth of the HCC service. The revenue growth in the THISCO service reflects the increasing number of participating hotels and travel agencies that made reservations through the THISCO service, the shift from manual to electronic hotel reservations and the overall health in the hotel industry. The revenue growth in the HCC service principally reflects growth in the dollar amount of hotel commission payments processed by the Company as a result of an increase in the number of hotels and travel agencies using the HCC service and higher average daily hotel room rates. The Company believes it has numerous opportunities to continue its growth, including: (i) adding members of the hotel and travel agency industries as customers, in particular internationally where the Company's market share is lower; (ii) addressing all of the emerging electronic distribution channels for hotel rooms; (iii) providing customers access to comprehensive hotel industry information and (iv) pursuing strategic relationships and acquisition opportunities. RECENT DEVELOPMENTS In March 1997, the Company entered into an agreement with Marriott, under which Marriott, currently a customer of the Company's THISCO and TravelWeb services, will become a customer in the Company's HCC service commencing in third quarter 1997. In May 1997, HFS renewed its participation in the Company's HCC service by entering into a new long-term agreement with the Company. In May 1997, the Company entered into a Distribution Services Agreement with Holiday Inn, under which Holiday Inn, currently a customer in the Company's HCC service, also will become a customer of the Company's THISCO, TravelWeb, NetBooker, UltraDirect, and UltraRes services commencing in 1998. See "Certain Transactions." INDUSTRY BACKGROUND The operations of the global hotel industry include a wide variety of participants and a series of complex information and transaction flows. According to the International Hotel Association, the global hotel industry generated $247 billion in revenues in 1994. The Company believes that costs associated with reserving and distributing hotel rooms, including commissions paid to intermediaries, such as travel agencies and GDSs, hotel reservation-related staffing costs and reservation system information technology expenses, represent a significant proportion of total operating costs. The Company's services simplify the complexity of room reservation information and transaction flows, thereby reducing the distribution costs of rooms for the hotel industry. The Company believes that revenues derived from electronically booked hotel reservations will grow at a higher rate than overall hotel industry revenues, as a greater number of hotels and travel agencies acquire electronic booking capabilities. The room reservation and commission payment processes in the hotel industry are complex and information intensive. Making a hotel room reservation requires significant amounts of data, such as room rates, features and availability. This complexity is compounded by the need to confirm, revise or cancel room reservations, which generally requires multiple parties to have ongoing access to real-time reservation information. Similarly, the process of reconciling and paying hotel commissions to travel agencies is based on transaction-specific hotel data and consists of a number of relatively small payments to travel agencies, often including payments in multiple currencies. In addition, information regarding guest cancelations and "no-shows" needs to be accurately communicated between hotels and travel agencies in order to reconcile commission payments. Reservations for hotel rooms are made either directly by individual travelers or indirectly through intermediaries. Individual travelers typically make direct reservations by telephoning or faxing a hotel to ascertain room rates, features and availability and to make reservations. Increasingly, individual travelers can conduct all aspects of this transaction through hotel and travel-related Web sites. Intermediaries for hotel 32 35 room reservations, including travel agencies, convention and other large meeting organizers and corporate travel departments, access hotel information either by telephone or fax or through a GDS such as SABRE, Galileo, System One or Worldspan. GDSs are global electronic travel information and reservation systems that, among other things, maintain databases of room rate, feature and availability information provided by hotels to which they are connected. Because each GDS has a unique electronic interface to hotel reservation systems, each GDS can obtain room information and book rooms only at hotels that have developed protocols and message formats compatible with that particular GDS. A number of current trends are affecting the hotel industry. First, the hotel industry has been shifting from manual to electronic means of making hotel room reservations. According to a survey done for the Hotel Electronic Distribution Network Association ("HEDNA") by Hospitality Technology Consulting, 30 million hotel room reservations were made electronically through GDSs in 1996. As more hotels become electronically bookable, the Company expects that electronic hotel room reservations will grow substantially in the United States and internationally over the next several years. Second, a small but growing number of individual travelers are making hotel room reservations electronically on the Internet. Third, smaller hotel chains and independent hotels increasingly have affiliated with large hotel chains through a process known in the industry as "branding" or "reflagging." This global consolidation process produces economies of scale and increases the global penetration of larger hotel chains, many of whom are the Company's stockholders and customers. Fourth, hotel commissions are becoming increasingly important to travel agencies as a source of revenue. Travel agencies are looking to increase their revenue by making more hotel room reservations to offset the effects of increased competition among travel agencies, new competition from emerging travel service distribution channels and caps on commissions for airline reservations, which historically have been the leading revenue source for travel agencies. Because of the information-intensive and complex nature of the hotel room reservation and commission payment processes, the Company believes a substantial opportunity exists for an intermediary that can provide services to manage hotel industry information and transaction flows among multiple parties. Effective, neutral, third-party management of information and transaction flows improves the ability of all participants in the hotel room distribution process to conduct business on a seamless and automated basis by providing efficient and real-time access to hotel information. To be effective in addressing the hotel industry's needs, the provider of such services must have: (i) an in-depth understanding of the business processes of participants involved in the distribution of hotel rooms; (ii) a reputation for reliability and trusted neutrality in the industry to bring otherwise competing constituencies together for industry-wide benefits; (iii) participation by a critical mass of hotels and participants in the electronic hotel room distribution process and (iv) expertise in leading technology applications. By acting as a gateway for information and transaction flows, such a provider of services would be well positioned to improve the efficiency and effectiveness of the distribution of hotel rooms, the processing of travel agency commission payments and the gathering and distribution of hotel industry information. THE PEGASUS SOLUTION The Company provides information and transaction processing services that improve the efficiency and effectiveness of the hotel room reservation and commission payment processes. The Company's THISCO and TravelWeb services enhance the electronic hotel room reservation process by providing a standard, common electronic interface that enables individual travelers and intermediaries to access hotel room inventory information and conduct reservation transactions. The Company's HCC service improves the efficiency and effectiveness of the commission payment process for hotels and travel agencies by consolidating commissions into one payment in the travel agency's currency of choice and providing comprehensive transaction reports. The Company has developed an in-depth understanding of the technical and business processes involved in hotel room reservations and commission payment processing. The Company's strategic position as a gateway in the hotel room distribution chain, transaction processing capabilities and reputation for reliability and neutrality enable it to offer a range of services delivering industry-wide benefits that would be difficult for any of the participants to achieve individually. 33 36 The Company's current services and services in development generally fall into three categories: electronic hotel room reservation services, commission payment processing services and information services. Depicted in the following diagram are the Company's electronic hotel room reservation services and commission payment processing services that are currently offered or in development. [PRODUCT DIAGRAM] Pictures and logos depicting the following transaction flows: 1. Consumer to Travel Agent to Global Distribution System ("GDS") to UltraSwitch-THISCO to Hotel. 2. Consumer to GDS Internet Travel Sites to GDS to UltraSwitch-THISCO to Hotel. 3. Consumer to TravelWeb to UltraSwitch-THISCO to Hotel. 4. Consumer to Partner Web Sites to Pegasus Systems NetBooker to UltraSwitch-THISCO to Hotel. 5. Consumer to Corporate Travel to Pegasus Systems-UltraDirect to UltraSwitch-THISCO to Hotel. 6. Consumer to Conventions, Meetings, Housing to Pegasus Systems-UltraRes to UltraSwitch-THISCO to Hotel. 7. Hotel to HCC-Hotel Clearing Corporation to Travel Agent. The Company's THISCO service is a leading provider of room reservation processing services that electronically connect hotel central reservation systems with other participants in the hotel room distribution process. Over 25,000 hotel properties worldwide, including those of 13 of the 15 leading hotel chains based on 1996 total revenues currently utilize the THISCO service. Furthermore, because the THISCO service provides a connection to each major GDS, and through them over 120,000 travel agencies worldwide, as well as with convention and other large meeting organizers, corporate travel departments and emerging Internet travel services, the Company offers hotels an effective and low cost single point of contact with all the major participants in the hotel room distribution process. The THISCO service provides travel agencies greater and easier access to real-time hotel information and the ability to make a reservation and receive a confirmation in seconds. The THISCO service also allows GDSs to offer fast confirmation for hotel room reservations made through their systems, improved efficiency because of a single interface, access to 25,000 hotel properties worldwide and real-time availability of information. Convention and other large meeting organizers, corporate travel departments and others also are able to utilize the THISCO service to automate their hotel room reservation process. Additionally, individual travelers can shop in real-time and reserve hotel rooms directly by using either TravelWeb, the Company's own Web site, or through a Web site that utilizes NetBooker, the Company's hotel reservation service provided to third-party Web sites. The Company's HCC commission processing service simplifies the payment of travel agency hotel room commissions by over 11,000 participating hotel properties to over 64,000 participating travel agencies worldwide. By consolidating the payment of commissions and providing comprehensive transaction reports, HCC enables hotels and travel agencies to increase efficiency and reduce costs associated with preparing, paying and reconciling commissions. 34 37 The Company generally charges for its services on a per-transaction or commission basis. The Company has the opportunity to earn revenue by processing transactions through virtually all of the means by which electronic hotel room reservations occur, whether or not a GDS is involved in the transaction. STRATEGY The Company's objective is to capitalize on its central position in the hotel industry information and transaction flow in order to become the leading provider of services and technology that enable the efficient and effective electronic distribution of hotel rooms. To achieve this objective, the Company intends to employ a strategy that includes the following key elements: Expand Customer Base. The Company's established customer base includes hotels, hotel representation firms, travel agencies, GDSs and third-party Web sites. The Company intends to expand its customer base domestically and internationally by adding customers and by cross-selling its new and existing services to its current and future customers. Because of the fixed nature of many of the Company's costs, the addition of new customers and the increase in transaction volumes with new and existing customers enhances the profitability of all of the Company's services. Expand Hotel Room Distribution Channels. The Company is expanding its service offerings to include additional distribution channels, such as hotel room reservation services for individual travelers over the Internet, for convention and other large meeting organizers and for corporate travel departments through corporate intranets. The Company is addressing this online distribution opportunity through increasing the capability and consumer awareness of its TravelWeb site, expanding the use by third-party Web sites of the Company's NetBooker service and providing services to corporate travel departments through its UltraDirect service. The Company plans to capitalize on the opportunity with convention and other large meeting organizers by providing these distribution participants electronic access to hotel central reservation systems through its UltraRes service. The Company's services are intended to provide transaction fee revenue opportunities through virtually all of the distribution channels by which electronic hotel room reservations occur. Develop Hotel Industry Information Service. The Company intends to develop an information service which will provide hotels and other industry participants with hotel transaction information for use in strategic analysis, market tracking and improved target marketing and revenue optimization. The Company's proposed service is intended to utilize both information to which it currently has access through the other services it provides and information it would compile using its network of hotel industry relationships. Build Strategic Alliances and Pursue Acquisition Opportunities. The Company intends to build strategic alliances with other participants in the hotel industry, as well as members of the financial information services, Internet and information technology industries, to enhance the functionality and market presence of the Company's services. The Company believes that these relationships will increase brand recognition of its services and help to expand its customer base. The Company will also seek to acquire assets, technology and businesses that provide complementary services or access to new markets and customers. SERVICES The Company's current services and services in development generally fall into three categories: electronic hotel room reservation services, commission payment processing services and information services. In 1996 approximately 51.3% of the Company's consolidated revenues was derived from its hotel reservation services, including 42.5% from the THISCO service and 8.8% from the TravelWeb service, and approximately 48.7% was derived from its HCC service. 35 38 Hotel Room Reservation Services The following table summarizes the hotel room reservation services the Company has developed or is developing (including year of introduction): <TABLE> <S> <C> <C> HOTEL ROOM RESERVATION SERVICES ---------------------------------------------------------------------------------------------------------------- Services Users Benefits -------------------------------- THISCO (1988) - Hotels and hotel - Improved efficiency because of single representation firms interface - Single interface between hotel - Improved customer service due to central reservation systems frequent hotel room inventory updates and GDSs utilized by travel - Improved accessibility to wide audience of travel agencies via GDSs - GDSs and participating travel - Improved efficiency because of single agencies interface - Rapid confirmations - Access to over 25,000 hotel properties worldwide - Real-time availability of information TravelWeb - Hotels and hotel - Access to emerging low cost electronic representation firms distribution channel - Electronic hotel property - Reduced distribution costs catalog (1994) - Inexpensive publication and - Web-based hotel room distribution of comprehensive and up-to- reservations (1995) date hotel information and promotions - More attractive presentation of hotel information - Individual travelers - Around the clock electronic access to hotel reservation capability - Ability to shop and gain convenient access to approximately 15,000 hotel properties with rich information content, including rate, feature and availability information - Access to special promotional offers NetBooker (1997 -- in - Hotels and hotel - Access to emerging low cost electronic development) representation firms distribution channel - Comprehensive hotel database - Reduced distribution costs and hotel room reservation - Inexpensive publication and capability tailored and fully distribution of comprehensive and up-to- integrated into third-party date hotel information and promotions Web sites - More attractive presentation of hotel information - Wider distribution of hotel information and access to individual travelers through presence on multiple Web sites - Third-party Web sites - Low cost access to comprehensive hotel information and proven online hotel reservation functionality - Increased site value due to wider scope of services provided - Advertising and transaction-based revenue opportunities UltraRes (1996) - Hotels and hotel - Improved accuracy of convention and representation firms large meeting reservations - Electronic hotel room - Reduced costs by eliminating manual reservation connectivity for reservation process convention and other large group - Improved tracking of room inventory bookings - Convention and visitors - Improved reservation and cancellation bureaus tracking and reporting capabilities - Meeting planners - Single connection to multiple hotel - Group housing reservation properties providers - Reduced costs by eliminating manual reservation process UltraDirect (1997 -- in - Hotels and hotel - Target marketing development) representation firms - Broadened distribution channel - Improved ability to update corporate - Direct electronic hotel room rate and availability information and reservation capability for respond to reservation requests corporate travel departments - Reduced distribution costs for corporate room sales - Corporate travel departments - Reduced time and effort in making hotel reservations - Enforcement of corporate travel policies and utilization of preferred rates - Improved travel information reporting - Corporate travel agencies and - Account retention related Web sites - Low cost access to hotel information and online booking functionality - Reduced time and effort in making hotel reservations - Enforcement of corporate travel policies and utilization of preferred rates - Improved travel information reporting </TABLE> 36 39 THISCO. The Company's THISCO service is a leading electronic hotel room reservation processing service that interfaces communications concerning hotel reservation information between all major GDSs and hotel central reservation systems. According to HEDNA, approximately 30.0 million hotel room reservations were made electronically through GDSs during 1996. During 1996, approximately 13.9 million hotel room reservations were made through THISCO. THISCO currently connects central reservation systems representing over 25,000 participating hotel properties to each major GDS and through them over 120,000 travel agencies worldwide. The following table sets forth the number of THISCO net reservations in each of the years 1990 through 1996. THISCO <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ 1990 1991 1992 1993 1994 1995 1996 ------ ------ ------ ------ ------ ------ ------ (IN THOUSANDS) <S> <C> <C> <C> <C> <C> <C> <C> Net reservations............ 1,145 3,498 5,012 6,481 8,373 10,963 13,947 Year-over-year growth rate...................... 206% 43% 29% 29% 31% 27% </TABLE> THISCO enables a hotel to connect to all major GDSs without having to build and maintain a separate interface for each GDS. Without THISCO or a similar service, hotel chains that desire their room inventory to be accessible to travel agencies electronically on a GDS must develop protocols and message formats compatible with each GDS, a process that entails significant time and expense. Alternatively, hotels may rely more heavily on less-automated means, such as traditional toll-free telephone reservation centers with higher processing costs. THISCO enables the processing of hotel room reservations and also transmits millions of status messages sent by participating hotels every day to update room rates, features and availability on GDS databases. Many participating hotels also have chosen to utilize the Company's UltraSelect service, which provides travel agencies using GDSs with direct access through THISCO to a hotel's central reservation system bypassing the GDS databases to obtain the most complete and up-to-date hotel room information available. See "-- Technology and Operations." Hotels using THISCO improve the efficiency of their central reservation systems and reduce costs by not having to develop and maintain separate communications circuits and translation software for each GDS. Through THISCO, participating hotels are able to gain improved access to a wide audience of travel agencies worldwide that are connected to GDSs and to provide better customer service due to the ability to frequently update hotel room information on GDS databases in a fast and reliable manner. THISCO benefits travel agencies that use GDSs by providing real-time access to comprehensive hotel room information and enabling them to make reservations and receive confirmations in seconds from over 25,000 hotel properties worldwide. Pegasus charges its hotel customers a fee based on the number of net reservations processed through THISCO. In addition, hotels pay certain fees for status messages sent to GDSs through THISCO. New participants in THISCO may be charged one-time set-up fees for work associated with the implementation of the interface with THISCO. The Company also charges certain GDSs a fee based on the number of net reservations to compensate for the management and consolidation of multiple interfaces. The technology used by THISCO also enables the Company to enhance its revenue base by providing the information and reservation interface for its other hotel reservation services, including TravelWeb, NetBooker, UltraRes and UltraDirect. 37 40 TravelWeb. Located at www.travelweb.com, TravelWeb provides individual travelers direct access to more than 40,000 dynamically served pages of online hotel information and the ability to make reservations at approximately 15,000 hotel properties in 140 countries. In January 1997, TravelWeb was ranked as the second most popular travel-related Web site, according to the P.C. Meter, L.P., a market research service. In April 1997, a daily average of approximately 20,000 Internet users visited the TravelWeb site. The following table sets forth the number of net reservations made using the TravelWeb service in each of the past four quarters since the Company introduced online reservation capabilities in December 1995. TRAVELWEB <TABLE> <CAPTION> QUARTER ENDED --------------------------------------------------------- MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, 1996 1996 1996 1996 1997 -------- -------- --------- -------- -------- <S> <C> <C> <C> <C> <C> Net reservations..................... 1,782 5,557 10,294 14,571 23,571 Quarter-over-quarter growth rate..... 212% 85% 44% 62% </TABLE> Individual travelers traditionally obtain information or reserve a room by contacting a hotel directly by telephone or fax or indirectly through intermediaries, such as travel agencies, convention and other large meeting organizers and corporate travel departments. As a result, an individual traveler cannot easily obtain information from a wide range of hotel properties in a timely manner. TravelWeb provides detailed information regarding a wide array of hotel properties and, through its connection to the Company's THISCO service, allows individual travelers to reserve a hotel room and receive a confirmation in seconds. See "-- Technology and Operations." TravelWeb benefits hotels, hotel representation firms and individual travelers. TravelWeb reduces distribution costs for hotels and hotel representation firms. TravelWeb also enables access to an emerging low cost electronic distribution channel. In addition, TravelWeb provides an inexpensive method of publishing and distributing comprehensive and up-to-date hotel marketing information with an attractive presentation format featuring visual images and graphics. Hotels can easily add, delete and update such information using the Company's "remote author" feature. Additionally, the "Click-it! Weekends" feature highlights weekend specials, enabling hotels to take advantage of the real-time nature of the Internet to offer flexible pricing and to reach individual travelers on a world-wide basis quickly and inexpensively. TravelWeb benefits individual travelers by providing electronic access, 24 hours a day, seven days a week, to shop for and reserve a hotel room in one or more of the thousands of hotel properties online. Furthermore, individual travelers are able to gain detailed information about a hotel property and its special promotional offers through the rich information content available on TravelWeb. In addition to hotel room reservations, TravelWeb offers airline booking capability through a GDS. TravelWeb allows users to check air fares, flight times and availability and purchase airline tickets while online. All TravelWeb air bookings are routed to a partner travel agency and ticketed and shipped by FedEx at no extra cost to the traveler. TravelWeb also offers "The Resources Center" which provides information and links for a variety of travel-related services, such as food, shopping, area attractions and business services. Hotel participants in TravelWeb pay the Company a monthly subscription fee based on the number of their properties included in the database and a fee based on the number of net reservations made through TravelWeb. The Company also began to sell advertising space on TravelWeb during 1996, focusing on advertisers that cater to travelers. The Company has not received a material amount of transaction-based revenues for the TravelWeb service to date, and there can be no assurance that this service will produce a material amount of revenues in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." NetBooker. The Company recently introduced a service for the operators of third-party Web sites which combines TravelWeb's hotel information database and THISCO's electronic interface capability to make hotel room reservations. To conduct Internet-based electronic commerce successfully, Web site operators 38 41 must offer a content set which is sufficiently broad, accurate, up-to-date, graphically appealing and useful to attract buyers to the Web site. Typically, the development of such a content set is expensive and time consuming. Furthermore, in addition to providing individual travelers with access to useful and graphically appealing information, the operator of a Web site must offer individual travelers the capability to effect a transaction in order to generate a transaction fee. The Company's NetBooker service offers operators of Web sites the same information contained on TravelWeb and a simple and fast method of making a hotel room reservation online. The Company's NetBooker service utilizes advanced technology applications to customize the TravelWeb hotel database so that it appears to the user to be an integral part of the third-party Web site. In connection with this service, the operator of the third-party Web site establishes an interface to the Company's THISCO service, which enables users of the Web site to shop and query room availability, electronically make a reservation and receive a confirmation in seconds. In February 1997, the Company entered into a NetBooker distribution agreement with Preview Travel Inc. to provide its America Online users, as well as its Web site users, direct access to the TravelWeb database and direct connections to hotel central reservation systems. Recently, the Company entered into a NetBooker Distribution Agreement with Internet Travel Network. See "-- Technology and Operations." The Company's hotel customers benefit from its NetBooker service because it enables a broader dissemination through the emerging, low cost Internet distribution channel of the same marketing information supplied to TravelWeb. As a result, hotels need only incur the effort and expense of creating and maintaining their information on a single site to reach multiple Internet distribution points and achieve increased overall visibility. Furthermore, the NetBooker service provides hotel customers an inexpensive means to distribute and publish visually attractive marketing information and Internet-specific promotions. Hotels offering their own brand-specific Web sites also can have their own content delivered to their sites from TravelWeb's database and process reservation requests from their Web sites through the THISCO service. Users and operators of third-party Web sites benefit from the NetBooker service through immediate access to the rich content of TravelWeb. Furthermore, because users of the third-party Web sites can book hotel rooms and receive confirmations in seconds through the THISCO service, the Company's service affords the operators of third-party Web sites the opportunity to generate a transaction fee revenue stream. The Company charges third-party Web sites an initial development and licensing fee for the NetBooker service. For reservations made through the NetBooker third-party Web sites, hotels pay the Company the same fee per net reservation as for reservations made through TravelWeb. The Company has not received a material amount of revenues for this service to date, and there can be no assurance that this service will produce a material amount of revenues in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." UltraRes. The Company recently introduced its UltraRes service, which automates the processing of hotel room reservations for conventions and large meetings. The process traditionally used to reserve hotel rooms for these events is information-intensive and inefficient. Typically, convention and meeting organizers request hotel reservations for blocks of rooms by fax, mail or telephone. Hotels manually enter these reservations into their central reservation systems and send confirmation numbers to the convention or meeting organizers, and the meeting organizers manually enter the confirmation and reservation information into their own systems. This process frequently leads to inaccurate and delayed information and overbooking or underbooking. With the Company's UltraRes service, convention and other large meeting organizers are able to transfer reservation requests to the THISCO service electronically, which translates the information to electronically book a room in each hotel central reservation system. The UltraRes service eliminates the need to transfer rooming lists for manual entry at the hotel and allows hotels to deliver reservations and confirmations electronically in a fast and reliable manner. In January 1997, the Company's UltraRes service was endorsed by the International Association of Convention and Visitors Bureaus as the preferred standard for electronic transmission of convention hotel reservations. See "-- Technology and Operations." The Company's UltraRes service can benefit all parties involved in the distribution of hotel rooms for conventions and other large meetings. Since reservations are made through the Company's THISCO service rather than manually, reservations, modifications and cancellations can be received earlier and updated more frequently and efficiently. The Company's UltraRes service provides convention and other large meeting 39 42 organizers a single connection to multiple hotel properties and enables fast, accurate and reliable reservation and confirmation of hotel rooms at reduced cost. The Company's UltraRes service also assists hotels in controlling their room inventory by reducing the risk of overbooking or underbooking and allows hotels to reduce the cost of booking related to convention reservations. The Company estimates that the majority of these types of reservations were made at five major hotel chains (Hilton, Hyatt, Marriott, Sheraton and Westin) whose facilities are designed for and cater to large conventions and meetings. Because all five of these chains are THISCO customers, the Company is positioned to take advantage of the existing connectivity with these chains to facilitate the development and marketing of the UltraRes service. The Company will charge participating hotels and convention and other large meeting organizers fees based on the number of net reservations made using the UltraRes service. The Company introduced the UltraRes service in 1996 and since then has processed approximately 30,000 hotel room reservations using this service. The Company has not received a material amount of revenues for this service to date, and there can be no assurance that this service will produce a material amount of revenues in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." UltraDirect. The Company is developing its UltraDirect service for the corporate travel management industry to provide a direct real-time link to the Company's THISCO service through corporate intranet travel management software. With the UltraDirect service, corporate travelers will be able to check availability and make hotel reservations within seconds at hotel chains or properties with which the traveler's employer has negotiated rates. Traditionally, large companies have negotiated discounted hotel room rates with hotel chains and properties to control their travel costs. However, because this information at times is not available to a GDS, these rates frequently can only be requested by a travel agency over the telephone. The UltraDirect service will enable corporate travel departments of companies to have access to the customized information negotiated with hotel chains and properties to facilitate hotel room reservations. Furthermore, this information can be fully integrated into other components of the intranet site and facilitate the creation of passenger name records and detailed profile information. The UltraDirect service will benefit hotels by providing an additional hotel room distribution channel and enabling targeted marketing efforts directed at corporate travel departments. Hotels will also be able to reduce distribution costs for corporate room sales and better update information and respond to reservation requests from corporate travelers. Pegasus markets this service to developers of corporate travel software programs and to travel agencies that operate intranet travel management services. UltraDirect is intended to provide benefits to travel agencies and companies by decreasing the amount of time necessary to arrange a business trip, improving travel information reporting and helping to ensure that employees comply with company travel policies and utilize hotels with whom the Company has negotiated rates. The Company intends to charge hotels fees based on the number of net reservations made using the UltraDirect service. The Company has reached an agreement with TravelNet, Inc. (a division of Reed) that is designed to allow users of TravelNet's Voyager travel management software system to access UltraDirect for the purpose of making hotel reservations. When a corporate traveler uses Voyager to make hotel arrangements, the Voyager system accesses the UltraDirect service, which in turn connects to hotel central reservation systems through the THISCO service. The Company has not received a material amount of revenues for this service to date, and there can be no assurance that this service will produce material revenues to the Company in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 40 43 Commission Processing Services HCC. The Company's HCC service began operations in 1992 to process the payment of hotel commissions to travel agencies. The following table summarizes the commission processing and payment services offered by HCC: <TABLE> <CAPTION> ---------------------------------------------------------------------------------------------------------------------- COMMISSION PROCESSING SERVICE ---------------------------------------------------------------------------------------------------------------------- Service Users Benefits ---------------------------------------------------------------------------------------------------------------------- <S> <C> <C> HCC (1992) - Travel agencies - Improved efficiency in reconciliation of commission payments - Commission processing service: aggregates, - Reduced bookkeeping and banking costs reports and disburses hotel room reservation - Payment in preferred currency commissions from hotels to travel agencies - Improved information on customer reservation habits - Assistance in reconciling commissions through customer relation centers - Hotels and hotel - Streamlined commission payment process representation firms - Reduced accounting, processing and bookkeeping costs - Improved information regarding travel agency bookings - Encouragement of travel agency bookings at hotels </TABLE> The HCC service is the largest provider of travel agency commission and processing services in the hotel industry. The Company has registered over 11,000 properties and over 64,000 travel agencies as HCC participants. During 1996, the Company processed more than six million commissionable transactions using the HCC service, and the dollar amount of the commissions processed during this period totaled approximately $111.7 million. The following table sets forth the dollar amount of commissions processed during the year indicated: HCC <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, -------------------------------------------------------- 1992 1993 1994 1995 1996 -------- -------- -------- -------- -------- (IN THOUSANDS) <S> <C> <C> <C> <C> <C> Gross commissions processed......... $ 5,156 $ 23,559 $ 36,394 $ 74,547 $111,714 Year-over-year growth rate.......... 357% 54% 105% 50% </TABLE> Typically, a hotel pays to the travel agency that made the hotel reservation a commission of approximately 10% of the room rate paid by a hotel guest. However, the payment process related to these commissions historically has been costly and inefficient, consisting of numerous checks in small amounts and little information regarding the basis from which the commission was calculated. Furthermore, communication between hotels and travel agencies regarding payable commissions generally has not been effective because guest cancellations or "no-shows" would frequently not be reported and travel agencies would expect a commission when in fact none was due. As a result, travel agencies lacked the necessary resources to reconcile commission payments effectively. In response to this problem, the Company developed the HCC service to gather commission payment information, process that information and transmit to travel agencies one consolidated check in the travel agency's currency of choice, together with an information statement that enables the travel agency to reconcile its hotel commission activity. See "-- Technology and Operations." The Company's HCC service reduces a hotel's cost by streamlining the commission payment process and consolidating into a single payment the aggregate commission owed by a participating hotel to all participating travel agencies. Additionally, the HCC service provides an incentive to travel agencies to make reservations at HCC-participating hotels in countries other than their own because the HCC service disburses checks denominated in each travel agency's currency of choice. Furthermore, the monthly and quarterly marketing reports and statistics prepared for the hotel by the HCC service allow the hotel to identify and market more effectively to travel agencies that provide the hotel with its guests. The hotel also benefits from HCC's 41 44 Customer Relations Center, which allows travel agency inquiries regarding commissions to be resolved by HCC rather than with the hotel itself. The Company's HCC service also provides benefits to its travel agency participants. The consolidated check that the HCC service delivers in the travel agency's currency of choice reduces the staff time spent processing multiple checks and deposit slips, eliminates bank fees for multiple deposits and currency exchanges and is designed to improve the travel agency's ability to manage cash flow. The monthly report delivered by the HCC service allows the travel agency to confirm commissions paid, follow customers' reservation habits and reduce a travel agency's expenses for collection activity and for tracking bookings that result in cancellations or "no-shows." The HCC Customer Relations Center provides prompt responses to agency inquiries and can substantially reduce the time and cost of reconciling outstanding commissions. The Company's optional HCC Electronic service for electronic payment and reconciliation of commissions enables travel agencies to reduce commission reconciliation costs and provides travel agencies with immediate access to funds. Pegasus maintains a Web site, HCCnet, that provides a comprehensive description of HCC services. HCCnet provides a complete listing of all of the hotels that have committed to paying hotel commissions through the HCC service. Moreover, travel agencies can subscribe to receive an executive summary report that can be used to evaluate the travel agency's activity with a particular hotel to assist with volume negotiations, among other matters. The Company charges each participating travel agency a service fee based on the amount of commissions paid to the travel agency. The Company also generally charges hotels a fee based on the number of commissionable transactions processed. Pegasus Travel Information Services The Company intends to develop a service to provide hotel information to a wide variety of audiences in the global hotel industry, from hotel guests to travel industry marketing groups to hotel chains. The Company believes that the hotel industry has limited sources that provide transaction-specific hotel data in a timely manner. Leveraging the existing databases used in its THISCO, TravelWeb and HCC services and utilizing other data available through hotel property management systems, the Company intends the new service to be able to compile data regarding hotel guests and their use of hotels in transaction-specific detail and to organize that data into meaningful information, which will be made available in forms that protect an individual traveler's privacy. The Company also intends to be able to produce data regarding a hotel company's average daily room rate and occupancy rate to be used by a hotel company to compare itself with its competitors in a manner consistent with legal limitations. Furthermore, the Company intends that the new service will be able to provide data in an electronic format to individual travelers or corporate travel departments regarding a particular stay at a hotel to facilitate automated expense reporting or to ensure travel policy adherence. The Company believes that numerous participants in the travel industry will desire the Company's data services, including hotel companies, travel agencies, individual travelers, convention and other large meeting organizers, corporate travel departments, hotel developers and hotel industry consultants. The Company's future success will depend, in part, on its ability to develop leading technology, enhance its existing services, develop and introduce new services that address the increasingly sophisticated and varied needs of its current and prospective customers, and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis. Although the Company strives to be a technological leader, there can be no assurance that future advances in technology will be beneficial to, or compatible with, the Company's business or that the Company will be able to economically incorporate such advances into its business. In addition, keeping abreast of technological advances in the Company's business may require substantial expenditures and lead time. There can be no assurance that the Company will be successful in effectively using new technologies, adapting its services to emerging industry standards, developing, introducing and marketing service enhancements or new services, or that it will not experience difficulties that could delay or prevent the successful development, introduction or marketing of these services. The services that the Company is in the process of developing may require substantial expenditures. If the Company incurs increased costs or is unable, for technical or other reasons, to develop and introduce new 42 45 services or enhancements of existing services in a timely manner in response to changing market conditions or customer requirements, or if new services do not achieve market acceptance, the Company's financial condition and results of operations could be materially adversely affected. See "Risk Factors -- Impact of Technological Advances; Delays in Introduction of New Services." CUSTOMERS The Company markets and provides its services to a wide range of customers, including but not limited to hotels, large travel agencies, travel agency consortia comprised of smaller travel agencies, GDSs and independent hotels represented by hotel representation firms such as Anasazi, Inc., Utell International and Lexington Services Corporation. During 1996, no one customer accounted for as much as 6% of the Company's revenues. Pegasus includes as its customers 14 of the 15 largest hotel chains in the world based on 1996 total revenues. As of May 31, 1997, the Company's customers include the following hotels and hotel representation firms which have a minimum of 10 properties, with stockholders (or affiliates thereof) of the Company indicated by an asterisk: ADAM'S MARK HOTELS & RESORTS AMERIHOST INN HOTELS *ANASAZI, INC. -- Anasazi Travel Resources -- AmeriSuites -- ARCOTEL Hotels & Resorts -- Camberely Hotels -- Copthorne Hotels -- Fairmont Hotels -- Four Seasons Hotels & Resorts -- Grand Bay Hotels & Resorts -- Grand Heritage -- Grand Traditions -- LRI -- Loews Hotels -- Millineum Hotels -- New Otani Hotels -- Nikko Hotels -- Regent International Hotels -- Registry Hotels -- Rihga Royal Hotels -- Shangri-La Hotels -- Sonesta International -- Station Casinos -- Sterling International Hotels -- Wellesley Inns -- World Hotels & Resorts -- Vacation Break Hotels BENCHMARK HOSPITALITY *BEST WESTERN INTERNATIONAL *CHOICE HOTELS INTERNATIONAL -- Clarion Inns -- Comfort Inns -- EconoLodge -- Friendship Inns -- Mainstay Suites -- Quality Inns -- Rodeway Inns -- Sleep Inns COASTAL HOTELS DOUBLETREE HOTELS -- Red Lion Hotels & Inns *FORTE -- Forte Hotels -- Meridien GLOBAL RESOURCES, INC. -- Global Resources Hotels -- SCANRES -- World Class Hotels HAWTHORN SUITES *HILTON HOTELS CORPORATION HILTON INTERNATIONAL HOLIDAY INN WORLDWIDE *HFS, INC. -- Days Inns of America -- Howard Johnson -- Knights Inn -- Ramada Hotels & Inns -- Super 8 Motels -- Travelodge -- Villager Lodge -- Wingate Inn HOTEL OKURA HOTKEY INTERNATIONAL -- Regal Hotel Group U.K. -- Romantik Hotels *HYATT HOTELS HYATT INTERNATIONAL *INTER-CONTINENTAL HOTELS -- Inter-Continental Hotels and Resorts -- Forum Hotels by Inter-Continental -- Global Partner Hotels & Resorts *ITT SHERATON -- Four Points -- Global Connections -- ITT Sheraton Hotels & Resorts -- Sheraton Luxury Collection KIMPTON HOTELS *LA QUINTA INNS LEXINGTON SERVICES CORPORATION -- Bartells Hotels -- Design Hotels -- Harvey Hotels -- Lexington Hotels & Suites -- Suite Connection -- Summerfield Suites MANDARIN ORIENTAL HOTEL MARITIM HOTELS *MARRIOTT CORPORATION -- Courtyard Inns -- Fairfield Inns -- Marriott Hotels, Resorts and Suites -- Marriott Vacation Club International -- Residence Inns -- Ritz-Carlton OBEROI GROUP OF HOTELS ORBIS HOTELS PAN PACIFIC HOTELS & RESORTS POSADAS -- Fiesta Americana -- Fiesta Inns PREFERRED HOTELS & RESORTS WORLDWIDE *PROMUS HOTELS CORPORATION -- Embassy Suites -- Embassy Vacation Resorts -- Hampton Inn & Suites -- Hampton Inns -- Hampton Vacation Resorts -- Homewood Suites RCI MANAGEMENT, INC. RED ROOF INNS *REED TRAVEL GROUP REGAL HOTELS RENAISSANCE HOTELS & RESORTS SCEPTRE HOTELS SILVER MANOTEL MARKETING SOL MELIA HOTELS SOUTHERN PACIFIC SWISSOTEL TAJ GROUP OF HOTELS TOKYU HOTELS TRUST INTERNATIONAL TRYP HOTELS *UTELL INTERNATIONAL -- ANA Hotels -- Airco -- Beresford Hotels -- Disneyland Paris -- Golden Tulip Hotels -- Helmsley/Harley Hotels -- Ian Schrager -- Insignia Resorts -- Omni Hotels -- Queens Moat Houses Hotels -- Scandic Hotels -- Summit International -- Thistle/Mt. Charlotte Hotels -- Tops International Hotels -- Warwick Hotels -- West Coast Hotels VIP INTERNATIONAL WALT DISNEY WORLD RESORTS & THEME PARKS *WESTIN HOTELS & RESORTS WESTMARK HOTELS WYNDHAM HOTELS & RESORTS 43 46 The Company has registered approximately 64,000 travel agencies as participants in the HCC service. Of the top 100 largest travel agencies in the United States, according to Travel Weekly, a publication owned by a stockholder of the Company, sixty-six are customers of the Company's HCC service. The following travel agencies represent the 15 largest HCC customers based on 1996 revenues to the Company: <TABLE> <S> <C> <C> AMERICAN EXPRESS FIRST TRAVELCORP TRAVEL AND TRANSPORT ASSOCIATED TRAVEL SERVICES MARITZ TRAVEL TRAVEL ONE BTI AMERICAS MUTUAL TRAVEL TRAVEL TRUST INTERNATIONAL CARLSON WAGONLIT OMEGA WORLD TRAVEL VTS TRAVEL ENTERPRISES CUC TRAVEL PROFESSIONAL TRAVEL WORLD TRAVEL PARTNERS </TABLE> The Company's business is dependent upon customer arrangements with its hotel stockholders or their affiliates, other hotel chains and hotel properties and hotel representation firms, travel agencies, travel agency consortia and GDSs. There can be no assurance that the Company will be able to continue or renew these arrangements on equal or better terms. Any cancellation or non-renewal of these arrangements that results in a significant reduction in the Company's customer base or revenue sources could materially adversely affect the Company's financial condition and results of operations. See "Risk Factors -- Dependence on Key Customers and Third-Party Service Arrangements." SALES AND MARKETING The Company sells all of its services to hotels through a direct sales force in the Americas and in Europe and sells its HCC services directly to travel agencies and through relationships with travel agency consortia and franchisors. Additionally, as of May 31, 1997, the Company has a team of 20 technical support staff to supplement the efforts of the sales force and provide comprehensive customer support services. The Company has a Chief Marketing Officer, a Vice President for domestic sales and four salespersons based in Dallas responsible for sales in the Americas and a Vice President for international sales and a salesperson based in London responsible for sales outside of the Americas. The Company organizes its hotel sales force in the Americas into three geographic territories, each targeting hotels and UltraRes service users. Each hotel salesperson seeks to establish ongoing relationships with the reservations and marketing management personnel of hotels in that representative's designated territory and to assist the hotels in achieving increased efficiency and cost reduction in their hotel reservation systems through the use of the Company's services. The Company's travel agency sales force sells HCC services directly to large travel agencies. Additionally, the Company offers its HCC service to smaller travel agencies organized in consortia and to travel agency franchisees through preferred supplier programs. The terms of these programs are set at the consortium or franchisor level, and the HCC service is promoted to travel agency members of these organizations through trade shows and consortium newsletters and magazines. The Company has made arrangements with two of the four major GDSs to offer the HCC service to their participating travel agencies in Europe through a joint promotional program. The Company's London-based international sales personnel focus on both travel agencies and hotels in different regions throughout the world. The Company also has a salesperson devoted to promoting the UltraRes service to convention and other large meeting organizers and hotels. The Company uses the services of a third-party marketing organization to sell advertising on the TravelWeb site. The Company believes that the THISCO, HCC and TravelWeb brand names are important assets of the Company, signifying the quality and reliability of the Company's services. A separate brand manager is responsible for marketing each brand. Each brand manager is responsible for product development and enhancement, customer sales support, development of promotional and other collateral materials, identification and optimization of revenue sources, market research and establishment of relationships with key vendors. The THISCO service is marketed primarily through establishing contacts and relationships with hotel management, GDSs and other major users of the services. In addition, participation in industry organizations and trade conventions increases brand recognition of the Company's services. The Company also has sought to market its UltraDirect service to corporate travel management software developers so that they will include an automatic connection to the THISCO service in their hotel reservation system software. In marketing the TravelWeb service, brand managers focus their efforts on site development and establishing links to existing third-party Web sites and related Internet content providers and aggregators. Marketing efforts for the HCC 45 47 service primarily are directed towards participation in travel agency industry trade shows and promotion through travel agency consortia and franchisors. TECHNOLOGY AND OPERATIONS THISCO. The THISCO service utilizes the Company's UltraSwitch technology to automate hotel reservation transaction processing between a GDS and a hotel chain's central reservation system. UltraSwitch utilizes a UNIX-based, client/server architecture. GDSs are connected to UltraSwitch through either point-to-point telecommunications lines or a multi-protocol frame relay network, both of which are managed by the Company. Communication processors running proprietary, UNIX-based software perform protocol conversions. The transaction processing engine within UltraSwitch, which contains its own proprietary, UNIX-based software, performs message formatting and field translation functions between GDSs and hotels' central reservation systems. UltraSwitch also contains an Informix relational database that stores transaction-specific information for billing and marketing and translates specific hotel property information. For a hotel to change from THISCO to another service, the hotel would be required to change the protocol used by its central reservation system, as well as substantially convert the message formats used by its central reservation system. If a hotel desired to bypass UltraSwitch and connect its central reservation system directly to one or more GDSs, the hotel would be required to develop protocols and message formats compatible with each GDS with which it established such a connection and bear the recurring costs required to maintain each system. The Company believes that these costs may discourage a hotel from changing to a competitor or to a direct connection with a GDS. See "-- Competition." When using the THISCO service, hotels provide and update room rates, features and availability information in two ways: (i) by transmitting information to GDS databases through status messages and (ii) by offering continuous, direct access to the hotel central reservation system through UltraSelect. Hotel status messages transmitted through UltraSwitch are processed within seconds. UltraSwitch processed an average of 42 million status messages per month during 1996. A GDS database, however, stores only a limited amount of room rate, feature and availability information for a hotel, which may not be synchronized with the hotel's central reservation system. The Company's UltraSelect service allows travel agencies that use GDSs direct access through UltraSwitch into a hotel's central reservation system to shop and browse for all room types and room rates with the most complete and updated hotel room information. To accomplish this process, UltraSwitch receives proprietary direct access transaction requests from each GDS, translates those into one or more UltraSelect transaction requests and forwards them to the hotels' central reservation systems. To utilize the UltraSelect service, the hotel's central reservation system must be modified to accept the transmission of transactions and allow for the electronic processing of these transactions through UltraSwitch in real-time. Approximately 50% of hotels that subscribe to the THISCO service provide this type of access to their central reservation systems through the Company's UltraSelect service. Using the information provided through the UltraSwitch technology, a travel agent is able to shop or browse for a hotel room that fits particular specifications, such as location, room rates and features. Once a travel agent determines the desired hotel and type of room, UltraSwitch enables the travel agent to inquire about availability of the room. The UltraSwitch technology interfaces the request from the travel agent through a GDS with the information available in the hotel's central reservation system. If a hotel room fitting the inquiry is available, UltraSwitch enables the travel agent to book the room and receive a confirmation within a matter of seconds. In 1996, the average UltraSwitch processing time for interactive transactions, such as reservations and inquiry messages, was 0.22 seconds and the average uptime across the 81 distinct connections to UltraSwitch was 99.6%, including as downtime all scheduled and emergency downtime. Utilizing the existing technology of UltraSwitch, the Company has developed UltraRes and UltraDirect, services that provide customized technological interfaces for convention and other large meeting organizers and corporate travel departments to enable direct access into the extensive database of hotels' central reservation systems and reservation and confirmation of hotel bookings in seconds. In connection with the development of the UltraSwitch technology and related financing provided by Reed, the Company licensed certain rights to Reed to use the UltraSwitch technology on an exclusive, royalty 45 48 free basis, for applications not related in any way to the operations of the hotel industry. In connection therewith, Reed agreed not to compete with the Company and its use of the UltraSwitch technology in the hotel industry. See "Certain Transactions." TravelWeb. The Company has created its TravelWeb service using a scalable architecture that presents user-friendly hotel and travel information to individual travelers. The TravelWeb service stores detailed information on approximately 15,000 hotel properties on an Informix relational database. To add, delete and update information on their properties, hotels can access the information in the TravelWeb database either through electronic batch transfers or using a standard Web browser through the Company's proprietary "remote author" feature. The Company's secured server software prevents unauthorized use of the "remote author" feature, and the Company's quality assurance personnel review any updated information to assure consistency. TravelWeb communication engines (called Web engines) manipulate the information contained in the Informix database. TravelWeb's scalable architecture allows the TravelWeb service to access and manipulate the information contained in its database using multiple Web engines. A Web engine currently consists of a Sun UltraSparcII, Netscape Enterprise server software and a Javascript application. Although the Informix database currently resides on a single Sun E 3000 database server, the architecture allows the addition of more database servers as demand requires. This advanced technology enables the TravelWeb service to format data to appear as part of the Web site on which the information is viewed. The TravelWeb service connects its information database to the Company's UltraSwitch technology, which allows a user of the TravelWeb service who has found a desired hotel room to secure a hotel reservation and a confirmation. The Company's proprietary software contains a number of features to protect reservation systems from abusive booking practices and allows hotels to control and maintain the number of reservations made through the TravelWeb service allowed at any hotel property. To assure a high level of Internet connectivity, the Company has entered into an arrangement with Genuity, Inc., a "Tier 1" Internet service provider, to connect the TravelWeb service to the Internet. Genuity is responsible for maintaining the speed and reliability of communications conducted through the TravelWeb service. Genuity also provides message routing assistance and dynamic load balancing of communications to minimize bottlenecks in Internet communications. Furthermore, the Company's databases and Web engines used with the TravelWeb service are located at sites operated by Genuity. NetBooker. The Company's NetBooker reservation service provides third-party Web sites direct access to the extensive TravelWeb hotel database and UltraSwitch's hotel reservation and confirmation capabilities. The technology used in the NetBooker service is similar to the TravelWeb service technology. The scalable architecture utilized by the TravelWeb service and the use of the Javascript application create a template environment in which a Web engine can manipulate information in the Informix database and present such information under the distinct front-end format of the customer Web site. In addition, the NetBooker reservation service allows a customer Web site to establish an interface to the Company's UltraSwitch technology, which enables users of the Web site to shop and query room availability and to electronically book a reservation in seconds. As a result, users of the third-party Web site have full access to TravelWeb's database and booking capabilities while visiting that site. HCC. The HCC service captures information derived from hotel property management systems to process commission payments for travel agencies. The HCC service provides a connection for hotels through the same communication network that the Company provides for its THISCO service. Communication engines perform protocol conversions. The Company's UNIX-based processing engine for the HCC service uses proprietary software to process commission information. The Company's Customer Relations Center can access the processing engine to answer questions regarding commissions from travel agencies. The HCC service also utilizes an Informix database that stores transaction-specific information regarding hotel stays and information regarding required currency conversions, cleared checks, the source of reservations and hotel and travel agency profiles. The HCC service gathers information from hotels monthly to process commission payments and information statements. Participating hotels use the Company's proprietary HCC software to either collect the data derived from a hotel's property management system or compile data from each hotel property. In some 46 49 instances, hotels using an outside party's commission payment consolidation service will pass on the information from the outside party to the HCC service. As the information is gathered, the HCC service continually updates the commissions payable and interfaces with Citibank regarding any required currency conversions. The HCC service notifies participating hotels of the amount of commissions payable generally on the tenth business day of each month. Those hotels are required under contract to deliver funds to the Company within 48 hours, and Pegasus delivers the funds to Citicorp to process checks or electronic wires to travel agencies. If a hotel fails to deliver funds to Pegasus, Pegasus is not obligated to deliver commission payments on behalf of the hotel to travel agencies. Citicorp and Perot Systems prepare payments and information statements for travel agencies, and the payments and information statements generally are sent out on the 15th business day of each month. Under its arrangement with Citicorp and Perot Systems, Citicorp performs currency conversions, prepares checks and electronic wires and delivers funds and information statements to travel agencies. Perot Systems prepares the information statements that are sent by Citicorp on behalf of the Company. This arrangement expires in December 1998. See "Risk Factors -- Dependence on Key Customers and Third-Party Service Arrangements." SYSTEMS MAINTENANCE AND DISASTER RECOVERY Because large numbers of travel agencies, hotels and other customers depend on the Company for real-time transaction processing services, system reliability and uptime are critical to the Company's success. In 1996, the average uptime across the 81 distinct connections to UltraSwitch was 99.6%, including as downtime all scheduled and emergency downtime. The Company has entered into an arrangement with Anasazi, Inc. ("Anasazi") a stockholder of the Company, to manage and operate certain equipment owned by Pegasus, which is located at a site owned by Anasazi in Phoenix, Arizona. An employee of the Company oversees the services provided by Anasazi, such as equipment monitoring, assurance of power supply and communications link back up support. The Company has entered into an agreement with Pyramid Technologies Corporation for the provision of computer hardware maintenance and replacement and mitigation of the potential effects of system downtime. In addition, the Company has entered into an agreement under which Comdisco, Inc. will provide disaster recovery services for the restoration of the Company's services as soon as practicable. In connection with this agreement, Comdisco, Inc. is making arrangements to provide full system redundancy within 24 hours in the event of a site disaster. See "Risk Factors -- System Interruption and Security Risks." RESEARCH AND DEVELOPMENT The Company recognizes that its ability to maintain its position and grow depends upon continued expansion of its services. Investments in development are crucial to obtaining new customers and retaining existing customers. The Company's research and development activities primarily consist of software development, development of enhanced communication protocols and custom user interfaces and database design and enhancement. In its research and development process, the Company works in close collaboration with its customers to address their specific needs. As of May 31, 1997, the Company employed 55 people in its Information Technology Group and from time to time, supplements their efforts with the use of independent consultants and contractors. This group is comprised of information technology, services development, technical services and product support personnel. The Company's total research and development expense was $238,000, $2.1 million and $2.2 million for 1994, 1995 and 1996, respectively. COMPETITION The Company faces significant competition in connection with its THISCO hotel room reservation processing service. The principal competitor of the Company's THISCO service is WizCom, which is owned by Avis. As a result of the acquisition of Avis by HFS, a stockholder and customer of the Company, in September 1996, WizCom became a wholly owned subsidiary of HFS. Although HFS has recently renewed its participation in the Company's HCC service, HFS has notified the Company that it is moving its electronic hotel room reservation processing from THISCO to WizCom. The Company has an agreement with HFS which requires HFS to pay for a certain minimum level of THISCO processing services annually for the life of 47 50 the agreement. In 1996, revenues from HFS for electronic hotel room processing services were $512,424 above the annual minimum fee. HFS currently uses and in the future could use the technology utilized by WizCom to compete with certain of the Company's current and future services. There can be no assurance that any additional customers will not change their electronic reservation interface to WizCom or to another similar service. Also, hotels can choose to connect directly to one or more GDSs, thereby bypassing THISCO and eliminating the need to pay fees to the Company. In addition, one or more GDSs can choose to bypass the THISCO service and develop and operate a new common electronic interface to hotel central reservation systems. Such competitors or their affiliates may have greater financial and other resources than the Company. Factors affecting competitive success of the electronic hotel room reservation processing service include reliability, levels of fees, number of hotel properties on the system, ability to provide a neutral, comprehensive interface between hotels and other participants in the distribution of hotel rooms and ability to develop new technological solutions. There can be no assurance that another participant in the hotel room distribution process or a new competitor will not create services with features that would reduce the attractiveness of the Company's services. The Company's inability to compete effectively with respect to these services could have a material adverse effect on the Company's financial condition and results of operations. See "Risk Factors -- Competition." The Company charges hotel participants certain fees for processing status messages from hotel central reservation systems to GDSs. The Company intends to reduce certain status message fees in July 1997. In addition, a hotel participant can choose to use the Company's UltraSelect service to provide travel agencies direct access through GDSs to its central reservation system, thereby reducing the need to send status messages through the Company's THISCO service. There is no assurance that the volume of and fees generated from status messages processing will remain at the same or a higher level in the future. Any significant decrease in the volume of status messages processed or in the amount of status message fees generated could have a material adverse effect on the Company's financial condition and results of operations. See "Business -- Services." The Company believes that the costs involved in a hotel switching from THISCO to another service would discourage any such decision. WizCom, the Company's principal competitor in the provision of interfaces between hotel reservation systems and GDSs, uses a single protocol that is different from the multiple protocols employed by THISCO. Consequently, to connect to WizCom, a hotel would be required to change the protocol used by its central reservation system, as well as substantially convert the message formats used by the hotel reservation system. If a hotel desired to connect directly with GDSs, the protocols and the message formats of the hotel's central reservation system would have to be revised to conform with each separate GDS to which the hotel reservation system is connected. In addition, the hotel would be responsible for the ongoing maintenance and updating costs necessary to continue a direct connection with each GDS and would have to absorb the costs to maintain a network with each GDS. The market for the Company's TravelWeb and NetBooker services is highly competitive. Current competition includes traditional telephone or travel agency reservation methods and other Internet travel reservation services. There are a large number of Internet travel-related services offered by the Company's competitors, and many of these competitors are larger and have significantly greater financial resources and name recognition than the Company. Several competitive Web sites such as Travelocity (a site operated by The SABRE Group Holdings, Inc.) and Expedia (a site operated by Microsoft Corporation) offer a more comprehensive range of travel services than TravelWeb or NetBooker. The Company faces competition in the hotel room reservation business not only from its current competitors but also from possible new entrants including other Web sites. The costs of entry into the Internet hotel room reservation business is relatively low. There can be no assurance that the Company's Internet hotel room reservation services will compete successfully. The failure of these services to compete successfully could have a material adverse effect on the Company's financial condition and results of operations. See "Risk Factors -- Competition." The market for the Company's HCC service is competitive. The Company's competitors in the commission processing business include NPC, WizCom and Citicorp. NPC, a company that has traditionally provided car rental and cruise line commission processing services, recently began offering its services to hotels and travel agencies as well. WizCom recently announced that it is introducing a commissions payment service 48 51 that may be competitive with the HCC service. Citicorp provides commission consolidation services to hotel chains. In addition, hotels that are current or prospective customers of the HCC service could decide to process commission payments without, or in competition with, the HCC service. Some of these current or potential competitors have substantially greater financial and other resources than the Company. Furthermore, while the Company has agreements with all of its hotel customers for the HCC service, most of the Company's travel agency customers are not obligated by any agreement with the Company. If a significant percentage of these travel agencies were to cease using the HCC commission processing service, the Company's financial condition and results of operations could be materially adversely affected. See "Risk Factors -- Competition." GOVERNMENT REGULATION The Company's primary customers are hotel chains and hotel representation firms. The Company currently has as its stockholders 11 of the 15 leading hotel chains in the world based on 1996 total revenues. While the Company believes that it has been acting since its inception as an entity independent of its stockholders, and its stockholders have not engaged in any anti-competitive activities through or in connection with the Company, there can be no assurance that federal, state or foreign governmental authorities, the Company's competitors or its consumers will not raise anti-competitive concerns regarding the Company's close relationship with its hotel stockholders. Any such action by federal, state or foreign governmental authorities or allegations by third parties could have a material adverse effect on the Company's financial condition and results of operations. While certain aspects of the travel industry are heavily regulated by the United States Government, the services currently offered by the Company, including electronic room reservation processing services, commission processing services and Internet-based reservation services, have not been subject to any material industry-specific government regulation. However, there can be no assurance that federal, state or foreign governmental authorities will not attempt to regulate one or more of the Company's current or future services. Due to the increasing popularity of the Internet, it is possible that laws and regulations may be adopted with respect to the Internet, covering issues such as privacy, pricing, content and quality of products and services. The adoption of laws or regulations affecting the Company's lines of business could reduce the rate of growth of the Company or could otherwise have a material adverse effect on the Company's financial condition and results of operations. See "Risk Factors -- Government Regulation." PROPRIETARY RIGHTS The Company is constantly developing new processing technology and enhancing existing proprietary technology. The Company has no patents. The Company primarily relies on a combination of copyright, trade secrets, confidentiality procedures and contractual provisions to protect its technology. Despite these protections, it may be possible for unauthorized parties to copy, obtain or use certain portions of the Company's proprietary technology. While any misappropriation of the Company's intellectual property could have a material adverse effect on the Company's competitive position, the Company believes that protection of proprietary rights is less significant to the Company's business than the continued pursuit of its operating strategies and other factors, such as the Company's relationship with industry participants and the experience and abilities of its key personnel. The Company has registered "UltraSwitch," "TravelWeb," "UltraAcess" and "HCC Hotel Clearing Corporation" as United States federal trademarks and applications to register "HCCLink," "ChainLink," "UltraRes," "Click-It" and "Pegasus" are pending with the United States Patent and Trademark Office. Trademark applications for "TravelWeb" also have been filed in Canada and Europe. There can be no assurance that the Company's applications to register such trademarks will be successful. The Company has no knowledge of any infringement to or any prior claims of ownership of trademarks that would materially adversely affect the Company's current operation. The Company pursues and intends to continue to pursue registration of its trademarks whenever possible and to vigorously defend its proprietary rights against infringement or other threats to the greatest extent practicable under the laws of the United States and other countries. See "Risk Factors -- Dependence on Proprietary Technology; Risk of Infringement." 49 52 EMPLOYEES At May 31, 1997, the Company had 100 employees, 95 of which were located in the United States, with 55 persons in the Information Technology Group, 25 persons performing sales and marketing, customer relations and business development functions and the remainder performing corporate, finance and administrative functions. The Company has five employees in England performing international sales activities. The Company has no unionized employees. The Company believes that its employee relations are satisfactory. PROPERTIES The Company's principal executive office is a leased facility with approximately 29,800 square feet of space in Dallas, Texas. The Company leases this space under a lease agreement that expires December 2002. The Company also maintains an administrative and sales office in a leased facility with approximately 3,300 square feet of space near London, England. The lease agreement for the office in England expires in May 1998. Under an agreement with Anasazi, certain of the equipment owned by the Company is housed at a site owned by Anasazi in Phoenix, Arizona. The Company believes that its existing facilities are well maintained and in good operating condition and are adequate for its present and anticipated levels of operations. LEGAL PROCEEDINGS The Company is a party from time to time to certain routine legal proceedings arising in the ordinary course of its business. Although the outcome of any such proceedings cannot be predicted accurately, the Company does not believe any liability that might result from such proceedings could have a material adverse effect on the Company's financial condition and results of operations. 50 53 MANAGEMENT EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES Executive officers, directors and other key employees of the Company, and their ages as of May 31, 1997, are as follows: <TABLE> <CAPTION> NAME AGE POSITION ---- --- -------- <S> <C> <C> John F. Davis, III........................ 44 President, Chief Executive Officer, and Director Joseph W. Nicholson....................... 36 Chief Information Officer Jerome L. Galant.......................... 47 Chief Financial Officer Michael R. Donahue........................ 43 Chief Marketing Officer Phillip A. Mytom-Hart..................... 43 Vice President, International Sales and Marketing M. Nicholas Jent.......................... 55 Vice President, Sales and Marketing William S. Lush........................... 55 Vice President, Business Development John W. Biggs(1).......................... 52 Director Donald R. Dixon........................... 49 Director William C. Hammett, Jr.(2)................ 50 Vice Chairman of the Board of Directors I. Malcolm Highet(2)...................... 46 Director Rockwell A. Schnabel(1)................... 60 Director Paul J. Travers(1)(2)..................... 44 Chairman of the Board of Directors Mark C. Wells............................. 47 Director Bruce Wolff............................... 54 Director </TABLE> --------------- (1) Member of the Compensation Committee. (2) Member of the Audit Committee. John F. Davis, III has served as the President and Chief Executive Officer of the Company since February 1989 and as a director of the Company since July 1995. Before joining Pegasus, Mr. Davis was the founder, President and director of Advanced Telemarketing Company, a provider of inbound and outbound telemarketing services. He was also one of the founders of 1-800-Flowers, Limited, a company offering quality floral arrangements by telephone. Joseph W. Nicholson has served as the Chief Information Officer of the Company since 1989. Prior to joining Pegasus, he spent ten years at Texas Instruments in various positions, including Systems Analyst and Systems Manager. Jerome L. Galant has served as the Chief Financial Officer of the Company since September 1996. From April 1996 to September 1996, Mr. Galant served as the Chief Financial Officer of Personnel Security & Safety Systems, Inc., a technology development company. From 1990 to February 1996, Mr. Galant served in a variety of positions for The SABRE Group, including Managing Director, Finance. Michael R. Donahue has served as Chief Marketing Officer of the Company since May 1997. From 1988 to May 1997, Mr. Donahue served as Vice President of Marketing and Development for Lane Hospitality, a hotel management firm. Phillip A. Mytom-Hart has served as the Vice President, International Sales and Marketing of the Company since September 1993. From 1991 to September 1993, Mr. Hart served as Vice President, Sales and Marketing for Hilton International. M. Nicholas Jent has served as the Vice President, Sales and Marketing of the Company since August 1992. From 1988 to March 1991, Mr. Jent served as Senior Vice President, Sales and Marketing for Telesphere Communications, Inc., a long distance communications company. 51 54 William S. Lush has served as Vice President, Business Development of the Company since May 1995. From 1990 to May 1995, Mr. Lush served as Vice President, Service Development in the travel management services group of American Express Travel Related Services. John W. Biggs has served as a director of the Company since October 1995. Mr. Biggs has served as Vice President, Travel and Hospitality for Computer Sciences Corporation, a consulting firm, since August 1996. From April 1994 to July 1996, Mr. Biggs served as Chief Operations Officer for Regency Systems Solutions, an affiliate of Hyatt Hotels Corporation ("Hyatt"). From 1984 to April 1994, Mr. Biggs served as Senior Vice President, Hotel Accounting and Administration at Hyatt. Hyatt is a stockholder of the Company. Donald R. Dixon has served as a director of the Company since June 1996. Since 1993, Mr. Dixon has been associated with Trident Capital, L.P., a venture capital firm ("Trident"), which he helped found. From 1988 to 1993, Mr. Dixon served as Co-President of Partech International, a private equity fund manager associated with Banque Paribas. Mr. Dixon serves on the Board of Directors of Bank America Merchant Services, Inc., Platinum Software Corporation, Unison Software, Inc. and several privately held companies. Trident manages Information Associates, L.P. and Information Associates, C.V., both of which are stockholders of the Company. William C. Hammett, Jr. has served as a director and Vice Chairman of the Board of the Company since October 1995. Since August 1996, Mr. Hammett has served as Senior Vice President and Chief Financial Officer of La Quinta Inns, Inc., which is a stockholder of the Company. From June 1992 to August 1996, Mr. Hammett has served as Senior Vice President, Accounting and Administration of La Quinta Inns, Inc. I. Malcolm Highet has served as a director of the Company since October 1995. Mr. Highet has served as Executive Vice President, Corporate Development for Reed Elsevier Inc. since October 1996. From 1989 through October 1996, Mr. Highet served as Chief Financial Officer and later as Chief Operations Officer for a major division of Reed. Reed and Utell International are both divisions of Reed Elsevier Inc. and stockholders of the Company. Rockwell A. Schnabel has served as a director of the Company since June 1996. Since 1993, Mr. Schnabel has been associated with Trident, which he helped found. From 1989 to 1992, Mr. Schnabel served as acting Secretary of Commerce and the Deputy Secretary of Commerce during the Bush Administration. Mr. Schnabel serves on the Board of Directors of Cyprus Amax Minerals Company, International Game Technology, Inc., CSG Systems, Inc., and Anasazi. Anasazi is a stockholder of the Company. Trident manages Information Associates, L.P. and Information Associates C.V., both of which are stockholders of the Company. Paul J. Travers has served as a director and Chairman of the Board of the Company since October 1995. Mr. Travers has served as the Senior Vice President, Property Management for Inter-Continental Hotels Corporation ("Inter-Continental") since 1994. From 1990 to 1994. Mr. Travers served as Vice President, Finance and Group Controller of Inter-Continental. Inter-Continental is a stockholder of the Company. Mark C. Wells has served as a director of the Company since September 1996. Mr. Wells has served as Senior Vice President, Franchise Services for Promus Hotel Corporation ("Promus") since February 1996. From April 1995 to February 1996, Mr. Wells served as Senior Vice President, Marketing for Promus. Promus is a stockholder of the Company. Bruce Wolff has served as a director of the Company since October 1995. Mr. Wolff has served as Vice President, Distribution Sales and Marketing for Marriott Lodging since 1986. Marriott Lodging is an affiliate of Marriott International, Inc., which is a stockholder of the Company. The Company currently has authorized nine directors. The current directors were elected pursuant to the provisions of the Company's Amended and Restated Certificate of Incorporation in effect prior to this offering, and pursuant to a voting agreement that will expire upon the closing of this offering. Upon the closing of this offering, the Second Amended and Restated Certificate of Incorporation will provide for a classified Board of Directors. The terms of office of the Board of Directors will be divided into three classes: Class I, which will consist of Messrs. Biggs, Dixon and Hammett, will expire at the annual meeting of stockholders to be held in 52 55 1998; Class II, which will consist of Messrs. Highet, Wells and Wolff, will expire at the annual meeting of stockholders to be held in 1999; and Class III, which will consist of Messrs. Davis, Schnabel and Travers, will expire at the annual meeting of stockholders to be held in 2000. At each annual meeting of stockholders beginning with the 1998 annual meeting, the successors to directors whose terms will then expire will be elected to serve from the time of election and qualification until the third annual meeting following election and until their successors have been duly elected and qualified, or until their earlier resignation or removal. The officers of the Company are appointed by and serve at the discretion of the Board of Directors. There are no family relationships among the current directors and officers of the Company. COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors has a Compensation Committee, consisting of Messrs. Biggs, Schnabel and Travers, and an Audit Committee, consisting of Messrs. Hammett, Highet and Travers. The Compensation Committee makes recommendations to the Board of Directors concerning salaries and incentive compensation for the Company's officers and employees and administers the Company's 1996 Plan and 1997 Plan (when it comes into effect upon completion of this offering). Prior to November 1996, decisions concerning the compensation of officers, including that of Mr. Davis, were made by the Board of Directors as a whole. The Audit Committee makes recommendations to the Board of Directors regarding the selection of independent auditors, reviews the results and scope of the audit and other accounting related services and reviews and evaluates the Company's internal control functions. DIRECTORS' COMPENSATION Directors currently do not receive any cash compensation from the Company for their service as members of the Board of Directors, although they are reimbursed for all reasonable expenses incurred in connection with the performance of their duties as directors of the Company. 53 56 EXECUTIVE COMPENSATION The following table sets forth the compensation earned by the Company's Chief Executive Officer and the five other most highly compensated executive officers (collectively, the "Named Executive Officers") whose salary and bonus for the fiscal year ended December 31, 1996 were in excess of $100,000 for services rendered in all capacities to the Company for that year: SUMMARY COMPENSATION TABLE(1) <TABLE> <CAPTION> 1996 ANNUAL LONG-TERM COMPENSATION AWARDS ----------------------------------------- --------------------- OTHER ANNUAL SECURITIES UNDERLYING NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($)(2) OPTIONS(#) --------------------------- --------- -------- ------------------ --------------------- <S> <C> <C> <C> <C> John F. Davis, III(3)............... $261,708 $302,208 $7,500 300,000 President and Chief Executive Officer Joseph W. Nicholson(3).............. 164,000 56,292 7,500 150,000 Chief Information Officer Jerome L. Galant(4)................. 45,313 14,014 1,889 53,333 Chief Financial Officer M. Nicholas Jent.................... 145,000 38,667 7,500 9,333 Vice President, Sales and Marketing William S. Lush..................... 115,838 32,000 5,677 46,666 Vice President, Business Development Phillip A. Mytom-Hart............... 134,655 38,577 6,739 12,133 Vice President, Sales and Marketing, International </TABLE> --------------- (1) In accordance with the rules of the Securities and Exchange Commission (the "Commission") the compensation described in this table does not include medical, group life insurance or other benefits received by the Named Executive Officers that are available generally to all salaried employees of the Company, and certain perquisites and other personal benefits received by the Named Executive Officers that do not exceed the lesser of $50,000 or 10% of any such officer's salary and bonus disclosed in the table. (2) Reflects for 1996 matching contributions made by the Company pursuant to its 401(k) Savings Plan. (3) The salaries of Messrs. Davis and Nicholson were paid in accordance with the terms of their respective employment agreements. The bonus of Mr. Davis includes a one time $200,000 employment agreement signing bonus. See "-- Employment Agreements." (4) The salary of Mr. Galant represents remuneration paid to him from September 1996 to December 1996. Mr. Galant commenced employment with the Company in September 1996. OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth each grant of stock options made during the fiscal year ended December 31, 1996 to each of the Named Executive Officers: <TABLE> <CAPTION> INDIVIDUAL GRANTS -------------------------------------------------------------------- NUMBER OF SECURITIES % OF TOTAL EXERCISE GRANT DATE UNDERLYING OPTIONS OPTIONS GRANTED PRICE PER EXPIRATION PRESENT VALUE NAME GRANTED(1) IN 1996(2) SHARE(3) DATE(4) ($)(5) ---- --------------------- ---------------- --------- ---------- -------------- <S> <C> <C> <C> <C> <C> John F. Davis, III..... 300,000 38.9% $2.01 12/31/05 $465,750 Joseph W. Nicholson.... 150,000 19.4 2.01 12/31/05 232,875 Jerome L. Galant....... 53,333 6.9 2.01 12/31/05 82,799 M. Nicholas Jent....... 9,333 1.2 3.11 12/31/05 6,650 William S. Lush........ 46,666 6.0 3.11 12/31/05 33,250 Phillip A. Mytom-Hart........... 12,133 1.6 3.11 12/31/05 8,645 </TABLE> --------------- See footnotes on following page 54 57 (1) Options were granted under the 1996 Plan. The options held by Messrs. Davis and Nicholson vest over a four-year period, with 25% of the shares vesting after one year and 1/48th of the shares vesting each month for the next 36 months. The options held by Messrs. Galant, Jent, Lush and Hart vest over a four-year period with 25% of the shares vesting after one year and 1/16th of the shares vesting each quarter for the next 12 quarters. (2) Based on an aggregate of 771,733 shares subject to options granted in 1996. (3) The exercise price of the options held by Messrs. Davis, Nicholson and Galant are established by each of their employment agreements with the Company. The exercise price for the options held by Messrs. Jent, Lush and Hart is equal to 100% of the estimated fair market value of the Common Stock on the date of the grant based upon an appraisal performed by an independent consulting firm engaged by the Company. (4) Options may terminate before their expiration date upon the death, disability or termination of employment of the optionee. (5) These values are determined using the Black-Scholes Option Pricing Model. The Black-Scholes Option Pricing Model is one of the methods permitted by the Commission for estimating the present value of options. The Black-Scholes Option Pricing Model is based on assumptions as to certain variables as described below and it is not intended to estimate, and has no direct correlation to, the value of stock options that an individual will actually realize. The actual value of the stock options that a Named Executive Officer may realize, if any, will depend on the excess of the market price on the date of exercise over the exercise price. The values listed above were based on the following assumptions: volatility -- 0.0; risk free rate of return -- 6.5%; dividend yield -- 0.0%; and expected life -- 4 years. AGGREGATE FISCAL YEAR-END OPTION VALUES The following table sets forth, for each of the Named Executive Officers, information concerning the number and value of securities underlying unexercised options held on December 31, 1996. No options were exercised by such persons during 1996. <TABLE> <CAPTION> VALUE OF NUMBER OF SECURITIES IN-THE-MONEY UNDERLYING OPTIONS OPTIONS AT AT YEAR END YEAR-END (1) -------------------- ------------ NAME UNEXERCISED UNEXERCISED ---- ----------- ----------- <S> <C> <C> John F. Davis, III................................... 300,000 $2,697,000 Joseph W. Nicholson.................................. 150,000 1,348,500 Jerome L. Galant..................................... 53,333 479,464 M. Nicholas Jent..................................... 9,333 73,637 William S. Lush...................................... 46,666 368,194 Phillip A. Mytom-Hart................................ 12,133 95,729 </TABLE> --------------- (1) There was no public trading market for the Common Stock as of December 31, 1996. Accordingly, these values have been calculated in accordance with the rules of the Commission on the basis of an assumed initial public offering price of $11.00 per share of the Common Stock, minus the exercise price, multiplied by the number of shares underlying the option. 1996 AND 1997 STOCK OPTION PLANS Scope. The Company has a 1996 Stock Option Plan (the "1996 Plan"). The Company has recently approved the creation of the 1997 Stock Option Plan (the "1997 Plan") and an amendment (the "Amendment") to the 1996 Plan. The 1997 Plan and the Amendment will take effect upon the completion of this offering. The 1996 Plan, as amended, and the 1997 Plan (collectively, the "Plans") are designed to attract and retain qualified and competent personnel for positions of substantial responsibility and to provide additional incentive to employees and consultants of the Company. The Plans have substantially the same provisions, which are set forth herein. Options granted under the Plans may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator (as hereinafter defined) at the time of grant and subject to the applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code"). The 1996 and 1997 Plans have reserved for issuance 866,667 shares and 333,333 shares of Common Stock, 55 58 respectively. As of March 31, 1997, options covering 771,733 shares of Common Stock have been granted under the 1996 Plan. No option has been granted under the 1997 Plan. If an option granted under the Plans expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an option exchange program, the unpurchased shares may be available for future grants or sale under the Plans. The 1996 and 1997 Plans will terminate on June 24, 2006 and March 25, 2007, respectively. Eligibility. Persons eligible to participate in the Plans include all employees and all consultants of the Company. For purposes of describing the Plans, the term employee means any person employed by the Company or any parent or subsidiary of the Company. For purposes of describing the Plans, the term consultant means any person who is engaged by the Company or any parent or subsidiary of the Company to render consulting or advisory services and is compensated for such services, and any director of the Company who is not compensated for his or her services or is paid only a director's fee by the Company. Non-Statutory Stock Options may be granted to employees and consultants. Incentive Stock Options may be granted only to employees. Administration. The Plans are administered by the Board of Directors or the Committee appointed by the Board (the "Administrator"). The Administrator has the authority to grant options under the Plans and to determine the vesting schedule and the exercise price of the options. The Administrator also has full power and authority to construe, interpret and administer the Plans. Option Exercise Price. The exercise price per share for the shares to be issued pursuant to exercise of an option under the Plans shall be such price as is determined by the Administrator. In the case of an Incentive Stock Option granted to an employee, who at the time of the grant owns stock representing more than 10% of the voting power of all classes of stock of the Company or any parent or subsidiary, the exercise price per share shall be no less than 110% of the fair market value per share on the date of grant. In the case of an Incentive Stock Option granted to any employee other than an employee described in the foregoing sentence, the per share exercise price shall be no less than 100% of the fair market value per share on the date of grant. In the case of a Non-Statutory Stock Option, the per-share exercise price shall be determined by the Administrator and shall be no less than 50% of the fair market value. Adjustments, Terminations and Amendment. In the event of any change in the Company's capitalization, including any stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company, appropriate adjustments will be made to the number of shares available under the Plans as well as the price per share of Common Stock covered by each outstanding option. Upon the occurrence of an acquisition event ("Acquisition Event") which shall mean (i) certain mergers or consolidations of the Company with or into another corporation; (ii) the sale of substantially all of the assets of the Company; (iii) the complete liquidation of the Company; or (iv) the acquisition by another entity of beneficial ownership of the Company's securities representing 50% or more of the combined voting power of the Company's then outstanding securities, the Board of Directors of the Company may (i) provide that each outstanding option shall be assumed and/or an equivalent option be substituted by the successor corporation or an affiliate thereof; (ii) upon written notice to the optionees, provide that all options then unexercised will become exercisable in full as of a specified date prior to the Acquisition Event and will terminate immediately prior to the consummation of such Acquisition Event; or (iii) in the event of an Acquisition Event under the terms of which holders of Common Stock will receive a cash payment for each share of Common Stock surrendered, provide that all outstanding options shall terminate upon consummation of such Acquisition Event, and each optionee shall receive, in exchange therefor, a cash payment equal to the amount (if any) by which the acquisition price multiplied by the number of shares of Common Stock subject to such outstanding Options (whether or not then exercisable), exceeds the aggregate exercise price of such options. The Plans may be suspended, terminated, altered or amended in any way by the Board of Directors, provided that, stockholder approval of any plan amendment will be required to the extent necessary and desirable to comply with applicable provisions of the Exchange Act, the Code or other legal requirements. No suspension, termination, alteration or amendment of the Plans may alter or impair the rights of any optionee under options previously granted. 56 59 401(k) SAVINGS PLAN The Company sponsors a qualified defined contribution retirement plan, called the Pegasus Systems, Inc. 401(k) Savings Plan (the "401(k) Savings Plan") under which eligible employees may elect to defer their current compensation by up to certain statutorily prescribed annual limits ($9,500 in 1997) and to contribute such amount to the 401(k) Savings Plan. The 401(k) Savings Plan permits, but does not require, additional matching contributions by the Company on behalf of all participants in the 401(k) Savings Plan. In 1996, the Company made matching contributions of approximately $160,000. The 401(k) Savings Plan is intended to qualify under Section 401 of the Code, so that contributions by employees or by the Company to the 401(k) Savings Plan, and income earned on such contributions, are not taxable to employees until withdrawn, and so that contributions by the Company will be deductible by the Company when made. The trustee for the 401(k) Savings Plan is Standard Insurance Company. The 401(k) Savings Plan permits employees to direct investment of their accounts in the 401(k) Savings Plan among a selection of five mutual funds. EMPLOYMENT AGREEMENTS The Company is a party to employment agreements with each of Messrs. Davis and Nicholson. Each agreement has a term extending through June 25, 2000, and automatically renews for additional one year terms if neither the Company nor the employee has notified the other party 60 days prior to the date of renewal of its intention to terminate the agreement. The agreements provide that Messrs. Davis and Nicholson will receive base annual salaries of $275,000 and $175,000, respectively, and will be eligible to receive incentive compensation determined by the Compensation Committee of the Board of Directors based on the achievement of performance objectives established by the Compensation Committee from time to time. The base annual salaries are subject to increase annually at the discretion of the Compensation Committee. The agreements also provide that Messrs. Davis and Nicholson will receive options for a total of 300,000 and 150,000 shares of Common Stock, respectively, at an exercise price of $2.01 per share. These options were granted on June 25, 1996. The options will fully vest no later than June 25, 2000. Each agreement obligates the Company to the extent commercially practicable to maintain life insurance with respect to Messrs. Davis and Nicholson in the amounts of $3,000,000 and $2,000,000, respectively. Under the coverage provided with respect to Mr. Davis, the Company will be the beneficiary in the amount of $2,000,000 and Mr. Davis' estate will be the beneficiary in the amount of $1,000,000. Under the coverage provided with respect to Mr. Nicholson, the Company will be the beneficiary in the amount of $1,333,000 and Mr. Nicholson's estate will be the beneficiary in the amount of $667,000. Each employment agreement provides that either the Company or the employee has the right to terminate the employment at any time during the term of the agreement with or without cause by delivering written notice of termination to the other 30 days prior to the date of termination. Each agreement provides for a severance payment if the agreement is terminated by the Company without cause. Under such circumstances, Messrs. Davis and Nicholson would receive their base annual salary for a period of 12 months following the date of termination, payable over such 12-month period at such times as executives of the Company receive their regular salary payments; all accrued salary, any benefits under any plans of the Company in which the employee is a participant to the full extent of such employee's rights under such plans and any appropriate out-of-pocket business expense reimbursements; and, vesting of the options granted under the applicable employment agreement shall accelerate so that (i) if termination of employment occurs prior to July 25, 1999, such employee's options shall vest for an additional 75,000 and 37,500 shares of Common Stock, respectively (in addition to shares vested as of the date of termination), or (ii) if termination of employment occurs on or after July 25, 1999, such employee's options shall fully vest. If the agreements are terminated voluntarily either by the employee or by the Company with cause, or by reason of death or disability, then Mr. Davis or Mr. Nicholson, as the case may be, or their respective estate will be entitled to payment of all accrued salary, vesting of the options granted through the date of termination only, any further benefits under any plans of the Company in which such person is a participant to the full extent of such person's rights under such plans through the date of termination only, and any appropriate out-of-pocket business expense reimbursements. 57 60 The Company has entered into a letter agreement with Jerome L. Galant, Chief Financial Officer. The agreement provides that Mr. Galant will receive annual base salary of $145,000, plus a bonus of up to 30% of such annual base salary. Pursuant to this agreement, Mr. Galant has been granted options to purchase up to 53,333 shares of Common Stock at an exercise price of $2.01 per share. The Company has entered into a letter agreement with Michael R. Donahue, Chief Marketing Officer. The agreement provides that Mr. Donahue will receive annual base salary of $165,000, and will be eligible to receive incentive compensation based on the achievement of certain performance objectives. Pursuant to this agreement, Mr. Donahue has been granted options to purchase up to 53,333 shares of Common Stock at an exercise price of $5.25 per share. These options will vest over four years. In addition, under certain circumstances Mr. Donahue will receive a severance payment equal to (i) six-months base salary if the employment terminates after 12 months; (ii) nine-months base salary if employment terminates after 24 months; and (iii) twelve-months base salary if employment terminates after 36 months. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS As permitted by the Delaware General Corporation Law, the Company's Second Amended and Restated Certificate of Incorporation, which becomes effective upon completion of this offering, provides that no director of the Company will be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for (i) any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of the law, (iii) unlawful payments of dividends or unlawful stock repurchases or redemptions, or (iv) any transaction from which the director derived an improper personal benefit. In addition, the Company maintains directors' and officers' liability insurance. There is no pending litigation or proceeding involving a director, officer or employee of the Company regarding which indemnification is sought, nor is the Company aware of any threatened litigation that may result in claims for indemnification. 58 61 CERTAIN TRANSACTIONS Since its inception, the Company has relied in part on stockholder loans to fund its capital needs. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." The following table sets forth certain information concerning the outstanding loans made by each stockholder named therein and the amount of principal and interest paid to such stockholders during the periods indicated. <TABLE> <CAPTION> AMOUNT OF PRINCIPAL LARGEST AMOUNT AND INTEREST PAID IN AMOUNT OF PRINCIPAL OF LOANS YEAR ENDED DEC. 31, AND INTEREST PAID IN OUTSTANDING (INCLUDING INTEREST ------------------------------ THREE MONTHS ENDED STOCKHOLDERS/LENDERS ACCRUED INTEREST)(1) RATE(2) 1994 1995 1996 MARCH 31, 1997 -------------------- ---------------------- ---------- -------- -------- -------- -------------------- <S> <C> <C> <C> <C> <C> <C> Reed Travel Group(3)................ $4,536,482 Prime + 2% $588,426 $463,363 $441,241 $296,524 Best Western International, Inc..... 185,878 Prime + 1% -- -- -- -- Choice Hotels International, Inc.... 91,541 Prime + 1% -- -- -- -- Forte, Inc.......................... 90,976 Prime + 1% -- -- -- -- HFS, Inc............................ 174,337 Prime + 1% 12,710 36,574 -- -- Hilton Hotels Corporation........... 86,093 Prime + 1% 3,116 10,263 -- -- Hyatt Hotels Corporation............ 180,790 Prime + 1% -- 22,628 -- -- Inter-Continental Hotels Corporation....................... 174,248 Prime + 1% 2,653 9,267 -- -- La Quinta Inns, Inc................. 173,006 Prime + 1% 2,682 7,967 -- -- Marriott Corporation................ 86,044 Prime + 1% 6,012 23,629 -- -- Promus Hotels, Inc.................. 167,504 Prime + 1% -- -- -- -- ITT Sheraton Corporation............ 185,311 Prime + 1% -- -- -- -- Utell International(3).............. 94,148 Prime + 1% -- -- -- -- Utell International(3)(4)........... 215,503 Prime + 3% -- 16,151 205,514 -- Westin Hotels & Resorts............. 184,215 Prime + 1% -- -- -- -- </TABLE> --------------- (1) The maturity date for the loan from Reed is June 30, 2001. The maturity date for each of the remaining loans is July 21, 2000. (2) "Prime" means the prime rate of interest published in the Wall Street Journal. (3) Reed and Utell International are divisions of Reed Elsevier Inc. In connection with the development of the UltraSwitch technology and related financing provided by Reed, the Company licensed Reed certain rights to use the UltraSwitch technology for applications unrelated to the hotel industry. See "Business -- Technology and Operations." (4) Note was paid in full on March 28, 1996. The Company derives a substantial portion of its revenue from stockholders and their affiliated companies. See Note 14 of Notes to Consolidated Financial Statements for information concerning related party transactions. The following table sets forth the amount of revenues the Company received in 1994, 1995 and 1996 and the three months ended March 31, 1997 from its stockholders and their affiliates with respect to services rendered by the Company in connection with the THISCO, HCC and TravelWeb services: <TABLE> <CAPTION> YEAR ENDED DEC. 31, -------------------------------- THREE MONTHS ENDED STOCKHOLDERS 1994 1995 1996 MARCH 31, 1997 ------------ -------- -------- -------- ------------------ <S> <C> <C> <C> <C> Anasazi, Inc............................ $120,560 $117,798 $169,190 $101,993 Best Western International, Inc......... 395,208 425,022 577,894 193,239 Choice Hotels International, Inc........ 349,943 397,340 516,666 130,994 Forte, Inc.............................. 155,766 217,563 429,098 70,399 HFS, Inc................................ 574,401 902,377 741,549 222,042 Hilton Hotels Corporation............... 178,595 265,305 410,844 56,693 Hyatt Hotels Corporation................ 380,149 535,983 633,818 217,439 Inter-Continental Hotels Corporation.... 121,751 275,284 380,287 76,033 La Quinta Inns, Inc..................... 122,662 218,782 208,037 64,014 Marriott Corporation.................... 164,590 205,664 425,673 84,201 Promus Hotels, Inc...................... 451,901 533,629 644,815 215,851 ITT Sheraton Corporation................ 468,800 487,783 623,985 178,319 Utell International..................... 174,052 194,159 243,505 61,805 Westin Hotels & Resorts................. 114,080 173,576 453,020 71,552 </TABLE> 59 62 Effective in July 1995, the Company issued 4,934,667 shares of Common Stock in exchange for all of the outstanding capital stock of THISCO and 83.3% of the outstanding capital stock of HCC (the "Reorganization"). Lodging Network, Inc. ("LNI"), a stockholder of the Company, retained certain shares of HCC preferred stock, representing 16.7% of the outstanding capital stock of HCC. In conjunction with the Reorganization, LNI was granted an option (the "LNI Option") expiring in July 1998 to exchange its interest in HCC for 448,667 shares of the Company's Common Stock. In June 1996, the Company purchased the shares of HCC preferred stock held by LNI for $2.0 million and 89,733 shares of Common Stock, and the LNI Option was canceled. See Notes 2 and 3 of Notes to the Consolidated Financial Statements. Prior to the 1995 Reorganization, HCC offered a special bonus plan for management of HCC, including Messrs. Davis, Nicholson, Jent and Hart. As part of the Reorganization in 1995, HCC management agreed to forfeit their rights to participate in the bonus plan to HCC in return for a cash payment and the opportunity to purchase an aggregate of 283,333 shares of the Company's Common Stock for $570,874. In June 1996, Information Associates, L.P. and Information Associates, C.V. purchased 1,538,463 shares of the Company's Series A Preferred Stock for $4.88 per share or $7,500,005, representing 22.5% of the shares of the Company's capital stock outstanding after the purchase. Information Associates, L.P. and Information Associates, C.V. are affiliates of Trident. Donald R. Dixon and Rockwell A. Schnabel, two directors of the Company, are associated with Trident. See "Management" and Note 8 of Notes to the Consolidated Financial Statements. Anasazi, a stockholder of the Company, provides services to the Company which include facility management and maintenance, consulting and software development. During 1994, 1995 and 1996 and during the three months ended March 31, 1997, the Company paid to Anasazi $526,641, $578,469 and $716,870 and $103,143, respectively, for these services. In the past three fiscal years, the Company has purchased furniture and interior design items from Right Angle, a company owned by Mrs. Leah Davis, the spouse of Mr. John F. Davis, III, the Chief Executive Officer, President and a director of the Company. Mrs. Davis received commissions not in excess of 15% of the amount of such purchases. The total payments made to Right Angle and Mrs. Davis for furniture, decorative items and commissions in 1994, 1995 and 1996 were $88,149, $16,908 and $121,425, respectively. 60 63 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock as of May 31, 1997 and as adjusted to reflect the sale of shares in this offering by (i) each person known by the Company to own beneficially more than 5% of the outstanding Common Stock, (ii) each of the Company's directors, (iii) each of the Named Executive Officers, (iv) all directors and executive officers of the Company as a group and (v) each Selling Stockholder. <TABLE> <CAPTION> SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED PRIOR TO OWNED AFTER THE THE OFFERING(1) NUMBER OF OFFERING(1)(2) ------------------- SHARES ------------------- NAME NUMBER PERCENT BEING OFFERED NUMBER PERCENT ---- --------- ------- ------------- --------- ------- <S> <C> <C> <C> <C> <C> Entities affiliated with Trident Capital, L.P.(3)... 1,538,463 22.9% -- 1,538,463 16.3% Reed Travel Group (A division of Reed Elsevier Inc.)(4)..................... 642,800 9.6 128,600 514,200 5.5 HFS, Inc.(5)............................ 507,200 7.5 101,500 405,700 4.3 Promus Hotels, Inc.(6).................. 493,364 7.3 -- 493,364 5.2 Best Western International(7)........... 426,204 6.3 -- 426,204 4.5 Hyatt Hotels Corporation(8)............. 420,607 6.3 -- 420,607 4.5 ITT Sheraton Corporation(9)............. 336,267 5.0 -- 336,267 3.6 Utell International (A division of Reed Elsevier Inc.)(4)..................... 115,920 1.7 23,200 92,720 1.0 Lodging Network, Inc. .................. 89,733 1.3 18,000 71,733 * John F. Davis, III(10).................. 241,000 3.5 -- 241,000 2.5 Joseph W. Nicholson(10)................. 82,833 1.2 -- 82,833 * M. Nicholas Jent........................ 34,000 * -- 34,000 * Phillip A. Mytom-Hart................... 31,200 * -- 31,200 * Michael Donahue......................... -- * -- -- * Jerome L. Galant........................ -- * -- -- * William S. Lush......................... -- * -- -- * John W. Biggs........................... -- * -- -- * Donald R. Dixon(3)...................... -- * -- -- * William C. Hammett, Jr. ................ -- * -- -- * I. Malcolm Highet(4).................... -- * -- -- * Rockwell A. Schnabel(3)................. -- * -- -- * Paul J. Travers......................... -- * -- -- * Mark C. Wells(6)........................ -- * -- -- * Bruce Wolff............................. -- * -- -- * Directors and executive officers as a group (15 persons)(10)................ 389,033 5.7 -- 389,033 4.1 </TABLE> --------------- * Less than 1% (1) Beneficial ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect to securities. Except as indicated by footnote and subject to community property law where applicable, the Company believes, based on information furnished by such persons, that the persons named in the table above have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them. Percentage of beneficial ownership is based on 6,729,712 shares of Common Stock outstanding as of May 31, 1997, and 9,429,712 shares of Common Stock outstanding after the completion of this offering. In computing the number of shares of Common Stock subject to options held by that person that are exercisable within 60 days of May 31, 1997 are deemed outstanding. Such shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person. (2) Assumes no exercise of the underwriters' over-allotment option. (3) Of the total shares indicated as beneficially owned by entities affiliated with Trident Capital, Information Associates, L.P. owns 1,496,693 shares and Information Associates, C.V. owns 61 64 41,769 shares. Information Associates, C.V. is a Netherlands Antilles limited partnership and Information Associates, L.P. is a Delaware limited partnership. The general partner of each of these entities is Trident Capital Management, L.L.C., a Delaware limited liability company ("Trident Capital"), the members of which include Donald R. Dixon and Rockwell A. Schnabel, directors of the Company. The address of Trident Capital is 2480 Sand Hill Road, Suite 100, Menlo Park, California 94025. (4) Reed and Utell International are divisions of Reed Elsevier Inc. The address of Reed Elsevier Inc. is 200 Park Avenue, 17th Floor, New York, NY 10166. Mr. Highet, a director of the Company, is affiliated with Reed Elsevier Inc. (5) The address of HFS, Inc. is 3838 E. Van Buren, Phoenix, Arizona 85008. (6) The address of Promus Hotels, Inc. is 755 Crossover Lane, Memphis, Tennessee 38117. Mr. Wells, a director of the Company, is affiliated with Promus Hotels, Inc. (7) The address of Best Western International is 6201 N. 24th Parkway, Phoenix, Arizona 85016. (8) The address of Hyatt Hotels Corporation is 200 West Madison, Chicago, Illinois 60606. (9) The address of ITT Sheraton Corporation is Sixty State Street, World Headquarters, Boston, Massachusetts 02109. (10) Includes options exercisable within 60 days of May 31, 1997 held by Mr. Davis and Mr. Nicholson to purchase 75,000 and 37,500 shares of Common Stock, respectively. DESCRIPTION OF CAPITAL STOCK The Company's authorized capital stock consists of 100,000,000 shares of Common Stock, $.01 par value per share ("Common Stock"), and 2,000,000 shares of Preferred Stock, $.01 par value per share (the "Preferred Stock"), issuable in series. As of May 31, 1997, there were outstanding 6,729,712 shares of Common Stock held of record by 29 stockholders assuming the conversion of all outstanding shares of Preferred Stock into Common Stock. COMMON STOCK The holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. The holders of Common Stock are not entitled to cumulate voting rights with respect to the election of directors, and as a consequence, minority stockholders will not be able to elect directors on the basis of their votes alone. Subject to preferences that may be applicable to any then outstanding shares of Preferred Stock, holders of Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefor. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of the Company, holders of the Common Stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any then outstanding Preferred Stock. Holders of Common Stock have no preemptive, conversion or other rights to subscribe for additional securities of the Company. There are no redemption or sinking fund provisions applicable to the Common Stock. All outstanding shares of Common Stock are, and all shares of Common Stock to be outstanding upon completion of this offering will be, validly issued, fully paid and nonassessable. PREFERRED STOCK The Board of Directors has the authority, without further action by the stockholders, to issue up to 2,000,000 shares of Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, without any further vote or action by stockholders. The issuance of Preferred Stock could adversely affect the voting power of holders of Common Stock and the likelihood that such holders will receive dividend payments and payments upon liquidation and could have the effect of delaying, deferring or preventing a change in control of the Company. Upon completion of this offering, there will be no shares of Preferred Stock outstanding and the Company has no present plan to issue any shares of Preferred Stock. 62 65 WARRANTS In connection with the Distribution Services Agreement entered into in May 1997 between the Company and Holiday Inn, the Company issued to Holiday Inn warrants for the purchase of up to 345,723 shares of the Company Common Stock. These warrants are immediately exercisable at an exercise price of $7.20 per share, assuming an initial public offering of $11.00 per share. DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS Delaware Anti-Takeover Statute. The Company is subject to the provisions of Section 203 of the Delaware General Corporation Law, an anti-takeover law. In general, the statute prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. For purposes of Section 203, a "business combination" includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder, and an "interested stockholder" is a person who, together with affiliates and associates, owns (or within three years prior, did own) 15% or more of the corporation's voting stock. Certificate of Incorporation. The Certificate of Incorporation to be effective concurrently with this offering (the "Certificate") provides (i) for the authorization of the Board of Directors to issue, without further action by the stockholders, up to 2,000,000 shares of Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, (ii) that any action required or permitted to be taken by stockholders of the Company must be effected at a duly called annual or special meeting of the stockholders and may not be effected by a consent in writing, (iii) that special meetings of stockholders of the Company may be called only by the Chairman of the Board, the Chief Executive Officer or a majority of the members of the Board of Directors, (iv) for a classified Board of Directors, (v) that vacancies on the Board of Directors, including newly created directorships, can be filled only by a majority of the directors then in office, and (vi) that directors of the Company may be removed only for cause and only by the affirmative vote of holders of at least two-thirds of the outstanding shares of voting stock, voting together as a single class. These provisions are intended to enhance the likelihood of continuity and stability in the composition of the Board of Directors and in the policies formulated by the Board of Directors and to discourage certain types of transactions that may involve an actual or threatened change of control of the Company. These provisions are designed to reduce the vulnerability of the Company to an unsolicited proposal for a takeover of the Company that does not contemplate the acquisition of all of its outstanding shares, or an unsolicited proposal for the restructuring or sale of all or part of the Company. Such provisions, however, could discourage potential acquisition proposals and could delay or prevent a change in control of the Company. Such provisions may also have the effect of preventing changes in the management of the Company. See "Risk Factors -- Anti-Takeover Matters." LIMITATIONS ON DIRECTOR LIABILITY The Certificate provides that, to the fullest extent permitted by the General Corporation Law of the State of Delaware as the same exists or as may hereafter be amended, directors of the Company will not be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director. REGISTRATION RIGHTS Pursuant to an agreement between the Company and the holders (the "Holders") of approximately 6,458,412 shares of Common Stock (the "Registrable Securities"), the Holders are entitled to certain rights with respect to the registration of such shares under the Securities Act. If the Company proposes to register any of its securities under the Securities Act (other than a registration on a Form S-3 or any successor form), either for its own account or for the account of other Holders exercising registration rights, the Holders are entitled to notice of such registration and are entitled, subject to certain limitations, to include shares of Registrable Securities therein. Additionally, the Holders are entitled to certain demand registration rights pursuant to which they may require the Company to file a registration statement under the Securities Act 63 66 (other than a registration on a Form S-3 or any successor forms) at the Company's expense with respect to their shares of Registrable Securities, and the Company is required to use its best efforts to effect such registration. Subject to certain limitations, the Holders may also require the Company to register their shares on Form S-3 when such form becomes available to the Company. Generally, the Company is required to bear all registration and selling expenses incurred in connection with any such registrations. The rights are subject to certain conditions and limitations, among them the right of the underwriters of an offering to limit the number of shares included in such registration. Such registration rights terminate as to any Holder at such time as the Holder holds less then one percent (1%) of the Company's outstanding capital stock and may sell all of such Holder's shares under rule 144 promulgated under the Securities Act within a three-month period. TRADING MARKET, TRANSFER AGENT AND REGISTRAR The Company has applied to have the Common Stock quoted on the Nasdaq National Market under the symbol PEGS. The Transfer Agent and Registrar for the Common Stock will be engaged prior to the date of this Prospectus. SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, the Company will have outstanding an aggregate of 9,429,712 shares of Common Stock, assuming no exercise of the Underwriters' over-allotment option and no exercise of outstanding options. Of these shares, all of the shares sold in the offering will be freely tradeable by persons other than "affiliates" or persons deemed to be acting as "underwriters" (as such terms are defined under the Securities Act) of the Company. The remaining 6,458,412 shares of Common Stock are "restricted shares" within the meaning of Rule 144 under the Securities Act and may be sold only if they are registered under the Securities Act or are sold pursuant to an applicable exemption from registration, including pursuant to Rule 144. The Company has granted certain registration rights to the holders of such shares. See "Description of Capital Stock -- Registration Rights." In general, under Rule 144, as currently in effect, a person (or persons whose shares are required to be aggregated) who has beneficially owned, for at least one year, shares of Common Stock that have not been registered under the Securities Act or that were acquired from an "affiliate" of the Company is entitled to sell within any three-month period the number of shares of Common Stock which does not exceed the greater of one percent of the number of then outstanding shares or the average weekly reported trading volume during the four calendar weeks preceding the sale. Sales under Rule 144 are also subject to certain notice and manner of sale requirements and to the availability of current public information about the Company and must be made in unsolicited brokers' transactions or to a market maker. A person (or persons whose shares are aggregated) who is not an "affiliate" of the Company under the Securities Act during the three months preceding a sale and who has beneficially owned such shares for at least two years is entitled to sell such shares under Rule 144 without regard to the volume, notice, information and manner of sale provisions of such rule. Rule 144 does not require the same person to have held the securities for the applicable periods. Any employee, officer or director of or consultant to the Company who purchased or was awarded shares or options to purchase shares pursuant to a written compensatory plan or contract is entitled to rely on the resale provisions of Rule 701 under the Securities Act, which permits affiliates and non-affiliates to sell such shares without having to comply with the holding period restrictions of Rule 144, in each case commencing 90 days after the date of this Prospectus. In addition, non-affiliates may sell such shares without complying with the public information, volume and notice provisions of Rule 144. Rule 701 is available for optionholders of the Company as to all shares issued pursuant to the exercise of options granted prior to this offering. After the offering, the Company intends to file a registration statement on Form S-8 to register the shares of Common Stock issuable upon exercise of options granted or to be granted pursuant to the Plans. Accordingly, shares issued upon exercise of such options will be freely tradeable by holders who are not affiliates of the Company and, subject to the volume and other limitations of Rule 144, by holders who are affiliates of the Company. 64 67 The Company, its executive officers and directors who are stockholders, certain holders of options to purchase Common Stock under the Plans and certain other stockholders of the Company, all of which hold an aggregate of 6,458,412 shares of Common Stock, have agreed that, for a period of 180 days from the date of this Prospectus, they will not offer, sell or otherwise dispose of any shares of Common Stock or options to acquire Common Stock without the prior written consent of Hambrecht & Quist LLC, except for the issuance by the Company of options to purchase Common Stock or shares of Common Stock issuable upon the exercise thereof, provided that such options shall not become exercisable and such shares issuable upon exercise of options or pursuant to acquisitions shall not be transferable prior to the end of the 180-day period and for certain transfers by individuals signing such agreements to their immediate family members. Prior to the offering, there has been no market for the Common Stock. No predictions can be made of the effect, if any, that market sales of shares of Common Stock or the availability of such shares for sale will have on the market price prevailing from time to time. Nevertheless, sales of significant amounts of Common Stock could adversely affect the prevailing market price of the Common Stock, as well as impair the ability of the Company to raise capital through the issuance of additional equity securities. See "Risk Factors -- Absence of Prior Public Market; Potential Volatility of Stock Price." UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Underwriters named below (the "Underwriters"), through their representatives, Hambrecht & Quist LLC, Montgomery Securities and Volpe Brown Whelan & Company LLC (the "Representatives"), have severally agreed to purchase from the Company and the Selling Stockholders the following respective numbers of shares of Common Stock: <TABLE> <CAPTION> NUMBER OF NAME SHARES ---- --------- <S> <C> Hambrecht & Quist LLC....................................... Montgomery Securities....................................... Volpe Brown Whelan & Company LLC............................ ------- Total............................................. ======= </TABLE> The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent, including the absence of any material adverse change in the Company's business and the receipt of certain certificates, opinions and letters from the Company, its counsel and independent auditors. The nature of the Underwriters' obligation is such that they are committed to purchase all shares of Common Stock offered hereby if any of such shares are purchased. The Underwriters propose to offer the shares of Common Stock directly to the public at the initial public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow and such dealers may reallow a concession not in excess of $ per share to certain other dealers. After the offering, the offering price and other selling terms may be changed by the Representatives. The Representatives have informed the Company that the Underwriters do not intend to confirm sales to accounts over which they exercise discretionary authority. The Company has granted to the Underwriters an option, exercisable not later than 30 days after the date of this Prospectus, to purchase up to 445,695 additional shares of Common Stock at the offering price, less the underwriting discount set forth on the cover page of this Prospectus. To the extent the Underwriters exercise this option, each of the Underwriters will have a firm commitment to purchase approximately the same percentage thereof which the number of shares of Common Stock to be purchased by it shown in the above table bears to the total number of shares of Common Stock offered hereby. The Company will be obligated, pursuant to the option, to sell such shares to the Underwriters to the extent the option is exercised. The Underwriters may exercise such option only to cover over-allotments made in connection with the sale of shares of Common Stock offered hereby. 65 68 The offering of the shares is made for delivery when, as and if accepted by the Underwriters and subject to prior sale and to withdrawal, cancellation or modification of the offering without notice. The Underwriters reserve the right to reject an order for the purchase of shares in whole or in part. The Company and the Selling Stockholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments the Underwriters may be required to make in respect thereof. The officers and directors who are stockholders of the Company and certain of the other stockholders and optionholders, who will own in the aggregate 6,458,412 shares of Common Stock after the offering, have agreed, subject to certain exceptions, that they will not, without the prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of Common Stock, options or warrants to acquire shares of Common Stock or securities exchangeable for or convertible into shares of common Stock owned by them during the 180-day period following the date of this Prospectus. The Company has agreed that it will not, without the prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of Common Stock, options or warrants to acquire shares of Common Stock or securities exchangeable for or convertible into shares of Common Stock during the 180-day period following the date of this Prospectus, except that the Company may issue shares upon the exercise of options granted prior to the date hereof, and may grant additional options under its Plans, provided that, without the prior written consent of Hambrecht & Quist LLC, such additional options shall not be exercisable during such 180-day period. Prior to the offering, there has been no public market for the Common Stock. The initial public offering price for the Common Stock will be determined by negotiations among the Company, the Selling Stockholders and the Representatives. Among the factors to be considered in determining the initial public offering price are prevailing market and economic conditions, revenues and earnings of the Company, market valuations of other companies engaged in activities similar to the Company, estimates of the business potential and prospects of the Company, the present state of the Company's business operations, the Company's management and other factors deemed relevant. The estimated initial public offering price range set forth on the cover of this preliminary prospectus is subject to change as a result of market conditions and other factors. Certain persons participating in this offering may overallot or effect transactions which stabilize, maintain or otherwise affect the market price of the Common Stock at levels above those which might otherwise prevail in the open market, including by entering stabilizing bids, effecting syndicate covering transactions or imposing penalty bids. A stabilizing bid means the placing of any bid or effecting of any purchase, for the purpose of pegging, fixing or maintaining the price of the Common Stock. A syndicate covering transaction means the placing of any bid on behalf of the underwriting syndicate or the effecting of any purchase to reduce a short position created in connection with the offering. A penalty bid means an arrangement that permits the Underwriters to reclaim a selling concession from a syndicate member in connection with the offering when shares of Common Stock sold by the syndicate member are purchased in syndicate covering transactions. Such tranactions may be effected on the Nasdaq Stock Market, in the over-the-counter market, or otherwise. Such stabilizing, if commenced, may be discontinued at any time. LEGAL MATTERS The validity of the issuance of the shares of Common Stock offered by this Prospectus will be passed upon for the Company by Locke Purnell Rain Harrell (A Professional Corporation), Dallas, Texas. Cooley Godward LLP, San Francisco, California, will pass upon certain legal matters for the Underwriters. 66 69 EXPERTS The consolidated financial statements of Pegasus Systems, Inc. as of December 31, 1996 and for the year ended December 31, 1996 included in this Prospectus and the related financial statement schedule for the year ended December 31, 1996 included elsewhere in the Registration Statement have been so included in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. The consolidated financial statements of Pegasus Systems, Inc. (formerly The Hotel Industry Switch Company in 1994) as of December 31, 1994 and 1995 and for each of the two years in the period ended December 31, 1995 and the consolidated financial statements of The Hotel Clearing Corporation as of December 31, 1993 and 1994 and for each of the two years in the period ended December 31, 1994 included in this Prospectus and the related financial statement schedule for the years ended December 31, 1994 and 1995 included elsewhere in the Registration Statement have been so included in reliance on the reports of Belew Averitt LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. In January 1997, the Company advised Belew Averitt LLP ("Belew Averitt") that it would no longer retain the firm as independent accountants. The reports of Belew Averitt on the Company, formerly The Hotel Industry Switch Company, and The Hotel Clearing Corporation for the previous years (1993, 1994 and 1995) did not contain an adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. The decision to change accountants was precipitated by the Company's plan to complete an initial public offering in 1997 and was approved by the Board of Directors on January 7, 1997. During the periods audited by Belew Averitt and through January 7, 1997 there were no disagreements with Belew Averitt on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreement(s) if not resolved to the satisfaction of Belew Averitt, would have caused it to make reference to the subject matter of the disagreements in connection with its reports. Price Waterhouse LLP was engaged by the Company as its independent accountants on January 7, 1997. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission, Washington, D.C. 20549 (the "Commission"), a Registration Statement on Form S-1 under the Securities Act with respect to the shares of Common Stock offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and the shares offered by this Prospectus, reference is made to the Registration Statement, including the exhibits and schedules filed thereto. Statements contained in this Prospectus as to the contents of any agreement, contract or other document referred to are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement or such other document, each such statement being qualified in all respects by such reference. A copy of the Registration Statement may be inspected by anyone without charge at the Commission's principal office in Washington, D.C. and copies of all or any part thereof may be obtained upon payment of certain fees prescribed by the Commission from the Public Reference Section of the Commission at the Commission's principal office, 450 Fifth Street, N.W., Washington, D.C. 20549, or at the Commission's Regional Offices in New York, located at 7 World Trade Center, Suite 1300, New York, New York 10048, or in Chicago, located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the Commission's World Wide Web site is http://www.sec.gov. 67 70 PEGASUS SYSTEMS, INC. INDEX TO FINANCIAL STATEMENTS <TABLE> <S> <C> PEGASUS SYSTEMS, INC.: Consolidated Annual Financial Statements: Reports of Independent Accountants........................ F-2 Consolidated Balance Sheets as of December 31, 1995 and 1996................................................... F-4 Consolidated Statements of Operations for the Years Ended December 31, 1994, 1995 and 1996....................... F-5 Consolidated Statements of Changes in Shareholders' Equity (Deficit) for the Years Ended December 31, 1994, 1995 and 1996............................................... F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996....................... F-7 Notes to Consolidated Financial Statements................ F-8 Consolidated Interim Financial Statements (Unaudited): Consolidated Balance Sheets as of March 31, 1997.......... F-22 Consolidated Statements of Operations for the Three Months Ended March 31, 1996 and 1997.......................... F-23 Consolidated Statement of Changes in Shareholders' Equity for the Three Months Ended March 31, 1997.............. F-24 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1996 and 1997.......................... F-25 Notes to Consolidated Interim Financial Statements........ F-26 THE HOTEL CLEARING CORPORATION: Consolidated Annual Financial Statements: Report of Independent Accountants......................... F-28 Consolidated Balance Sheets as of December 31, 1993 and 1994................................................... F-29 Consolidated Statements of Operations for the Years Ended December 31, 1993 and 1994............................. F-31 Consolidated Statements of Shareholders' Deficit for the Years Ended December 31, 1993 and 1994................. F-32 Consolidated Statements of Cash Flows for the Years Ended December 31, 1993 and 1994............................. F-33 Notes to Consolidated Financial Statements................ F-35 Consolidated Interim Financial Statements (Unaudited): Consolidated Balance Sheet as of June 30, 1995............ F-39 Consolidated Statements of Operations for the Six Months Ended June 30, 1994 and 1995........................... F-40 Consolidated Statement of Shareholders' Deficit for the Six Months Ended June 30, 1995......................... F-41 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1994 and 1995........................... F-42 Notes to Consolidated Interim Financial Statements........ F-43 </TABLE> F-1 71 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Pegasus Systems, Inc. The stock split described in Note 15 to the financial statements has not been consummated at June 5, 1997. When it has been consummated, we will be in a position to furnish the following report: "In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations and changes in shareholders' equity (deficit) and of cash flows present fairly, in all material respects, the financial position of Pegasus Systems, Inc. and its subsidiaries at December 31, 1996, and the results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above." PRICE WATERHOUSE LLP Dallas, Texas February 21, 1997 F-2 72 INDEPENDENT AUDITOR'S REPORT To the Shareholders Pegasus Systems, Inc. The stock split described in Note 15 to the financial statements has not been consummated at June 5, 1997. When it has been consummated, we will be in a position to furnish the following report: We have audited the accompanying consolidated balance sheet of Pegasus Systems, Inc. (formerly The Hotel Industry Switch Company in 1994) and its subsidiaries (Company) as of December 31, 1995, and the related consolidated statements of operations, changes in shareholders' equity (deficit) and cash flows for the years ended December 31, 1994 and 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1995, and the results of its operations and its cash flows for the years ended December 31, 1994 and 1995 in conformity with generally accepted accounting principles. BELEW AVERITT LLP Dallas, Texas March 2, 1996 F-3 73 PEGASUS SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1995 AND 1996 ASSETS <TABLE> <CAPTION> 1995 1996 ------------ ------------ <S> <C> <C> Cash and cash equivalents................................... $ 93,831 $ 1,796,311 Restricted cash............................................. 330,177 690,206 Short-term investments...................................... -- 2,705,076 Accounts receivable, net of allowance for doubtful accounts of $20,000 and $44,805, respectively...................... 739,496 924,951 Accounts receivable from affiliates......................... 655,756 754,405 Other current assets........................................ 41,990 190,976 ------------ ------------ Total current assets.............................. 1,861,250 7,061,925 Software development costs.................................. 4,085,501 2,113,758 Property and equipment, net................................. 2,660,467 3,001,012 Goodwill, net of accumulated amortization of $58,219 and $178,943, respectively.................................... 1,687,452 1,685,772 Other noncurrent assets..................................... 21,324 29,269 ------------ ------------ Total assets...................................... $ 10,315,994 $ 13,891,736 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Accounts payable and accrued liabilities.................... $ 1,736,564 $ 2,574,186 Accounts payable to affiliates.............................. 204,188 115,049 Unearned income............................................. 431,373 470,588 Current portion of capital lease obligations................ 814,490 1,048,238 Current portion of notes payable to affiliates.............. 235,000 785,517 ------------ ------------ Total current liabilities......................... 3,421,615 4,993,578 Capital lease obligations, net of current portion........... 1,696,570 1,749,899 Notes payable to affiliates, net of current portion......... 5,297,158 4,603,568 Unearned income............................................. 941,176 470,588 Other noncurrent liabilities................................ -- 119,709 Minority interest........................................... 1,339,682 -- Commitments and contingencies (Note 11)..................... -- -- Shareholders' equity (deficit): Preferred stock, $.01 par value; 2,000,000 shares authorized; zero and 1,538,463 shares issued and outstanding, respectively.............................. -- 15,385 Common stock, $.01 par value; 100,000,000 shares authorized, 5,218,000 and 5,307,733 shares issued, respectively........................................... 52,180 53,077 Additional paid-in capital................................ 8,652,969 16,968,364 Unearned compensation..................................... -- (485,937) Accumulated deficit....................................... (11,085,356) (14,570,157) Less treasury stock (116,484 shares, at cost)............. -- (26,338) ------------ ------------ Total shareholders' equity (deficit).............. (2,380,207) 1,954,394 ------------ ------------ Total liabilities and shareholders' equity (deficit)....................................... $ 10,315,994 $ 13,891,736 ============ ============ </TABLE> See accompanying notes to consolidated financial statements. F-4 74 PEGASUS SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 <TABLE> <CAPTION> 1994 1995 1996 ---------- ----------- ----------- <S> <C> <C> <C> Net revenues (Notes 1 and 14) Shareholder........................... $4,491,985 $ 7,400,592 $11,961,445 Nonshareholder........................ 174,466 1,895,136 3,907,567 ---------- ----------- ----------- Total revenues................ 4,666,451 9,295,728 15,869,012 Cost of services........................ 1,546,065 3,882,496 6,199,058 Research and development................ 238,116 2,062,588 2,205,655 General and administrative expenses..... 1,065,345 2,770,474 3,799,199 Marketing and promotion expenses........ 130,474 912,230 2,824,633 Depreciation and amortization........... 1,518,588 2,476,812 3,425,678 ---------- ----------- ----------- Operating income (loss)................. 167,863 (2,808,872) (2,585,211) Other (income) expense: Interest expense...................... 591,076 815,560 893,177 Interest income....................... -- -- (114,150) ---------- ----------- ----------- Loss before income taxes and minority interest.............................. (423,213) (3,624,432) (3,364,238) Income taxes............................ -- -- 15,000 ---------- ----------- ----------- Loss before minority interest........... (423,213) (3,624,432) (3,379,238) Minority interest....................... -- 53,528 (105,563) ---------- ----------- ----------- Net loss................................ $ (423,213) $(3,570,904) $(3,484,801) ========== =========== =========== Unaudited pro forma data (Note 1): Pro forma net loss per share............ $ (0.48) =========== Weighted average shares outstanding used in the pro forma net loss per share calculation........................... 7,202,992 =========== Supplemental pro forma net loss per share................................. $ (0.38) =========== Weighted average shares used in the supplemental pro forma net loss per share calculation..................... 7,744,488 =========== </TABLE> See accompanying notes to consolidated financial statements. F-5 75 PEGASUS SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 <TABLE> <CAPTION> PREFERRED STOCK COMMON STOCK TREASURY STOCK ------------------- ------------------- ADDITIONAL -------------------- NUMBER OF NUMBER OF PAID-IN UNEARNED NUMBER OF SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION SHARES AMOUNT --------- ------- --------- ------- ----------- ------------ --------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Balance of THISCO at December 31, 1993...... -- -- 762,000 $7,620 $ 4,857,478 -- -- -- Net loss................ -- -- -- -- -- -- -- -- --------- ------- --------- ------- ----------- --------- -------- -------- Balance of THISCO at December 31, 1994...... -- -- 762,000 7,620 4,857,478 -- -- ========= ======= ========= ======= =========== ========= ======== ======== Conversion of shareholder loans...... -- -- -- -- 525,000 -- -- -- Formation of Pegasus.... -- -- 1,929,867 19,299 (19,299) -- -- -- Acquisition of HCC...... -- -- 2,242,800 22,428 2,721,749 -- -- -- Issuance of restricted shares to management... -- -- 283,333 2,833 568,041 -- -- -- Net loss................ -- -- -- -- -- -- -- -- --------- ------- --------- ------- ----------- --------- -------- -------- Balance at December 31, 1995................... -- -- 5,218,000 52,180 8,652,969 -- -- -- ========= ======= ========= ======= =========== ========= ======== ======== Issuance of Pegasus preferred stock to Information Associates, L.P. and Information Associates, C.V........ 1,538,463 $15,385 -- -- 7,484,620 -- -- -- Issuance of Pegasus common stock for purchase of minority interest............... -- -- 89,733 897 277,725 -- -- -- Purchase of treasury stock.................. -- -- -- -- -- -- (116,484) $(26,338) Issuance of compensatory stock options.......... -- -- -- -- 551,150 $(485,937) -- -- Proceeds from stock subscription........... -- -- -- -- 1,900 -- -- -- Net loss................ -- -- -- -- -- -- -- -- --------- ------- --------- ------- ----------- --------- -------- -------- Balance at December 31, 1996................... 1,538,463 $15,385 5,307,733 $53,077 $16,968,364 $(485,937) (116,484) $(26,338) ========= ======= ========= ======= =========== ========= ======== ======== <CAPTION> ACCUMULATED DEFICIT TOTAL ------------ ----------- <S> <C> <C> Balance of THISCO at December 31, 1993...... $ (7,091,239) $(2,226,141) Net loss................ (423,213) (423,213) ------------ ----------- Balance of THISCO at December 31, 1994...... (7,514,452) (2,649,354) ============ =========== Conversion of shareholder loans...... -- 525,000 Formation of Pegasus.... -- -- Acquisition of HCC...... -- 2,744,177 Issuance of restricted shares to management... -- 570,874 Net loss................ (3,570,904) (3,570,904) ------------ ----------- Balance at December 31, 1995................... (11,085,356) (2,380,207) ============ =========== Issuance of Pegasus preferred stock to Information Associates, L.P. and Information Associates, C.V........ -- 7,500,005 Issuance of Pegasus common stock for purchase of minority interest............... -- 278,622 Purchase of treasury stock.................. -- (26,338) Issuance of compensatory stock options.......... -- 65,213 Proceeds from stock subscription........... -- 1,900 Net loss................ (3,484,801) (3,484,801) ------------ ----------- Balance at December 31, 1996................... $(14,570,157) $ 1,954,394 ============ =========== </TABLE> See accompanying notes to consolidated financial statements. F-6 76 PEGASUS SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 <TABLE> <CAPTION> 1994 1995 1996 --------- ----------- ----------- <S> <C> <C> <C> Cash flows from operating activities: Net loss.................................................. $(423,213) $(3,570,904) $(3,484,801) Adjustments to reconcile net loss to net cash provided by operating activities: Minority interest....................................... -- (53,528) 105,563 Accrued interest reclassified to notes payable.......... -- 43,496 91,927 Reclassification of accrued interest to notes payable to affiliates............................................ -- 255,203 -- Loss on write-down of equipment......................... -- 246,000 -- Write off of in-process research and development costs................................................. -- 1,223,000 244,600 Adjustment for discontinued software projects........... -- -- 316,698 Loss (gain) on sale of equipment........................ (7,620) (14,553) 9,564 Depreciation and amortization........................... 1,518,588 2,476,812 3,425,678 Recognition of stock option compensation................ -- -- 65,213 Changes in assets and liabilities: Restricted cash....................................... -- (157,307) (360,029) Accounts receivable................................... (50,197) (182,998) (185,455) Accounts receivable from affiliates................... (331,980) 80,785 (98,649) Other current and noncurrent assets................... (1,966) (24,032) (156,931) Accounts payable and accrued liabilities.............. 295,342 586,483 837,620 Accounts payable to affiliates........................ (20,403) (202,230) (89,139) Unearned income....................................... -- (210,036) (431,373) Other noncurrent liabilities.......................... -- -- 119,709 --------- ----------- ----------- Net cash provided by operating activities........... 978,551 496,191 410,195 --------- ----------- ----------- Cash flows from investing activities: Purchase of software, property and equipment.............. (256,656) (639,461) (495,100) Proceeds from sale of software, property and equipment.... 71,337 -- 133,134 Purchase of marketable securities......................... -- -- (2,705,076) --------- ----------- ----------- Net cash used in investing activities............... (185,319) (639,461) (3,067,042) --------- ----------- ----------- Cash flows from financing activities: Proceeds from issuance of stock........................... -- 570,874 7,500,005 Purchase of minority interest............................. -- -- (2,000,000) Repayments on notes payable to affiliates................. (234,165) (103,337) (235,000) Repayments of capital leases.............................. (459,398) (578,271) (974,969) Purchase of treasury stock................................ -- -- (26,338) Proceeds from stock subscription.......................... -- -- 1,900 Proceeds from line of credit.............................. -- -- 175,000 Repayment of line of credit............................... -- -- (175,000) Proceeds from capital leases.............................. -- -- 93,729 --------- ----------- ----------- Net cash provided (used) by financing activities........ (693,563) (110,734) 4,359,327 --------- ----------- ----------- Net increase (decrease) in cash and cash equivalents........ 99,669 (254,004) 1,702,480 Cash and cash equivalents, beginning year................... 248,166 347,835 93,831 --------- ----------- ----------- Cash and cash equivalents, end of year...................... $ 347,835 $ 93,831 $ 1,796,311 ========= =========== =========== Supplemental disclosure of cash flow information: Interest paid............................................. $ 509,722 $ 706,842 $ 858,017 Income taxes paid......................................... -- -- -- --------- ----------- ----------- Supplemental schedule of noncash investing and financing activities: Acquisition of equipment under capital leases............. $ 120,252 $ 2,083,365 $ 1,045,988 ========= =========== =========== Conversion of notes payable to affiliates to additional paid-in capital (Note 7)................................ $ -- $ 525,000 $ -- ========= =========== =========== Issuance of common stock for acquisitions (Notes 2, 3 and 8)...................................................... $ -- $ 2,744,177 $ 278,622 ========= =========== =========== </TABLE> See accompanying notes to consolidated financial statements. F-7 77 PEGASUS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1994, 1995 AND 1996 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BACKGROUND In July 1995, Pegasus Systems, Inc. (Pegasus or the Company) was formed as a Delaware holding company to combine the operations of two existing companies operating in the same industry, The Hotel Industry Switch Company (THISCO) and The Hotel Clearing Corporation (HCC), as discussed in Note 2 below. For accounting purposes, the combination was recorded as a purchase of HCC, as discussed in Note 3 below. CONSOLIDATION The accompanying financial statements include the historical accounts of THISCO for 1994. The financial statements for 1995 reflect the consolidated balance sheets of THISCO and HCC and the consolidated operations of THISCO for the year ended 1995 and HCC from the date of acquisition to December 31, 1995. The 1996 consolidated financial statements include the accounts of Pegasus and its wholly owned subsidiaries, THISCO and HCC. THISCO is consolidated with its wholly owned subsidiary, TravelWeb, Inc. (TravelWeb), and HCC is consolidated with its wholly owned subsidiary, Pegasus Systems Inc. (UK) Limited (Pegasus UK, formerly The Hotel Clearing Corporation (UK) Limited), (collectively, the Company). All significant intercompany balances have been eliminated in consolidation. THISCO was formed in September 1988 as a Delaware corporation. The Company's THISCO service provides an electronic interface from hotel central reservation systems to travel agencies through Global Distribution Systems (GDSs), which are electronic travel information and reservation systems such as SABRE. HCC, acquired by the Company in July 1995 (see Note 3), was formed in July 1991 as a Delaware corporation. The Company's HCC service consolidates commissions paid by participating hotels to a participating travel agency into a single monthly payment and provides participants with comprehensive transaction reports. Hotel properties and travel agencies worldwide utilize the HCC service to increase the efficiency and reduce costs associated with preparing, paying and reconciling hotel room reservation commissions. TravelWeb was formed in October 1995 as a Delaware corporation. The Company's TravelWeb service provides individual travelers direct access to online hotel information and the ability to make reservations electronically at hotel properties. In addition, through its recently introduced NetBooker service, the Company offers TravelWeb's comprehensive hotel database and Internet hotel reservation capabilities to third-party Web sites. Pegasus UK, a wholly-owned subsidiary of HCC, was formed in September 1993 in England to market and provide services for travel agents and hotel chains operating in Europe, Africa and Asia. MANAGEMENT ESTIMATES In preparing the consolidated financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results may differ from those estimates. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with maturities of three months or less from the date of purchase, to be cash equivalents. F-8 78 PEGASUS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) RESTRICTED CASH Funds for travel agency commission checks which have not cleared HCC's processing bank after certain time periods are returned to HCC. Any amounts which are not remitted to travel agents will be escheated to the appropriate state, as required. INVESTMENTS IN DEBT AND EQUITY SECURITIES In 1996, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (FAS 115). In accordance with this Statement, prior period financial statements have not been restated to reflect the change in accounting principle. The cumulative effect of the adoption of FAS 115 did not have a material effect on the Company's financial condition or results of operations. As of December 31, 1994, 1995 and 1996, the status of the securities accounted for under FAS 115, was as follows: <TABLE> <CAPTION> AMORTIZED COST ------------------------------------ 1994 1995 1996 ---------- ---------- ---------- <S> <C> <C> <C> Held to maturity: Corporate debt................................... $ -- $ -- $ 992,621 U.S. government agencies......................... -- -- 1,712,455 ---------- ---------- ---------- $ -- $ -- $2,705,076 ========== ========== ========== </TABLE> As of December 31, 1994, 1995 and 1996, the aggregate fair market value of the held-to-maturity securities was $0, $0 and $2,705,076, respectively. The gross unrealized gains and losses by type of security were not material. The contract maturities of the held-to-maturity securities are less than one year. SOFTWARE DEVELOPMENT COSTS All costs incurred in the internal development of computer software used in delivery of the Company's services are expensed until a product design and a working model of the software have been tested and completed. Thereafter, any further development or production costs are capitalized. Maintenance and customer support costs are expensed when incurred. Prior to 1996, capitalized costs were being amortized over three to five years using the straightline method. However, in 1996 the Company changed the estimated life of all capitalized software costs to three years. The effect of this change was to increase the net loss during 1996 by approximately $292,000 or $0.04 per share on a pro forma basis. During 1996, the Company recorded a charge of $316,698 resulting from discontinued software development projects. During 1995 and 1996, the Company capitalized a total of approximately $3,840,000 and $470,000, respectively, of software development costs, including the software acquired in connection with the acquisition of HCC (See Note 3). During 1994, 1995 and 1996, the Company amortized approximately $970,000, $1,532,000 and $2,125,000, respectively, of capitalized software costs. Accumulated amortization of software development costs was $4,614,686 and $6,739,465 at December 31, 1995 and 1996, respectively. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and depreciated over their estimated useful lives, ranging from three to seven years. Leasehold improvements are amortized over the life of the lease using the straight-line method. Expenditures for maintenance and repairs, as well as minor renewals, are charged to operations as incurred. Betterments and major renewals are capitalized. Upon retirement or sale of an asset, the cost of the F-9 79 PEGASUS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) asset and the related accumulated depreciation or amortization are removed from the accounts and any resulting gain or loss is credited or charged to operations. GOODWILL Goodwill represents the excess of the purchase price of acquisitions over the fair value of the net assets acquired. Such excess costs are being amortized on a straight-line basis over 15 years. Unamortized goodwill at December 31, 1995 and 1996, was $1,687,452 and $1,685,772, respectively. The carrying value of goodwill is evaluated periodically in relation to the operating performance and anticipated future undiscounted net cash flows of the related business. Based on its most recent analysis, the Company believes that no impairment of goodwill existed at December 31, 1996. Amortization of goodwill was $0, $58,219 and $120,724 in 1994, 1995 and 1996, respectively. REVENUES The Company primarily derives its revenues from transaction fees and commissions charged to participating hotels and travel agencies. A substantial portion of Company revenue is derived from shareholders and shareholder-owned companies (see Note 14). The Company's revenues are predominantly transaction-based. The Company derives its revenues from its THISCO service by charging its hotel participants a fee based on the number of reservations made, less the number cancelled ("net reservations"), and a fee for "status messages" processed through the THISCO service. Status messages are electronic messages sent by hotels to GDSs to update room rates, features and availability information in GDS databases. As cumulative volumes of net reservations increase during the course of the calendar year, the fee per transaction decreases after predetermined transaction volume hurdles have been met. As a result, for higher volume customers, unit transaction fees are higher at the beginning of the year, when cumulative transactions are lower. The Company recognizes revenues based on the expected fee per transaction to be earned for services to be provided to the customer during the entire year. Because the Company's customer contracts are based on calendar year terms, this process of recognizing revenues results in a deferred revenue balance being created during early periods of the year, which will be reflected in interim balance sheets and be fully utilized by the end of each year. Additionally, Pegasus generally charges new participants in the THISCO service a one-time set-up fee for work associated with the implementation of the interface with the THISCO service. The Company also charges certain GDSs a fee based on the number of net reservations to compensate for the management and consolidation of multiple interfaces. The Company intends to reduce certain of the fees that it charges hotels for transmitting status messages. Pegasus derives its revenues from its HCC service by charging a participating travel agency a fee based on a percentage of the dollar amount of commissions paid to that agency through the HCC service. The Company also generally charges a participating hotel a fee based on the number of commissionable transactions arising from that hotel. Revenues from HCC travel agency fees can vary substantially from period to period based on the types of hotels at which reservations are made and overall room rates. Pegasus recognizes revenues from its HCC service in the month in which the hotel stay occurs and collects and pays commissions to travel agencies by the 15th business day of the following month. If a hotel fails to deliver funds to the Company, the Company is not obligated to deliver commission payments on behalf of the hotel to travel agencies. HCC revenues also include amortization of a $2.0 million payment received by the Company in June 1993 in exchange for a five-year noncancelable data processing contract. This payment was initially recorded as unearned income and is being recognized as revenue over the life of the contract. The amount of revenue recognized in 1996 was $431,000 (See Note 11). For the period from acquisition to December 31, 1995 and the year ended December 31, 1996, HCC revenues from hotels are presented net of commission payments to travel agencies of approximately $39,820,000 and $105,000,000, respectively. F-10 80 PEGASUS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company offers two services, TravelWeb and NetBooker, that provide hotel reservation capability to individual travelers through the Internet. During 1996, Pegasus derived the substantial majority of its TravelWeb revenues from fees related to the creation of Web site pages for hotels and for maintaining these pages on the TravelWeb site. During 1997, the Company is transitioning its fee structure to begin charging participating hotels subscription fees based on the number of their properties included in the database and transaction fees based on the number of net reservations made at their properties through the TravelWeb service. The Company is not in a position to forecast the effect that this change in fee structure will have on its TravelWeb revenues. There can be no assurance that such a change will not have a material adverse effect on the Company's financial condition and results of operations. The Company also derives revenues through the sale of advertising space on the TravelWeb site. Pegasus realizes revenues from NetBooker, the Company's hotel room reservation service provided to third-party Web sites, by charging third-party Web sites an initial development and licensing fee and by charging hotels a fee based on the number of net reservations made through the NetBooker service. The Company has not received a material amount of revenues for the TravelWeb service or the NetBooker service to date, and there can be no assurance that either of these services will produce a material amount of revenues in the future. INCOME TAXES The Company presents income taxes pursuant to Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," (FAS 109). FAS 109 uses an asset and liability approach to account for income taxes. In the event differences between the financial reporting basis and the tax basis of the Company's assets and liabilities result in deferred tax assets, an evaluation of the probability of being able to realize the future benefits indicated by such assets is required. A valuation allowance is provided for a portion or all of the deferred tax assets when there is sufficient uncertainty regarding the Company's ability to recognize the benefits of the assets in future years. ADVERTISING COSTS Advertising and promotion-related expenses are charged to operations when incurred. Advertising expense for 1994, 1995 and 1996 was approximately $84,000, $173,000 and $613,000, respectively. FINANCIAL INSTRUMENTS The carrying amounts of the Company's financial instruments reflected in the consolidated balance sheets at December 31, 1995 and 1996 approximate their respective fair values. CONCENTRATIONS OF CREDIT RISK The Company's financial instruments exposed to concentrations of credit risk consist primarily of cash and receivables. Cash balances, exceeding the federally insured limits, are maintained in financial institutions; however, management believes the institutions are of high credit quality. The majority of receivables are due from companies which are well-established entities in the travel industry. As a consequence, management considers any exposure from concentrations of credit risks to be limited. ACCOUNTING FOR STOCK-BASED COMPENSATION Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123), encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has elected to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related Interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the fair market value of the Company's stock at F-11 81 PEGASUS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the date of grant over the amount the employee must pay to acquire the stock. Pro forma disclosure of net loss based on the provisions of FAS 123 is discussed at Note 9. STOCK SPLITS A one hundred-for-one stock split was effected in June 1996. All references in the consolidated financial statements to shares, share prices, per share amounts and stock plans have been adjusted retroactively for the one hundred-for-one stock split. Additional information is presented in Note 8. In May 1997, the board of directors approved a four-for-three stock split to be effective concurrent with the effectiveness of the Registration Statement on Form S-1. All references in the consolidated financial statements to shares, share prices, per share amounts and stock plans have been adjusted retroactively for the four-for-three stock split. FOREIGN CURRENCY TRANSLATION The U.S. dollar is the functional currency for the Company's foreign operations. Gains and losses on the translation into U.S. dollars of amounts denominated in foreign currencies are included in net income. PRO FORMA NET LOSS PER SHARE (UNAUDITED) Historical loss per share has been excluded from the Company's statements of operations on the basis that it is irrelevant due to the planned conversion of all outstanding Series A preferred stock to common stock on a one-for-one basis concurrent with the effectiveness of the Company's initial public offering (IPO). Pro forma net loss per share has been computed using the weighted average number of common shares outstanding after giving retroactive effect to the four-for-three stock split to be effected upon effectiveness of the Company's Registration Statement on Form S-1 (see Note 15) and assuming that (i) all shares of Series A preferred stock have been converted to shares of common stock as of the date of issuance and (ii) all shares, options and warrants issued subsequent to June 1, 1996 at an exercise price less than the IPO price have been included in the calculation as if they were outstanding for the entire period presented using the treasury stock method and the IPO price. SUPPLEMENTAL PRO FORMA NET LOSS PER SHARE (UNAUDITED) Supplemental pro forma net loss per share is based on the weighted average number of shares of common stock used in the calculation of pro forma net loss per share, plus the number of shares (541,496 for the year ended December 31, 1996) that the Company would need to repay $5,389,085 of indebtedness outstanding under notes payable to certain stockholders of the Company at December 31, 1996. For purposes of computing supplemental pro forma net loss per share (unaudited), the pro forma net loss for the year ended December 31, 1996 was reduced by $539,213, representing elimination of the related interest expense on such notes payable. EARNINGS PER SHARE In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings per Share" (FAS 128), was issued. FAS 128 specifies the computation, presentation and disclosure requirements for earnings per share (EPS) for entities with publicly held common stock or potential common stock. FAS 128 simplifies the standards for computing EPS previously found in Accounting Principles Board Opinion No. 15, "Earnings per Share" (APB 15), and makes them comparable to international EPS standards. It replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the statement of operations for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator F-12 82 PEGASUS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and denominator of the diluted EPS computation. FAS 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods; earlier application is not permitted. FAS 128 requires restatement of all prior-period EPS data presented. The Company will adopt FAS 128 in its consolidated financial statements as of and for the year ending December 31, 1997 and, based on current circumstances, does not believe the effect of adoption will be material. 2. REORGANIZATION Effective in July 1995, the Company issued 4,934,667 shares of its common stock in exchange for all of the outstanding capital stock of THISCO and 83.3% of the outstanding capital stock of HCC (the Reorganization). Lodging Network, Inc. (LNI) retained 210 shares of HCC preferred stock, representing a 16.7% minority ownership interest in HCC. In conjunction with the Reorganization, LNI was granted an option (LNI Option), expiring in July 1998, to exchange its 16.7% ownership interest in HCC for 448,667 shares of the Company's common stock. The LNI Option was subsequently canceled in June 1996, as part of the purchase of all of LNI's minority interest ownership in HCC by the Company (see Note 3). The Company incurred expenses of approximately $194,000 related to the Reorganization. Such expenses have been included in the general and administrative expenses in the Company's statement of operations for the year ended December 31, 1995. The Reorganization brought THISCO and HCC together under the control of Pegasus and was initiated to integrate and expand the existing businesses of THISCO and HCC. Pegasus was formed immediately prior to the transaction for the purpose of combining the two operations into a single operating entity. Prior to the Reorganization, THISCO and HCC were primarily controlled by a common (though not identical) group of shareholders and a common management group. For accounting purposes, the Reorganization was treated as an acquisition of HCC and accounted for as a purchase business combination. Accordingly, the HCC assets acquired and liabilities assumed have been recorded at their fair values at the date of acquisition. The amount of the purchase price ($2.7 million) in excess of the fair value of net assets acquired has been recorded as goodwill and will be amortized on a straight-line basis over 15 years (see Note 3). The Company's consolidated financial statements include the consolidated accounts and operations of THISCO and HCC for all periods subsequent to the July 1995 acquisition date. Prior to the Reorganization, HCC had a special bonus plan for the management of HCC. As part of the Reorganization, management of HCC agreed to forfeit its rights to participate in the bonus plan to HCC in return for a cash payment and the opportunity to purchase an aggregate of 283,333 shares of the Company's common stock for $570,874. Compensation expense in the amount of $570,874 related to this transaction has been included in the net loss for the year ended December 31, 1995. These shares are restricted and are subject to repurchase upon termination of employment (see Note 8). 3. ACQUISITION In July 1995, the Company acquired 83.3% of HCC (the Acquisition) in exchange for 2,242,800 shares of the Company's common stock. HCC markets and operates an automated commission payment service which settles electronic bookings for travel agencies and hotel chains. HCC acts as a clearinghouse to consolidate, collect and pay member travel agent commissions for participating hotels. F-13 83 PEGASUS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Acquisition was recorded under the purchase method of accounting, and accordingly, the results of operations of HCC for all periods subsequent to the Acquisition date are included in the accompanying consolidated financial statements. The purchase price has been allocated to assets acquired and liabilities assumed based on estimated fair value at the date of the Acquisition. The approximate fair value of assets acquired and liabilities assumed at the date of acquisition, after giving effect to the write off of certain purchased research and development, is summarized as follows: <TABLE> <S> <C> Current assets.............................................. $ 505,000 Software.................................................... $ 3,523,000 Property and equipment...................................... $ 245,000 Goodwill.................................................... $ 1,746,000 Other noncurrent assets..................................... $ 18,000 Current liabilities......................................... $(1,034,000) Long-term liabilities....................................... $(2,089,000) Minority interest........................................... $(1,393,000) </TABLE> Approximately $1,223,000 was allocated to in-process research and development projects that at the time of the Acquisition had not reached technological feasibility and had no probable alternative future use. Such amount of in-process research and development was charged to expense at the date of acquisition. In addition, as indicated above, $3,523,000 was allocated to software and is being amortized over a three year period ending June 1998. The balance of the purchase price paid, approximately $1,746,000, was recorded as the excess of cost over the fair value of net assets acquired (goodwill) and is being amortized on a straight-line basis over a 15 year period ending June 2010. In June 1996, the Company purchased 210 shares of HCC preferred stock from LNI for $2,000,000 cash and 89,733 shares of Pegasus common stock. The 210 HCC preferred shares purchased represented a 16.7% minority ownership of HCC. After the purchase, Pegasus owned 100% of the outstanding shares of HCC. The transaction was accounted for as a purchase. The price paid in excess of the minority interest value of $1,445,245 on the date of purchase was approximately $833,000 and was accounted for as $119,000 of goodwill to be amortized ratably over a 15 year period with the remaining excess allocated to $245,000 of in-process research and development costs and $469,000 of step-up in the fair value of capitalized software costs. Such amount of in-process research and development was charged to expense at the date of acquisition. The fair value of the Company's common stock given as consideration was determined using an independent valuation. 4. ACCOUNTS RECEIVABLE HCC collects travel agents' commissions from hotel chains and, after retaining a portion of these commissions as a fee for services, remits the net commissions to the travel agents. At December 31, 1995 and 1996, trade accounts receivable were stated net of commissions of $6,059,362 and $8,149,815, respectively. Net accounts receivable from affiliates included in the accompanying consolidated balance sheets were as follows at December 31: <TABLE> <CAPTION> 1995 1996 -------- -------- <S> <C> <C> Amounts due to HCC from hotel chains........................ $ 27,813 $ 34,606 Amounts due to THISCO from hotel chains..................... 380,573 702,612 Amounts due to TravelWeb from hotel chains.................. 239,002 11,152 Employee travel advances.................................... 8,368 6,035 -------- -------- Accounts receivable from affiliates......................... $655,756 $754,405 ======== ======== </TABLE> F-14 84 PEGASUS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. PROPERTY AND EQUIPMENT Property and equipment at December 31 consisted of the following: <TABLE> <CAPTION> 1995 1996 ---------- ---------- <S> <C> <C> Computer equipment.......................................... $4,657,439 $4,261,482 Furniture and equipment..................................... 363,801 640,507 Office equipment............................................ 394,055 712,245 Leasehold improvements...................................... 87,061 93,777 ---------- ---------- 5,502,356 5,708,011 Less: accumulated depreciation.............................. (2,841,889) (2,706,999) ---------- ---------- Property and equipment, net................................. $2,660,467 $3,001,012 ========== ========== </TABLE> In 1995, the Company purchased assets previously recorded as capital leases. These capitalized assets were being amortized over the life of the lease, which was due to expire in the first quarter of 1996. The Company financed the purchase of the assets and extended the assets' estimated lives by one year. The effect of these changes was to decrease the net loss during 1995 by approximately $108,000 and increase the net loss during 1996 by $72,000. 6. CAPITAL LEASES Assets recorded under capital leases are recorded at the lower of the present value of future minimum lease payments or the fair value of the asset. In 1995, the Company charged off $246,000 related to switch equipment which was considered obsolete. The assets were written down to the estimated salvage value of approximately $20,000. Total assets recorded under capital leases in 1995 and 1996 were approximately $4,664,000 and $3,829,000, respectively, net of accumulated amortization of $2,392,000 and $1,591,000, respectively. Amortization of assets under capital leases is included in depreciation and amortization expense. Future minimum lease payments and related interest are as follows: <TABLE> <CAPTION> YEAR ENDING DECEMBER 31, ------------ <S> <C> 1997..................................................... $ 1,322,130 1998..................................................... 1,203,738 1999..................................................... 644,825 2000..................................................... 86,680 ----------- Aggregate minimum lease payments............................ 3,257,373 Less: amount representing interest.......................... (459,236) ----------- 2,798,137 Less current portion........................................ (1,048,238) ----------- $ 1,749,899 =========== </TABLE> Interest rates on capital leases range from approximately 7% to 15%. Interest expense on capital leases for the years ended December 31, 1994, 1995 and 1996 was approximately $123,000, $238,000 and $351,000, respectively. F-15 85 PEGASUS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. NOTES PAYABLE TO AFFILIATES Notes payable to affiliates at December 31 consisted of the following: <TABLE> <CAPTION> 1995 1996 ---------- ---------- <S> <C> <C> Note payable to shareholder, bearing interest at prime plus 2.0% on the last day of the previous quarter (the prime rate at September 30, 1995 and 1996 was 8.75% and 8.25%, respectively); principal and accrued interest due in full June 30, 2001 (see Note 13)............................... $4,261,482 $4,261,482 Notes and accrued interest payable to shareholders, bearing interest at prime plus 1.0%; principal and accrued interest due in full July 21, 2000, (the prime rate at December 31, 1995 and 1996 was 8.5% and 8.25%, respectively)............................................. 509,261 554,474 Notes and accrued interest payable to shareholders, bearing interest at prime plus 1.0%; principal and accrued interest due in full July 21, 2000 (the prime rate at December 31, 1995 and 1996 was 8.5% and 8.25%, respectively)............................................. 526,415 573,129 Note payable to shareholder, bearing interest at prime plus 2.0%; due March 29, 1996; uncollateralized; beginning December 31, 1995 the interest rate increased to prime plus 3.0%; paid in full in 1996........................... 200,000 -- Note payable to shareholder, bearing interest at prime plus 2.0%; due December 31, 1995; paid-in-full in 1996......... 35,000 -- ---------- ---------- 5,532,158 5,389,085 Less current portion........................................ (235,000) (785,517) ---------- ---------- $5,297,158 $4,603,568 ========== ========== </TABLE> In 1995 and 1996, no principal or interest payments were due on the note payable to shareholder of $4,261,482, according to the terms of the agreement, as THISCO had not reported a consolidated net income. During 1995 and 1996, the Company elected to make certain payments of interest totaling $465,000 and $478,000, respectively. Interest expense related to these notes was approximately $537,000, $614,000 and $539,000 during the years ended December 31, 1994, 1995 and 1996. In July 1995, simultaneous with the Acquisition, the Company negotiated new note agreements with all but one shareholder. The new note agreements, representing obligations of subsidiaries guaranteed by Pegasus, converted $450,000 in principal to additional paid-in capital, financed $255,203 of unpaid interest, reduced the interest rate from prime plus two percent to prime plus one percent and extended the due dates from December 31, 1995 to July 21, 2000. The note agreement related to the one shareholder which was not renegotiated was reduced in principal by $75,000 in exchange for Pegasus agreeing to guarantee the remaining THISCO debt. The reduction of principal was recorded as a capital contribution. 8. SHAREHOLDERS' EQUITY (DEFICIT) During 1995, the Company issued 283,333 shares of restricted common stock to certain members of management in connection with the termination of the HCC special bonus plan (see Note 2). A compensation charge was recorded in 1995 for the fair value of the shares issued. For a period of three years from date of issuance, these shares cannot be sold. If an employee leaves the Company, the Company has the right to repurchase the shares at the lesser of fifty percent of the original purchase price or the current market value. During 1996, the Company repurchased 25,467 shares from a terminated employee. F-16 86 PEGASUS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) As a result of the Reorganization effective July 1995, certain shareholders exchanged shares of THISCO for shares of Pegasus. Additionally, in order to effect the purchase of HCC, the Company issued Pegasus shares to HCC shareholders in exchange for 83.3% of the outstanding capital stock of HCC. Some of the Pegasus shares exchanged for HCC shares were subject to repurchase. The repurchase was based upon an agreement by the HCC shareholders that some value for the HCC shares exchanged should be assigned based upon the number of transactions that an HCC shareholder committed to process through HCC in 1996. If a shareholder did not fulfill its commitment by processing the agreed number of transactions through HCC in 1996, the Company had the option to repurchase such shares for $0.01 per share. The total number of shares repurchased from each shareholder is based upon the percentage of their transaction commitment actually processed by HCC during 1996. Effective December 31, 1996, the Company repurchased 91,017 shares of the 477,733 shares subject to repurchase. In June 1996, the Company declared a one hundred-for-one stock split effected in the form of a stock dividend to stockholders of record on that date. The number of common shares the Company is authorized to issue was also increased from 100,000 to 20 million and the number of authorized preferred shares was increased from 10,000 to 2 million. In June 1996, Information Associates, L.P. and Information Associates, C.V. purchased 1,538,463 shares of the Company's Series A preferred stock (par value $0.01) for $4.88 per share or $7,500,005. Total shares outstanding increased from 5,191,249 (including the 89,733 issued to LNI as part of the purchase of minority interest in HCC) to 6,729,712 shares, with the Information Associates, L.P. and Information Associates, C.V. ownership representing 22.9% of the total shares outstanding after the purchase. Additionally, the Company has reserved 866,667 shares as part of the Company's 1996 Stock Option Plan which after issuance would reduce the 1,538,463 Series A preferred shares to 20.3% of the total shares outstanding. The Series A preferred shares carry special provisions which include: conversion rights to exchange one share of Series A preferred stock for one share of Pegasus common stock; the right to elect two of nine persons to the board of directors; preferred status as to the payment of any dividends that are declared by the board of directors; and preferred status in the event of any liquidation, dissolution or winding up of the corporation. 9. STOCK-BASED COMPENSATION The Company's 1996 stock option plan was approved by the board of directors in June 1996 and authorizes the grant of up to 866,667 shares of the Company's common stock in the form of incentive stock options (ISOs) and nonqualified stock options. The plan is administered and grant prices are determined by the Stock Option Committee of the board of directors (Committee). Options normally extend for a period of 10 years, and under Committee policy become exercisable in installments of 25% per year commencing one year from the date of grant, or over a vesting period determined by the Committee. Shares granted come from the Company's authorized but unissued or reacquired common stock. In 1996, the Company issued to executives and employees options to purchase an aggregate of 771,733 shares of common stock. These options will become exercisable over a period of four years. The Company's 1997 stock option plan was approved by the board of directors in March 1997 and authorizes the grant of up to 333,333 shares of the Company's common stock in the form of incentive stock options (ISOs) and nonqualified stock options. The plan is administered and grant prices are determined by the Committee. Options normally extend for a period of 10 years, and under Committee policy become exercisable in installments of 25% per year commencing one year from the date of grant, or over a vesting period determined by the Committee. Shares granted come from the Company's authorized but unissued or reacquired common stock. These options will become exercisable over a period of four years. The Company has adopted the disclosure-only provisions of FAS 123. As discussed in Note 1, the Company has elected to continue to account for stock-based compensation using the intrinsic value method prescribed in APB 25. Accordingly, unearned compensation of $551,150 related to options is being recognized F-17 87 PEGASUS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ratably over the vesting period for stock option grants with exercise prices which are less than fair market value of the stock at the date of grant. Compensation expense of $65,213 was charged to operations in 1996. There were no stock option awards granted prior to 1996; however, had compensation cost for the Company's stock option plan been determined based on the fair value at the grant date for awards issued in 1996 consistent with the provisions of FAS 123, the Company's net loss would have been increased to the pro forma amounts indicated below: <TABLE> <CAPTION> 1996 ----------- <S> <C> Net loss - as reported...................................... $(3,484,801) Net loss - pro forma........................................ $(3,511,531) Pro forma net loss per share -- as reported................. $ (0.48) Pro forma net loss per share -- as adjusted for pro forma impact of FAS 123......................................... $ (0.49) </TABLE> The weighted average fair value at date of grant for options granted during 1996 was $1.22 per option. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used: <TABLE> <S> <C> Dividend yield.............................................. -- Expected volatility......................................... 0.0% Risk-free rate of return.................................... 6.5% Expected life............................................... 4 years </TABLE> The following table summarizes activity under the Company's stock option plan during the year ended December 31, 1996: <TABLE> <CAPTION> WEIGHTED EXERCISE AVERAGE PRICE EXERCISE OPTIONS PER SHARE PRICE PER SHARE -------- ----------- --------------- <S> <C> <C> <C> Outstanding at December 31, 1995................. -- -- -- Granted........................................ 771,733 $2.01-$3.11 $2.39 Canceled....................................... -- -- -- -------- ----------- ----- Outstanding at December 31, 1996................. 771,733 $2.01-$3.11 $2.39 ======== =========== ===== Options exercisable at December 31, 1996......... -- -- -- </TABLE> <TABLE> <CAPTION> OPTIONS OUTSTANDING AT REMAINING EXERCISE PRICES DECEMBER 31, 1996 CONTRACTUAL LIFE --------------- ----------------- ---------------- <C> <C> <C> $2.01 503,333 9.5 years $3.11 268,400 9.8 years </TABLE> In conjunction with the Reorganization described in Note 2, LNI was granted an option, expiring in July 1998, to exchange its 210 shares of HCC preferred stock for 448,667 shares of the Company's common stock. The option was canceled in June 1996 in conjunction with the Company's purchase of LNI's minority interest in HCC. F-18 88 PEGASUS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. INCOME TAXES Pretax income (loss) from continuing operations for the years ended December 31 was taxed under the following jurisdictions: <TABLE> <CAPTION> 1994 1995 1996 --------- ----------- ----------- <S> <C> <C> <C> Domestic..................................... $(423,213) $(3,527,122) $(3,528,503) Foreign...................................... -- (43,782) 58,702 --------- ----------- ----------- $(423,213) $(3,570,904) $(3,469,801) ========= =========== =========== </TABLE> Deferred taxes consisted of the following at December 31: <TABLE> <CAPTION> 1995 1996 ----------- ----------- <S> <C> <C> Deferred tax assets: Net operating loss carryforward......................... $ 4,475,200 $ 4,975,949 Bad debt reserves....................................... 6,800 15,234 Depreciation and amortization........................... 36,623 1,896 Stock option compensation expense....................... -- 22,172 Rent expense............................................ -- 37,213 Various expense accruals................................ 7,248 53,793 Other................................................... 573 2,164 ----------- ----------- Total gross deferred tax assets................. 4,526,444 5,108,421 Valuation allowance..................................... (3,528,272) (4,549,452) Deferred tax liability: Software amortization................................... (998,172) (558,969) ----------- ----------- Net deferred tax assets................................... $ -- $ -- =========== =========== </TABLE> The net deferred tax asset is fully reserved because of uncertainty regarding the Company's ability to recognize the benefit of the asset in future years. At December 31, 1994, 1995 and 1996, the Company had net operating loss carryforwards of approximately $7,538,000, $13,162,000 and $14,635,000, respectively, which begin to expire in 2003, if not previously utilized. Utilization of the net operating loss carryforwards may be limited by the separate return loss year rules and could be affected by ownership changes which have occurred or could occur in the future. The components of the income tax provision for the years ended December 31 were as follows: <TABLE> <CAPTION> 1994 1995 1996 ------- ------- ------- <S> <C> <C> <C> Current provision: Federal............................................. $ -- $ -- $ -- State............................................... -- -- -- Foreign............................................. -- -- 15,000 ------- ------- ------- $ -- $ -- $15,000 ======= ======= ======= Deferred provision (benefit): Federal............................................. $ -- $ -- $ -- State............................................... -- -- -- ------- ------- ------- Provision for income taxes............................ $ -- $ -- $15,000 ======= ======= ======= </TABLE> F-19 89 PEGASUS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A reconciliation of taxes based on the federal statutory rate of 34.0% and the provision for income taxes is summarized as follows for the years ended December 31: <TABLE> <CAPTION> 1994 1995 1996 ----- ----- ----- <S> <C> <C> <C> Income taxes at the federal statutory rate.................. (34.0%) (34.0%) (34.0%) Valuation allowance......................................... 31.8% 19.8% 29.4% Permanent differences....................................... 2.2% 14.3% 5.1% Other, net.................................................. 0.0% (0.1%) (0.5%) ----- ----- ----- Provision for income taxes.................................. 0.0% 0.0% 0.0% ===== ===== ===== </TABLE> 11. COMMITMENTS AND CONTINGENCIES The Company leases its corporate office space and certain office equipment under noncancelable operating leases. The Company incurred rent expense of approximately $146,000, $318,000 and $697,000 in 1994, 1995 and 1996, respectively. Approximate future minimum lease payments at December 31, 1996, under noncancelable operating leases with original terms exceeding one year, including the Pegasus UK operating lease translated at the rate in effect at December 31, 1996, were as follows: <TABLE> <CAPTION> YEAR ENDING DECEMBER 31, ------------ <S> <C> <C> 1997............................................................. $ 673,000 1998............................................................. 621,000 1999............................................................. 597,000 2000............................................................. 567,000 2001............................................................. 557,000 Thereafter.......................................................... 552,000 ---------- $3,567,000 ========== </TABLE> In June 1993, HCC received $2,000,000 from Citicorp in exchange for a five-year noncancelable data processing contract and recorded the amount as deferred income. The noncancelable contract requires Citicorp to process transactions and generate various reports in exchange for a processing fee. The contract requires HCC to maintain an annual minimum volume of transactions. If the annual minimum volume is not attained, HCC is required to pay Citicorp an additional processing fee for each transaction under the minimum volume. At the date of the Acquisition there was approximately $1,583,000 of deferred income to be amortized over the remaining life of the contract according to the volume of guaranteed transactions, as defined by the contract. During 1995 and 1996, the Company recognized approximately $210,000 and $431,000, respectively, of the deferred income. However, because the Company did not meet its annual minimum volume of transactions during 1995, it also recorded an additional processing fee of approximately $44,700 for the year ended December 31, 1995. In 1996, the Company exceeded the annual minimum volume requirement. 12. EMPLOYEE BENEFIT PLAN The Company sponsors a 401(k) defined contribution retirement plan (401(k) Plan) covering full-time employees who have completed one year of service and attained the age of twenty-one. Effective January 1, 1995, the 401(k) Plan was amended to change the pro rata vesting schedule from two to five years. The sponsor can make discretionary matching contributions up to five percent of employees' annual contributions. During 1994, 1995 and 1996, the Company contributed approximately $34,000, $101,000 and $160,000, respectively, to the 401(k) Plan. F-20 90 PEGASUS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Prior to the Acquisition of HCC by THISCO, both companies participated in the 401(k) Plan. Accordingly, prior to the Acquisition, HCC contributed $20,000 and $18,000 in 1994 and 1995, respectively. 13. SUBSEQUENT EVENT The Company has a note payable to a shareholder with a principal balance outstanding of $4,261,482 at December 31, 1995 and 1996. The original terms of the note called for five equal payments of principal and interest beginning in the year that THISCO generated a net profit, but due in full no later than June 30, 2001. Effective January 1997, the Company began remitting equal monthly payments of principal and interest. In May, 1997, the Company issued a warrant to a customer for the purchase of 345,723 shares of the Company's common stock. The warrants are exercisable during the two year period ended May 12, 1999 at an exercise price equal to the lower of $7.20 per share or 85.0% of the IPO price per share. 14. RELATED PARTIES As explained in Note 1, the Company derives a substantial portion of its revenue from shareholders and shareholder-owned companies through the operation of its international automated interface called Ultraswitch. Also, as a result of the Acquisition of HCC in July 1995, a significant portion of the Company's revenue is generated indirectly by shareholders as a function of the Company's role as the consolidator and payor of commissions to travel agencies. The Company receives a fee from hotels for consolidating and remitting commission payments to travel agencies on behalf of the hotel properties and receives a fee from travel agencies through the retention of a percentage of commission payments remitted to travel agencies. A summary of revenues is as follows: <TABLE> <CAPTION> 1994 1995 1996 ------------------ ------------------ ------------------- SOURCE OF REVENUE AMOUNT % AMOUNT % AMOUNT % ----------------- ---------- ----- ---------- ----- ----------- ----- <S> <C> <C> <C> <C> <C> <C> Shareholders -- direct......... $3,772,458 80.9% $4,950,266 53.2% $ 6,458,380 40.7% Shareholders -- indirect....... 719,527 15.4% 2,450,326 26.4% 5,503,065 34.7% ---------- ----- ---------- ----- ----------- ----- Total generated by shareholders directly and indirectly...... 4,491,985 96.3% 7,400,592 79.6% 11,961,445 75.4% All other revenue.............. 174,466 3.7% 1,895,136 20.4% 3,907,567 24.6% ---------- ----- ---------- ----- ----------- ----- Total................ $4,666,451 100.0% $9,295,728 100.0% $15,869,012 100.0% ========== ===== ========== ===== =========== ===== </TABLE> A shareholder provides services to the Company, including facility management, consulting and software development. During 1994, 1995 and 1996, the Company recognized expense in the amount of approximately $454,000, $495,000 and $774,000, respectively, for those services. Further, the Company capitalized $42,000 and $210,000 related to software development and property and equipment during 1994 and 1995, respectively. Persons related to an officer of the Company have provided printing, design and procurement services to the Company. During 1994, 1995 and 1996, the Company paid approximately $95,000, $48,000 and $143,000, respectively, relating to these services, the majority of which related to capitalized furniture purchases. 15. STOCK SPLIT The Company plans to proceed with an IPO in 1997. Consequently, the Company approved the declaration of a four-for-three stock split of the outstanding common and preferred stock effected in the form of a dividend to shareholders of record on the effective date of the Registration Statement on Form S-1 with respect to the IPO. The number of shares of common stock the Company is authorized to issue will increase from 20 million to 100 million and the number of authorized shares of preferred stock will remain 2.0 million. As stated in Note 1, the financial statements have been adjusted retroactively for the four-for-three split. F-21 91 PEGASUS SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS <TABLE> <CAPTION> MARCH 31, PRO FORMA 1997 (NOTE 7) ------------ ------------ <S> <C> <C> Cash and cash equivalents................................... $ 2,441,474 $ 2,441,474 Restricted cash............................................. 845,665 845,665 Short-term investments...................................... 983,604 983,604 Accounts receivable, net of allowance for doubtful accounts of $61,262................................................ 1,189,889 1,189,889 Accounts receivable from affiliates......................... 1,261,241 1,261,241 Other current assets........................................ 248,199 248,199 ------------ ------------ Total current assets.............................. 6,970,072 6,970,072 Software development costs.................................. 1,761,465 1,761,465 Property and equipment, net................................. 3,163,499 3,163,499 Goodwill, net of accumulated depreciation of $210,161....... 1,654,554 1,654,554 Other noncurrent assets..................................... 51,074 51,074 ------------ ------------ Total assets...................................... $ 13,600,664 $ 13,600,664 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and accrued liabilities.................... $ 2,499,065 $ 2,499,065 Accounts payable to affiliates.............................. 140,729 140,729 Unearned income............................................. 1,029,107 1,029,107 Current portion of capital lease obligations................ 1,090,121 1,090,121 Current portion of notes payable to affiliates.............. 805,818 805,818 ------------ ------------ Total current liabilities......................... 5,564,840 5,564,840 Capital lease obligations, net of current portion........... 1,539,710 1,539,710 Notes payable to affiliates, net of current portion......... 4,417,010 4,417,010 Unearned income............................................. 352,941 352,941 Other noncurrent liabilities................................ 125,684 125,684 Minority interest........................................... -- -- Shareholders' equity: Preferred stock, $.01 par value; 2,000,000 shares authorized; 1,538,463 shares issued and outstanding (actual); no shares outstanding (pro forma)............... 15,385 -- Common stock, $.01 par value; 100,000,000 shares authorized, 5,307,733 shares issued (actual); 6,846,196 shares issued (pro forma)............................................... 53,077 68,462 Additional paid-in capital.................................. 16,968,364 16,968,364 Unearned compensation....................................... (451,488) (451,488) Accumulated deficit......................................... (14,958,521) (14,958,521) Less treasury stock (116,484, at cost)...................... (26,338) (26,338) ------------ ------------ Total shareholders' equity........................ 1,600,479 1,600,479 ------------ ------------ Total liabilities and shareholders' equity........ $ 13,600,664 $ 13,600,664 ============ ============ </TABLE> See accompanying notes to consolidated interim financial statements. F-22 92 PEGASUS SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ------------------------ 1996 1997 ---------- ---------- <S> <C> <C> Net revenues Shareholder............................................... $3,052,212 $3,120,692 Nonshareholder............................................ 750,955 1,255,871 ---------- ---------- Total revenues.................................... 3,803,167 4,376,563 Cost of services............................................ 1,637,870 1,557,656 Research and development.................................... 627,112 622,727 General and administrative expenses......................... 692,071 855,531 Marketing and promotion expenses............................ 643,884 865,307 Depreciation and amortization............................... 909,493 707,458 ---------- ---------- Operating income (loss)..................................... (707,263) (232,116) Other (income) expense: Interest expense.......................................... 211,573 212,150 Interest income........................................... -- (55,902) ---------- ---------- Loss before income taxes and minority interest.............. (918,836) (388,364) Income taxes................................................ -- -- ---------- ---------- Loss before minority interest............................... (918,836) (388,364) Minority interest........................................... (47,961) -- ---------- ---------- Net loss.................................................... $ (966,797) $ (388,364) ========== ========== Unaudited pro forma data (Notes 3 and 4): Pro forma net loss per share................................ $ (0.05) ========== Weighted average shares outstanding used in the pro forma net loss per share calculation............................ 7,480,899 ========== Supplemental pro forma net loss per share................... $ (0.03) ========== Weighted average shares used in the supplemental pro forma net loss per share calculation............................ 8,005,689 ========== </TABLE> See accompanying notes to consolidated interim financial statements. F-23 93 PEGASUS SYSTEMS, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) <TABLE> <CAPTION> PREFERRED STOCK COMMON STOCK -------------------------------------------------- ------------------- ADDITIONAL NUMBER OF NUMBER OF PAID-IN UNEARNED SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION ---------------------------------------- ------- --------- ------- ----------- ------------ <S> <C> <C> <C> <C> <C> <C> Balance at December 31, 1996............... 1,538,463 $15,385 5,307,733 $53,077 $16,968,364 $(485,937) Compensation expense for vesting of stock options...... 34,449 Net loss............. -- -- -- -- -- -- ---------- ------- --------- ------- ----------- --------- Balance at March 31, 1997............... 1,538,463 $15,385 5,307,733 $53,077 $16,968,364 $(451,488) ========== ======= ========= ======= =========== ========= <CAPTION> TREASURY STOCK -------------------- NUMBER OF ACCUMULATED SHARES AMOUNT DEFICIT TOTAL --------- -------- ------------ ---------- <S> <C> <C> <C> <C> Balance at December 31, 1996............... (116,484) $(26,338) $(14,570,157) $1,954,394 Compensation expense for vesting of stock options...... 34,449 Net loss............. -- -- (388,364) (388,364) -------- -------- ------------ ---------- Balance at March 31, 1997............... (116,484) $(26,338) $(14,958,521) $1,600,479 ======== ======== ============ ========== </TABLE> See accompanying notes to consolidated interim financial statements. F-24 94 PEGASUS SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ------------------------ 1996 1997 --------- ----------- <S> <C> <C> Cash flows from operating activities: Net loss.................................................. $(966,797) $ (388,364) Adjustments to reconcile net loss to net cash provided by operating activities: Minority share of net gain (loss)...................... 47,961 -- Loss (gain) on sale of equipment....................... 9,988 -- Depreciation and amortization.......................... 909,493 707,458 Adjustment for discontinued software................... 316,698 -- Proceeds from increase in long-term notes payable accrued interest...................................... 21,229 22,671 Changes in assets and liabilities: Restricted cash...................................... 1,254 (155,459) Accounts receivable.................................. 59,349 (264,938) Accounts receivable from affiliates.................. (777,980) (506,836) Short-term investments............................... -- 446,040 Other current and noncurrent assets.................. (41,083) (79,028) Accounts payable and accrued liabilities............. 676,004 (75,121) Accounts payable to affiliates....................... 393,668 25,680 Unearned income...................................... (102,847) 440,872 Unearned compensation................................ -- 34,449 Other noncurrent liabilities......................... 25,867 5,976 --------- ----------- Net cash provided by operating activities......... $ 572,804 $ 213,400 ========= =========== Cash flows from investing activities: Purchase of software, property and equipment.............. $(158,441) $ (407,291) Proceeds from sale of software, property and equipment.... 132,328 -- Purchase of marketable securities......................... -- (1,429,645) Proceeds from sale of marketable securities............... -- 2,705,076 --------- ----------- Net cash provided by (used in) investing activities....................................... (26,113) 868,140 --------- ----------- Cash flows from financing activities: Repayments of notes payable............................... (235,000) (188,928) Repayments of capital leases.............................. (168,833) (251,362) Proceeds from capital leases.............................. -- 3,913 --------- ----------- Net cash used in financing activities............. (403,833) (436,377) --------- ----------- Net increase in cash and cash equivalents................... 142,858 645,163 Cash and cash equivalents, beginning year................... 93,831 1,796,311 --------- ----------- Cash and cash equivalents, end of year...................... $ 236,689 $ 2,441,474 ========= =========== Supplemental schedule of noncash investing and financing activities: Acquisition of equipment under capital leases............. $ -- $ 79,144 ========= =========== </TABLE> See accompanying notes to consolidated interim financial statements. F-25 95 PEGASUS SYSTEMS, INC. NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION In July 1995, Pegasus Systems, Inc. (Pegasus or the Company) was formed as a Delaware holding company to combine the operations of two existing companies operating in the same industry, The Hotel Industry Switch Company, Inc. (THISCO) and The Hotel Clearing Corporation (HCC). For accounting purposes, the combination was recorded as a purchase of HCC. The accompanying financial statements include the consolidated accounts of Pegasus and its wholly owned subsidiaries, THISCO and HCC. THISCO is consolidated with its wholly owned subsidiary, TravelWeb, Inc. (TravelWeb), and HCC is consolidated with its wholly owned subsidiary, Pegasus Systems Inc. (UK) Limited (Pegasus UK, formerly The Hotel Clearing Corporation (UK) Limited), (collectively, the Company). All significant intercompany balances have been eliminated in consolidation. THISCO was formed in September 1988 as a Delaware corporation. The Company's THISCO service provides an electronic interface from hotel central reservation systems to travel agencies through Global Distribution Systems ("GDSs"), which are electronic travel information and reservation systems such as SABRE. HCC, acquired by the Company in July 1995 (see Note 3), was formed in July 1991 as a Delaware corporation. The Company's HCC service consolidates commissions paid by participating hotels to a participating travel agency into a single monthly payment and provides participants with comprehensive transaction reports. Hotel properties and travel agencies worldwide utilize the HCC service to increase the efficiency and reduce costs associated with preparing, paying and reconciling hotel room reservation commissions. TravelWeb was formed in October 1995 as a Delaware corporation. The Company's TravelWeb service provides individual travelers direct access to online hotel information and the ability to make reservations electronically at hotel properties. In addition, through its recently introduced NetBooker service, the Company offers TravelWeb's comprehensive hotel database and Internet hotel reservation capabilities to third-party Web sites. Pegasus UK, a wholly-owned subsidiary of HCC, was formed in September 1993 in England to market and provide services for travel agents and hotel chains operating in Europe, Africa and Asia. The financial information presented herein should be read in conjunction with the Company's annual consolidated financial statements for the year ended December 31, 1996. The foregoing unaudited interim consolidated financial statements reflect all adjustments (all of which are of a normal recurring nature) which are, in the opinion of management, necessary for a fair presentation of the results of the interim periods. The results for interim periods are not necessarily indicative of results to be expected for the year. 2. STOCK SPLITS A one hundred-for-one stock split was effected in June 1996. All references in the consolidated financial statements to shares, share prices, per share amounts and stock plans have been adjusted retroactively for the one hundred-for-one stock split. The Company plans to proceed with an IPO in 1997. Consequently, in May 1977 the Board of Directors approved the declaration of a four-for-three stock split of the outstanding common and preferred stock effected in the form of a dividend to stockholders of record on the effective date of the Registration Statement on Form S-1 with respect to the IPO. The number of shares of common stock the Company is authorized to issue will increase from 20 million to 100,000,000 and the number of authorized shares of preferred stock will remain two million. All references in the consolidated financial statements to shares, share prices, per share amounts and stock plans have been adjusted retroactively for the four-for-three stock split. F-26 96 PEGASUS SYSTEMS, INC. NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED) 3. PRO FORMA NET LOSS PER SHARE Historical loss per share has been excluded from the Company's statements of operations on the basis that it is irrelevant due to the planned conversion of all outstanding Series A preferred stock to common stock on a one-for-one basis concurrent with the effectiveness of the Company's initial public offering. Pro forma net loss per share has been computed using the weighted average number of common shares outstanding after giving retroactive effect to the four-for-three stock split to be effected upon effectiveness of the Company's Registration Statement on Form S-1 (see Note 7) and assuming that (i) all shares of Series A preferred stock have been converted to shares of common stock as of the date of issuance (see Note 8) and (ii) all shares, options and warrants issued subsequent to June 1, 1996, at an exercise price less the initial public offering (IPO) price have been included in the calculation as if they were outstanding for the entire period presented using the treasury stock method and the IPO price. 4. SUPPLEMENTAL PRO FORMA NET LOSS PER SHARE Supplemental pro forma net loss per share is based on the weighted average number of shares of common stock used in the calculation of pro forma net loss per share, plus the number of shares (524,790 for the three months ended March 31, 1997) that the Company would need to repay $5,222,828 of indebtedness outstanding under notes payable to certain stockholders of the Company at March 31, 1997. For purposes of computing supplemental pro forma net loss per share (unaudited), the pro forma net loss for the three months ended March 31, 1997 was reduced by $130,639, representing elimination of the related interest expense on such notes payable. 5. EARNINGS PER SHARE In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings per Share" (FAS 128), was issued. FAS 128 specifies the computation, presentation and disclosure requirements for earnings per share (EPS) for entities with publicly held common stock or potential common stock. FAS 128 simplifies the standards for computing EPS previously found in Accounting Principles Board Opinion No. 15, "Earnings per Share" (APB 15), and makes them comparable to international EPS standards. It replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the statement of operations for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. FAS 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods; earlier application is not permitted. FAS 128 requires restatement of all prior-period EPS data presented. The Company will adopt FAS 128 in the year ending December 31, 1997 and, based on current circumstances, does not believe the effect of adoption will be material. 6. SUBSEQUENT EVENT In May 1997, the Company issued a warrant to a customer for the purchase of 345,723 shares of the Company's common stock. The warrants are exercisable during the two year period ended May 12, 1999 at an exercise price equal to the lower of $7.20 per share or 85.0% of the IPO price per share. 7. PRO FORMA BALANCE SHEET In conjunction with the Company's planned IPO, all outstanding shares of Series A preferred stock will be converted on a one-for-one basis to common stock concurrent with the effectiveness of the Company's Registration Statement on Form S-1. Accordingly, the pro forma balance sheet at March 31, 1997 gives effect to the conversion of the 1,538,463 shares of Series A preferred stock to 1,538,463 shares of Series A common stock as if such conversion had occurred as of the balance sheet date. F-27 97 INDEPENDENT AUDITOR'S REPORT To the Shareholders The Hotel Clearing Corporation We have audited the accompanying consolidated balance sheets of The Hotel Clearing Corporation and its subsidiary as of December 31, 1993 and 1994, and the related consolidated statements of operations, shareholders' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Hotel Clearing Corporation as of December 31, 1993 and 1994, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Belew Averitt LLP Dallas, Texas April 4, 1995, except for Note 12, as to which the date is August 21, 1995 F-28 98 THE HOTEL CLEARING CORPORATION CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1993 AND 1994 ASSETS <TABLE> <CAPTION> 1993 1994 ----------- ----------- <S> <C> <C> Current assets: Cash and cash equivalents................................. $ 37,835 $ 7,612 Accounts receivable, net (Note 3)......................... 215,382 194,493 Accounts receivable from affiliates....................... 14,496 17,732 Prepaid expenses.......................................... 21,230 15,923 ----------- ----------- Total current assets.............................. 288,943 235,760 Property and equipment, net (Note 4)........................ 210,445 209,640 ----------- ----------- Total assets...................................... $ 499,388 $ 445,400 =========== =========== LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Accounts payable and accrued liabilities.................. $ 368,920 $ 601,177 Accounts payable to affiliates............................ 29,126 187,472 Current portion of unearned income........................ 274,510 352,941 Line-of-credit (Note 6)................................... 180,000 -- Current portion of notes payable to affiliates (Note 6)... -- 786,478 Current portion of capital lease obligations (Note 5)..... 33,500 52,528 ----------- ----------- Total current liabilities......................... 886,056 1,980,596 Capital lease obligations, net of current portion (Note 5)........................................................ 58,381 48,929 Notes payable to affiliates (Note 6)........................ 747,139 -- Unearned income, net of current portion (Note 12)........... 1,725,490 1,372,549 ----------- ----------- Total liabilities................................. 3,417,066 3,402,074 Commitments and contingencies (Notes 8 and 12).............. -- -- Shareholders' deficit (Note 7): Preferred stock: Series A............................................... 2 2 Series B............................................... 1 1 Common stock.............................................. 10 10 Additional paid-in capital................................ 1,702,885 1,702,885 Accumulated deficit....................................... (4,620,576) (4,659,572) ----------- ----------- Total shareholders' deficit....................... (2,917,678) (2,956,674) ----------- ----------- Total liabilities and shareholders' deficit....... $ 499,388 $ 445,400 =========== =========== </TABLE> See accompanying notes to consolidated financial statements. F-29 99 THE HOTEL CLEARING CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1993 AND 1994 <TABLE> <CAPTION> 1993 1994 ----------- ---------- <S> <C> <C> Net revenues (Note 8): Shareholder............................................... $ 1,515,686 $2,397,236 Nonshareholder............................................ 8,691 349,255 ----------- ---------- 1,524,377 2,746,491 Operating expenses: General and administrative expenses....................... 2,215,356 1,763,754 Other operating expenses.................................. 531,345 878,444 Depreciation and amortization............................. 113,064 65,216 ----------- ---------- Total operating expenses.......................... 2,859,765 2,707,414 ----------- ---------- Operating income (loss)..................................... (1,335,388) 39,077 Interest expense............................................ 97,448 78,073 ----------- ---------- Loss before income taxes and extraordinary gain............. (1,432,836) (38,996) Income taxes (Note 9)....................................... -- -- ----------- ---------- Loss before extraordinary gain.............................. (1,432,836) (38,996) Extraordinary gain (Note 11)................................ 269,310 -- ----------- ---------- Net loss.................................................... $(1,163,526) $ (38,996) =========== ========== </TABLE> See accompanying notes to consolidated financial statements. F-30 100 THE HOTEL CLEARING CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT YEARS ENDED DECEMBER 31, 1993 AND 1994 <TABLE> <CAPTION> PREFERRED STOCK COMMON STOCK ------------------ ------------------ ADDITIONAL NUMBER OF NUMBER OF PAID-IN ACCUMULATED SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL --------- ------ --------- ------ ---------- ----------- ----------- <S> <C> <C> <C> <C> <C> <C> <C> Balance, December 31, 1992............. -- $-- 9 $ 1 $ 550,997 $(3,457,050) $(2,906,052) 105-for-1 stock split.................. -- -- 936 9 (9) -- -- Preferred stock issuance: Series A............................. 210 2 -- -- 1,049,998 -- 1,050,000 Series B............................. 20 1 -- -- 1,899 -- 1,900 Conversion of note payable into common stock................................ -- -- 105 -- 100,000 -- 100,000 Net loss............................... -- -- -- -- -- (1,163,526) (1,163,526) --- --- ----- --- ---------- ----------- ----------- Balance, December 31, 1993............. 230 3 1,050 10 1,702,885 (4,620,576) (2,917,678) Net loss............................... -- -- -- -- -- (38,996) (38,996) --- --- ----- --- ---------- ----------- ----------- Balance, December 31, 1994............. 230 $ 3 1,050 $10 $1,702,885 $(4,659,572) $(2,956,674) === === ===== === ========== =========== =========== </TABLE> See accompanying notes to consolidated financial statements. F-31 101 THE HOTEL CLEARING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1993 AND 1994 <TABLE> <CAPTION> 1993 1994 ----------- --------- <S> <C> <C> Cash flows from operating activities: Net loss.................................................. $(1,163,526) $ (38,996) Adjustments to reconcile net loss to cash provided (used) by operating activities: Loss on sale of equipment.............................. -- 125 Depreciation and amortization.......................... 113,064 65,216 Reclassification of accrued interest to notes payable to affiliates......................................... 56,107 58,614 Gain on extinguishment of debt......................... (269,310) -- Deferred income recognition............................ -- (274,510) (Increase) decrease in: Accounts receivable, net............................. (166,190) 20,889 Accounts receivable from affiliates.................. (14,496) (3,236) Prepaid expenses..................................... (6,230) 5,307 Increase (decrease) in: Accounts payable and accrued liabilities............. (55,410) 232,257 Accounts payable to affiliate........................ (14,163) 158,346 ----------- --------- Net cash provided (used) by operating activities...................................... (1,520,154) 224,012 Cash flows from investing activities: Purchase of property and equipment........................ (34,266) (42,612) Proceeds from sale of equipment........................... -- 21,152 ----------- --------- Net cash used by investing activities............. (34,266) (21,460) Cash flows from financing activities: Proceeds from issuance of stock........................... 1,900 -- Proceeds from installment payments on stock purchase...... 1,050,000 -- Proceeds from contract commitment -- deferred income...... 2,000,000 -- Proceeds (repayment) of line-of-credit.................... 180,000 (180,000) Repayment of notes payable................................ (1,640,000) (19,275) Repayment of capital leases............................... (14,437) (33,500) ----------- --------- Net cash provided (used) by financing activities...................................... 1,577,463 (232,775) ----------- --------- Net increase (decrease) in cash and cash equivalents........ 23,043 (30,223) Cash and cash equivalents, beginning of period.............. 14,792 37,835 ----------- --------- Cash and cash equivalents, end of period.................... $ 37,835 $ 7,612 =========== ========= Supplemental disclosures of cash flow information --Interest paid...................................................... $ 70,789 $ 19,458 =========== ========= Supplemental schedule of noncash investing and financing activities: Issuance of capital lease obligation for computer equipment.............................................. $ 106,318 $ 43,076 =========== ========= Conversion of note payable to common stock................ $ 100,000 $ -- =========== ========= </TABLE> See accompanying notes to consolidated financial statements. F-32 102 THE HOTEL CLEARING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993 AND 1994 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization and background -- The Hotel Clearing Corporation (HCC) was incorporated as a Delaware corporation on July 25, 1991, to market and operate an automated commission payment processing service that consolidates commissions paid by participating hotels to a participating travel agency into a single monthly payment and provides participants with comprehensive transaction reports. HCC collects commissions from participating hotel chains and remits these commissions to participating travel agents. Consolidation -- The consolidated financial statements include the accounts of HCC and its wholly-owned subsidiary, The Hotel Clearing Corporation (U.K.) Limited (HCC U.K.) (collectively, the Company). HCC U.K. commenced operations in England on September 2, 1993 to market and provide related services for travel agents and hotel chains operating in Europe. All significant intercompany balances and transactions have been eliminated. Cash and cash equivalents -- The Company considers all highly-liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Software development costs -- All costs incurred in the internal development of computer software used in delivery of the Company's services are expensed until a product design and a working model of the software have been tested and completed. Thereafter, any further development or production costs are capitalized. Maintenance and customer support costs are expensed when incurred. Capitalized costs are being amortized over three to five years using the straightline method. During 1993, the Company amortized approximately $78,000 of capitalized software costs. No software development costs were capitalized in 1993 or 1994. Property and equipment -- Property and equipment are recorded at cost and are depreciated using the straight-line method over their estimated useful lives, ranging from five to seven years. Expenditures for maintenance and repairs, as well as minor renewals, are charged to operations as incurred. Betterments and major renewals are capitalized. Upon retirement or sale of an asset, the cost of the asset and the related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is credited or charged to operations. Leasehold improvements -- Leasehold improvements are recorded at cost and are amortized using the straight-line method over four years, which is the life of the lease. Revenues -- HCC's revenues are derived primarily from travel agencies. HCC processes commission payments to travel agencies on behalf of both shareholder and nonshareholder hotels. HCC also provides transaction detail reports and hotel booking reconciliation services to travel agencies. For these services, HCC receives a percentage of the travel agencies' commissions paid through HCC. HCC also earns transaction fees from the participating hotels. These revenues are recorded as earned throughout the year. Revenue related to term contracts are deferred and amortized into income over the life of the contracts. For the years ended December 31, 1993 and 1994, HCC's revenues from hotels are presented net of commission payments to travel agencies of $22,211,781 and $34,218,496, respectively. Federal income taxes -- Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes" which requires an asset and liability approach to financial accounting for income taxes. In the event differences between the financial reporting basis and the tax basis of HCC's assets and liabilities result in deferred tax assets, SFAS 109 requires an evaluation of the probability of being able to realize the future benefits indicated by such assets. A valuation allowance is provided for a portion or all of the deferred tax assets when there is an uncertainty regarding the Company's ability to recognize the benefits of the assets in future years. F-33 103 THE HOTEL CLEARING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Concentration of credit risk -- The Company's financial instruments exposed to concentration of credit risk consist primarily of its trade receivables. The majority of receivables are due from shareholders who are well-established entities in the travel industry. As a result, credit risk is considered limited. Reclassifications -- Certain 1993 balances have been reclassified to conform to the 1994 presentation. 2. OPERATIONS During 1994, the Company increased revenues $1,222,114 to $2,746,491, reduced operating expenses $152,351 to $2,707,414 and generated positive cash flows of $224,012 from operations, yet the Company incurred a net loss of $38,996 and has a shareholders' deficit of $2,956,674 at December 31, 1994. The Company's business plan contemplates additional revenue increases through the addition of more hotels and travel agents to its commission payment services sufficient to meet current working capital needs to nonshareholders. In addition, the Company has plans to negotiate an extension of payment terms on existing short-term debt to shareholders of $655,725 and accrued interest of $130,756. However, the Company may continue to require additional capital contributions and borrowings from shareholders. Common stock agreements contain provisions whereby the shareholders are required, as defined, to contribute additional capital and lend additional amounts to the Company. There can be no guarantee, however, that funds from these sources or any other source will be available to the Company (see Note 13). 3. ACCOUNTS RECEIVABLE The Company collects travel agents' commissions from hotel chains and, after retaining a portion of these commissions, remits net commissions to the travel agents. Net accounts receivable included in the accompanying consolidated balance sheets were as follows: <TABLE> <CAPTION> 1993 1994 ----------- ----------- <S> <C> <C> Amounts due from hotel chains........... $ 2,256,086 $ 3,021,542 Net commissions due to travel agents.... (2,040,704) (2,827,049) ----------- ----------- $ 215,382 $ 194,493 =========== =========== </TABLE> The accounts receivable from affiliates results from transaction fees charged to shareholder hotels. 4. PROPERTY AND EQUIPMENT Property and equipment at December 31 consisted of the following: <TABLE> <CAPTION> 1993 1994 ----------- ----------- <S> <C> <C> Computer equipment...................... $ 111,587 $ 129,031 Furniture and equipment................. 85,105 112,697 Office equipment........................ 58,022 75,359 Leasehold improvements.................. 1,724 1,724 ----------- ----------- 256,438 318,811 Less accumulated depreciation........... (45,993) (109,171) ----------- ----------- $ 210,445 $ 209,640 =========== =========== </TABLE> F-34 104 THE HOTEL CLEARING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. CAPITAL LEASES Assets recorded under capital leases are recorded at the lower of present value of future minimum lease payments or the fair value of the asset. Total assets recorded under capital leases at December 31, 1993 and 1994 were $106,318 and $149,394, respectively, net of accumulated amortization of $11,375 and $51,615, respectively. The assets are amortized using the straight-line method over the shorter of their useful lives or the term of the related leases. Amortization of assets under capital leases are included in depreciation and amortization expense. Future minimum lease payments and related interest are as follows: <TABLE> <CAPTION> YEAR ENDING DECEMBER 31, ------------ <S> <C> 1995.................................. $ 62,937 1996.................................. 37,404 1997.................................. 15,828 -------- Total minimum lease payments............ 116,169 Less interest........................... 14,712 -------- 101,457 Less current portion.................... 52,528 -------- $ 48,929 ======== </TABLE> The interest rates on the capital leases range from 11.0% to 12.1%, which were imputed at the inception of the leases. 6. NOTES PAYABLE Notes payable consisted of the following: <TABLE> <CAPTION> 1993 1994 --------- --------- <S> <C> <C> Notes payable to shareholders, bearing interest at the prime rate plus 2.0% due December 31, 1995; the prime rate at December 31, 1994 was 8.5%; uncollateralized.............. $ 747,139 $ 786,478 Convertible line-of-credit to a preferred stock shareholder; accruing interest at the prime rate plus 2.0%; expires June 1, 1994; uncollateralized; paid on June 1, 1994...... 180,000 -- --------- --------- 927,139 786,478 Less current portion........................................ (180,000) (786,478) --------- --------- $ 747,139 $ -- ========= ========= </TABLE> 7. SHAREHOLDERS' DEFICIT In October, 1992, the Company entered into a non-refundable agreement with an investment group to purchase 210 shares of the Company's preferred stock for $1,500,000. The purchase was to be made in monthly installments of $150,000 which began October 1, 1992. On August 10, 1993, the investment group completed the funding of $1,500,000, at which time the 210 shares of preferred stock were issued. On August 10, 1993, the Board of Directors amended the Articles of Incorporation to increase the authorized number of common shares from 105,000 to 210,000 shares. In addition, the Board of Directors established a Series A and Series B preferred stock with 52,500 shares authorized for each series at a par value F-35 105 THE HOTEL CLEARING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) of $.01 per share. Such shares have preferential dividend rights. The Board of Directors' declared stock split of 105-for-1 for both common and preferred shares has been reflected in the financial statements. In August, 1993, the Company sold 20 shares of the Series B preferred stock to an officer of the Company for $95 per share. On December 31, 1993, a $100,000 note payable to a company was converted to 105 shares of common stock. The conversion did not result in a gain or loss. At December 31, 1994, the Company had the following shares issued and outstanding: <TABLE> <CAPTION> STOCK STOCK PAR AUTHORIZED ISSUED VALUE ---------- ------ ----- <S> <C> <C> <C> Common stock.............................................. 210,000 1,050 $.01 Preferred stock: Series A................................................ 52,500 210 $.01 Series B................................................ 52,500 20 $.01 </TABLE> The Company has agreements with its common shareholders whereby it can require them to make additional capital contributions. Also under the provisions of the agreements, the Company can require all common shareholders to lend additional funds to the Company in such amounts as determined by the Board of Directors. In the event a shareholder fails to contribute capital or lend funds to the Company, the Company can acquire the shareholder's shares at $.01 per share. 8. RELATED PARTIES The Company derives a substantial portion of its revenue from shareholder-owned companies. Also, much of the revenue is generated indirectly by shareholders as a function of HCC's role as the consolidator and payor of commissions to travel agencies. HCC makes commission payments to travel agencies on behalf of hotel properties and receives a percentage of the commission payment from the travel agent for this service. A summary of revenues is as follows: <TABLE> <CAPTION> 1993 1994 ------------------- ------------------- REVENUES AMOUNT % AMOUNT % -------- ---------- ----- ---------- ----- <S> <C> <C> <C> <C> Shareholders -- direct.................. $ 168,749 11.0% $ 232,173 8.5% Shareholders -- indirect................ 1,346,937 88.4% 2,165,063 78.8% ---------- ----- ---------- ----- Total generated by shareholders directly and indirectly........................ 1,515,686 99.4% 2,397,236 87.3% All other revenue....................... 8,691 0.6% 349,255 12.7% ---------- ----- ---------- ----- Total......................... $1,524,377 100.0% $2,746,491 100.0% ========== ===== ========== ===== </TABLE> The Company and The Hotel Industry Switch Company (THISCO) have management and certain shareholders in common. The Company pays a management fee to THISCO, which represents a portion of THISCO's management salaries and related benefits attributable to the Company's operations. Management fees paid to THISCO during 1993 and 1994 were $156,928 and $290,465, respectively. The Company utilizes THISCO's telecommunications network and various equipment. During 1993 and 1994, the Company paid THISCO $101,490 and $46,096, respectively, for the use of the network and this equipment. In 1993, THISCO also transferred $22,537 of furniture and equipment and the related capital lease obligation to HCC. F-36 106 THE HOTEL CLEARING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A shareholder provided services to the Company, including facility management, consulting and software development. During 1993 and 1994, the Company recognized expense in the amount of approximately $30,000 and $33,000, respectively, for those services. Persons related to an officer of the Company have provided printing, design and procurement services to the Company. During 1993 and 1994, the Company paid approximately $17,000 and $11,000, respectively, relating to these services. The Company has an agreement to sublease office space from THISCO for a four-year period under an operating lease agreement. Amounts paid to THISCO under this agreement during 1993 and 1994 were $106,454 and $105,863, respectively. Estimated future minimum lease payments due to THISCO at December 31, 1994 are as follows: <TABLE> <CAPTION> YEAR ENDING DECEMBER 31, ------------ <S> <C> 1995............................................ $119,000 1996............................................ 126,000 1997............................................ 21,000 -------- $266,000 ======== </TABLE> 9. INCOME TAXES During 1994, the Company recorded a long-term deferred tax asset of approximately $1,514,000, derived from net operating loss carryforwards and excess book depreciation over tax depreciation. The deferred tax asset is fully reserved because of uncertainty regarding the Company's ability to recognize the benefit of the asset in future years. The components of deferred income tax assets (liabilities) are as follows: <TABLE> <CAPTION> 1993 1994 ----------- ----------- <S> <C> <C> Net operating loss carryforward........................... $ 1,542,591 $ 1,509,551 Depreciation and amortization............................. (4,619) 4,391 Valuation allowance....................................... (1,537,972) (1,513,942) ----------- ----------- Net deferred tax asset.................................... $ -- $ -- =========== =========== </TABLE> At December 31, 1994, the Company had net operating loss carryforwards for tax reporting purposes of approximately $4,440,000. The net operating loss carryforwards will expire beginning in the year 2006, if not previously utilized. The provision for income taxes is as follows: <TABLE> <CAPTION> 1993 1994 -------- -------- <S> <C> <C> Current: Federal................................................... $ -- $ -- State..................................................... -- -- -------- -------- Deferred.................................................... -- -- -------- -------- $ -- ======== ======== </TABLE> F-37 107 THE HOTEL CLEARING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A reconciliation between the statutory Federal income tax rate and the effective income tax rates is as follows: <TABLE> <CAPTION> 1993 1994 ------ ------ <S> <C> <C> Statutory Federal income tax rate........................... 34.0% 34.0% Valuation allowance......................................... (34.0%) (34.0%) Provision for income taxes.................................. 0.0% 0.0% </TABLE> 10. EMPLOYEE BENEFIT PLAN The Company co-sponsors, with THISCO, a 401(k) defined contribution retirement plan covering full-time employees who have completed one year of service and obtained the age of twenty-one. According to the plan agreement, the Company has committed to match employee contributions up to 3.0% of the employee's qualified salary through December 31, 1994 and 5.0% thereafter. The Company contributed $20,904 and $19,791 to the Plan during 1993 and 1994, respectively. 11. EXTRAORDINARY GAIN The 1993 extraordinary gain of $269,310 represents the Company's net gain on the settlement of a note payable to a vendor. 12. CONTINGENCIES AND COMMITMENTS In June, 1993, HCC received $2,000,000 from Citicorp in exchange for a five-year non-cancelable data processing contract and recorded the amount as deferred income. The non-cancelable contract requires Citicorp to process transactions and generate various reports in exchange for a processing fee. The contract requires HCC to maintain an annual minimum volume of transactions. If the annual minimum volume is not attained, HCC is required to pay Citicorp an additional processing fee for each transaction under the minimum volume. HCC is recognizing the $2,000,000 of deferred income over the life of the contract, according to the volume of guaranteed transactions, as defined by the contract. During 1994, HCC recognized $274,510 of the $2,000,000 deferred income. However, because HCC did not meet its annual minimum volume of transactions, it also recorded an additional processing fee of $215,351. 13. SUBSEQUENT EVENTS Subsequent to December 31, 1994, the Company issued an additional 105 shares of common stock for $250,000 and obtained a short-term loan from a shareholder in the amount of $200,000. The short-term loan accrues interest at the prime rate plus 2.0% and is due on or before December 30, 1995. In August, 1995 the Company repurchased the 105 shares for $250,000. Pegasus Systems, Inc. (Pegasus) was formed to combine the operations of HCC and THISCO. For accounting purposes, the combination was recorded as a purchase of HCC. In July, 1995, Pegasus issued 4,934,667 shares of its common stock in exchange for all of the outstanding capital stock of THISCO and 83.3% of the ownership of HCC (the Reorganization). Lodging Network, Inc. (LNI) retained 210 shares of HCC preferred stock, representing a 16.7% minority ownership interest in HCC. In conjunction with the Reorganization, LNI was granted an option (LNI Option), expiring in July 1998, to exchange its 16.67% ownership interest in HCC for 448,667 shares of Pegasus' common stock. Also as part of this Reorganization, certain shareholders of the Company agreed to contribute outstanding debt totaling $337,500 to capital, effective immediately prior to closing. The remaining debt, after these contributions were renewed and extended, expires five years from the Agreement's closing date at an interest rate of prime plus 1.0%. F-38 108 THE HOTEL CLEARING CORPORATION CONSOLIDATED BALANCE SHEET (UNAUDITED) ASSETS <TABLE> <CAPTION> JUNE 30, 1995 ----------- <S> <C> Current assets: Cash and cash equivalents................................. $ 88,102 Accounts receivable, net.................................. 297,890 Accounts receivable from affiliates....................... 25,853 Prepaid expenses.......................................... 2,842 ----------- Total current assets.............................. 414,687 Property and equipment, net................................. 245,082 Other non-current assets.................................... 18,432 ----------- Total assets...................................... $ 678,201 =========== LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Accounts payable and accrued liabilities.................. $ 454,136 Accounts payable to affiliates............................ 244,020 Current portion of unearned income........................ 425,722 Current portion of notes payable to affiliates............ 855,725 Current portion of capital lease obligations.............. 51,727 ----------- Total current liabilities......................... 2,031,330 Capital lease obligations, net of current portion........... 21,793 Unearned income, net of current portion..................... 1,156,863 ----------- Total liabilities................................. 3,209,986 Shareholders' deficit: Preferred stock: Series A............................................... 2 Series B............................................... 1 Common stock.............................................. 11 Additional paid-in capital................................ 1,953,834 Accumulated deficit....................................... (4,485,633) ----------- Total shareholders' deficit....................... (2,531,785) ----------- Total liabilities and shareholders' deficit....... $ 678,201 =========== </TABLE> See accompanying notes to consolidated interim financial statements. F-39 109 THE HOTEL CLEARING CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) <TABLE> <CAPTION> SIX MONTHS ENDED JUNE 30, ------------------------ 1994 1995 ---------- ---------- <S> <C> <C> Net revenues: Shareholder............................................... $1,122,007 $1,481,282 Nonshareholder............................................ 144,303 677,993 ---------- ---------- Total revenues.................................... 1,266,310 2,159,275 Cost of services............................................ 245,760 674,880 Research and development.................................... 205,694 356,439 General and administrative expenses......................... 256,229 372,779 Marketing and promotion expenses............................ 406,199 486,555 Depreciation and amortization............................... 31,093 44,103 ---------- ---------- Operating income............................................ 121,335 224,519 Other expense: Interest expense............................................ 40,562 50,580 ---------- ---------- Income before income taxes.................................. 80,773 173,939 Income taxes................................................ -- -- ---------- ---------- Net income.................................................. $ 80,773 $ 173,939 ========== ========== </TABLE> See accompanying notes to consolidated interim financial statements. F-40 110 THE HOTEL CLEARING CORPORATION CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT (UNAUDITED) <TABLE> <CAPTION> PREFERRED STOCK COMMON STOCK ------------------ ------------------ ADDITIONAL NUMBER OF NUMBER OF PAID-IN ACCUMULATED SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL --------- ------ --------- ------ ---------- ----------- ----------- <S> <C> <C> <C> <C> <C> <C> <C> Balance at December 31, 1994.......... 230 $ 3 1,050 $10 $1,702,885 $(4,659,572) $(2,956,674) Issuance of common stock.............. -- -- 105 1 249,999 -- 250,000 Issuance of series B preferred stock, par value $.01...................... 10 -- -- -- 950 -- 950 Net income............................ -- -- -- -- -- 173,939 173,939 --- --- ----- --- ---------- ----------- ----------- Balance at June 30, 1995.............. 240 $ 3 1,155 $11 $1,953,834 $(4,485,633) $(2,531,785) === === ===== === ========== =========== =========== </TABLE> See accompanying notes to consolidated interim financial statements. F-41 111 THE HOTEL CLEARING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) <TABLE> <CAPTION> SIX MONTHS ENDED JUNE 30, ---------------------- 1994 1995 --------- --------- <S> <C> <C> Cash flows from operating activities: Net income............................ $ 80,773 $ 173,939 Adjustments to reconcile net income to cash provided (used) by operating activities: Depreciation and amortization...... 31,093 44,103 Proceeds from increase in long-term note payable accrued interest..... 27,109 -- Deferred income recognition........ (81,483) (142,905) (Increase) decrease in: Accounts receivable, net......... 15,087 (103,397) Accounts receivable from affiliates...................... (1,488) (8,121) Prepaid expenses................. 21,230 (5,351) Increase (decrease) in: Accounts payable and accrued liabilities..................... (190,688) (277,794) Accounts payable to affiliates... 220,575 56,548 --------- --------- Net cash provided (used) by operating activities........ 122,208 (262,978) --------- --------- Cash flows used by investing activities -- Purchase of property and equipment.... (3,060) (79,545) --------- --------- Cash flows from financing activities: Proceeds from issuance of stock....... -- 250,950 Proceeds from line-of-credit.......... 120,000 200,000 Repayment of line-of-credit........... (250,000) -- Repayment of notes payable............ (10,732) -- Repayment of capital leases........... (16,251) (27,937) --------- --------- Net cash provided (used) by financing activities........ (156,983) 423,013 --------- --------- Net increase (decrease) in cash and cash equivalents........................... (37,835) 80,490 Cash and cash equivalents, beginning of period................................ 37,835 7,612 --------- --------- Cash and cash equivalents, end of period................................ $ -- $ 88,102 ========= ========= </TABLE> See accompanying notes to consolidated interim financial statements. F-42 112 THE HOTEL CLEARING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying financial statements include the consolidated accounts of The Hotel Clearing Corporation (HCC) and its wholly owned subsidiary, The Hotel Clearing Corporation (U.K.) Limited (HCC U.K.) (collectively, the Company). All significant intercompany balances have been eliminated in consolidation. HCC was formed in July 1991 as a Delaware corporation to market and operate an international automated commission payment processing service that consolidates commissions paid by participating hotels to a participating travel agency into a single monthly payment and provides participants with comprehensive transaction reports. HCC collects commissions from participating hotel chains and remits these commissions to participating travel agents. HCC U.K., a wholly-owned subsidiary of HCC, was formed in September 1993 in England to market and provide services for travel agents and hotel chains operating in Europe, Africa and Asia. The financial information presented herein should be read in conjunction with the Company's consolidated financial statements as of and for the year ended December 31, 1994. The foregoing unaudited interim consolidated financial statements have been prepared to comply with the format of Pegasus Systems, Inc. (see Note 2) and reflect all adjustments (of a normal recurring nature) which are, in the opinion of management, necessary for a fair presentation of the results of the interim periods. The results for interim periods are not necessarily indicative of results to be expected for the year. 2. SUBSEQUENT EVENTS The accompanying unaudited interim consolidated financial statements present the operations of HCC for the period from January 1, 1995 through June 30, 1995. In July 1995, Pegasus Systems, Inc. (Pegasus) was formed as a Delaware holding company to combine the operations of HCC and The Hotel Industry Switch Company (THISCO). THISCO was formed in September 1988 to market and operate an international automated interface between travel agency, hotel and global travel reservation systems. Effective in July 1995, Pegasus issued 4,934,667 shares of its common stock in exchange for all of the outstanding capital stock of THISCO and 83.3% of the ownership of HCC (the Reorganization). Lodging Network, Inc. (LNI) retained 210 shares of HCC preferred stock, representing a 16.7% minority ownership interest in HCC. The Reorganization brought THISCO and HCC together under the control of Pegasus and was initiated to integrate and expand the existing businesses of THISCO and HCC. Pegasus was formed immediately prior to the transaction for the purpose of combining the two operations into a single operating entity. Prior to the Reorganization, THISCO and HCC were primarily controlled by a common (though not identical) group of shareholders and a common management group. For accounting purposes, the Reorganization was treated as an acquisition of HCC and accounted for as a purchase business combination. Accordingly, the HCC assets acquired and liabilities assumed were acquired at their fair values. The amount of the purchase price ($2.7 million) in excess of the fair value of net assets acquired has been recorded as goodwill and will be amortized on a straight-line basis over 15 years. Subsequent to June 30, 1995, the 105 shares issued during the six months ended June 30, 1995 were reacquired and retired by the Company at the original issuance price. F-43 113 DESCRIPTION OF INSIDE BACK COVER Pegasus Systems Inc. logo. THISCO logo. Depiction of computer screens showing pages from the TravelWeb site. Pages show a hotel's information and picture, resource information available from TravelWeb, TravelWeb home page and information for Click-it! Weekends. TravelWeb logo. HCC logo. 114 ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ------------------ TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> <C> Prospectus Summary................ 3 Risk Factors...................... 7 Use of Proceeds................... 14 Dividend Policy................... 14 Capitalization.................... 15 Dilution.......................... 16 Selected Consolidated Financial Data........................... 17 Management's Discussion and Analysis of Financial Condition and Results of Operations...... 20 Business.......................... 30 Management........................ 50 Certain Transactions.............. 57 Principal and Selling Stockholders................... 59 Description of Capital Stock...... 60 Shares Eligible for Future Sale... 62 Underwriting...................... 63 Legal Matters..................... 64 Experts........................... 64 Additional Information............ 65 Index to Consolidated Financial Statements..................... F-1 ------------------ UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. </TABLE> 2,971,300 SHARES [LOGO] COMMON STOCK --------------------------- PROSPECTUS --------------------------- HAMBRECHT & QUIST MONTGOMERY SECURITIES VOLPE BROWN WHELAN & COMPANY , 1997 ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ 115 PART II ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following fees are estimated, except for the SEC and NASD filing fees: <TABLE> <S> <C> SEC filing fee.............................................. $ 12,426 NASD filing fee............................................. 4,601 Blue Sky fees and expenses.................................. 5,000 Printing and engraving fees................................. * Accountants' fees and expenses.............................. * Legal fees and expenses..................................... * Transfer Agent's fees and expenses.......................... * Miscellaneous............................................... * -------- Total............................................. $750,000 ======== </TABLE> --------------- * To be provided by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law (the "DGCL") provides, in effect, that any person made a party to any action by reason of the fact that he is or was a director, officer, employee or agent of the Company may and, in certain cases, must be indemnified by the Company against, in the case of a non- derivative action, judgments, fines, amounts paid in settlement and reasonable expenses (including attorney's fees) incurred by him as a result of such action, and in the case of a derivative action, against expenses (including attorney's fees), if in either type of action he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. This indemnification does not apply, in a derivative action, to matters as to which it is adjudged that the director, officer, employee or agent is liable to the Company, unless upon court order it is determined that, despite such adjudication of liability, but in view of all the circumstances of the case, he is fairly and reasonably entitled to indemnity for expenses, and, in a non-derivative action, to any criminal proceeding in which such person had reasonable cause to believe his conduct was unlawful. Article Eight of the Company's Second Amended and Restated Certificate of Incorporation provides that no director of the Company shall be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by the DGCL. Article Eight of the Company's Second Amended and Restated Certificate of Incorporation also provides that the Company may indemnify to the fullest extent permitted by Delaware law any and all of its directors and officers, or former directors and officers, or any person who may have served at the Company's request as a director or officer of another corporation, partnership, joint venture, trust or other enterprise. In addition, Section 7.7 of the Company's Amended and Restated Bylaws provides that the Company shall indemnify to the fullest extent permitted by Delaware law any and all of its directors and officers, or former directors and officers, or any person who may have served at the Company's request as a director or officer of another corporation, partnership, joint venture, trust or other enterprise and may indemnify to the fullest extent permitted by Delaware law any employees and agents of the Company. Reference is made to the Underwriting Agreement filed as part of Exhibit 1.1 hereto, pursuant to which the Company has agreed to indemnify the underwriters against certain liabilities under the Securities Act. Reference is also made to the Rights Agreement filed as Exhibit 4.3 hereto, pursuant to which certain holders of capital stock of the Company named therein have agreed to indemnify officers and directors of the Company against certain liabilities under the Securities Act or the Exchange Act in the event Registrable Securities (as defined therein) held by such holders are included in the securities to be registered pursuant to a public offering by the Company. II-1 116 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. The following information relates to all securities issued or sold by the Company within the past three years and not registered under the Securities Act. Effective in July 1995, the Company issued 4,934,667 shares of Common Stock in exchange for all of the outstanding capital stock of The Hotel Industry Switch Company ("THISCO") and 83.3% of the outstanding capital stock of The Hotel Clearing Corporation ("HCC") (the "Reorganization") in accordance with Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"). In connection with the Reorganization, the Company granted to Lodging Network, Inc. an option (the "LNI Option") to exchange the remaining 16.7% of capital stock of HCC, which was held by LNI, for 448,667 shares of the Company's Common Stock. In addition, certain members of HCC management agreed to forfeit their rights to participate in a special HCC bonus plan in return for a cash payment and the opportunity to purchase an aggregate of 283,333 shares of Common Stock for $570,874. These shares were issued in accordance with Section 4(2) of the Securities Act. In June 1996, the Company issued to Information Associates, L.P. and Information Associates, C.V. an aggregate of 1,538,463 shares of Series A Preferred Stock for $4.88 per share in accordance with Section 4(2) of the Securities Act. In June 1996, the Company issued in accordance with Section 4(2) of the Securities Act 89,733 shares of the Common Stock and paid $2.0 million to LNI for the remaining outstanding capital stock of HCC held by LNI, and in connection therewith, the LNI Option was cancelled. In May 1997, the Company issued in accordance with Section 4(2) of the Securities Act warrants to purchase 345,723 shares of the Common Stock to Holiday Inn in connection with the Distribution Services Agreement between the Company and Holiday Inn. In June 1996, the Company adopted its 1996 Stock Option Plan, and the Company has issued to participants in such plan under Section 4(2) of the Securities Act and Rule 701 of the Securities Act options to purchase an aggregate of 771,733 shares of Common Stock. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits <TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------- ----------------------- <C> <S> +1.1 -- Form of Underwriting Agreement by and among the Company, the Selling Stockholders named therein and the Underwriters 2.1 -- Contribution and Restructuring Agreement dated effective as of July 21, 1995 by and among the Company and all of the stockholders of the Company 3.1 -- Amended and Restated Certificate of Incorporation 3.2 -- Amended and Restated Bylaws 3.3 -- Second Amended and Restated Certificate of Incorporation 3.4 -- Second Amended and Restated Bylaws +4.1 -- Specimen of Common Stock Certificate 4.2 -- Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, Second Amended and Restated Certificate of Incorporation and Second Amended and Restated Bylaws (see Exhibits 3.1, 3.2, 3.3 and 3.4) 4.3 -- Rights Agreement dated June 25, 1996 by and among the Company and certain holders of capital stock of the Company named therein 4.4 -- Common Stock Purchase Warrant issued to Holiday Hospitality Corporation +5.1 -- Opinion of Locke Purnell Rain Harrell (A Professional Corporation) 10.1 -- Employment Agreement dated June 25, 1996 between the Company and John F. Davis, III </TABLE> II-2 117 <TABLE> <C> <S> 10.2 -- Employment Agreement dated June 25, 1996 between the Company and Joseph W. Nicholson 10.3 -- Employment Letter Agreement dated August 29, 1996 between the Company and Jerome L. Galant 10.4 -- Employment Letter Agreement dated May 18, 1997 between the Company and Michael R. Donahue 10.5 -- 1996 Stock Option Plan, as amended 10.6 -- 1997 Stock Option Plan 10.7 -- Client Service Agreement, as amended, between the Company and Citibank, N.A. 10.8 -- Facilities Management Agreement dated January 1, 1996 between the Company and Anasazi, Inc. 10.9 -- Service Agreement dated December 13, 1996 between the Company and Comdisco, Inc. 10.10 -- Service Agreement dated January 17, 1997 between the Company and Genuity, Inc. 10.11 -- Intentionally Omitted 10.12 -- TravelWeb Participant Agreement dated January 17, 1996 between the Company and Hyatt Corporation 10.13 -- TravelWeb Participant Agreement dated July 15, 1995 between the Company and Inter-Continental Hotels Corporation 10.14 -- TravelWeb Participant Agreement dated April 27, 1995 between the Company and Hilton Hotels Corporation 10.15 -- TravelWeb Participant Agreement dated May 30, 1995 between the Company and Hilton International Co. 10.16 -- TravelWeb Participant Agreement dated September 3, 1996 between the Company and Choice Hotels International, Inc. 10.17 -- TravelWeb Participant Agreement dated April 18, 1996 between the Company and La Quinta Inns, Inc. 10.18 -- TravelWeb Participant Agreement dated May 31, 1996 between the Company and HFS Incorporated 10.19 -- TravelWeb Participation Agreement dated April 18, 1996 between the Company and ITT Sheraton Corporation 10.20 -- Letter Agreement relating to the TravelWeb service dated December 20, 1995 between the Company and Marriott International, Inc. *10.21 -- HCC Participant Agreement, as amended, between the Company and Hyatt Hotels Corporation *10.22 -- HCC Participant Agreement, as amended, between the Company and Inter-Continental Hotel Corp. *10.23 -- HCC Participant Agreement between Company and ITT Sheraton Corporation *10.24 -- HCC Participant Agreement between the Company and La Quinta Inns, Inc. *10.25 -- HCC Participant Agreement between the Company and HFS Incorporated *10.26 -- HCC Participant Agreement, as amended, between the Company and Westin Hotels Company </TABLE> II-3 118 <TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------------------------ ------------------------------------------------------------------------------------------ <C> <S> *10.27 -- HCC Participant Agreement, as amended between the Company and Best Western International, Ltd. *10.28 -- HCC Participant Agreement, as amended, between the Company and Utell International, Inc. *10.29 -- HCC Participant Agreement between the Company and Anasazi Service Corporation *10.30 -- HCC Participant Agreement between the Company and Marriott International, Inc. *10.31 -- HCC Participation Agreement, as amended, between the Company and Choice Hotels International, Inc. *10.32 -- HCC Participation Agreement, as amended, between the Company and Forte Hotels, Inc. *10.33 -- HCC Participation Agreement, as amended, between the Company and Promus Hotels, Inc. *10.34 -- UltraSwitch User Agreement dated November 17, 1995 between the Company and Westin Hotels & Resorts *10.35 -- UltraSwitch User Agreement dated February 23, 1996 between the Company and Best Western International *10.36 -- UltraSwitch User Agreement dated February 13, 1996 between the Company and Inter-Continental Hotels Corporation *10.37 -- UltraSwitch User Agreement dated January 4, 1996 between the Company and HFS Incorporated *10.38 -- UltraSwitch User Agreement dated February 1, 1996 between the Company and Hyatt Hotels Corporation *10.39 -- UltraSwitch User Agreement dated December 15, 1995 between the Company and Promus Hotels, Inc. *10.40 -- UltraSwitch User Agreement dated February 23, 1996 between the Company and La Quinta Inns, Inc. *10.41 -- UltraSwitch User Agreement dated January 8, 1997 between the Company and ITT Sheraton Corporation *10.42 -- UltraSwitch User Agreement dated April 25, 1996 between the Company and Hilton Hotels Corporation *10.43 -- UltraSwitch User Agreement dated August 16, 1995 between the Company and Choice Hotels International, Inc. *10.44 -- UltraSwitch User Agreement dated February 10, 1996 between the Company and Utell International Ltd. 10.45 -- Intentionally Omitted *10.46 -- UltraSwitch User Agreement dated December 31, 1995 between the Company and Marriott International, Inc. *10.47 -- UltraSwitch User Agreement dated February 23, 1996 between the Company and Forte Hotels, Inc. *10.48 -- Property Information Distribution Agreement dated March 7, 1997 between the Company and Anasazi, Inc. *10.49 -- Property Information Distribution Agreement dated March 4, 1997 between the Company and La Quinta Inns, Inc. </TABLE> II-4 119 <TABLE> <C> <S> *10.50 -- Property Information Distribution Agreement, as amended, dated April 2, 1997, between the Company and HFS Incorporated *10.51 -- Property Information Distribution Agreement dated June 2, 1997 between the Company and Promus Hotels, Inc. *10.52 -- Property Information Distribution Agreement dated May 2, 1997 between the Company and Best Western International, Inc. *10.53 -- Property Information Distribution Agreement dated March 11, 1997 between the Company and Hyatt Hotels Corporation *10.54 -- United States Subscriber Agreement dated October 12, 1993 between the Company and American Express Travel Related Services Company, Inc. *10.55 -- Distribution Services Agreement dated May 12, 1997 between the Company and Holiday Hospitality Corporation. 10.56 -- Office Lease dated October 1, 1995 between the Company and the Utah State Retirement Investment Fund relating to property located at 3811 Turtle Creek Blvd., Suite 1100, Dallas, Texas 75219. 11.1 -- Computation of Per Share Loss 16.1 -- Letter regarding Change in Certifying Accountant 21.1 -- Subsidiaries of the Company 23.1 -- Consent of Price Waterhouse LLP 23.2 -- Consent of Belew Averitt LLP +23.3 -- Consent of Locke Purnell Rain Harrell (A Professional Corporation) (included in its opinion filed as Exhibit 5.1) 24.1 -- Power of Attorney (See Page II-7) 27.1 -- Financial Data Schedule </TABLE> --------------- + To be filed by amendment. * Subject to request for confidentiality. (b) Financial Statement Schedules. <TABLE> <S> <C> Schedule II -- Valuation and Qualifying Accounts </TABLE> All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted because they are not required under the related instructions, are not applicable or the information has been provided in the Consolidated Financial Statements or the Notes thereto. II-5 120 ITEM 17. UNDERTAKINGS. The undersigned Company hereby undertakes to provide the representatives of the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the Company, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by any director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The Company hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-6 121 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Dallas, State of Texas, on this 5th day of June, 1997. PEGASUS SYSTEMS, INC. By: /s/ JOHN F. DAVIS, III ---------------------------------- John F. Davis, III Chief Executive Officer, President and Director Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. POWER OF ATTORNEY KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints John F. Davis, III, Jerome L. Galant and Ric L. Floyd, and each of them, such individual's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for such individual and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and any registration statement related to the offering contemplated by this registration statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully and to intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. <TABLE> <CAPTION> SIGNATURES TITLE DATE ---------- ----- ---- <C> <S> <C> /s/ JOHN F. DAVIS, III Chief Executive Officer, June 5, 1997 ----------------------------------------------------- President and Director John F. Davis, III (Principal Executive Officer) /s/ JEROME L. GALANT Chief Financial Officer June 5, 1997 ----------------------------------------------------- (Principal Financial Jerome L. Galant and Accounting Officer) /s/ JOHN W. BIGGS Director June 5, 1997 ----------------------------------------------------- John W. Biggs /s/ DONALD R. DIXON Director June 5, 1997 ----------------------------------------------------- Donald R. Dixon /s/ WILLIAM C. HAMMETT, JR. Director June 5, 1997 ----------------------------------------------------- William C. Hammett, Jr. /s/ IAN MALCOLM HIGHET Director June 5, 1997 ----------------------------------------------------- Ian Malcolm Highet </TABLE> II-7 122 <TABLE> <C> <S> <C> /s/ ROCKWELL A. SCHNABEL Director June 5, 1997 ------------------------------------------------------ Rockwell A. Schnabel /s/ PAUL J. TRAVERS Director June 5, 1997 ------------------------------------------------------ Paul J. Travers /s/ MARK C. WELLS Director June 5, 1997 ------------------------------------------------------ Mark C. Wells /s/ BRUCE WOLFF Director June 5, 1997 ------------------------------------------------------ Bruce Wolff </TABLE> II-8 123 SCHEDULE II PEGASUS SYSTEMS, INC. VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (IN THOUSANDS) <TABLE> <CAPTION> ADDITIONS ADDITIONS BALANCE AT CHARGED TO FROM BALANCE BEGINNING COSTS AND ACQUIRED AT END CLASSIFICATION OF PERIOD EXPENSES COMPANIES DEDUCTIONS OF PERIOD -------------- ---------- ---------- --------- ---------- --------- <S> <C> <C> <C> <C> <C> December 31, 1994: Allowance for doubtful accounts........ $ -- $ -- $ -- $ -- $ -- Income tax valuation allowance......... 2,400 132 -- -- 2,532 ------ ------ ---- ------- ------ Total reserves and allowances................... $2,400 $ 132 $ -- $ -- $2,532 ====== ====== ==== ======= ====== December 31, 1995: Allowance for doubtful accounts........ $ -- $ 20 $ -- $ -- $ 20 Income tax valuation allowance......... 2,532 589 407 -- 3,528 ------ ------ ---- ------- ------ Total reserves and allowances................... $2,532 $ 609 $407 $ -- $3,548 ====== ====== ==== ======= ====== December 31, 1996: Allowance for doubtful accounts........ $ 20 $ 25 $ -- $ -- $ 45 Income tax valuation allowance......... 3,528 1,060 -- (39) 4,549 ------ ------ ---- ------- ------ Total reserves and allowances................... $3,548 $1,085 $ -- $ (39) $4,594 ====== ====== ==== ======= ====== </TABLE> --------------- (a) This schedule should be read in conjunction with the Company's audited consolidated financial statements and related notes thereto. S-1 124 INDEX TO EXHIBITS <TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------- ----------------------- <C> <S> +1.1 -- Form of Underwriting Agreement by and among the Company, the Selling Stockholders named therein and the Underwriters 2.1 -- Contribution and Restructuring Agreement dated effective as of July 21, 1995 by and among the Company and all of the stockholders of the Company 3.1 -- Amended and Restated Certificate of Incorporation 3.2 -- Amended and Restated Bylaws 3.3 -- Second Amended and Restated Certificate of Incorporation 3.4 -- Second Amended and Restated Bylaws +4.1 -- Specimen of Common Stock Certificate 4.2 -- Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, Second Amended and Restated Certificate of Incorporation and Second Amended and Restated Bylaws (see Exhibits 3.1, 3.2, 3.3 and 3.4) 4.3 -- Rights Agreement dated June 25, 1996 by and among the Company and certain holders of capital stock of the Company named therein 4.4 -- Common Stock Purchase Warrant issued to Holiday Hospitality Corporation +5.1 -- Opinion of Locke Purnell Rain Harrell (A Professional Corporation) 10.1 -- Employment Agreement dated June 25, 1996 between the Company and John F. Davis, III 10.2 -- Employment Agreement dated June 25, 1996 between the Company and Joseph W. Nicholson 10.3 -- Employment Letter Agreement dated August 29, 1996 between the Company and Jerome L. Galant 10.4 -- Employment Letter Agreement dated May 18, 1997 between the Company and Michael R. Donahue 10.5 -- 1996 Stock Option Plan, as amended 10.6 -- 1997 Stock Option Plan 10.7 -- Client Service Agreement, as amended, between the Company and Citibank, N.A. 10.8 -- Facilities Management Agreement dated January 1, 1996 between the Company and Anasazi, Inc. 10.9 -- Service Agreement dated December 13, 1996 between the Company and Comdisco, Inc. 10.10 -- Service Agreement dated January 17, 1997 between the Company and Genuity, Inc. 10.11 -- Intentionally Omitted 10.12 -- TravelWeb Participant Agreement dated January 17, 1996 between the Company and Hyatt Corporation 10.13 -- TravelWeb Participant Agreement dated July 15, 1995 between the Company and Inter-Continental Hotels Corporation 10.14 -- TravelWeb Participant Agreement dated April 27, 1995 between the Company and Hilton Hotels Corporation 10.15 -- TravelWeb Participant Agreement dated May 30, 1995 between the Company and Hilton International Co. 10.16 -- TravelWeb Participant Agreement dated September 3, 1996 between the Company and Choice Hotels International, Inc. 10.17 -- TravelWeb Participant Agreement dated April 18, 1996 between the Company and La Quinta Inns, Inc. </TABLE> 125 <TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------- ----------------------- <C> <S> 10.18 -- TravelWeb Participant Agreement dated May 31, 1996 between the Company and HFS Incorporated 10.19 -- TravelWeb Participation Agreement dated April 18, 1996 between the Company and ITT Sheraton Corporation 10.20 -- Letter Agreement relating to the TravelWeb service dated December 20, 1995 between the Company and Marriott International, Inc. *10.21 -- HCC Participant Agreement, as amended, between the Company and Hyatt Hotels Corporation *10.22 -- HCC Participant Agreement, as amended, between the Company and Inter-Continental Hotel Corp. *10.23 -- HCC Participant Agreement between Company and ITT Sheraton Corporation *10.24 -- HCC Participant Agreement between the Company and La Quinta Inns, Inc. *10.25 -- HCC Participant Agreement between the Company and HFS Incorporated *10.26 -- HCC Participant Agreement, as amended, between the Company and Westin Hotels Company *10.27 -- HCC Participant Agreement, as amended between the Company and Best Western International, Ltd. *10.28 -- HCC Participant Agreement, as amended, between the Company and Utell International, Inc. *10.29 -- HCC Participant Agreement between the Company and Anasazi Service Corporation *10.30 -- HCC Participant Agreement between the Company and Marriott International, Inc. *10.31 -- HCC Participation Agreement, as amended, between the Company and Choice Hotels International, Inc. *10.32 -- HCC Participation Agreement, as amended, between the Company and Forte Hotels, Inc. *10.33 -- HCC Participation Agreement, as amended, between the Company and Promus Hotels, Inc. *10.34 -- UltraSwitch User Agreement dated November 17, 1995 between the Company and Westin Hotels & Resorts *10.35 -- UltraSwitch User Agreement dated February 23, 1996 between the Company and Best Western International *10.36 -- UltraSwitch User Agreement dated February 13, 1996 between the Company and Inter-Continental Hotels Corporation *10.37 -- UltraSwitch User Agreement dated January 4, 1996 between the Company and HFS Incorporated *10.38 -- UltraSwitch User Agreement dated February 1, 1996 between the Company and Hyatt Hotels Corporation *10.39 -- UltraSwitch User Agreement dated December 15, 1995 between the Company and Promus Hotels, Inc. *10.40 -- UltraSwitch User Agreement dated February 23, 1996 between the Company and La Quinta Inns, Inc. *10.41 -- UltraSwitch User Agreement dated January 8, 1997 between the Company and ITT Sheraton Corporation *10.42 -- UltraSwitch User Agreement dated April 25, 1996 between the Company and Hilton Hotels Corporation *10.43 -- UltraSwitch User Agreement dated August 16, 1995 between the Company and Choice Hotels International, Inc. </TABLE> 126 <TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------- ----------------------- <C> <S> *10.44 -- UltraSwitch User Agreement dated February 10, 1996 between the Company and Utell International Ltd. 10.45 -- Intentionally Omitted *10.46 -- UltraSwitch User Agreement dated December 31, 1995 between the Company and Marriott International, Inc. *10.47 -- UltraSwitch User Agreement dated February 23, 1996 between the Company and Forte Hotels, Inc. *10.48 -- Property Information Distribution Agreement dated March 7, 1997 between the Company and Anasazi, Inc. *10.49 -- Property Information Distribution Agreement dated March 4, 1997 between the Company and La Quinta Inns, Inc. *10.50 -- Property Information Distribution Agreement, as amended, dated April 2, 1997, between the Company and HFS Incorporated *10.51 -- Property Information Distribution Agreement dated June 2, 1997 between the Company and Promus Hotels, Inc. *10.52 -- Property Information Distribution Agreement dated May 2, 1997 between the Company and Best Western International, Inc. *10.53 -- Property Information Distribution Agreement dated March 11, 1997 between the Company and Hyatt Hotels Corporation *10.54 -- United States Subscriber Agreement dated October 12, 1993 between the Company and American Express Travel Related Services Company, Inc. *10.55 -- Distribution Services Agreement dated May 12, 1997 between the Company and Holiday Hospitality Corporation. 10.56 -- Office Lease dated October 1, 1995 between the Company and the Utah State Retirement Investment Fund relating to property located at 3811 Turtle Creek Blvd., Suite 1100, Dallas, Texas 75219. 11.1 -- Computation of Per Share Loss 16.1 -- Letter regarding Change in Certifying Accountant 21.1 -- Subsidiaries of the Company 23.1 -- Consent of Price Waterhouse LLP (included on Page S- of the Registration Statement) 23.2 -- Consent of Belew Averitt LLP (included on Page S- of the Registration Statement) +23.3 -- Consent of Locke Purnell Rain Harrell (A Professional Corporation) (included in its opinion filed as Exhibit 5.1) 24.1 -- Power of Attorney (See Page II-7) 27.1 -- Financial Data Schedule </TABLE> --------------- + To be filed by amendment. * Subject to request for confidentiality.
1 EXHIBIT 2.1 CONFIDENTIAL CONTRIBUTION AND RESTRUCTURING AGREEMENT This Contribution and Restructuring Agreement (this "Agreement"), dated effective as of July 21, 1995, among Pegasus Systems, Inc., a Delaware corporation (the "Company"), and all of the stockholders of The Hotel Clearing Corporation, a Delaware corporation ("HCC"), and all of the stockholders of The Hotel Industry Switch Company, a Delaware corporation ("THISCO"), set forth in Schedule A attached hereto (collectively referred to herein as the "Stockholders"). WITNESSETH: WHEREAS, the Stockholders, as the only stockholders of HCC and/or THISCO, desire to combine the businesses of HCC and THISCO as subsidiaries of a common parent corporation pursuant to the terms of this Agreement; and WHEREAS, the Company has been formed to serve as the parent corporation in connection with such restructuring; and WHEREAS, as part of a single plan to be effectuated pursuant to this Agreement, the Stockholders, other than Lodging Network, Inc. ("LNI"), agree to contribute all of their respective shares of capital stock (whether preferred or common) and any other stock interests in HCC and THISCO (collectively, the "Stock") to the Company in exchange for Company Common Stock as part of a transaction intended to qualify as a tax free transaction under Section 351 of the Internal Revenue Code of 1986, as amended (the "Code"); and WHEREAS, the Company has agreed to grant LNI an option to exchange its entire stock interest in HCC for shares of Company Common Stock and LNI has agreed to join in this Agreement on the terms herein specified. NOW, THEREFORE, for and in consideration of the mutual covenants, agreements and provisions contained herein, the parties hereto hereby agree as follows: ARTICLE I TRANSACTIONS 1.1 Closing Transactions. Subject to and upon the terms and conditions contained herein, the closing pursuant to this Agreement (the "Closing") shall take place at the Company's address at 3811 Turtle Creek Blvd., Suite 1100, Dallas, Texas 75219, at 10:00 a.m., local time, on July 21, 1995, or at such other time as shall be agreed to by the parties (the "Closing Date"). The parties hereto (as applicable) shall simultaneously take the following actions and execute and deliver the following documents: 2 (a) HCC Stock Contribution. Each HCC stockholder, other than LNI, shall contribute all of such stockholder's Stock of HCC to the Company by delivering to the Company all necessary stock certificates, stock powers or other documents as may be necessary to effect the transfer of the Stock to the Company. In exchange, the Company shall issue and deliver to each of them a certificate for the number of shares of Company Common Stock as specified in Schedules A and C attached hereto. (b) THISCO Stock Contribution. Each THISCO stockholder shall contribute all of such stockholder's shares of THISCO to the Company by delivering to the Company all necessary stock certificates, stock powers or other documents as may be necessary to effect the transfer of the Stock to the Company. In exchange, the Company shall issue and deliver to each of them a certificate for the number of shares of Company Common Stock as specified in Schedule A attached hereto. (c) Stockholders Agreement. The Company and each Stockholder, other than LNI, shall execute and deliver to one another the Stockholders Agreement (herein so called) dated the Closing Date in substantially the form of Exhibit 1 to this Agreement. (d) HCC Debt. Each HCC stockholder who previously made one or more loans to HCC hereby elects to contribute to the capital of HCC, effective immediately prior to the Closing, the amount of such debt owed by HCC to such stockholder as and to the extent indicated on Schedule B-1 attached hereto. These capital contributions are reflected in the number of shares of Company Common Stock in Schedule A which are to be issued to such stockholders at the Closing. The amount of debt remaining after these capital contributions (as set forth on Schedule B-1 hereto) shall be renewed and extended and evidenced by new promissory notes to be executed and delivered by HCC to the applicable stockholders, which notes shall mature upon the expiration of five (5) years from the Closing Date and bear interest at the prime rate published daily in the Wall Street Journal plus 1% per annum. Such notes shall be guaranteed by the Company. (e) THISCO Debt. Each THISCO stockholder who previously made one or more loans to THISCO hereby elects to contribute to the capital of THISCO, effective immediately prior to the Closing, the amount of such debt owed by THISCO to such stockholder as and to the extent indicated on Schedule B-2 attached hereto. These capital contributions are reflected in the number of shares of Company Common Stock in Schedule A which are to be issued to such stockholders at the Closing. The amount of debt remaining after these capital contributions (as set forth on Schedule B-2 hereto) shall be renewed and extended and evidenced by new promissory notes to be executed and delivered by THISCO to the applicable stockholders, which notes shall mature upon the expiration of five (5) years from the -2- 3 Closing Date and shall bear interest at the prime rate published daily in the Wall Street Journal plus 1% per annum. Such notes shall be guaranteed by the Company. (f) Reed Accommodation. Reed Travel Group, a division of Reed Elsevier Inc. ("Reed") agrees to forgive $75,000 of outstanding debt owed by THISCO to Reed and the Company agrees to guaranty up to $4,261,482 of the remaining outstanding debt owed by THISCO to Reed, such guaranty to be in form and substance satisfactory to Reed and the Company. (g) Delivery of Company Guarantees. The Company shall execute and deliver the guarantees contemplated within Subsections (d), (e) and (f) of this Section 1.1. (h) HCC Projected Volume Shares. In addition to the shares of Company Common Stock to be issued as reflected on Schedule A, each HCC stockholder, other than LNI, shall also receive the number of shares of Company Common Stock specified on Schedule C attached hereto. In connection therewith, the Company shall cause HCC to prepare and deliver to each such HCC stockholder at the Closing a written confirmation of, and each such HCC stockholder shall deliver to the Company at the Closing a written acceptance of, the number of commissionable reservation transactions that such holder projects it will process through HCC from January 1, 1996 through December 31, 1996 ("Projected Volume Confirmation"). The shares specified in Schedule C, referred to herein as the "Projected Volume Shares," shall, in addition to any other purchase rights set forth in the Stockholders Agreement, be subject to purchase by the Company as follows: As soon as reasonably practicable after December 31, 1996, the Company shall determine and certify to each holder of Projected Volume Shares the actual number of commissionable reservation transactions that were processed through HCC ("Actual Transactions") by such holder from January 1, 1996 through December 31, 1996, compared to such holder's projected number of transactions ("Projected Transactions") set forth in its Projected Volume Confirmation. With respect to each holder of Projected Volume Shares, if such holder's Actual Transactions exceeds its Projected Transactions, then the Projected Volume Shares held by such holder shall not be subject to the purchase option contemplated by this paragraph. If the Actual Transactions by any holder of Projected Volume Shares are less than its Projected Transactions, then the Company may, at its option, purchase, at a purchase price of $1.00 per share, the percentage of such holder's Projected Volume Shares (rounded to the nearest whole share) equal to the corresponding percentage by which such holder's Actual Transactions were less than its Projected Transactions. For example, if stockholder X's Actual Transactions for 1996 were 97.5% of its Projected Transactions, then 2.5% of stockholder X's Projected Volume Shares would be subject to purchase in accordance with the Stockholders Agreement. -3- 4 (i) Participant and User Agreements. As specified by Article V of the Stockholders Agreement, each HCC stockholder and each THISCO stockholder, as the case may be, shall execute and deliver the HCC Participant Agreement and/or Ultra Switch User Agreement applicable to it. (j) LNI Stock Purchase Option. The Company and LNI shall execute and deliver to one another the Stock Purchase Option dated the Closing Date in substantially the form of Exhibit 2 to this Agreement (the "LNI Option"). (k) Management Stock Purchase. At or within 30 days of the Closing, management of the Company, HCC and/or THISCO shall purchase an aggregate of 2,125 restricted shares of Common Stock, representing five percent (5%) of the shares of the Company's Common Stock to be outstanding as of the Closing (assuming the LNI Option were fully exercised as of the Closing). The aggregate purchase price for these shares shall be $570,874, which price reflects a discounted value based on the restrictions imposed on such shares as outlined in Section 3 of the Arthur Andersen report entitled "Pegasus Systems, Inc. Long-Term Compensation Strategy" delivered to each of the parties hereto and such shares are being purchased in exchange for management's rights to a five percent (5%) preferred dividend as set forth in the Arthur Andersen Report. These shares shall be in addition to any other shares which may be reserved for the management of the Company under any future compensation or ownership plan adopted by the Company. 1.2 Compliance with Section 351. The transactions contemplated by this Agreement, to the extent subject thereto, are intended to qualify under Section 351 of the Code. 1.3 Amendment or Waiver of Conflicting Provisions. Notwithstanding any representation or warranty herein to the contrary, the parties to this Agreement hereby acknowledge that the transactions contemplated by this Agreement, including but not limited to the LNI Option, may conflict with or violate certain provisions of the respective certificate of incorporation, bylaws and stockholders agreement of HCC and THISCO or may now or hereafter have an effect upon the capital structure of the Company. Accordingly, the parties hereby agree to execute and deliver, or cause to be executed and delivered, any required approvals, waivers, consents or amendments and to take, or cause to be taken, any other action necessary to complete the transactions contemplated herein in a timely fashion and in a manner which does not conflict with or violate any documents or agreements binding upon or applicable to HCC, THISCO and/or the Company. ARTICLE II REPRESENTATIONS AND WARRANTIES 2.1 Representations and Warranties of the Company. The Company hereby represents and warrants to the Stockholders, effective upon the Closing, as follows: (a) Organization. The Company is a corporation duly organized, validly and in good standing under the laws of the State of Delaware and has full corporate power and authority to conduct its business as it is now being conducted. -4- 5 (b) Authority. The Company has all requisite corporate power and authority to enter into and perform its obligations under this Agreement, the Stockholders Agreement and the transactions contemplated hereby and thereby and to carry out its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and the Stockholders Agreement and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Company, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement, the Stockholders Agreement and the transactions contemplated hereby and thereby, other than as provided or contemplated herein. This Agreement constitutes, and the Stockholders Agreement, when executed and delivered by the parties thereto will constitute, valid and binding obligations of the Company, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency or other laws affecting creditors generally or by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (c) No Conflict. No filing with and no permit, authorization, consent or approval of, any public body or authority is necessary for the execution, delivery or performance by the Company of this Agreement or the consummation by the Company of the transactions contemplated hereby that has not already been made or obtained, which if not made or obtained would have an adverse effect on its ability to consummate the transactions contemplated hereby. Neither the execution, delivery or performance by the Company of this Agreement nor the consummation by it of the transactions contemplated hereby, nor compliance by it with any of the provisions hereof will (i) conflict with or result in any breach of any provision of its Certificate of Incorporation or Bylaws, (ii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under any note, bond, mortgage, license, agreement or other instrument or obligation to which it is a party or by which it or any of its properties may be bound or (iii) violate any order, writ, injunction, decree, statute, rule or regulation applicable to it or any of its properties. (d) Title. The shares of Company Common Stock to be issued to the Stockholders (as specified in Schedule A attached hereto), when issued, will be duly authorized, legally and validly issued, fully paid and non-assessable. The Company has the requisite legal right, power and authority to issue such shares. The issuance of such shares and the delivery of certificates representing such shares to such Stockholders pursuant to the provisions of this Agreement will transfer to each of such persons good and marketable title to the shares issuable to each of such persons, free and clear of any pledge, lien, security interest, encumbrance, claim or restriction on transferability, except for such restrictions on resale as are set forth in -5- 6 this Agreement or the Stockholders Agreement, Certificate of Incorporation or Bylaws and any applicable state and federal securities laws. 2.2 Representations and Warranties of Certain Stockholders. Each of the Stockholders, other than LNI, (as set forth on Schedule A attached hereto) hereby severally represents and warrants to the Company and the other Stockholders, effective upon the Closing, as follows: (a) Authority. Such Stockholder has full legal right, power, authority and capacity to enter into and perform this Agreement and the Stockholders Agreement, and the consent, agreement or concurrence of no other person or entity is required for such Stockholder to execute, deliver and perform this Agreement, the Stockholders Agreement and the transactions contemplated hereby and thereby. This Agreement and the Stockholders Agreement constitute the valid and binding obligations of such Stockholder; enforceable against such Stockholders in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency or other laws affecting creditors' rights generally or by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (b) No Conflict. No filing with, and no permit, authorization, consent or approval of, any public body or authority is necessary for the execution, delivery or performance by such Stockholder of this Agreement or the Stockholders Agreement or for the consummation by such Stockholder of the transactions contemplated hereby or thereby that has not been made or obtained, which if not made or obtained would have an adverse effect on the ability of such Stockholder to consummate the transactions contemplated hereby or thereby. Neither the execution, delivery or performance by such Stockholder of this Agreement or the Stockholders Agreement nor the consummation by any such Stockholder of the transactions contemplated hereby or thereby, nor compliance by such Stockholder with any of the provisions hereof or thereof will (i) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any fight of termination, cancellation or acceleration) under, any note, bond, mortgage, license, agreement or other instrument or obligation to which such Stockholder is a party or (ii) violate any order, writ, injunction, decree, statute, rule or regulation applicable to such Stockholder. (c) Title. Such Stockholder has the requisite legal right, power and authority to transfer such Stockholder's shares of Stock. The delivery of certificates representing such Stock to the Company pursuant to the provisions of this Agreement will transfer to the Company good and marketable tide to all of the Stock owned by such Stockholder, free and clear of any pledge, lien, security interest, encumbrance, claim or restriction on transferability, except for such restrictions on resale as are -6- 7 provided for under (i) the certificate of incorporation, bylaws and stockholders agreement of HCC and THISCO, as the case may be, and (ii) any applicable state and federal securities laws. (d) Investment Representations. Such Stockholder acknowledges that the Company has relied upon, and each such Stockholder makes, effective upon the Closing, the following investment representations: (i) Such Stockholder is acquiring the shares of Company Common Stock for such Stockholder's own account and not with a view to or for sale in connection with any distribution thereof in violation of the Securities Act of 1933, as amended (the "1933 Act"); (ii) Such shares of Company Common Stock are "restricted securities" as that term is defined in Rule 144 promulgated under the 1933 Act and may not be sold, transferred, pledged, distributed or otherwise disposed of except in compliance with applicable federal and state securities laws and the Stockholders Agreement; (iii) Such Stockholder has such knowledge and experience in business matters that such Stockholder is capable of evaluating, and has evaluated, the merits and risks of the proposed investment; (iv) Such Stockholder is an "accredited investor" within the meaning of Rule 501(a) of Regulation D promulgated under the 1933 Act; (v) Such Stockholder has been furnished all materials relating to the Company, the Company Common Stock and the proposed transaction which such Stockholder has requested and has been afforded the opportunity to obtain additional information; and (vi) Such Stockholder has reviewed the following legend and acknowledges, but does not represent or warrant, that the Company will affix the following legend or a similar legend to all certificates and other documents evidencing or representing the Company Common Stock: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or any state securities laws, and neither such shares nor any interest therein may be sold, assigned, pledged, transferred, hypothecated, encumbered or in any other manner transferred or disposed of, or be subject to execution, attachment or similar process, in whole or in part, except in compliance therewith and with all other applicable federal and state securities and -7- 8 other laws and regulations, and unless an opinion of counsel or other evidence relating to compliance with such laws, in form and substance satisfactory to the Company, is delivered to the Company in advance of any such transfer. Further, the shares represented by this certificate are subject to the conditions, restrictions and obligations specified in that certain Stockholders Agreement dated 1995, and any amendments thereto (the "Stockholders Agreement"), among the Company and certain of its Stockholders, including conditions and restrictions with respect to voting rights and powers, disposition, stock ownership rights and prerequisites, transfer, the composition of the Company's Board of Directors; stock repurchase rights, and otherwise, and no transfer of the shares represented by this certificate shall be valid or effective unless and until such conditions and restrictions have been complied with in all respects, in the determination of the Company's Board of Directors. A copy of the Stockholders Agreement is on file with the Secretary of the Company. The holder of this certificate, by acceptance of this certificate, agrees to be bound by the provisions of the Stockholders Agreement and to indemnify and hold the Company harmless against loss or liability arising from the disposition of the shares represented by this certificate in violation of such provisions or in violation of any of the aforementioned laws or regulations." 2.3 Representations and Warranties of LNI. LNI hereby represents and warrants to the Company and the other Stockholders, effective upon the Closing, as follows: (a) Authority. LNI has full legal right, power, authority and capacity to enter into and perform this Agreement, and the consent, agreement or concurrence of no other person or entity is required for LNI to execute, deliver and perform this Agreement and the transactions contemplated hereby. This Agreement constitutes the valid and binding obligation of LNI, enforceable against LNI in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency or other laws affecting creditors' rights generally or by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (b) No Conflict. No filing with, and no permit, authorization, consent or approval of, any public body or authority is necessary for the execution, delivery or performance by LNI of this Agreement or for the consummation by LNI of the transactions contemplated hereby that has not been made or obtained, which if not made or obtained would have an adverse effect on the ability of LNI to consummate the transactions contemplated hereby. Neither the execution, delivery or performance by LNI of this Agreement nor the consummation by LNI of the -8- 9 transactions contemplated hereby, nor compliance by LNI with any of the provisions hereof or thereof will (i) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under, any note, bond, mortgage, license, agreement or other instrument or obligation to which LNI is a party or (ii) violate any order, writ, injunction, decree, statute, rule or regulation applicable to LNI. (c) Investment Representations. LNI acknowledges that the Company has relied upon, and LNI makes, effective upon the Closing, the following investment representations: (i) LNI is acquiring the LNI Option for its own account and not with a view to or for sale in connection with any distribution thereof in violation of the 1933 Act; (ii) The LNI Option may not be sold, transferred, pledged, distributed or otherwise disposed of except in compliance with its terms and with applicable federal and state securities laws; (iii) LNI has such knowledge and experience in business matters that LNI is capable of evaluating, and has evaluated, the merits and risks of The LNI Option; (iv) LNI has been furnished all materials relating to The Company, and the proposed transaction which LNI has requested and has been afforded the opportunity to obtain additional information. ARTICLE III MISCELLANEOUS 3.1 Notices. All notices, requests, approvals and other communications provided for herein to any person named hereunder shall be in writing (including wire, facsimile or similar writing) and shall be given, if in writing and delivered personally, by telegram or facsimile, or sent by registered mail, postage prepaid, to such person at his address or facsimile, number set number as such person may hereafter specify by forth below or such other address or notice to the other person. If to the Stockholders, at the addresses set forth on Schedule A. -9- 10 If to the Company: Pegasus Systems, Inc. 3811 Turtle Creek Blvd., Suite 1100 Dallas, Texas 75219 Attention: President Fax No.: (214) 52&5675 Each such notice shall be effective (i) if given by facsimile, when such facsimile is transmitted to the facsimile number specified in this subsection and the appropriate answer back is received or (ii) if given by other means, when actually received at the address specified in this section; provided, however, that a notice given other than during normal business hours or on a business day at the place of receipt shall not be effective until the opening of business on the next business day. 3.2 Further Assurances. Each party hereto agrees that, from time to time, upon request, it will execute and deliver, or cause to be executed and delivered, such other instruments and take such other action as such other party reasonably may require to evidence more effectively the transactions effected pursuant hereto. 3.3 Integration. This Agreement, and any other schedule, exhibit, agreement, document or instrument attached hereto or referred to herein, integrates all of the terms and conditions mentioned herein or incidental hereto, and supersedes all other negotiations and prior writings in respect of the subject matter hereof. 3.4 Governing Law. This Agreement shall be deemed to be a contract made under the laws of the State of Delaware, and for all purposes shall be governed by and construed in accordance with the laws of said State, without regard to principles of conflicts of law. 3.5 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by the different parties in separate counterparts, and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Agreement 3.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns; provided, however, that no party hereto shall assign any of its rights or delegate any of its duties hereunder without the prior written consent of the other party hereto. Neither this Agreement nor any other agreement contemplated hereby shall be deemed to confer upon any person not a party hereto or thereto any rights or remedies hereunder or thereunder. 3.7 Amendment. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. -10- 11 3.8 Waived Any term or provision of this Agreement may be waived in writing (or the time for performance of any of the obligations or other acts of the parties hereto may be extended) by any party. 3.9 Headings. All headings contained in this Agreement are intended for convenience only and shall not control or affect the meaning, construction or effect of this Agreement or any of the provisions thereof. 3.10 Survival of Representations, Warranties and Covenants. The representations, warranties and covenants contained herein shall survive the Closing. [Balance of page intentionally left blank] -11- 12 IN WITNESS WHEREOF, this Agreement is executed by the parties on the respective dates set forth below to be effective as of the date first above written. COMPANY: PEGASUS SYSTEMS, INC. By: JOHN F. DAVIS, III ------------------------------------ Its: President ----------------------------------- Date: August 31, 1995 ---------------------------------- --------------------------------------- ANASAZI, INC. By: [ILLEGIBLE] ------------------------------------ Its: ----------------------------------- Date: ---------------------------------- --------------------------------------- BEST WESTERN INTERNATIONAL By: [ILLEGIBLE] ------------------------------------ Its: Sr. VP Worldwide Marketing ----------------------------------- Date: July 18th 1995 ---------------------------------- --------------------------------------- -12- 13 CHOICE HOTELS INTERNATIONAL By: [ILLEGIBLE] ------------------------------------- Its: Senior Vice President and Secretary ------------------------------------ Date: August 16, 1995 ----------------------------------- ---------------------------------------- TRUSTHOUSE FORTE CALIFORNIA INC. By: William J. Hanley ------------------------------------ Its: Exec. V.P. Sales & Marketing ----------------------------------- Date: July 20, 1995 ---------------------------------- /s/ WILLIAM J. HANLEY --------------------------------------- HILTON HOTELS CORPORATION By: RoSat E. Dirks ------------------------------------- Its: Sr. VP Mktg - HHC ------------------------------------ Date: 7/20/95 ----------------------------------- /s/ ROSAT E. DIRKS ---------------------------------------- HOSPITALITY FRANCHISE SYSTEMS, INC. By: [ILLEGIBLE] ------------------------------------- Its: Senior Vice President ------------------------------------ Date: 8/28/95 ----------------------------------- ---------------------------------------- -13- 14 REED TRAVEL GROUP, A DIVISION OF REED ELSEVIER INC. By: [ILLEGIBLE] ------------------------------------ Its: [ILLEGIBLE] ----------------------------------- Date: July 21, 1995 ---------------------------------- --------------------------------------- HYATT HOTELS CORPORATION By: John W. Biggs ---------------------------------------------- Its: Ex. V. P. --------------------------------------------- Date: 8/8/95 -------------------------------------------- /s/ JOHN W. BIGGS ------------------------------------------------- INTER-CONTINENTAL HOTELS CORPORATION By: Paul J. Travels ---------------------------------------------- Its: Senior Vice President- Property Management -------------------------------------------- Date: 1st August 1995 -------------------------------------------- /s/ PAUL J. TRAVELS ------------------------------------------------- ITT SHERATON CORPORATION By: [ILLEGIBLE] ---------------------------------------------- Its: SVP --------------------------------------------- Date: 7-28-95 -------------------------------------------- ------------------------------------------------- -14- 15 LA QUINTA INNS, INC. By: WC Hammer Jr. ------------------------------------ Its: Sr. VP Accounting & Administration ----------------------------------- Date: 7/19/95 ---------------------------------- --------------------------------------- LODGING NETWORK, INC. By: [ILLEGIBLE] ------------------------------------ Its: Vice President ----------------------------------- Date: July 14, 1995 ---------------------------------- --------------------------------------- MARRIOTT INTERNATIONAL, INC. By: Bruce W. Wolf ------------------------------------ Its: Vice President, Distribution Sales ----------------------------------- Date: August 16, 1995 ---------------------------------- --------------------------------------- PROMUS HOTELS INC. By: [ILLEGIBLE] ------------------------------------ Its: V.P. Reservations ----------------------------------- Date: 7-18-95 ---------------------------------- --------------------------------------- -15- 16 UTELL INTERNATIONAL LTD. By: [ILLEGIBLE] ------------------------------------ Its: President ----------------------------------- Date: ---------------------------------- --------------------------------------- WESTIN HOTELS COMPANY By: [ILLEGIBLE] ------------------------------------ Its: Sr. V.P., Sales and Marketing ----------------------------------- Date: July 25, 1995 ---------------------------------- --------------------------------------- /s/ JOHN F. DAVIS, III --------------------------------------- John F. Davis, III Date: August 31, 1995 ---------------------------------- --------------------------------------- -16- 17 SCHEDULE A <TABLE> <CAPTION> SHARES OF COMPANY COMMON STOCK TO BE ISSUED STOCKHOLDERS AND ADDRESSES TO HCC AND/OR THISCO STOCKHOLDERS -------------------------- --------------------------------- <S> <C> ANASAZI SERVICE CORPORATION 842 7500 N. Dreamy Draw Drive Suite 120 Phoenix, Arizona 85020 Attention: Tom Castleberry Fax No.: (602) 861-7687 BEST WESTERN INTERNATIONAL 2,726 6201 N. 24th Parkway Phoenix, AZ 85016 Attention: William S. Watson Fax No.: (602) 957-5966 CHOICE HOTELS INTERNATIONAL 1,281 4225 E. Windrose Dr. Phoenix, AZ 85032 Attention: James R. Yoakum Fax No.: (602) 996-0192 FORTE HOTELS 1,618 1973 Friendship Drive El Cajon, CA 92020 Attention: William Hanley Fax No.: (619) 562-0901 HILTON HOTELS CORPORATION 1,281 9336 Civic Center Drive Beverly Hills, CA 90210 Attention: Mike Ing Fax No.: (310) 859-2513 HOSPITALITY FRANCHISE SYSTEMS, INC. 3,101 3838 E. Van Buren Phoenix, AZ 85008 Attention: Douglas L. Patterson Fax No.: (602) 389-3909 </TABLE> -17- 18 <TABLE> <CAPTION> SHARES OF COMPANY COMMON STOCK TO BE ISSUED STOCKHOLDERS AND ADDRESSES TO HCC AND/OR THISCO STOCKHOLDERS -------------------------- --------------------------------- <S> <C> REED TRAVEL GROUP, A DIVISION OF 4,821 REED ELSEVIER INC 500 Plaza Drive Secaucus, NJ 07096 Attention: Malcolm Highet Fax No.: (201) 319-1643 HYATT HOTELS CORPORATION 2,725 200 W. Madison Avenue, #39 Chicago, IL 60606 Attention: John Biggs Fax No.: (708) 990-6357 INTER-CONTINENTAL HOTELS CORPORATION 2,185 Devonshire House Mayfair Place London, England W1X 5FH Attention: Paul Travers Fax No.: 011 44 71 355 6591 ITT SHERATON CORPORATION 2,307 Sixty State Street World Headquarters Boston, MA 02109 Attention: Richard Nauman Fax No.: (617) 367-5182 LA QUINTA INNS, INC. 2,311 112 E. Pecan St. P.O. Box 2636 San Antonio, TX 78299 Attention: W.C. Hammett, Jr. Fax No.: (210) 302-6016 LODGING NETWORK, INC. * 8235 Douglas Avenue, LB 77 Suite 200 Dallas, Texas 75225 Attention: Michael Barnett Fax No.: (214) 363-1615 </TABLE> -18- 19 <TABLE> <CAPTION> SHARES OF COMPANY COMMON STOCK TO BE ISSUED STOCKHOLDERS AND ADDRESSES TO HCC AND/OR THISCO STOCKHOLDERS -------------------------- --------------------------------- <S> <C> MARRIOTT INTERNATIONAL, INC. 1,281 One Marriott Drive, Dept. 939.07 Washington, D.C. 20058 Attention: Bruce W. Wolff Fax No.: (301) 380-6094 PROMUS HOTELS INC. 2,955 3239 Players Cub Parkway Memphis, TN 38125 Attention: Donald M. Kolodz Fax No.: (901) 748-8102 UTELL INTERNATIONAL LTD. 844 2 Kew Bridge Road Brentford, London TW8 0JF Attention: Mike Hope Fax No.: 011 44 81 490 5855 WESTIN HOTELS & RESORTS 2,265 2001 6th Avenue, 13th Floor Seattle, WA 98121 Attention: Marc Pujalet Fax No.: (206) 443-8997 JOHN F. DAVIS, III 884 3811 Turtle Creek Blvd., Suite 1100 Dallas, Texas 75219 Fax No.: (214) 528-5675 ------ Total Schedule A Shares 33,427 Total Schedule C Shares 3,583 Total Management Shares 2,125 *Shares subject to LNI Option 3,365 ------ MAXIMUM TOTAL SHARES SUBJECT TO ISSUANCE PURSUANT TO CONTRIBUTION AND RESTRUCTURING AGREEMENT 42,500 ====== </TABLE> -19- 20 SCHEDULE B-1 <TABLE> <CAPTION> DEBT HCC CONTRIBUTED HCC TOTAL TO EQUITY REMAINING P&I* CAPITAL DEBT --- ------- ---- <S> <C> <C> <C> BEST WESTERN INTERNATIONAL $ 94,009.01 $ 37,500.00 $ 56,509.01 HYATT HOTELS CORPORATION 93,325.61 37,500.00 55,825.61 INTER-CONTINENTAL HOTELS 93,910.31 37,500.00 56,410.31 ITT SHERATON CORPORATION 93,666.46 37,500.00 56,166.46 IA QUINTA INNS, INC. 92,661.69 37,500.00 55,161.69 PROMUS HOTELS INC. 72,697.27 37,500.00 35,197.27 HOSPITALITY FRANCHISE SYSTEMS, INC 93,846.44 37,500.00 56,346.44 UTELL INTERNATIONAL 93,695.48 37,500.00 56,195.48 WESTIN HOTELS & RESORTS 93,637.42 37,500.00 56,137.42 ----------- ----------- ----------- TOTAL $821,449.69 $337,500.00 $483,949.69 </TABLE> *HCC TOTAL P&I INCLUDES INTEREST THROUGH JUNE 30, 1995. INTEREST WILL BE ACCRUED THROUGH CLOSING DATE OF PEGASUS TRANSACTION. -20- 21 SCHEDULE B-2 <TABLE> <CAPTION> DEBT THISCO CONTRIBUTED THISCO TOTAL TO EQUITY REMAINING P&I* CAPITAL DEBT --- ------- ---- <S> <C> <C> <C> BEST WESTERN INTERNATIONAL $ 90,994.59 $ 37,500.00 $ 53,494.59 CHOICE HOTELS INTERNATIONAL 91,118.76 37,500.00 53,618.76 FORTE HOTELS 90,554.46 37,500.00 53,054.46 HILTON HOTELS CORPORATION 81,168.91 37,500.00 43,668.91 HYATT HOTELS CORPORATION 77,191.71 37,500.00 39,691.71 INTER-CONTINENTAL HOTELS 82,306.98 37,500.00 44,806.98 ITT SHERATON CORPORATION 90,770.15 37,500.00 53,270.15 LA QUINTA INNS, INC. 82,900.62 37,500.00 45,400.62 MARRIOTT INTERNATIONAL, INC. 69,338.49 37,500.00 31,838.49 PROMUS HOTELS INC. 91,207.39 37,500.00 53,707.39 HOSPITALITY FRANCHISE SYSTEMS, INC. 54,931.14 37,500.00 17,432.14 WESTIN HOTELS & RESORTS 89,703.55 37,500.00 52.203.55 ----------- ----------- ----------- TOTAL $992,187.75 $450,000.00 $542,187.75 </TABLE> *THISCO TOTAL P&I INCLUDES INTEREST THROUGH JUNE 30, 1995. INTEREST WILL BE ACCRUED THROUGH CLOSING DATE OF PEGASUS TRANSACTION. -21- 22 SCHEDULE C <TABLE> <CAPTION> NUMBER OF PEGASUS ----------------- HCC STOCKHOLDER SHARES SUBJECT TO REPURCHASE --------------- ---------------------------- <S> <C> Anasazi Service Corporation 87 Best Western International 544 Forte Hotels 303 Hospitality Franchise Systems, Inc. 703 Hyatt Hotels Corporation 455 Inter-Continental Hotels Corporation 165 ITT Sheraton Corporation 215 La Quinta Inns, Inc. 142 Promus Hotels Inc. 769 Utell International Ltd. 78 Westin Hotels & Resorts 122 ----- Total 3,583 </TABLE> -22- 23 EXHIBIT 1 Stockholders Agreement -23- 24 CONFIDENTIAL STOCKHOLDERS AGREEMENT This Stockholders Agreement (the "Agreement"), dated effective as of July __, 1995, among Pegasus Systems, Inc., a Delaware corporation (the "Company"), and all of the holders of Common Stock, $.01 par value, of the Company (collectively referred to herein as the "Stock") set forth on Schedule A hereto. The holders of Stock are collectively referred to as the "Stockholders." WITNESSETH: WHEREAS, the Company is a corporation duly organized and validly existing under the laws of the State of Delaware with authorized capital of One Hundred Thousand (100,000) shares of Common Stock and Ten Thousand (10,000) shares of Preferred Stock; and WHEREAS, the Company and the Stockholders wish to enter into an agreement respecting future sales of shares of the Stock, certain limitations on the transfer of shares of the Stock, the election and voting power of directors, and certain other matters; NOW, THEREFORE, in consideration of the promises and mutual covenants, conditions and agreements herein contained, the parties hereto, intending to be legally bound, do hereby agree as follows: ARTICLE I RESTRICTIONS AND OBLIGATIONS RELATING TO DISPOSITION AND OWNERSHIP OF STOCK Except as permitted below, no Stockholder shall sell, assign, devise, bequeath, transfer, give, pledge, encumber, hypothecate, or in any manner dispose of, or part with, any or all of its right, title or interest in any share or shares of Stock of the Company now or at any time hereafter held by it (any such action being referred to herein as a "Transfer"), or attempt to make such a Transfer without the prior written consent of the Company (which consent may be withheld by the Company in its sole discretion). A merger, sale of all or substantially all assets or other business combination by a Stockholder shall not be considered a "Transfer" hereunder. The Company, by its execution of this Agreement, agrees that it will not cause or permit the Transfer of any shares of Stock held by the Stockholders to be made on its books except in accordance with the terms of this Agreement. Notwithstanding the foregoing, any Stockholder may freely Transfer its share of Stock to any one (1) of its affiliates provided that, such Stockholder, with its affiliates, will not on EXHIBIT 1 25 account of such Transfer beneficially hold more than twenty-five percent (25%) of the issued Stock of the Company and provided further that such affiliate agrees in writing to be bound by the terms of this Agreement. The term "affiliate" as used in this Agreement shall have the meaning ascribed to it under Rule 12b-2, promulgated under the Securities Exchange Act of 1934, as in effect on June 1, 1995. Any Transfer or attempted Transfer by any Stockholder other than as permitted by this Agreement shall be void ab initio and be deemed to be a breach of this Agreement. Within three years of the date of the Corporation's Certificate of Incorporation, no Stockholder, together with its affiliates, may at any time be the beneficial holder of more than twenty-five percent (25%) of the issued Stock of the Company. ARTICLE II RIGHT OF FIRST REFUSAL Subject to the provisions of Article I, should any Stockholder receive a bona fide offer from an unaffiliated party or wish to enter into any agreement relating to the Transfer of any or all of the Stock held by such Stockholder, the Company shall have a right of first refusal to purchase the Stock which is the subject of such bona fide offer or agreement (the "Subject Stock"). Pursuant to this right of first refusal, the Stockholder receiving the offer or wishing to enter into any such Agreement shall notify the Board of Directors of the Company, in writing, of the offer or agreement and all of the terms thereof, including, without limitation, the name and address of the proposed purchaser, the exact number of shares that are the subject of the proposed Transfer, the offered purchase price or other consideration, any terms and conditions of payment, and whether the selling Stockholder intends to accept the offer on the offered terms. If the Stockholder receiving the offer or wishing to enter into any such agreement has decided to accept the offer subject to the provisions hereof, the Board of Directors of the Company, within thirty (30) days after such notice of the proposed sale by such Stockholder, shall notify the selling Stockholder whether the Company wishes to purchase all of the Subject Stock on substantially the same terms and conditions as those set forth in the notice; and if the Company does wish to so purchase all such shares, such Stockholder shall sell such shares as the Company desires to the Company, on a timely basis, and shall cooperate in all such respects. If the Board of Directors of the Company declines to undertake to so purchase all of the Subject Stock, the Stockholder receiving the offer or wishing to enter into any such agreement may proceed to sell such Subject Stock on the same terms and conditions as proposed in the notice. If no such sale of the Subject Stock is consummated within a ninety (90) day period following the expiration of the thirty (30) day period during which the Company may accept the offer to undertake the transaction, the sale of the Subject Stock shall again become subject to this Article II. 2 26 Notwithstanding the foregoing, any Stockholder may Transfer shares of Stock pursuant to the second paragraph of Article I hereof without such Transfer being subject to the above right of first refusal. ARTICLE III BUY BACK OF PROJECTED VOLUME SHARES (a) Attached hereto as Schedule B is a list of certain shares of Stock, referred to herein as the "Projected Volume Shares", and the holders thereof. In addition to any other purchase rights set forth in this Agreement, the Projected Volume Shares held by such holders shall be subject to purchase by the Company as follows: As soon as reasonably practicable after December 31, 1996, the Company shall determine and certify to each holder the actual number of commissionable reservation transactions that were processed through The Hotel Clearing Corporation ("HCC") ("Actual Transactions") by such holder of the Projected Volume Shares from January 1, 1996 through December 31, 1996, compared to such holder's projected number of transactions ("Projected Transactions") set forth in the Projected Volume Confirmation (herein so called) delivered by such holder to the Company and accepted as of the date of this Agreement. With respect to each holder of Projected Volume Shares, if such holder's Actual Transactions equal or exceed its Projected Transactions, then the Projected Volume Shares held by such person shall not be subject to the purchase option provided for in this paragraph. If the Actual Transactions by any holder of Projected Volume Shares are less than its Projected Transactions, then the Company may, at its option, purchase, at a purchase price of one dollar ($1.00) per share, the percentage of such holder's Projected Volume Shares (rounded to the nearest whole share) equal to the corresponding percentage by which such holder's Actual Transactions were less than its Projected Transactions. If this purchase option is exercised, the holder of any Projected Volume Shares subject thereto shall be required to, and shall, sell the required percentage of its Projected Volume Shares (rounded to the nearest whole share) to the Company and shall cooperate with the Company in all respects. The Company shall have one hundred and eighty (180) days after delivery of the required certification regarding Actual Transactions to exercise this purchase right by notifying any affected Stockholder of such exercise and tendering payment of the required purchase price to the affected Stockholder(s). Each such affected Stockholder (i) shall cooperate in all respects with such purchase and (ii) hereby irrevocably appoints the Company as its agent and attorney-in-fact to transfer such shares as provided above and to do all things necessary or appropriate to accomplish such transfer. ARTICLE IV DIRECTORS (a) Each holder of record of at least one and one-half percent (1.5%) of the shares of the Company's issued and outstanding Stock entitled to vote shall be entitled to 3 27 designate and nominate one (1) person for election to the Company's Board of Directors by the Stockholders. For such calculation, the percentage of the shares of the Company's issued and outstanding Stock held by any Stockholder shall be inclusive of the shares held by all affiliates of such Stockholder; provided, however that Reed Travel Group, a division of Reed Elsevier Inc. ("Reed") and Utell International Ltd. ("Utell") shall each be entitled to designate and nominate one (1) person for election to the Board notwithstanding that they are affiliates of each other, as long as each of Reed and Utell hold at least 1.5% of the shares of Stock entitled to vote in the election of directors. The person so nominated must be an officer or employee of such holder of such share of Stock designating or nominating such person. As required by the Bylaws of the Company, in the event that management is not represented by at least one member of the Board of Directors through such director's ownership of at least one and one-half percent (1.5%) of the shares of the capital stock, the number of directors shall be increased by one (1). The President of the Company, with the advice of the Chairman of the Board, shall designate and nominate one (1) person for election to the Company's Board of Directors as the representative of the management of the Company. All nominations for directors shall be submitted to the Board of Directors at such time and in such manner as is determined by the Board of Directors, (b) All holders of Stock entitled to vote shall vote for, and shall take all necessary steps to accomplish, the election of each of the respective person(s) appropriately designated and nominated by a holder of Stock and/or by the management of the Company for a seat on the Company's Board of Directors in accordance with foregoing paragraph, and shall cooperate and act in accordance therewith, in a timely manner and in good faith, to the maximum extent possible. (c) If a Stockholder or Stockholders wish(es) to remove or proposes the removal of the director(s) that it or they had designated or nominated to the Board of Directors, all of the Stockholders entitled to vote shall vote for, and shall take all necessary steps to accomplish, the removal of such director. Except in cases where a director is being removed for cause, each Stockholder entitled to vote hereby agrees to refrain from voting in favor of the removal of any director who had been elected by the Stockholders, unless the Stockholder that had designated and nominated such director also votes in favor of such removal. (d) If any director is removed from office, resigns, dies or otherwise leaves the Board of Directors (except as provided in the following paragraphs, the Stockholder or Stockholders that had designated or nominated such director in accordance with paragraph (a) of this Article IV shall be entitled to designate and nominate a new director to fill the vacancy so created in the Company's Board of Directors, and the other Stockholders entitled to vote shall act in the manner provided in paragraph (b) of this Article IV. (e) If the Company purchases the Stock of any Stockholder entitled to vote, or if a Stockholder surrenders its Stock to the Company as provided for in Article XI(b) hereof, such Stockholder's representative on the Board of Directors shall immediately be terminated as a director and, as provided in the Bylaws of the Company, the seat on the Board of Directors previously held by such director shall be eliminated, reducing the total number of directors by one and creating no vacancy on the Board of Directors by reason of such termination. 4 28 ARTICLE V UTILIZATION OF SUBSIDIARY COMPANIES' SERVICES Each Stockholder listed on Schedule A hereto shall execute the HCC Participant Agreement and/or UltraSwitch User Agreement listed next to its name on Schedule A and comply with all obligations set forth in each such agreement. ARTICLE VI CONFIDENTIAL INFORMATION; RESTRICTIONS ON THE COMPANY The Company shall, and shall cause its officers, directors, employees, consultants and agents (collectively, "Company Representatives") to, keep secret and retain in strictest confidence any and all confidential matters relating to the business of any Stockholder or affiliate thereof (including, but not limited to, all confidential data provided by the Stockholders to the Company) that are (i) not otherwise in the public domain, (ii) not otherwise in the rightful possession of the Company from third parties having no obligation of confidentiality to a Stockholder, (iii) not required under compulsion of law to be disclosed by the Company or Company Representatives (through oral question, interrogatory, subpoena, civil investigative demands, or similar process), or (iv) not edited, masked, aggregated, summarized, compiled or otherwise modified in such a way as to delete or obscure references or data directly identifying any Stockholder, and shall not disclose them, and shall cause the Company Representatives not to disclose them, to anyone outside such Stockholder, such Stockholder's affiliates, the Company or Company Representatives; nor may the Company or any Company Representatives exploit such confidential matters for its or their respective benefit or the benefit of other relationships with customers of the Company; and all such confidential information that is proprietary in nature shall remain the sole property of the Stockholder that furnished such information to the Company. The confidentiality obligations hereunder shall continue in perpetuity. For purposes of this Article VI, information furnished by any Stockholder to the Company shall be deemed to be confidential only if, in addition to the above, the information in question is clearly designated as being confidential by the Stockholder or other person furnishing such information to the Company. If the Company or any Company Representative breaches, or threatens to commit a breach of, any of the provisions of this Article VI, the Stockholder furnishing such confidential information shall have the right and remedy to have this Article VI specifically enforced by any court having jurisdiction, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to such Stockholder and that money damages will not provide an adequate remedy to such Stockholder. Nothing in this Article VI shall be construed to limit the right of any such Stockholder to collect money damages in the event of a breach of this Article VI. 5 29 Notwithstanding the above, the provisions of this Article VI shall not apply in the case of any information furnished by any Stockholder (or affiliate thereof who has entered into an agreement with the Company specifically providing that this Article VI's provisions shall not apply to the extent they are inconsistent with such other agreement. ARTICLE VII CONFIDENTIAL INFORMATION; RESTRICTIONS ON STOCKHOLDERS Each Stockholder and its affiliates shall, and each Stockholder shall cause its and its affiliates' officers, directors, stockholders, employees, consultants and agents (collectively, "Stockholder Representatives") to, keep secret and retain in strictest confidence any and all confidential matters relating to the business of the Company and any other Stockholder or affiliate thereof (including, but not limited to, all information provided by the other Stockholders to the Company, the technology and design of the clearinghouse service system developed by the Company and, to the extent that it is released to them by the Company, all data and information generated by the Company's clearinghouse service system) that are (i) not otherwise in the public domain, (ii) not otherwise in the rightful possession of such Stockholder (or affiliate) from third parties having no obligation of confidentiality to a Stockholder or the Company, or (iii) not required under compulsion of law to be disclosed by such Stockholder, its affiliates or Stockholder Representatives (through oral question, interrogatory, subpoena, civil investigative demands, or similar process), and shall not disclose them, and shall cause the Stockholder Representatives not to disclose them, to anyone outside such Stockholder, such affiliates, or the Company and its agents, except as otherwise determined by the Board of Directors, nor may a Stockholder or its affiliates or any Stockholder Representative exploit such confidential matters for its or their respective benefit or the benefit of other relationships with customers of such Stockholder and its affiliates, except as otherwise determined by the Board of Directors. The confidentiality obligations hereunder shall continue in perpetuity. For purposes of this Article VII, information furnished by any Stockholder to the Company shall be deemed to be confidential only if, in addition to the above, the information in question is clearly designated as being confidential by the Stockholder or other person furnishing such information to the Company. If a Stockholder or any of its affiliates or Stockholder Representative breaches, or threatens to commit a breach of, any of the provisions of this Article VII, any of the other Stockholders and/or the Company shall have the right and remedy to have this Article VII specifically enforced by any court having jurisdiction, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to such other Stockholders and the Company and that money damages will not provide an adequate remedy to such other Stockholders or the Company. Nothing in this Article VII shall be construed to limit the right of any Stockholder or the Company to collect money damages in the event of a breach of this Article VII. 6 30 Notwithstanding the above, the provisions of this Article VII shall not apply in the case of any information furnished by any Stockholder (or affiliate thereof) who has entered into an agreement with the Company specifically providing that this Article VII's provision shall not apply to the extent they are inconsistent with such other agreement. ARTICLE VIII LEGENDS ON STOCK CERTIFICATES The certificates for all shares of the Stock of the Company are concurrently with the issuance thereof to be endorsed with the legends in substantially the form below: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or any state securities laws, and neither such shares nor any interest therein may be sold, assigned, pledged, transferred, hypothecated, encumbered or in any other manner transferred or disposed of, or be subject to execution, attachment or similar process, in whole or in part, except in compliance therewith and with all other applicable federal and state securities and other laws and regulations, and unless an opinion of counsel or other evidence relating to compliance with such laws, in form and substance satisfactory to the Company, is delivered to the Company in advance of any such transfer. Further, the shares represented by this certificate are subject to the conditions, restrictions and obligations specified in that certain Stockholders Agreement dated __,1995, and any amendments thereto (the "Stockholders Agreement"), among the Company and certain of its Stockholders, including conditions and restrictions with respect to voting rights and powers, disposition, stock ownership rights and prerequisites, transfer, the composition of the Company's Board of Directors, stock repurchase rights, and otherwise, and no transfer of the shares represented by this certificate shall be valid or effective unless and until such conditions and restrictions have been complied with in all respects, in the determination of the Company's Board of Directors. A copy of the Stockholders Agreement is on file with the Secretary of the Company. The holder of this certificate, by acceptance of this certificate, agrees to be bound by the provisions of the Stockholders Agreement and to indemnify and hold the Company harmless against loss or liability arising from the disposition of the shares represented by this certificate in violation of such provisions or in violation of any of the aforementioned laws or regulations." Said certificates, and all certificates representing shares of the Stock of the Company at any time hereafter issued or transferred, shall include similar endorsements. Any transfer of any shares of Stock of the Company shall be made upon the books of the Company only in accordance with this provision. 7 31 ARTICLE IX NOTICES All notices, requests, consents, payments and other communications contemplated hereby shall be in writing and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, or (c) sent by overnight courier service (for next business day delivery), shipping prepaid, as follows: If to the Stockholders, at the addresses set forth on Schedule A. If to the Company: Pegasus Systems, Inc. 3811 Turtle Creek Blvd., Suite 1100 Dallas, Tx 75219 Attention: President or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices shall be deemed given and received at the time of personal delivery or, if sent by U.S. mail, three (3) business days after mailing, or, if sent by overnight courier, one (1) business day after such sending. The foregoing notice provision shall apply equally with respect to any process which either party may desire to serve on the other party, pursuant to judicial process or otherwise, it being expressly understood and agreed that such mode of service shall be in addition to and not in derogation of any other valid forms of service provided by law. ARTICLE X ADDITIONAL STOCKHOLDERS No persons or entity other than those listed on Schedule A may be a stockholder of the Company's Stock unless and until such person or entity agrees in writing as a condition to their ownership of the Stock to become a party to this Agreement, by executing and delivering to the Company a letter substantially in the following form, in form and substance satisfactory to the Company: 8 32 "To Pegasus Systems, Inc.: The undersigned hereby agrees to become a party to the Stockholders Agreement dated as of, 1995, among Pegasus Systems, Inc. and the stockholders named in such agreement, and agrees to be bound by all of the terms and provisions thereof in all respects. This election shall be binding upon the heirs, executors, administrators, successors, and assigns of the undersigned. Very truly yours, ------------------------------ Dated: " ----------------- ARTICLE XI TERMINATION (a) Except as otherwise provided in Articles VI and VII hereof, all provisions in this Agreement shall continue until the earliest to occur of the following: (i) such time as the parties and the Company mutually agree in writing to terminate this Agreement; (ii) such time as the Board of Directors shall determine in connection with a public offering, if any, of the Company's securities; or (ii) ten (10) years from the date hereof unless this Agreement is extended as provided in Article XIX hereof. (b) Notwithstanding any other provision hereof except for the provisions of Articles VI and VII, any Stockholder may at any time surrender (for no consideration) to the Company all of its shares of the Company's Stock, and in such event, such Stockholder shall no longer be deemed to be a Stockholder and shall have no further obligations hereunder, except to abide by the perpetual confidentiality provisions of Articles VI and VII hereof. ARTICLE XII BENEFIT, USE OF TERMS This Agreement and each of its provisions, whether so expressed or not, shall be binding upon the parties and their heirs, executors, administrators, successors and assigns. This Agreement shall inure to the benefit of each of the foregoing but rights and interests under this Agreement shall be assignable only in accordance with this Agreement and to the extent expressly permitted herein. 9 33 Terms used in the singular shall be read in the plural, and vice versa, and terms used in the masculine gender shall be read in the feminine or neuter gender, when the context so requires. The term "person" as used herein refers to a natural person, a corporation, or any other entity or association, as the context requires. ARTICLE XIII APPLICABLE LAW This Agreement shall be governed by, and construed according to, the laws of the State of Delaware, without giving effect to the choice of law principles thereof. ARTICLE XIV ARBITRATION Any controversy or claim arising out of, or relating to, this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by a single Arbitrator may be entered in any Court having jurisdiction thereof. The place of arbitration shall be Dallas County, Texas or as otherwise agreed by the parties. ARTICLE XV SEVERABILITY The provisions of this Agreement shall be deemed severable, and if any part of any provision is held to be illegal, void, voidable, invalid, non- binding or unenforceable in its entirety or partially or as to any party, for any reason, such provision may be changed, consistent with the intent of the parties hereto, to the extent reasonably necessary to make the provision, as so changed, legal, valid, binding and enforceable. If any provision of this Agreement is held to be legal, void, voidable, invalid, non-binding or unenforceable in its entirely or partially or as to any party, for any reason, and if such provision cannot be changed consistent with intent of the parties hereto to make it fully legal, valid, binding and enforceable, then such provisions shall be stricken from this Agreement, and the remaining provisions of this Agreement shall not in any way be affected or impaired, but shall remain in full force and effect. ARTICLE XVI NO PARTNERSHIP Notwithstanding anything to the contrary in this Agreement, the parties agree that nothing contained or provided for herein creates a partnership or joint venture. 10 34 ARTICLE XVII ENTIRE AGREEMENT This Agreement and all Schedules hereto set forth the entire understanding of the parties with respect to the subject matter hereof, and incorporate and merges any and all previous communications, understandings, oral or written. ARTICLE XVIII COUNTERPARTS This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement binding on all of the parties, notwithstanding that all parties are not signatories to the original or the same counterpart. It is expressly contemplated that such counterparts may be executed at different times and from time to time; each party shall become bound by this Agreement immediately upon affixing its signature hereto, independently of the signature of any other party. ARTICLE XIX RENEWAL OF VOTING AGREEMENT The parties acknowledge and understand that the Stockholders' covenants contained in Article IV hereof to vote their stock in accordance with the provisions thereof are permitted to remain in effect only for a ten (10) year period, unless renewed, as provided herein. Therefore, the Company may, prior to such expiration and the expiration of any renewed terms, request that all Stockholders agree to an additional ten (10) year extension of such voting provisions. Each Stockholder agrees to use its best efforts to accomplish each such extension. ARTICLE XX REPRESENTATIONS AND WARRANTIES Each Stockholder hereby represents and warrants to the other parties hereto, as of the date on which it becomes a party hereto, and as of any other dates on which such Stockholder contributes additional capital to, makes a loan to, or purchases securities from, the Company (or agrees to do any of the foregoing), as follows: (a) The Stockholder has the full and entire right, power, and authority and has taken all necessary action, including without limitation requisite approval of its board of Directors, required to authorize (i) the execution and delivery of this Agreement; (ii) the 11 35 receipt of a stock certificate for the number and class of shares owned by such Stockholder; (iii) the tendering of full payment of the purchase price for such stock; and (iv) the performances of all other acts and obligations required in order to carry out in full this Agreement. The Stockholder will not, by becoming a stockholder of the Company, by entering into this Agreement or by taking any action contemplated hereunder, default under, breach or otherwise be in conflict with any other agreement, document or instrument to which the Stockholder is subject or by which the Stockholder is bound. (b) The Stockholder is acquiring the shares of the Company's stock (the "Share(s)") for its own account for investment, and not with a view to, or for offering it for sale in connection with, the transfer, distribution or resale thereof, and agrees not to sell, transfer, assign, pledge, hypothecate, or otherwise dispose or attempt to dispose of its Share(s) (i) unless the Shares represented thereby has been registered under the Securities Act of 1933, as amended (the "Act"), and applicable state securities laws or, in the opinion of counsel acceptable to the Company and its counsel, an exemption from the registration requirements of the Act and such laws is available, or (ii) in any manner which would either result in such Stockholder being deemed under the Act to be an underwriter of such Share(s) within the meaning of the Act or result in the loss to the Company of its exemption from registration under the Act relating to the issuance of such Share(s) to the Stockholder or to any other person. The Stockholder acknowledges that registration of Share(s) for resale under the Act and such other laws is unlikely at any time in the future. (c) The Stockholder has a sufficient degree of sophistication, knowledge and experience in financial affairs to understand and evaluate the merits and risks associated with investment in the Share(s) and in the Company, and (i) its overall commitment to investments that are not readily marketable is not disproportionate to its net worth and if so investment in the Share(s) will not cause such overall commitment to become excessive; (ii) it has adequate net worth and means of providing for any current needs and contingencies such that it is able to sustain a complete loss of its investment in the Share(s), and it has no need for liquidity in this investment; and (iii) it has evaluated the risk of investing in Share(s) and the Company. (d) The Stockholder recognizes that investment in the Share(s) and the Company involves certain risks, and it has taken full cognizance of and understands all of the risk factors related to an investment in the Share(s). (e) The Stockholder has been provided with ample opportunities to discuss and raise questions with the Company and its founders, promoters, officers and directors, concerning the detailed operations and business plans of the Company. (f) The Stockholder shall indemnify and hold the Company harmless from and against any and all damage (including, without limitation, any liability, cost, or expense, including, without limitation, attorney's fees and disbursements) arising out of any breach of any of the representations, warranties, covenants, or provisions contained in this Agreement. 12 36 ARTICLE XXI POWER OF DECISIONS It is understood and agreed that, except as otherwise provided herein or in the Company's Certificate of Incorporation or Bylaws, as amended from time to time, all actions and decisions which the Company may or must take or make hereunder shall be taken or made by the Company's Board of Directors acting in accordance with the quorum and voting power provisions set forth in the Company's Certificate of Incorporation and Bylaws, as amended from time to time. ARTICLE XXII AMENDMENTS This Agreement may be amended, modified, or repealed, or a new Agreement may be adopted, only by, in addition to all applicable requirements of law, a writing executed and delivered by the Company and by Stockholders holding of record at least two-thirds (2/3) of the then outstanding shares of Stock; provided, however, that no provision of this Agreement may be amended, modified, repealed or replaced without the Company and all holders of all of the then outstanding shares of Stock agreeing in writing thereto, if such amendment, modification, repeal or replacement would in any manner increase or expand the Company's or any other person's or entity's ability to force, compel or require any holder of shares of Stock to sell any such shares of Stock to the Company or to any other person or entity under any circumstance not otherwise permitted by this Agreement, the Bylaws or the Certificate of Incorporation. 13 37 IN WITNESS WHEREOF, this Agreement is executed by the parties on the respective dates set forth below to be effective as of the date first above written. COMPANY: PEGASUS SYSTEMS, INC. By: ----------------------------- Its: ---------------------------- Date: --------------------------- -------------------------------- ANASAZI, INC. By: ----------------------------- Its: ---------------------------- Date: --------------------------- -------------------------------- BEST WESTERN INTERNATIONAL By: ----------------------------- Its: ---------------------------- Date: --------------------------- -------------------------------- 14 38 CHOICE HOTELS INTERNATIONAL By: ----------------------------- Its: ---------------------------- Date: --------------------------- -------------------------------- FORTE HOTELS By: ----------------------------- Its: ---------------------------- Date: --------------------------- -------------------------------- HILTON HOTELS CORPORATION By: ----------------------------- Its: ---------------------------- Date: --------------------------- -------------------------------- HOSPITALITY FRANCHISE SYSTEMS, INC. By: ----------------------------- Its: ---------------------------- Date: --------------------------- -------------------------------- 15 39 REED TRAVEL GROUP, A DIVISION OF REED ELSEVIER INC. By: ----------------------------- Its: ---------------------------- Date: --------------------------- -------------------------------- HYATT HOTELS CORPORATION By: ----------------------------- Its: ---------------------------- Date: --------------------------- -------------------------------- INTER-CONTINENTAL HOTELS By: ----------------------------- Its: ---------------------------- Date: --------------------------- -------------------------------- ITT SHERATON CORPORATION By: ----------------------------- Its: ---------------------------- Date: --------------------------- -------------------------------- 16 40 LA QUINTA INNS, INC. By: ----------------------------- Its: ---------------------------- Date: --------------------------- -------------------------------- MARRIOTT INTERNATIONAL, INC. By: ----------------------------- Its: ---------------------------- Date: --------------------------- -------------------------------- PROMUS HOTELS INC. By: ----------------------------- Its: ---------------------------- Date: --------------------------- -------------------------------- UTELL INTERNATIONAL LTD. By: ----------------------------- Its: ---------------------------- Date: --------------------------- -------------------------------- 17 41 WESTIN HOTELS & RESORTS By: ----------------------------- Its: ---------------------------- Date: --------------------------- -------------------------------- -------------------------------- John F. Davis, III Date: --------------------------- -------------------------------- 18 42 SCHEDULE A APPLICABLE AGREEMENT TO BE STOCKHOLDERS AND ADDRESSES EXECUTED PURSUANT TO ARTICLE V -------------------------- ------------------------------ ANASAZI SERVICE CORPORATION HCC Participant Agreement 7500 N. Dreamy Draw Drive Suite 120 Phoenix, Arizona 85020 Attention: Tom Castleberry Fax No.: (602) 861-7687 BEST WESTERN INTERNATIONAL HCC Participant Agreement/ 6201 N. 24th Parkway THISCO UltraSwitch User Phoenix, AZ 85016 Attention: William S. Watson Fax No.: (602) 957-5966 CHOICE HOTELS INTERNATIONAL THISCO UltraSwitch User 4225 E. Windrose Dr. Phoenix, AZ 85032 Attention: James R. Yoakum Fax No.: (602) 996-0192 FORTE HOTELS HCC Participant Agreement/ 1973 Friendship Drive THISCO UltraSwitch User El Cajon, CA 92020 Attention: William Hanley Fax No.: (619) 562-0901 HILTON HOTELS CORPORATION THISCO Ultraswitch User 9336 Civic Center Drive Beverly Hills, CA 90210 Attention: Mike Ing Fax No.: (310) 859-2513 HOSPITALITY FRANCHISE SYSTEMS, INC. HCC Participant Agreement/ 3838 E. Van Buren THISCO UltraSwitch User Phoenix, AZ 85008 Attention: Douglas L. Patterson Fax No.: (602) 389-3909 19 43 APPLICABLE AGREEMENT TO BE STOCKHOLDERS AND ADDRESSES EXECUTED PURSUANT TO ARTICLE V -------------------------- ------------------------------ REED TRAVEL GROUP, A DIVISION OF Not Applicable REED ELSEVIER INC. 500 Plaza Drive Secaucus, NJ 07096 Attention: Malcolm Highet Fax No.: (201) 319-1643 HYATT HOTELS CORPORATION HCC Participant Agreement/ 200 W. Madison Avenue #39 THISCO UltraSwitch User Chicago, IL 60606 Attention: John Biggs Fax No.: (708) 990-6357 INTER-CONTINENTAL HOTELS HCC Participant Agreement/ Devonshire House THISCO UltraSwitch User Mayfair Place London, England W1X 5FH Attention: Paul Travers Fax No.: 011 44 71 355 6591 ITT SHERATON CORPORATION HCC Participant Agreement/ Sixty State Street, THISCO UltraSwitch User World Headquarters Boston, MA 02109 Attention: Richard Nauman Fax No.: (617) 367-5182 LA QUINTA INNS, INC. HCC Participant Agreement/ 112 E. Pecan St. THISCO UltraSwitch User P.O. Box 2636 San Antonio, Tx 78299 Attention: W.C. Hammett, Jr. Fax No.: (210) 302-6016 MARRIOTT INTERNATIONAL, INC. THISCO UltraSwitch User One Marriott Drive, Dept. 939.07 Washington, D.C. 20058 Attention: Bruce W. Wolff Fax No.: (301) 380-6094 20 44 APPLICABLE AGREEMENT TO BE STOCKHOLDERS AND ADDRESSES EXECUTED PURSUANT TO ARTICLE V -------------------------- ------------------------------ PROMUS HOTELS INC. HCC Participant Agreement/ 3239 Players Club Parkway THISCO UltraSwitch User Memphis, TN 38125 Attention: Donald M. Kolodz Fax No.: (901) 748-8102 UTELL INTERNATIONAL LTD. HCC Participant Agreement/ 2 Kew Bridge Road THISCO UltraSwitch User Brentford, London TW8 0JF Attention: Mike Hope Fax No.: 011 44 81 490 5855 WESTIN HOTELS & RESORTS HCC Participant Agreement/ 2001 6th Avenue, 13th Floor THISCO UltraSwitch User Seattle, WA 98121 Attention: Marc Pujalet Fax No.: (206) 443-8997 JOHN F. DAVIS, III Not Applicable 3811 Turtle Creek Blvd., Suite 1100 Dallas, Texas 75219 Fax No.: (214) 528-5675 21 45 SCHEDULE B TO STOCKHOLDERS AGREEMENT <TABLE> <CAPTION> HOLDER OF PROJECTED VOLUME SHARES NUMBER OF PROJECTED VOLUME SHARES --------------------------------- --------------------------------- <S> <C> Anasazi Service Corporation 87 Best Western International 544 Forte Hotels 303 Hospitality Franchise Systems, Inc. 703 Hyatt Hotels Corporation 455 Inter-Continental Hotels Corporation 165 ITT Sheraton Corporation 215 La Quinta Inns, Inc. 142 Promus Hotels Inc. 769 Utell International Ltd. 78 Westin Hotels & Resorts 122 ----- Total 3,583 </TABLE> 22 46 EXHIBIT 2 STOCK PURCHASE OPTION -24- 47 STOCK PURCHASE OPTION This document certifies that LODGING NETWORK, INC. ("LODGING") is, subject to the terms and conditions set forth herein below, entitled to Three Thousand Three Hundred Sixty Five (3,365) shares of fully paid and non assessable Common Stock of Pegasus System, Inc. (hereinafter referred to as "Pegasus") (the "Pegasus Stock"), upon exercise of this Option and the timely, full and complete satisfaction of the terms set forth herein. TERMS AND CONDITIONS The exercise of this Option is conditioned upon and subject to the below stated terms and conditions: 1. This Option may only be exercised during a period beginning on the Effective Date hereof and expiring on the last day of the thirty sixth (36th) month after the Effective Date hereof (the "Option Term"). LODGING must take all action required by this Option for the issuance of the stock during the Option Term. 2. To exercise this Option, LODGING shall deliver to Pegasus the original of this document and the original of Stock Certificate No. 002 of The Hotel Clearing Corporation representing Two Hundred Ten (210) shares of Preferred Stock issued to Lodging Network, Inc. dated August 10,1993 (the "HCC Stock") and any and all other Stock Certificates of The Hotel Clearing Corporation and any other document evidencing any right, title or interest in or to any current or future ownership of The Hotel Clearing Corporation in the possession of LODGING. Upon satisfaction by LODGING of the requirements set forth herein to exercise this Option, Pegasus shall issue the Pegasus Stock to LODGING. 3. This Option is non-transferable, non assignable, non negotiable and may not be encumbered, pledged or given as security for any purpose. 4. This Option shall be fully protected from dilution resulting from a reverse split of the Common Stock of Pegasus and shall be entitled to the benefits of any split of the shares of common stock of Pegasus. Any split or reverse split of the Common Stock of Pegasus shall result in the proportionate adjustment of the Pegasus Stock hereunder. 5. LODGING represents and warrants to Pegasus that it is the sole true and lawful owner of the HCC Stock with full right, title and interest in and to the HCC Stock as provided herein and with the full and unencumbered right to sell, transfer, assign and convey the HCC Stock as provided herein and EXHIBIT 2 - PAGE 1 OF 3 48 that the HCC Stock is free and clear of any and all debts, liens, restrictions (except as restricted by the terms and provisions of the Amended and Restated Stockholders' Agreement for The Hotel Clearing Corporation dated February 9, 1994) or other encumbrances and shall remain so during the term of this Option. The above and foregoing warranties and representations shall be affirmed upon the exercise of this Option and the transfer of the HCC Stock as provided herein. 6. As a prospective purchaser of stock of Pegasus, LODGING acknowledges represents and warrants that the stock is being purchased as an investment for its own account and without any present intention of dividing the interest with others, reselling, or otherwise distributing the stock. In making this warranty, LODGING acknowledges that representatives of Pegasus have advised LODGING that (1) the stock is not being registered under the Federal Securities Act of 1933 on the ground that this transaction does not involve any public offering, and is therefore, exempt under Section 4(2) of the Act; (2) Pegasus' reliance on such exemption is predicated in pad on LODGING's representation that LODGING has no present intention of dividing the stock with others or of reselling or otherwise disposing of it; and (3) although LODGING has the right to dispose of its own property when and as it sees fit, in the view of the United States Securities and Exchange Commission, the exemption under Section 4(2) of the Act is not available to Pegasus if LODGING is merely acquiring the stock for resale on the occurrence or nonoccurrence of some predetermined event such as the passage of one year, a market rise, if the market does not rise, or any other fixed or determinable event. 7. Following the merger of one or more entities into Pegasus, or any consolidation of Pegasus and one or more entities in which Pegasus is the surviving corporation, the exercise of this Option shall apply to the shares of the surviving corporation. 8. By accepting this Option LODGING agrees, upon exercise of this Option, to execute and abide by the Stockholders' Agreement binding upon the stockholders of Pegasus and agrees to be bound by all other restrictions and agreements generally applicable to owners of Pegasus Common Stock. 9. Pegasus agrees that it will not hereafter cause or permit The Hotel Clearing Corporation ("HCC") to merge with The Hotel Industry Switch Company without the prior written consent of LODGING (which shall not be unreasonably withheld), for so long as LODGING holds the HCC Stock. 10. Pegasus agrees to provide LODGING with monthly financial statements, including a balance sheet and statement of income and expenses, for each of Pegasus, HCC, and any other subsidiaries of Pegasus for so long as this Option is outstanding. EXHIBIT 2 - PAGE 2 OF 3 49 11. Pegasus confirms that LODGING, as the holder of the HCC Stock, has the rights of the Series A Preferred Stockholder of HCC as set forth in the HCC Stockholders' Agreement. Upon the exercise of this Option and the issuance of the Pegasus Stock all of LODGING's rights as set forth in the Stockholder Agreement for HCC shall be assigned to Pegasus. 12. Pegasus agrees to act in good faith with respect to the future operation of the business of HCC, and specifically agrees not to divert business opportunities or income away from HCC in any manner inconsistent with the current business plan for HCC and Pegasus. 13. Notwithstanding any provision hereof to the contrary, this Option may be assigned by LODGING to a purchaser of the HCC Stock provided the sale of the HCC Stock is in compliance with the HCC Stockholders' Agreement. 14. Pegasus agrees to cause the amendment of Article l of the HCC Stockholders' Agreement to provide that company approval of any proposed sale of company stock shall not be unreasonably withheld. 15. Pegasus agrees that it will not cause or permit HCC to make any cash loans to Pegasus in excess of Two Hundred Fifty Thousand Dollars ($250,000.00) (in the aggregate) without written consent of LODGING for so long as LODGING remains a Series A Preferred Stockholder of HCC. The corporation has caused this Option to be executed by its duly authorized officer and the corporate seal is affixed hereto. PEGASUS SYSTEMS INC. By: -------------------------------- John F. Davis, III President Effective Date: -------------------- AGREED: LODGING NETWORK, INC. By: ------------------------------ Its: ------------------------------ EXHIBIT 2 - PAGE 3 OF 3
1 EXHIBIT 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF PEGASUS SYSTEMS, INC. This Amended and Restated Certificate of Incorporation amends and restates the Certificate of Incorporation, as amended to date, of Pegasus Systems, Inc., a corporation originally incorporated in Delaware as "Pegasus Systems, Inc." on July 10, 1995. This Amended and Restated Certificate of Incorporation has been duly adopted pursuant to Section 245 of the Delaware General Corporation Law, ARTICLE I The name of this corporation is Pegasus Systems, Inc. (the "Corporation"). ARTICLE II The address of the registered office of the Corporation in the State of Delaware is 1013 Centre Road, New Castle County, Wilmington, Delaware 19805-1297, The name of the registered agent of the Corporation at that address is The Prentice-Hall Corporation Systems, Inc. ARTICLE III The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful business, act or activity for which Corporations may be organized under the General Corporation Law of the State of Delaware. The private property of the stockholders shall not be subject to the payment of corporate debts to any extent whatsoever. ARTICLE IV This Corporation is authorized to issue two classes of stock, designated "Common Stock" and "Preferred Stock". The total number of shares which this Corporation is authorized to issue is 22,000,000 shares. The number of shares of Common Stock which this Corporation is authorized to issue is 20,000,000 shares, par value $0.01 per share. The number of shares of Preferred Stock which this Corporation is authorized to issue is 2,000,000 shares, par value $0.01 per share, of which 1,153,847 shall be designated Series A Preferred Stock (the "Series A Preferred") and 846,153 shall initially be undesignated as to series. Any Preferred Stock not previously designated as to series may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors (authority to do so being hereby expressly vested in the Board), and such resolution or resolutions shall also set forth the voting powers, full or limited or none, of each such series of Preferred Stock and shall fix the designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions of each such series of Preferred Stock. The Board of Directors is authorized to alter 2 the designation, rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series of Preferred Stock, to increase or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series. Each share of Preferred Stock issued by the Corporation, if reacquired by the Corporation (whether by redemption, repurchase, conversion to Common Stock or other means), shall upon such reacquisition resume the status of authorized and unissued shares of Preferred Stock, undesignated as to series and available for designation and issuance by the Corporation in accordance with the immediately preceding paragraph. The relative rights, preferences, privileges and restrictions granted to or imposed upon the respective classes of Common Stock and Series A Preferred Stock or the holders thereof are as follows: Section 1. Dividends. (a) The holders of Series A Preferred shall be entitled to receive, when and as declared by the Board of Directors, out of funds legally available therefor, dividends at the rate of $0.39 per annum for each share of Series A Preferred (as adjusted for stock splits, stock dividends, reclassifications and like events) held by them, payable in preference and priority to any payment of any dividend or other distribution on Common Stock of the Corporation. In each year in which any shares of Series A Preferred are outstanding, no cash dividends shall be declared on the Common Stock unless or until a cash dividend in an amount equal to or greater than the dividend declared on the Common Stock shall have been paid to, or declared and a sum sufficient for payment thereof set apart for the Series A Preferred. Such dividends on the Series A Preferred shall be cumulative whether or not earned or declared so that if such dividends in respect of any previous or current annual dividend period, at the annual rate specified above, shall not be paid or declared, the deficiency shall be fully paid to the holders of Series A Preferred before any dividend or other distribution shall be paid on or declared and set apart for the holders of the Common Stock. (b) For purposes of this Section 1, unless the context otherwise requires, a "distribution" shall mean the transfer of cash or other property without consideration whether by way of dividend or otherwise, payable other than in Common Stock, or the purchase or redemption of shares of the Corporation for cash or property. For purposes of this Section 1, a "distribution" shall not mean (i) a repurchase of Common Stock issued to or held by employees, officers, directors or consultants of the Corporation or its subsidiaries upon termination of their employment or services pursuant to agreements providing for the right of said repurchase, (ii) a repurchase of any "Projected Volume Shares" as contemplated by the Stockholders Agreement dated July 21, 1995 among the Company and certain holders of Common Stock or (iii) the repurchase of certain outstanding shares of capital stock of The Hotel -2- 3 Clearing Corporation ("HCC"), a subsidiary of the Corporation, held by Lodging Network Inc., in exchange for $2,000,000 in cash and the conversion of the balance of the shares of HCC owned by LNI into 67,300 shares of Common Stock of the Corporation, as contemplated by the Series A Preferred Stock Purchase Agreement of the Corporation entered into in June 1996. Section 2. Liquidation Preference. In the event of any liquidation, dissolution, or winding up of the Corporation, either voluntary or involuntary, distributions to the shareholders of the Corporation shall be made in the following manner: (a) The holders of Series A Preferred shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Common Stock by reason of their ownership of such stock, the amount of $6.50 for each share of Series A Preferred then held by them (as adjusted for all stock splits, dividends, combinations, reclassifications, and the like with respect to such shares) and, in addition, an amount equal to all declared but unpaid dividends, if any, on the shares of Series A Preferred then held by them. If the assets and funds thus distributed among the holders of Series A Preferred shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of Series A Preferred in a manner that the amount distributed to each holder of Series A Preferred shall equal the amount obtained by multiplying the entire assets and funds of the Corporation legally available for distribution hereunder by a fraction, the numerator of which shall be the number of shares of Series A Preferred then held by the holder and the denominator of which shall be the total number of shares of Series A Preferred then outstanding. (b) After payment has been made to or set apart for the holders of Series A Preferred of the full amounts to which they shall be entitled as set forth in Section 2(a) above, then the entire remaining assets and funds of the Corporation legally available for distribution, if any, shall be distributed ratably among the holders of Common Stock in a manner such that the amount distributed to each such holder shall equal the amount obtained by multiplying the entire remaining assets and funds of the Corporation legally available for distribution hereunder by a fraction, the numerator of which shall be the number of shares of Common Stock then held by such holder and the denominator of which shall be the total number of shares of Common Stock then outstanding. (c) (i) A merger or consolidation of the Corporation with or into any other corporation or corporations, (ii) the merger of any other corporation or corporations into the Corporation, in which consolidation or merger the shareholders of the Corporation receive distributions in cash or securities of another corporation or corporations as a result of such consolidation or merger, and (iii) a sale of all or substantially all of the assets of the Corporation, shall be treated as a liquidation, dissolution or winding up of the Corporation for purposes of this Section 2, unless the shareholders of the Corporation immediately prior to such -3- 4 transaction are holders (by virtue of shares held in the Corporation) of at least a majority of the voting securities of the surviving or successor corporation to the business of the Corporation immediately following such transaction. (d) Notwithstanding Sections 2(a) through 2(c) hereof, the Corporation may at any time, out of funds legally available therefor, (i) repurchase Common Stock issued to or held by employees, officers, directors or consultants of the Corporation or its subsidiaries upon termination of their employment or services pursuant to agreements providing for the right of said repurchase, (ii) repurchase any "Projected Volume Shares" as contemplated by the Amended and Restated Stockholders Agreement entered into in June 1996 among the Company and certain holders of Common Stock, or (iii) repurchase of certain outstanding shares of capital stock of The Hotel Clearing Corporation ("HCC"), a subsidiary of the Corporation, held by Lodging Network, Inc., in exchange for $2,000,000 in cash and the conversion of the balance of the shares of HCC owned by LNI into 67,300 shares of Common Stock, as contemplated by the Series A Preferred Stock Purchase Agreement of the Corporation entered into in June 1996. Section 3. Conversion. The holders of Series A Preferred Stock shall have conversion rights as follows (the "CONVERSION RIGHTS"): (a) Right to Convert. Each share of Series A Preferred shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for the Series A Preferred, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $6.50 by the Series A Conversion Price, determined as hereinafter provided, in effect at the time of conversion. The price at which shares of Common Stock shall be deliverable upon conversion of shares of Series A Preferred (the "SERIES A CONVERSION PRICE") shall initially be $6.50 per share of Common Stock and shall be subject to adjustment as hereinafter provided. Upon any conversion into Common Stock, all accumulated and unpaid dividends on the shares of Series A Preferred so converted shall terminate without any requirement of payment. (b) Automatic Conversion. Each share of Series A Preferred shall automatically be converted into one share of Common Stock upon the earlier to occur of (i) the closing of a firmly underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, relating to the offer and sale of Common Stock for the account of the Corporation to the public at a price per share (prior to underwriter commissions and discounts and offering expenses) of not less than $13.00 (as adjusted for stock splits, stock dividends, reclassifications and like events) and in which the Corporation receives aggregate gross proceeds of not less than $10,000,000 (A "QUALIFIED IPO"), or (ii) such effective date as the Corporation shall set no more than ten (10) days following the affirmative vote at a duly noticed meeting or by duly solicited written consent, of the holders of more than sixty-six and two-thirds percent (66-2/3%) of the then outstanding shares of Series A Preferred, -4- 5 in favor of the conversion of all outstanding shares of Series A Preferred into Common Stock. Prior to the closing of a Qualified IPO, upon the closing of an offering pursuant to which any holder of Series A Preferred has exercised registration rights pursuant to the Rights Agreement originally entered into by and among the Corporation and the Purchasers named therein in June 1996, each share of Series A Preferred for which such registration rights were exercised shall automatically be converted into one share of Common Stock. In the event of the automatic conversion of the Series A Preferred upon a Qualified IPO, the person(s) entitled to receive the Common Stock issuable upon such conversion of Series A Preferred shall not be deemed to have converted such Series A Preferred until immediately prior to the closing of such transaction. (c) Mechanics of Conversion. No fractional shares of Common Stock shall be issued upon conversion of Series A Preferred. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price. Before any holder of Series A Preferred shall be entitled to convert the same into full shares of Common Stock and to receive certificates therefor, he shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series A Preferred, and shall give written notice to the Corporation at such office that he elects to convert the same; provide, however, that in the event of an automatic conversion pursuant to Section 3(b), the outstanding shares of Series A Preferred shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided, further, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless the certificates evidencing such shares of Series A Preferred are either delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. The Corporation shall, as soon as practicable after such delivery, or such agreement and indemnification in the case of a lost certificate, issue and deliver at such office to such holder of Series A Preferred, a certificate or certificates for the number of shares of Common Stock to which he shall be entitled as aforesaid and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series A Preferred to be converted, or in the case of automatic conversion on the date of closing of the public offering or the effective date set by the Corporation as provided in paragraph 3(b) following the requisite stockholder approval, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (d) Adjustments to Series A Conversion Price for Dilutive Issues. (i) Special Definitions. For purposes of this Section 3(d), the following definitions shall apply: -5- 6 (1) "OPTIONS" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities. (2) "CONVERTIBLE SECURITIES" shall mean any evidences of indebtedness, Preferred Stock (other than Series A Preferred) or other securities convertible into or exchangeable for Common Stock. (3) "ADDITIONAL SHARES OF COMMON" shall mean all shares of Common Stock issued (or, pursuant to Section 3(d)(iii), deemed to be issued) by the Corporation after the Series A Original Issue Date, other than shares of Common Stock issued, issuable or, pursuant to Section 3(d)(iii), deemed to be issued: (A) upon conversion of shares of the Series A Preferred; (B) to officers, directors or employees of, or consultants to, the Corporation or any subsidiary pursuant to a stock grant, option plan or purchase plan or other employee stock incentive program or arrangement approved by the Board of Directors, but not exceeding an aggregate of 600,000 shares of Common Stock (net of any repurchases of such shares or any other shares of Common Stock originally issued to officers, directors, employees or consultants to the Corporation, and net of cancellation or expiration of options), subject to appropriate adjustment for all stock splits, dividends, subdivisions, combinations, recapitalizations and the like; (C) as a dividend or distribution on the Series A Preferred; (D) in connection with any transaction for which adjustment is made pursuant to Section 3(e)(i), (ii) and (iii) hereof, (E) shares of Common Stock issued to reacquire shares from existing stockholders, provided such shares of Common Stock are issued at a substantially identical price to the shares being reacquired. (F) any shares of Common Stock issued or issuable, if the holders of more than sixty-six and two-thirds percent (66-2/3%) of the Series A Preferred then outstanding agree in writing that such shares shall not constitute Additional Shares of Common Stock; or (G) up to an aggregate of 50,000 additional shares of Common Stock issued by the Corporation from time to time. (ii) No Adjustment of Series A Conversion Price. No adjustment in the Series A Conversion Price shall be made in respect of the issuance of Additional Shares of Common unless the consideration per share (determined pursuant to Section 3(d)(v) hereof) for -6- 7 an Additional Share of Common issued or deemed to be issued by the Corporation is less than the Series A Conversion Price in effect on the date of, and immediately prior to such issue. (iii) Options add Convertible Securities. In the event that the Corporation at any time or from time to time after the Series A Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date; provided, however, that Additional Shares of Common shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 3(d)(v) hereof) for such Additional Shares of Common would be less than the Series A Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common are deemed to be issued: (1) no further adjustment in the Series A Conversion Price shall be made upon the subsequent issue of such Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities, in each case, pursuant to their respective terms; (2) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Series A Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; (3) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Series A Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if: (A) in the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common issued were shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon such exercise, or for the issue of all -7- 8 such Convertible Securities which were actually converted upon or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange, and (B) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Corporation for the Additional Shares of Common deemed to have been then issued was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation upon the issue of the Convertible Securities with respect to which such Options were actually exercised; (4) no readjustment pursuant to clauses (2) or (3) above shall have the effect of increasing the Series A Conversion Price to an amount which exceeds the lower of (i) the Series A Conversion Price on the original adjustment date, or (ii) the Series A Conversion Price that would have resulted from any issuance of Additional Shares of Common between the original adjustment date and such readjustment date; and (5) in the case of an Option which expires by its terms not more than 30 days after the date of issue thereof, no adjustment of the Series A Conversion Price shall be made until the expiration or exercise of such Option, whereupon such adjustment shall be made in the same manner provided in clause (3) above. (iv) Adjustment of Series A Conversion Price Upon Issuance of Additional Shares of Common. In the event that this Corporation shall issue Additional Shares of Common (including Additional Shares of Common deemed to be issued pursuant to Section 3(d)(iii)) without consideration or for a consideration per share less than the Series A Conversion Price in effect on the date of and immediately prior to such issue, then and in such event such Series A Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Series A Conversion Price theretofore in effect by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common so issued would purchase at such Series A Conversion Price in effect immediately prior to such issue, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common so issued; provided, however, that, for the purposes of this Section 3(d)(iv), all shares of Common Stock issuable upon exercise, conversion or exchange of outstanding Options or Convertible Securities, as the case may be, shall be deemed to be outstanding, and immediately after any Additional Shares of Common are deemed issued pursuant to Section 3(d)(iii), such Additional Shares of Common shall be deemed to be outstanding. -8- 9 (v) Determination of Consideration. For purposes of this Section 3(d), the consideration received by the Corporation for the issue of any Additional Shares of Common shall be computed as follows: (1) Cash and Property. Such consideration shall: (A) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation excluding amounts paid or payable for accrued interest or accrued dividends; (B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board; and (C) in the event Additional Shares of Common are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board. (2) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common deemed to have been issued pursuant to Section 3(d)(iii), relating to Options and Convertible Securities, shall be determined by dividing (x) the total amount if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by (y) the maximum number of shares of Common Stock issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, as determined in Section 3(d)(iii) hereof. (e) Adjustments to Conversion Price for Other Dilutive Events. (i) Adjustments for Subdivisions, Stock Dividends, Combinations or Consolidations of Common Stock. In the event that the Corporation at any time or from time to time shall declare or pay, without consideration, any dividend on Common Stock payable in Common Stock or in any right to acquire Common Stock for no consideration, or effects a subdivision or combination of its outstanding shares of Common Stock into a greater or smaller number of shares without a proportionate and corresponding subdivision or combination of its -9- 10 outstanding shares of Series A Preferred, then and in each such event the Series A Conversion Price shall be appropriately increased or decreased proportionally. (ii) Adjustments for Reclassification, Exchange and Substitution. If the Common Stock issuable upon conversion of the Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than in an event provided for in Section 3(e)(i) above), the Series A Conversion Price then in effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted such that the shares of Series A Preferred shall be convertible into, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares of Common Stock that would have been subject to receipt by the holders upon conversion of shares of such Series A Preferred immediately before that change. (iii) Adjustments for Other Dividends and Distributions. In the event that the Corporation shall declare a distribution payable in securities of other issuers, evidences of indebtedness issued by this Corporation or other issuers, assets (excluding cash dividends) or options or rights not referred to in subsection 2(d)(iii) and for which no adjustment is made pursuant to Section 3(e)(i) or Section 3(e)(ii), the holders of Series A Preferred shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Series A Preferred are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution. (f) No Impairment. Except as provided in Sections 5 and 6 hereof, the Corporation will not, by amendment of its Certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of Series A Preferred against impairment. (g) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price of any Series A Preferred pursuant to this Section 3, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series A Preferred a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of such Series A Preferred, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Series A Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, -10- 11 of other property which at the time would be received upon the conversion of such holder's shares of Series A Preferred. (h) Notices of Record Date. In the event that this Corporation shall propose at any time: (i) to declare any dividend or distribution upon its Common Stock, whether in cash, property, stock or other securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus; (ii) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (iii) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or (iv) to merge or consolidate with or into any other corporation, or sell, lease or convey all or substantially all its property or business, or to liquidate, dissolve or wind up; then, in connection with each such event, this Corporation shall send to the holders of Series A Preferred: (A) at least 20 days' prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote in respect of the matters referred to in (iii) and (iv) above; and (B) in the case of the matters referred to in (iii) and (iv) above, at least 20 days' prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event). Each such written notice shall be delivered personally or given by first class mail, postage prepaid, addressed to the holders of Series A Preferred at the address for each such holder as shown on the books of this Corporation. (i) Reservation of Shares. The Corporation shall at all times reserve and keep available, out of its authorized but unissued Common Stock, solely for the purpose of effecting the conversion of the Series A Preferred, the full number of shares of Common Stock deliverable upon the conversion of all Series A Preferred from time to time outstanding. The Corporation shall from time to time (subject to obtaining necessary director and stockholder consent), in accordance with the laws of the State of Delaware, increase the number of authorized shares of Common Stock if at any time the authorized number of shares of its Common Stock remaining unissued shall not be sufficient to permit the conversion of all of the shares of Series A Preferred at the time outstanding. -11- 12 (j) Issuance Taxes. The Corporation shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of Series A Preferred pursuant to this Section 3. Section 4. Redemption of Series A Preferred. (a) On each of the fifth, sixth, seventh and eighth anniversaries of the date of the initial sale of Series A Preferred (the "Series A Original Issue Date"), to the extent the shares of Series A Preferred have not been redeemed or converted prior to such date and to the extent requested by any holder thereof, the Corporation shall redeem, subject to the proviso at the end of the third sentence of this paragraph, at the Redemption Price, as defined below, an amount equal to up to one-quarter, one-half, three-quarters and all (respectively) of the issued, outstanding, and unconverted shares of Series A Preferred held by such holder, from any source of funds legally available therefor. Not less than 30 and not more than 60 days before the fifth, sixth, seventh and eighth anniversaries of the Series A Original Issue Date (and each anniversary thereafter so long as any shares of Series A Preferred remain unredeemed and unconverted), the Corporation shall send to each holder of Series A Preferred the audited financial statements of the Corporation for the prior fiscal year (unless previously furnished to such holder) together with a notice advising such holders of their rights under this subsection. Each such holder shall have until each such anniversary date to request redemption of all or part of such shares which may as of such anniversary date be redeemed; provided, however, that no redemption shall be made on such anniversary date unless holders of more than sixty-six and two-thirds percent (66-2/3%) of the then outstanding shares of Series A Preferred request redemption pursuant to such notice. If no funds or insufficient funds are available to the Corporation at any time to meet the Corporation's redemption obligations pursuant to this subsection, or if any holder does not request the Corporation to redeem such holder's shares of Series A Preferred to the full extent permitted by this subsection, then the Corporation's obligations to redeem such shares shall in both cases be carried over to the succeeding year (subject to the same limitations on payment as set forth above) until all shares entitled to be redeemed pursuant to this subsection have been redeemed, and such holders shall have similar rights during the corresponding 30 to 60 day period of each succeeding year; provided, however, that the shares of Series A Preferred which were not redeemed on the anniversary on which such shares were initially eligible for redemption hereunder (that is, on the applicable fifth, sixth or seventh anniversary of the Series A Original Issue Date, without regard to whether the Corporation had sufficient funds available on such dates for such redemption hereunder) shall be (i) redeemed at the Redemption Price, as defined below and (ii) entitled to the dividend, conversion and other rights, preferences, privileges and restrictions of the Series A Preferred until such shares have been redeemed. (b) The redemption price for Series A Preferred repurchased pursuant to this Section 4 (the "REDEMPTION PRICE") shall be an amount equal to the sum of (i) $6.50 per share, plus (ii) $0.39 per share for each full year from the Series A Original Issue Date to the date of actual redemption plus a pro rata fraction thereof for any additional portion of a full year to the date of redemption (each such full year or such additional portion of a full year being referred to as a "Dividend Period"), provided that the amount payable under this clause (ii) in respect -12- 13 of any Dividend Period shall be reduced by an amount equal to the difference, if any, between (x) the amount of dividends declared and paid or set aside for payment on each share of Series A Preferred during such Dividend Period, less (y) the amount of dividends declared and paid or set aside for payment during such Dividend Period on the number of shares of Common Stock into which such share of Series A Preferred shall then be convertible, plus (iii) any dividends declared but not paid or set aside for payment on such share of Series A Preferred. (c) In the event insufficient funds are available to redeem all shares of Series A Preferred entitled and electing to be redeemed pursuant to Section 4(a), the Corporation shall effect each such redemption pro rata among the holders of the Series A Preferred based upon the number of shares of Series A Preferred then held by each holder and electing to be redeemed. (d) At least 30 but not more than 60 days' previous notice by certified mail, postage prepaid, shall be given to the holders of record of the Series A Preferred for any redemption pursuant to this subsection, such notice to be addressed to each holder at the address shown in the Corporation's records and which shall specify the date of redemption, the number of shares of the holder to be redeemed and the date at which conversion rights terminate which date shall be no earlier than five days prior to the date fixed for redemption. Subject to approval by more than sixty- six and two-thirds percent (66-2/3%) of the outstanding shares of Series A Preferred pursuant to Section 4(a), on or after the date of redemption as specified in such notice, each holder shall surrender his certificate for the number of shares to be redeemed as stated in the notice (except that such number of shares shall be reduced by the number of shares which have been converted pursuant to Section 3 hereof between the date of notice and the date on which conversion rights terminate) to this Corporation at the place specified in such notice. Provided such notice is duly given, and provided that on the redemption date specified there shall be a source of funds legally available for such redemption, and funds necessary for the redemption shall have been paid or made available at the place fixed for redemption, then all rights with respect to such shares shall, after the specified redemption date, terminate whether or not said certificates have been surrendered, excepting only that in the latter instance the right of the holder to receive the redemption price thereof, without interest, upon such surrender will not terminate. Section 5. Voting. Except as otherwise required by law or by Section 6 hereof, the holder of each share of Common Stock issued and outstanding shall have one vote with respect to such share and the holder of each share of Series A Preferred shall be entitled with respect to such share to a number of votes equal to the number of shares of Common Stock into which such share of Series A Preferred could be converted at the record date for determination of the stockholders entitled to vote on such matters, or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is solicited, such votes to be counted together with all other shares of stock of the Corporation having general voting power and not separately as a class. All holders of Series A Preferred shall have full voting rights and powers equal to the -13- 14 voting rights and powers of the holders of Common Stock, and shall be entitled to vote, together with the holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Holders of Common Stock and Series A Preferred shall be entitled to notice of any stockholders' meeting in accordance with the Bylaws of the Corporation. Fractional votes by the holders of Series A Preferred shall not, however, be permitted and any fractional voting rights shall (after aggregating all shares into which shares of Series A Preferred held by each holder could be converted) be rounded to the nearest whole number. Section 6. Covenants. (a) Required Consent of Series A Preferred. In addition to any other rights provided by law, so long as at least 180,000 shares of Series A Preferred shall be outstanding (as appropriately adjusted for all stock splits, dividends, combinations, recapitalizations and the like), this Corporation shall not, without first obtaining the affirmative vote or written consent of the holders of not less than a majority of such outstanding shares of the Series A Preferred, voting together as a single class: (i) amend or repeal any provision of, or add any provision to, this Corporation's Amended and Restated Certificate of Incorporation or Bylaws; (ii) designate any new series of Preferred Stock, or increase the authorized number of shares of any series or Preferred Stock; (iii) authorize (or increase the authorized number of) any class or series of capital stock or any other security convertible into or exchangeable for shares of any class or series of capital stock having rights, preferences or privileges senior to or on parity with the Series A Preferred; (iv) increase or decrease (other than by redemption or conversion) the total number of authorized shares of Series A Preferred or change the existing rights, preferences or privileges of the Series A Preferred, (v) authorize (A) a liquidation or dissolution of the Corporation, or (B) a recapitalization or reorganization of the Corporation, sale or transfer of all or substantially all of the assets of the Corporation or merger or consolidation of the Corporation if, as a result of such recapitalization, reorganization, sale, transfer, merger or consolidation, the stockholders of the Corporation immediately prior to the closing of such recapitalization, reorganization, sale, transfer, merger or consolidation (and prior to any related transfers of shares and other transactions) shall own less than [75%] of the voting securities of the successor corporation to the business of the Corporation; (vi) sell, transfer, or grant an exclusive license to, any material, patents, copyrights, trademarks, or applications therefor, proprietary or confidential information of the Corporation or any other material asset, except for licenses or sublicenses granted by the -14- 15 Corporation in the ordinary course of its business, and other than to a direct or indirect subsidiary of the Corporation; (vii) approve the repurchase, redemption or other acquisition of any Common Stock of the Corporation, other than (A) repurchases pursuant to agreements approved by the Board of Directors that grant to the Corporation a right to repurchase such Common Stock upon the termination of the service or employment of a consultant, director or employee, or (B) repurchases of any "Projected Volume Shares" as contemplated by the Stockholders Agreement dated July 21, 1995 among the Company and certain holders of Common Stock; or (viii) authorize the payment of a cash dividend to any holders of any class or series of capital stock of the Corporation. Section 7. Common Stock. (a) Dividend Rights. Subject to the prior rights of holders of all classes of stock at the time outstanding having prior rights as to dividends, the holders of the Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors. (b) Liquidation Rights. Upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation shall be distributed as provided in Section 2 of this Article IV. (c) Redemption. The Common Stock is not redeemable. (d) Voting Rights. The holder of each share of Common Stock shall have the right to one vote, and shall be entitled to notice of any shareholders' meeting in accordance with the Bylaws of this Corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law. Section 8. Residual Rights. All rights accruing to the outstanding shares of this Corporation not expressly provided for to the contrary herein shall be vested in the Common Stock. ARTICLE V The Corporation is to have perpetual existence. -15- 16 ARTICLE VI Elections of directors need not be by written ballot unless a stockholder demands election by written ballot at the meeting and before voting begins or unless the Bylaws of the Corporation shall so provide. ARTICLE VII In furtherance and not in limitation of the powers conferred by statute, the Board of Directors of the Corporation is expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation. ARTICLE VIII (a) To the fullest extent permitted by the General Corporation Law of the State of Delaware as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. (b) The Corporation may indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his estate or legal representative is or was a director, officer, employee or agent of the Corporation or any predecessor of the Corporation or serves or served at any other enterprise as a director, officer, employee or agent at the request of the Corporation or any other predecessor to the Corporation. (c) No amendment nor repeal of this Article VIII, nor the adoption of any provision of this Corporation's Certificate of Incorporation inconsistent with this Article VIII, shall eliminate or reduce the effect of this Article VIII, in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article VIII, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. ARTICLE IX Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. ARTICLE X Vacancies created by newly created directorships, created in accordance with the Bylaws of this Corporation, may be filled by the vote of a majority, although less than a quorum, of the directors then in office, or by a sole remaining director. -16- 17 Advance notice of new business and stockholder nominations for the election of directors shall be given in the manner and to the extent provided in the Bylaws of the Corporation. ARTICLE XI The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. -17- 18 IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated of Certificate to be duly executed this ____ day of ___________, 1997. By: ------------------------------------- John F. Davis, III President and Chief Executive Officer ATTEST: ---------------------------------- Ric L. Floyd, Secretary -18-
1 EXHIBIT 3.2 CONFIDENTIAL ------------ AS OF JUNE 25, 1996 AMENDED AND RESTATED BYLAWS OF PEGASUS SYSTEMS, INC. (A DELAWARE CORPORATION) ARTICLE I OFFICES AND FISCAL YEAR SECTION 1.01. REGISTERED OFFICE. The registered office of the Corporation shall be as stated in the Certificate of Incorporation until a change in such office is established by resolution of the Board of Directors and a statement of such change is filed in the manner provided by applicable law. SECTION 1.02. OTHER OFFICES. The Corporation may also have offices and keep its books, documents, and records at such other places within or without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. SECTION 1.03. FISCAL YEAR. The fiscal year of the Corporation shall end on the 31st day of December in each year or on such other date as the Board of Directors may designate by resolution. ARTICLE II THE STOCKHOLDERS SECTION 2.01. TYPES OF STOCK. (a) The Corporation's Certificate of Incorporation, as amended (the "Certificate of Incorporation") currently authorizes two classes of capital stock - Common Stock and Series A Preferred Stock ("Series A Preferred"). The aggregate number of shares of Common Stock and Series A Preferred which the Corporation has authority to issue is set forth in the Certificate of Incorporation. Unless otherwise specified, references in these Bylaws to the issued and outstanding shares of capital stock of the Corporation shall mean the issued and outstanding shares of Common Stock as if all issued and outstanding shares of Series A Preferred had been converted to Common Stock. (b) Except as provided herein or in the Certificate of Incorporation, or except as may be provided by the laws of the State of Delaware, the holders of Common Stock and Series A Preferred shall have exclusively all rights of stockholders. Each holder of Common Stock or Series A Preferred shall be entitled to one (1) vote per share of stock owned by such 2 holder, except as otherwise provided or limited herein or in the Certificate of Incorporation, or as otherwise provided or limited in (i) that certain Amended and Restated Stockholders Agreement dated as of June 25, 1996 to which the Corporation is a party (as it may be amended, the "Stockholders Agreement") and (ii) that certain Rights Agreement dated as of June 25, 1996 to which the Corporation is a party (as it may be amended, the "Rights Agreement"). Any holder of stock may enter into an agreement with the Corporation whereby such holder agrees not to vote such stock in all or certain circumstances; and in such case such shares held by such holder as to which such an agreement applies shall, for all purposes, not be considered to be entitled to vote on any matters as to which such holder has agreed not to vote such shares. No person or entity, together with all "affiliates" (as that term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as in effect as of June 1, 1995) of that person or entity, may beneficially own more than twenty-five percent (25%) of the issued stock. The limitation in the preceding sentence shall terminate on the earliest to occur of (x) the termination of the Stockholders Agreement, (y) July 21, 1998 or (z) the closing of a Qualified Public Offering. A "Qualified Public Offering" shall mean any underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, relating to the offering and sale of Common Stock for the account of the Corporation to the public at a price per share (prior to underwriter commissions and offering expenses) of not less than $13.00 (as adjusted for stock splits, stock dividends, reclassifications and like events) and in which the Corporation receives aggregate gross proceeds of not less than $10,000,000. (c) Neither the Corporation nor any other stockholder shall have any power or authority (i) to require any stockholder to unwillingly resell his or its stock to the Corporation or to any other person or entity, or (ii) to force the purchase of any stockholder's stock, except in the case of (i) or (ii) as part of a merger or sale of the Corporation approved by the Board of Directors or as set forth herein, in the Corporation's Certificate of Incorporation or the Stockholders Agreement. SECTION 2.02. PLACE OF MEETING; ANNUAL MEETING. All meetings of the stockholders of the Corporation shall be held at the principal offices of the Corporation, or at such other place within or without the State of Delaware as shall be designated by the Board of Directors in the notice of such meeting. The Board of Directors may fix by resolution the date and time of the annual meeting of the stockholders, and at said meeting the stockholders then entitled to vote shall elect directors to serve until the next annual meeting of stockholders and until their successors are duly nominated, qualified and elected, and shall transact such other business as may properly be brought before the meeting. SECTION 2.03. SPECIAL MEETINGS. Except as otherwise provided by applicable law, the Certificate of Incorporation, or these Bylaws, a special meeting of the stockholders of the Corporation entitled to vote may be called at any time only by the affirmative vote of at least two of the directors then in office, or the President. Except for actions relating to the conduct of the meeting under Section 2.05 of these Bylaws or the appointment of judges under Section 2.10 of these Bylaws, at a special meeting of the stockholders, no business shall be transacted and no corporate action shall be taken other than that stated in the notice of the meeting unless all of the stockholders of record entitled to vote for or against such an action are present in person or by proxy in which case any and all business may be transacted at the meeting even if the meeting is held without notice. 2 3 SECTION 2.04. NOTICE OF MEETINGS. Unless otherwise provided by applicable law, the Certificate of Incorporation, or these Bylaws, written notice of the place, date, and hour of every meeting of the stockholders, whether annual or special, shall be given to each stockholder of record entitled to vote at the meeting at the address of such stockholder as it appears on the records of the Corporation, not less than ten (10) nor more than sixty (60) calendar days before the date of the meeting. Every notice of a special meeting shall state the purpose or purposes thereof. SECTION 2.05 QUORUM. MANNER OF ACTING AND ADJOURNMENT. (a) Except as otherwise provided by the Certificate of Incorporation or these Bylaws, the record holders of at least two-thirds (2/3) of the shares of capital stock of the Corporation issued and outstanding and entitled to vote thereat, must be present in person or represented by proxy to constitute a quorum at any annual or special meeting of the stockholders. Whether or not a quorum is present or represented at any meeting of the stockholders, the record holders of two-thirds (2/3) of the shares of capital stock present or so represented shall have the power to adjourn the meeting from time to time. When a meeting is adjourned to another time or place, no notice need be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At any adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting. If an adjournment is for more than thirty (30) calendar days, or if after an adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting. Except as otherwise provided by the Certificate of Incorporation or these Bylaws, the affirmative vote of the record holders of two-thirds (2/3) of the shares of capital stock of the Corporation present in person or represented by proxy and entitled to vote on the subject matter at a meeting duly called and held with the necessary quorum, shall be the act of the stockholders at any annual or special meeting of stockholders. At any meeting at which amendment of the Certificate of Incorporation, or a merger, consolidation, sale of all or substantially all the assets, dissolution or liquidation of the Corporation, or any other matter requiring under applicable law a vote different than that set forth in the immediately preceding sentence for the taking of such action, is to be voted upon, then, in addition to the vote required under applicable law at the meeting in question, such matter or action, in order to be approved, must also be approved at such meeting by the affirmative vote of the record holders of at least two-thirds (2/3) of the shares of stock present in person or represented by proxy and entitled to vote thereon at such a meeting at which the record holders of at least two-thirds (2/3) of the shares of stock then issued and outstanding and entitled to vote thereat are present in person or by proxy. Except as otherwise required by applicable law or provided by the Certificate of Incorporation or these Bylaws, the stockholders present in person or by proxy at a meeting duly called and held can continue to do business with respect to any matters properly brought before the meeting, until adjournment, notwithstanding withdrawal of enough stockholders to leave less than a quorum. (b) Shares of its own capital stock belonging to the Corporation, or to another corporation if a majority of the shares entitled to vote in the election of directors of such other corporation is held directly or indirectly by the Corporation, shall not be entitled to vote and shall not be counted for quorum purposes. 3 4 (c) Notwithstanding the requirements of paragraph (a) of this Section 2.05, the following corporate actions shall require the affirmative vote of the record holders of two-thirds (2/3) or more of the issued and outstanding shares of capital stock of the Corporation: (i) the transfer and/or assumption of all or substantially all of the assets or liabilities of, or the dissolution of, the Corporation, The Hotel Industry Switch Company, and/or The Hotel Clearing Corporation; (ii) any material acquisition, disposition, consolidation, or merger effected by the Corporation; (iii) the execution of any contract by the Corporation involving a liability or obligation to the Corporation in excess of five million dollars ($5,000,000.00) other than in connection with a public offering of securities; (iv) the incurrence of debt in excess of one million dollars ($1,000,000.00) other than in connection with a public offering of securities; and (vii) the liquidation, dissolution or declaration of bankruptcy by the Corporation. This Subsection (c) shall terminate upon a Qualified Public Offering of the Corporation's stock. SECTION 2.06. ORGANIZATION. At every meeting of the stockholders, the Chairman of the Board, or in the case of a vacancy in the office or absence of the Chairman of the Board, one of the following persons present in the order stated: the Vice Chairmen in their order of rank, the President, the Vice-Presidents in their order of rank, a chairman designated by the Board of Directors, or a chairman chosen by the stockholders entitled to cast two-thirds (2/3) of the votes that all stockholders present in person or by proxy are entitled to cast, shall act as chairman of the meeting, and the Secretary, or, in such person's absence, an Assistant Secretary, if any, or any person appointed by the chairman of the meeting, shall act as secretary of the meeting. SECTION 2.07. PROXIES. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. Every proxy shall be executed in writing by the stockholder, or by the stockholder's duly authorized attorney-in-fact, and shall be filed with the Secretary of the Corporation. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally. SECTION 2.08. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Except as otherwise provided by statute, any action that may be taken at a meeting of stockholders by a vote of the stockholders may be taken with the written consent of stockholders owning (and by such written consent, voting) in the aggregate not less than the minimum percentage of the total number of shares that by statute, the Certificate of Incorporation or these Bylaws are required to be voted with respect to such proposed corporate action; provided, however, that the written consent of a stockholder who would not have been entitled to vote upon the action if a meeting were held shall not be counted; and further provided, that prompt notice shall be given to all stockholders of the taking of such corporate action without a meeting if less than unanimous written consent of all stockholders who would have been entitled to vote on the action if a meeting were held is obtained. 4 5 SECTION 2.09. VOTING LISTS. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) calendar days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting. The list shall be arranged in alphabetical order showing the address of each stockholder and the number of shares registered in the name of such stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least (10) calendar days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section, or the books of the Corporation or are entitled to vote in person or by proxy at any annual or special meeting of the stockholders. SECTION 2.10. VOTING PROCEDURES; JUDGES OF ELECTION. Except as otherwise provided by applicable law, the Certificate of Incorporation, or these Bylaws, or as directed by the chairman of the meeting, the election of directors and the vote upon any other matter need not be by written ballot. In advance of any meeting of stockholders, the Board of Directors may appoint one or more judges of election, who need not be stockholders, to act at such meeting or any adjournment thereof. If judges of election are not so appointed, the chairman of any such meeting may, and, upon the demand of any stockholder entitled to vote or such stockholder's proxy, at the meeting and before voting begins, shall appoint judges of election. In the case of judges appointed upon demand of a stockholder, the number of judges shall be either one (1) or three (3), as determined by the stockholders present or represented by proxy, entitled to cast a majority of votes that all stockholders present or so represented are entitled to cast thereon. No person who is a candidate for office shall act as a judge. In case any person appointed as judge fails to appear or refuses to act, the vacancy may be filled by appointment made by the Board of Directors in advance of the convening of the meeting, or at the meeting by the chairman of the meeting. Except as provided in the Certificate of Incorporation, if judges of election are appointed as aforesaid, they shall (a) determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) receive votes or ballots; (c) hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) count and tabulate all votes; (e) determine the results of the election or other vote; and (f) do such acts as may be proper to conduct the election or vote with fairness to all stockholders. If there be three (3) or more judges of election, the decision, act, or certificate of a majority shall be effective in all respects as the decision, act, or certificate of all. On request of the chairman of the meeting or of any stockholder entitled to vote or such stockholder's proxy, the judges shall make a report in writing of any challenge, question, or other matter determined by them, and shall execute a certificate of any fact found by them. 5 6 ARTICLE III BOARD OF DIRECTORS SECTION 3.01. POWERS. The Board of Directors shall have full power to manage the business and affairs of the Corporation, and all powers of the Corporation, except those specifically reserved or granted to the stockholders by applicable law, the Certificate of Incorporation, these Bylaws, the Stockholders Agreement or the Rights Agreement, are hereby granted to and vested in the Board of Directors. Without limiting the foregoing, the Board of Directors may, if it so desires, appoint one or more advisory councils to the Board of Directors, consisting of such numbers and with such duties as the Board may deem appropriate. SECTION 3.02. NUMBER, NOMINATIONS, ELECTION, TERM OF OFFICE, REMOVAL, TERMINATION AND VACANCIES. The Board of Directors of the Company shall consist of nine (9) members, (i) one (1) of whom shall be the Chief Executive Officer of the Corporation, (ii) six (6) of whom shall be designated by the holders (the "Existing Stockholders") from time to time of Common Stock (other than any holders who acquired Common Stock upon conversion or exchange of Series A Preferred), and (iii) two (2) of whom shall be designated by the holders from time to time of Series A Preferred or Common Stock issued upon conversion or otherwise in respect of Series A Preferred (the "Preferred Holders"). If the number of directors serving on the Board of Directors shall be increased or decreased, the Preferred Holders shall be entitled to designate a minimum of twenty percent (20%) of the total number of directors elected to serve on the Board of Directors. All nominations for directors shall be submitted to the Board of Directors prior to each annual meeting of stockholders of the Corporation and any other meeting of stockholders at which directors are to be elected (or prior to the circulation of any written consent of stockholders in lieu of such meeting(s)). The designated nominees of the Existing Stockholders (the "Designees") shall be determined as follows: Each Existing Stockholder shall be requested to nominate one individual. This list of nominees shall be submitted to the Existing Stockholders who shall then select the requisite number of Designees by voting their shares of Common Stock on a non-cumulative basis for the number of Designees to be selected. The individual(s) receiving a plurality of votes shall be the Designee(s). 6 7 Elections of directors need not be by written ballot. Each director shall serve for the term for which he or she is elected and until his or her successor shall have been duly nominated, elected and qualified (except in the event of his or her earlier death, resignation or removal). If the Existing Stockholders or the Preferred Holders wish to cause the removal of the director(s) which they had designated for the Board of Directors, the other stockholders entitled to vote shall vote in favor of such removal, as provided in the Stockholders Agreement and the Rights Agreement. Any vacancies on the Board of Directors resulting from death, resignation, termination, removal by the stockholders or from any increase in the number of directors may be filled by the stockholders at the next annual meeting thereof or at a special meeting called for that purpose in accordance with Section 2.03 of Article II of these Bylaws. In such event, the stockholder(s) that had designated such director(s) shall be entitled to designate and nominate as provided herein a successor to fill the vacancy so created, and in such instance the stockholder(s) shall vote in favor of such designee or nominee as provided herein. Any director elected in accordance with the two preceding sentences of this Section 3.02 shall hold office for the remainder of the full term of the directorship being filled by such director and until a successor shall have been elected and qualified. This Section 3.02 shall terminate upon a Qualified Public Offering of the Corporation's stock. SECTION 3.03. QUALIFICATIONS. All directors of the Corporation shall be natural persons, but need not be residents of Delaware or stockholders of the Corporation. SECTION 3.04. RESIGNATIONS. Any director of the Corporation may resign at any time by giving written notice to the Chairman of the Board, the President, or the Secretary of the Corporation. Such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Upon the effectiveness of such resignation, the vacancy created thereby shall be filled in the manner provided in Section 3.02 hereof. SECTION 3.05. ORGANIZATION. At every meeting of the Board of Directors, the Chairman of the Board, or in the case of a vacancy in the office or absence of the Chairman of the Board, one of the following officers present in the order stated: the President, the Vice Presidents in their order of rank, or a chairman chosen by the affirmative vote of the directors holding two-thirds (2/3) of the votes of the Board of Directors present, shall act as chairman of the meeting, and the Secretary, or, in the absence of the Secretary, an Assistant Secretary, if any, or any other person appointed by the chairman of the meeting, shall act as secretary of the meeting. SECTION 3.06. PLACE OF MEETING. All meetings of the Board of Directors of the Corporation shall be held at the principal offices of the Corporation, or at such other place within or without the State of Delaware as shall be designated in a notice of such meeting or otherwise. 7 8 SECTION 3.07. REGULAR MEETINGS. Regular meetings of the Board of Directors may be held without notice at such time and place as shall be designated from time to time by the Board of Directors. At such meetings, the directors shall transact such business as may properly be brought before the meeting. SECTION 3.08. SPECIAL MEETINGS. Special meetings of the Board of Directors may be held whenever called by the Chairman of the Board, the President or by the affirmative vote of twenty percent (20%) or more of the directors then in office. Except as otherwise provided by applicable law, the Certificate of Incorporation, or these Bylaws, notice of each such meeting shall be given to each director by telephone or in writing at least three (3) calendar days (in the case of notice by telephone, telegram, cable, or facsimile transmission) or seven (7) calendar days (in the case of notice by mail) before the time at which the meeting is to be held. Each such notice shall state the time and place of the meeting to be so held, and shall be deemed to be given at the time when so made by telephone, sent by telegram, cable, or facsimile transmission, or deposited in the U.S. mail. Unless otherwise indicated in the notice thereof, any and all business may be transacted at any special meeting. SECTION 3.09. QUORUM, MANNER OF ACTING, AND ADJOURNMENT. (a) Each director shall have one (1) vote on any matter voted upon by the Board of Directors. The voting and other rights of the Corporation's directors and stockholders are further defined and limited by the Certificate of Incorporation, the Stockholders Agreement and the Rights Agreement. (b) Except as otherwise provided by applicable law, the Certificate of Incorporation, the Stockholders Agreement, the Rights Agreement or these Bylaws, as amended from time to time, two-thirds (2/3) of the total number of directors then in office shall constitute a quorum for the transaction of business at all meetings of the Board of Directors, and the act of two-thirds (2/3) or more of the directors present at any meeting at which there is a quorum shall be the act of the Board. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting to another date and time by giving notice to each director not less than five (5) calendar days before the time at which said adjourned meeting is to be held, in the manner set forth in Section 3.08 hereof. Following any Qualified Public Offering of the Corporation's stock, a majority of the total number of directors then in office shall constitute a quorum for the transaction of business at all meetings of the Board of Directors, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board. (c) Notwithstanding paragraph (b) above, (i) the appointment or removal of the Chairman of the Board or the President; (ii) the approval of annual business plans, budgets, or strategic plans, (iii) any material change in the scope of the business of the Corporation; (iv) the approval of policies concerning the payment of dividends or other distributions; (v) the approval of capital expenditures in excess of one million dollars ($1,000,000.00); and (vi) the approval of changes in the Corporation's accounting or tax policies inconsistent with generally accepted accounting principles shall require the affirmative vote of three-fourths (3/4) or more of the directors present at any meeting at which there is a quorum. This Subsection (c) shall terminate upon a qualified public offering of the Corporation's stock and shall not apply with respect to any action required to effectuate such public offering. 8 9 SECTION 3.10. CONSENT IN LIEU OF MEETING. Except as otherwise provided by applicable law, the Certificate of Incorporation, or these Bylaws, and notwithstanding Section 3.08 hereof, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or the committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or the committee, as the case may be. SECTION 3.11. CONFERENCE TELEPHONE MEETINGS. Except as otherwise provided by applicable law, the Certificate of Incorporation, or these Bylaws, one or more directors may participate in a meeting of the Board of Directors, or of any committee thereof, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this section shall constitute presence in person at such meeting. SECTION 3.12. EXECUTIVE AND OTHER COMMITTEES. The Board of Directors may, by resolution adopted by the affirmative vote of a majority of the whole Board of Directors, designate and name an Executive Committee and one or more other committees, each committee to consist of one (1) or more directors, provided that any Executive Committee shall have at least three (3) directors. The Board may designate one (1) or more directors as alternate members of any committee to replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member (and the alternate or alternates, if any, designated for such member) of any committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another director to act at the meeting in the place of any such absent or disqualified member. Any such committee (to the extent provided in the resolution establishing such committee) shall conduct itself, including with respect to provisions for votes of its members, as set forth in resolutions adopted by the Board of Directors, and shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, expressly including the power and authority to declare a dividend, to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law (the "GCL"), and to authorize the seal of the Corporation to be affixed to all papers which may require it. Notwithstanding the foregoing, no such committee shall have the power or authority (a) to amend the Certificate of Incorporation or to fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation, or the conversion into, or the exchange of such shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation, or to fix the number of shares of any series of stock, or to authorize the increase or decrease of the shares of any series; (b) to adopt an agreement of merger or consolidation under Sections 251 or 252 of the GCL; (c) to recommend to the stockholders the sale, lease, or exchange of all or substantially all of the Corporation's property and assets; (d) to recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution; (e) to amend the Bylaws of the Corporation; or (f) to authorize the issuance of stock. 9 10 Each committee designated pursuant to this section shall keep regular minutes of its meetings and report the same to the Board of Directors when required. SECTION 3.13. COMPENSATION OF DIRECTORS. The Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor; provided that, the Board, in its discretion, may reduce the compensation of any director who is concurrently receiving compensation for services rendered to the Corporation as an officer thereof. Members of special or standing committees may be paid like compensation for attending committee meetings. SECTION 3.14. INTERESTED DIRECTORS. No contract or transaction between the Corporation and one (1) or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or of a committee thereof which authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose, if: (a) The material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors comprise less than a quorum; (b) The material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (c) the contract or transaction is fair to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. ARTICLE IV NOTICE-WAIVERS SECTION 4.01. NOTICE. WHAT CONSTITUTES. Except as otherwise provided in the Bylaws, any provision of applicable law, the Certificate of Incorporation or these Bylaws which 10 11 requires notice to be given to any director or stockholder of the Corporation shall not be deemed or constituted to require personal notice (unless otherwise expressly provided therein), but rather such notice may be given via telephone, facsimile or first class mail addressed to such director or stockholder at his or her address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same is deposited in the U.S. mail. SECTION 4.02. WAIVERS OF NOTICE. Whenever any notice is required to be given under applicable law, the Certificate of Incorporation or these Bylaws, a written waiver hereof, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Except as otherwise provided by applicable law, the Certificate of Incorporation or these Bylaws, neither the business to be transacted at nor the purposes of, any regular or special meeting of the stockholders, directors, or a committee of directors need be specified in any written waiver of notice of such meeting. Attendance of a person, either in person or by proxy, at any meeting shall constitute a waiver of notice of such meeting, except when a person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting has not been lawfully called or convened. Notwithstanding any of the foregoing, except in the case of written consents of less than all of the stockholders as provided in Section 2.08 of these Bylaws, no waiver of notice shall be valid or shall be deemed equivalent to notice unless all directors or stockholders entitled to vote on any matters which are a subject of the meeting in question shall give such a waiver of notice, whether before, at or after the meeting. ARTICLE V OFFICERS SECTION 5.01. NUMBER, QUALIFICATIONS AND DESIGNATION. The officers of the Corporation shall be chosen by the Board of Directors and shall be a President and a Secretary, and may include one or more Vice Presidents, a Treasurer, and such other officers as may be elected in accordance with the provisions of Section 5.03 of this Article V. One person may hold more than one (1) office. Except as provided below with respect to the Chairman of the Board, and Vice Chairmen of the Board, officers may, but need not be, directors or stockholders of the Corporation. The Board of Directors shall also elect, from among the members of the Board, a Chairman of the Board, and one or more Vice Chairmen of the Board, each of which shall be deemed to be an officer of the Corporation. SECTION 5.02. ELECTION, TERM OF OFFICE, RESIGNATION, AND REMOVAL. The officers of the Corporation, except those elected by delegated authority pursuant to Section 5.03 of this Article V, shall be elected annually by the Board of Directors, and each such officer shall hold his or her office until his or her successor shall have been duly elected and qualified, or until his or her earlier death, resignation or removal. Any officer may resign at any time upon written notice to the Corporation. Subject to the terms of any applicable employment or service agreement, all officers, agents, and employees shall be subject to removal, with or without 11 12 cause, at any time by the Board of Directors. The election or appointment of an officer shall not of itself create contract rights. Any vacancy caused by the death, resignation, or removal of any officer, or otherwise, may be filled by the Board of Directors or pursuant to delegated authority as provided in Section 5.03 hereof. SECTION 5.03. OTHER OFFICERS, COMMITTEES, AND AGENTS. The Board of Directors may from time to time elect such other officers, including Assistant Secretaries and Assistant Treasurers, and appoint such committees, employees, or other agents as it deems necessary. Such officers, committee members, employees, or other agents shall hold their offices for such terms and shall exercise such powers and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine by resolution. By resolution, the Board of Directors may delegate to any officer or committee the power to elect subordinate officers and to retain or appoint employees or other agents, or committees thereof, and to prescribe the authority and duties of such subordinate officers, committees, employees, or other agents. Subject to the terms of any applicable employment or service agreement, all such subordinate officers, agents, and employees shall also be subject to removal, with or without cause, at any time by the officers or committee appointing them. SECTION 5.04. THE CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at meetings of the Board of Directors and at meetings of the stockholders. The Chairman of the Board shall counsel with and advise the President and perform such other duties as may be from time to time assigned to the Chairman of the Board of Directors. Except as otherwise provided by resolution of the Board, the Chairman of the Board shall be ex-officio a member of all committees of the Board. SECTION 5.05. THE VICE CHAIRMEN OF THE BOARD. The Vice Chairmen of the Board shall perform the duties of the Chairman of the Board in the Chairman's absence (in their order of rank) and such other duties as may from time to time be assigned to them by the Board of Directors, the Chairman of the Board, or the President. SECTION 5.06. THE PRESIDENT. The President shall perform all of the duties usually incident to such office, and such other duties as may from time to time be assigned to the President by the Board of Directors. In the absence of the Chairman of the Board and any Vice Chairmen of the Board, the President shall preside at all meetings of the stockholders and of the Board of Directors. SECTION 5.07. THE SECRETARY. The Secretary, or in the Secretary's absence an Assistant Secretary, (a) shall attend all meetings of the stockholders and of the Board of Directors and shall record the proceedings of the meetings of the stockholders and the Board of Directors and of committees of the Board in a book or books to be kept for that purpose; (b) shall see that notices are given and records and reports properly kept and filed by the Corporation as required by law; (c) shall be the custodian of the seal of the Corporation and see that it is affixed to all documents to be executed on behalf of the Corporation under its seal; and, (d) in general, shall perform all duties incident to the office of Secretary, and such other duties as may from time to time be assigned to the Secretary by the Board of Directors, the Chairman of the Board, or the President. 12 13 SECTION 5.08. THE TREASURER. The Treasurer, or in Treasurer's absence, an Assistant Treasurer, (a) shall have or provide for the custody of, and when proper pay out, disburse, or otherwise dispose of, the funds or other property of the Corporation; (b) shall collect and receive or provide for the collection and receipt of moneys earned by or in any manner due to or received by the Corporation; (c) shall deposit all funds in his custody as Treasurer in such banks or other places of deposit as the Board of Directors may from time to time designate; (d) shall keep accurate financial records and accounts and, whenever so required by the Board of Directors, render statements showing his transactions as Treasurer and the financial condition of the Corporation; and (e) in general, shall discharge such other duties as may from time to time by assigned to the Treasurer by the Board of Directors, the Chairman of the Board, or the President. SECTION 5.09. SALARIES. The salaries and other compensation of the officers and agents of the Corporation elected or appointed by the Board of Directors shall be fixed from time to time by the Board of Directors. The salaries and other compensation of subordinate officers appointed pursuant to delegated authority under Section 5.03 hereof shall be fixed from time to time by the officers or committee appointing them. ARTICLE VI CERTIFICATES OF STOCK, TRANSFER, ETC. SECTION 6.01. ISSUANCE. Each stockholder shall be entitled to a certificate or certificates for shares of stock of the Corporation owned by such stockholder upon request therefor. The stock certificates of the Corporation shall be consecutively numbered and shall be registered in the stock ledger and transfer books of the Corporation as they are issued. They shall be signed by the Chairman of the Board or by the President or a Vice President, and by the Secretary or an Assistant Secretary, if any, or by the Treasurer or an Assistant Treasurer, if any, and shall bear the corporate seal, which may be a facsimile, engraved, or printed. Any and all of the signatures upon such certificate may be a facsimile, engraved, or printed. In case any officer, transfer agent, or registrar who has signed, or whose facsimile signature has been placed upon, any share certificate shall have ceased to be such officer, transfer agent, or registrar before the certificate is issued, it may be issued with the same effect as if such person were such officer, transfer agent, or registrar at the date of its issue. SECTION 6.02. RESTRICTION ON TRANSFER. No stockholder shall sell, transfer, or otherwise dispose of such stockholder's shares of stock without first offering said shares to the Corporation if and to the extent required by the terms of the Stockholders Agreement or the Rights Agreement. This Section 6.02 shall terminate upon a Qualified Public Offering of the Corporation's stock. SECTION 6.03 TRANSFER, LEGENDS, ETC. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation, or authority to transfer the Corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction upon its books. The Board of Directors may by resolution, (a) impose restrictions on transfer or registration of transfer of shares of stock of the Corporation, and (b) require as 13 14 a condition to the issuance or transfer of such shares that the person or persons to whom such shares are to be issued or transferred agree in writing to such restrictions. In the event that any such restrictions on transfer or registration of transfer are so imposed, the Corporation shall require that such restrictions be conspicuously noted on all certificates representing such shares. In addition, all shares of the Corporation's stock are subject to several restrictions and limitations as set forth in the Stockholders Agreement and the Rights Agreement, which are to be noted on all certificates representing such shares. SECTION 6.04. LOST, STOLEN, DEFACED, WORN OUT, OR DESTROYED. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen, defaced, worn-out, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, defaced, worn out, or destroyed. When authorizing such issuance of a new certificate or certificates, the Corporation may, as a condition precedent thereto, (a) require the owner of any defaced or worn out certificate to deliver such certificate to the Corporation and order the cancellation of the same, and (b) require the owner of any lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as the Corporation shall require and to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen, or destroyed. Thereupon, the Corporation may cause to be issued to such person a new certificate in replacement for the certificate alleged to have been lost, stolen, defaced, worn out, or destroyed. Upon the stub of every new certificate so issued shall be noted the fact of such issue and the number, date, and name of the registered owner of the lost, stolen, defaced, worn out, or destroyed certificate in lieu of which the new certificate is issued. Every certificate issued hereunder shall be issued without payment to the Corporation for such certificate; provided that, there shall be paid to the Corporation a sum equal to any exceptional expenses incurred by the Corporation in providing for or obtaining any such indemnity and security as is referred to herein. SECTION 6.05. RECORD HOLDER OF SHARES. Except as otherwise provided by applicable law, the Certificate of Incorporation, or these Bylaws, the Corporation (a) shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, (b) shall be entitled to hold liable for any required calls and assessments a person so registered, and (c) shall not be bound to recognize (i) any entity or person as a transferee of stock unless such entity or person both complies with all transfer and other restriction imposed hereby or by the Certificate of Incorporation and Stockholders Agreement and first becomes a party to Stockholders Agreement, or (ii) any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof. The Corporation may treat a fiduciary as having capability and authority to exercise all rights of ownership in respect of shares of record in the name of a decedent holder, a person, firm, or corporation in conservation, receivership, or bankruptcy, a minor, an incompetent person, or a person under disability, as the case may be, for whom such fiduciary is acting, and the Corporation, its transfer agent, and its registrar, if any, upon presentation of evidence of appointment of such fiduciary shall be under no duty to inquire as to the powers of such 14 15 fiduciary and shall not be liable for any loss caused by any act done or omitted to be done by the Corporation or its transfer agent or registrar, if any, in reliance thereon. SECTION 6.06. DETERMINATION OF STOCKHOLDERS OF RECORD. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payments of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion, or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than (10) calendar days before the date of such meeting, nor more than sixty (60) calendar days prior to any other action. If no record date is fixed: (a) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (b) The record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. (c) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting provided that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 6.07. APPOINTMENT OF TRANSFER AGENTS, REGISTRARS, ETC. The Board of Directors may from time to time by resolution appoint (a) one (1) or more transfer agents and registrars for the shares of stock of the Corporation, (b) a plan agent to administer any employee benefit, dividend reinvestment, or similar plan of the Corporation, and (c) a dividend disbursing agent to disburse any and all dividends authorized by the Board and payable with respect to the shares of stock of the Corporation. The Board of Directors shall also have authority to make such other rules and regulations not inconsistent with applicable law, the Certificate of Incorporation, or these Bylaws, as it deems necessary or advisable with respect to the issuance, transfer, and registration of certificates for shares and the shares of stock represented thereby. 15 16 ARTICLE VII GENERAL PROVISIONS SECTION 7.01. DIVIDENDS. Dividends, if any, upon the capital stock of the Corporation may be declared only by the affirmative vote of at least three-fourths (3/4) of the members of the Board of Directors then in office, at any regular or special meeting of the Board of Directors. Dividends may be paid in cash, in property, or in shares of the capital stock of the Corporation, or in any combination thereof, but only out of funds available for the payment of dividends as provided by applicable law. Any dividends declared upon the stock of the Corporation shall be payable on such date or dates as the Board of Directors shall determine by resolution. If the date fixed for the payment of any dividend shall in any year fall upon a legal holiday, then the dividend payable on such date shall be paid on the next day not a legal holiday. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its discretion, shall determine by resolution is proper as a reserve or reserves to meet contingencies, for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board of Directors shall so determine is in the best interests of the Corporation and its stockholders. The Board may modify or abolish any such reserves in the manner in which it was created. SECTION 7.02. CONTRACTS, ETC. Except as otherwise provided by applicable law, the Certificate of Incorporation, or these Bylaws, the Board of Directors may authorize any officer or officers, any employee or employees, or any agent or agents, to enter into any contract or to execute, acknowledge, or deliver any agreement, deed, mortgage, bond, or other instrument in the name of and on behalf of the Corporation and to affix the Corporation's seal thereon. Such authority may be general or confined to specific instances. SECTION 7.03. CHECKS. All checks, notes, obligations, bills of exchange, acceptances, or other orders in writing shall be signed by such person or persons as the Board of Directors may from time to time designate by resolution. SECTION 7.04. CORPORATE SEAL. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization, and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. SECTION 7.05. DEPOSITS. All funds of the Corporation shall be deposited from time to time to credit of the Corporation in such banks, trust companies, or other depositories as the Board of Directors may approve or designate, and all such funds shall be withdrawn only upon checks or other orders signed by such one or more officers, employees, or agents as the Board of Directors shall from time to time designate. SECTION 7.06. EXAMINATION OF CORPORATE RECORDS. Upon written demand under oath stating the purpose thereof, every stockholder of record shall have a right to examine, in person or by attorney or other agent, during ordinary business hours and for any proper purpose, 16 17 the Corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent shall be the person who seeks the right of inspection, the demand under oath shall be accompanied by a power of attorney or other writing which authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the Corporation as its registered office in Delaware or at its principal place of business. Any director shall have the right to examine the Corporation's stock ledger, a list of its stockholders, and its other books and records during ordinary business hours for a purpose reasonably related to his or her position as a director. SECTION 7.07. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Corporation shall indemnify to the fullest extent authorized or permitted by law any current or former director or officer of the Corporation (or his or her testator or estate) made or threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether criminal, civil administrative, or investigative, by reason of the fact that he or she is or was a director or officer of the Corporation or is or was serving, at the request of the Corporation, as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise. Subject to applicable law, the Corporation may indemnify an employee or agent of the Corporation to the extent that and with respect to such proceedings as, the Board of Directors may determine by resolution, in its discretion. SECTION 7.08. AMENDMENT OF BYLAWS. (a) These Bylaws may be amended, modified, or repealed, or new Bylaws may be adopted by the Board of Directors of the Corporation, subject to (i) the consent of the holders of Series A Preferred as provided in the Rights Agreement and (ii) amendment, modification or repeal, by the Corporation's stockholders. Any such amendment, modification or repeal by the Corporation's stockholders shall require, in addition to all applicable requirements of law and the Certificate of Incorporation, the affirmative vote of the record holders of two-thirds (2/3) or more of the outstanding shares of Common Stock, at any annual meeting of stockholders or at any special meeting thereof, if notice of such amendment, modification, repeal or adoption of new Bylaws is contained in the notice of such special meeting. Notwithstanding any of the foregoing to the contrary, Section 2.01 (c) hereof may not be amended, modified or repealed by either the Board of Directors or the stockholders without the unanimous vote of all holders of record of stock. (b) Notwithstanding the above paragraph, this paragraph (b) of Section 7.08 and paragraph (c) of Section 3.09 may only be amended, modified, or repealed by the Board of Directors of the Corporation with the affirmative vote of three-fourths (3/4) or more of the Board of Directors at any meeting of the Board at which there is a quorum. (c) Following a Qualified Public Offering of the Corporation's stock, these Bylaws may be amended, modified, or repealed, or new Bylaws may be adopted by the Board of Directors of the Corporation, subject to amendment, modification or repeal by the Corporation's stockholders and applicable law. 17
1 EXHIBIT 3.3 SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF PEGASUS SYSTEMS, INC. This Second Amended and Restated Certificate of Incorporation amends and restates the Amended and Restated Certificate of Incorporation filed in the office of the Secretary of State of the State of Delaware on June 25, 1996, which amended and restated the Certificate of Incorporation of Pegasus Systems, Inc., a corporation originally incorporated in Delaware as "Pegasus Systems, Inc." on July 10, 1995. This Second Amended and Restated Certificate of Incorporation has been duly adopted pursuant to Section 245 of the Delaware General Corporation Law, ARTICLE I The name of this corporation is Pegasus Systems, Inc. (the "Corporation"). ARTICLE II The address of the registered office of the Corporation in the State of Delaware is 1013 Centre Road, New Castle County, Wilmington, Delaware 19805-1297, The name of the registered agent of the Corporation at that address is The Prentice-Hall Corporation Systems, Inc. ARTICLE III The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful business, act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. The private property of the stockholders shall not be subject to the payment of corporate debts to any extent whatsoever. ARTICLE IV This Corporation is authorized to issue two classes of stock, designated "Common Stock" and "Preferred Stock". The total number of shares which this Corporation is authorized to issue is 102,000,000 shares. The number of shares of Common Stock which this Corporation is authorized to issue is 100,000,000 shares, par value $0.01 per share. The number of shares of Preferred Stock which this Corporation is authorized to issue is 2,000,000 shares, par value $0.01 per share, which shall initially be undesignated as to series. Any Preferred Stock not previously designated as to series may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors (authority to do so being hereby expressly 2 vested in the Board), and such resolution or resolutions shall also set forth the voting powers, full or limited or none, of each such series of Preferred Stock and shall fix the designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions of each such series of Preferred Stock. The Board of Directors is authorized to alter the designation, rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series of Preferred Stock, to increase or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series. Each share of Preferred Stock issued by the Corporation, if reacquired by the Corporation (whether by redemption, repurchase, conversion to Common Stock or other means), shall upon such reacquisition resume the status of authorized and unissued shares of Preferred Stock, undesignated as to series and available for designation and issuance by the Corporation in accordance with the immediately preceding paragraph. The relative rights, preferences, privileges and restrictions granted to or imposed upon the Common Stock or the holders thereof are as follows: (a) Dividend Rights. Subject to the prior rights of holders of all classes of stock at the time outstanding having prior rights as to dividends, the holders of the Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors. (b) Liquidation Rights. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation and of any amounts to which the holders of all classes of stock at the time outstanding having prior rights as to liquidation are entitled, the holders of all outstanding shares of Common Stock shall be entitled to share ratably in the remaining assets of the Corporation. (c) Redemption. The Common Stock is not redeemable. (d) Voting Rights. The holder of each share of Common Stock shall have the right to one vote, and shall be entitled to notice of any shareholders' meeting in accordance with the Bylaws of this Corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law. -2- 3 (e) Residual Rights. All rights accruing to the outstanding shares of this Corporation not expressly provided for to the contrary herein shall be vested in the Common Stock. ARTICLE V The Corporation is to have perpetual existence. ARTICLE VI Elections of directors need not be by written ballot unless a stockholder demands election by written ballot at the meeting and before voting begins or unless the Bylaws of the Corporation shall so provide. ARTICLE VII In furtherance and not in limitation of the powers conferred by statute, the Board of Directors of the Corporation is expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation. ARTICLE VIII (a) To the fullest extent permitted by the General Corporation Law of the State of Delaware as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. (b) The Corporation may indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his estate or legal representative is or was a director, officer, employee or agent of the Corporation or any predecessor of the Corporation or serves or served at any other enterprise as a director, officer, employee or agent at the request of the Corporation or any other predecessor to the Corporation. (c) No amendment nor repeal of this Article VIII, nor the adoption of any provision of this Corporation's Certificate of Incorporation inconsistent with this Article VIII, shall eliminate or reduce the effect of this Article VIII, in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article VIII, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. -3- 4 ARTICLE IX Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. ARTICLE X Advance notice of new business and stockholder nominations for the election of directors shall be given in the manner and to the extent provided in the Bylaws of the Corporation. ARTICLE XI The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. The Board of Directors may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute or this Certificate of Incorporation directed or required to be exercised or done by the stockholders. 1. Number of Directors The number of directors of the Corporation shall be fixed from time to time only by action of not less than a majority of the members of the Board of Directors then in office. The number of directors comprising the Board of Directors of the Corporation shall not be less than two (2) or more than twenty-five (25). 2. Classes Subject to the rights, if any, of any series of Preferred Stock then outstanding, the directors shall be divided into three classes, designated Class I, Class II and Class III. The number of directors in each class shall be the whole number contained in the quotient arrived at by dividing the authorized number of directors by three, and if a fraction is also contained in such quotient then if such fraction is one-third (1/3) the extra director shall be a member of Class III and if the fraction is two-thirds (2/3) then one of the extra directors shall be a member of Class III and the other shall be a member of Class II. Upon filing of this Second Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, Donald R. Dixon, John Biggs and W.C. Hammett, Jr. shall be members of Class I, Malcolm Highet, Bruce W. Wolff and Mark C. Wells shall be members of Class II, and Rockwell A. Schnabel, John F. Davis, III and Paul Travers shall be -4- 5 members of Class III. The term of office of directors in each class shall expire as follows: Class I shall expire at the 1998 annual meeting of stockholders, Class II shall expire at the 1999 annual meeting of stockholders, Class III shall expire at the 2000 annual meeting of stockholders. At each such meeting of stockholders, directors shall be elected to succeed those directors whose terms expire for a term of office to expire at the third succeeding annual meeting of stockholders after their election. All directors shall hold office until the annual meeting of stockholders for the year in which their term expires and until their successors are duly elected and qualified, or until their earlier death, resignation, disqualification or removal. 3. Vacancies Subject to the rights, if any, of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, disqualification or removal may be filled only by a majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires and until such director's successor shall have been duly elected and qualified. 4. Removal Any director or the entire Board of Directors may be removed only for cause and only by the vote of the holders of two-thirds (2/3) of the securities of the Corporation then entitled to vote at an election of directors voting together as a single class. ARTICLE XII Any action required or permitted to be taken at any annual or special meeting of stockholders may only be taken upon the vote of the stockholders at an annual or special meeting duly called and may not be taken by written consent of the stockholders. Special meetings of the stockholders, unless otherwise prescribed by statute, may be called at any time only by the Chairman of the Board or the Chief Executive Officer of the Corporation or the Board of Directors. ARTICLE XIII The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. In addition to any affirmative vote required by applicable law or any other provision of this Certificate of Incorporation or specified in any agreement, the affirmative -5- 6 vote of the holders of not less than two-thirds (2/3) of the voting power of all securities of the Corporation entitled to vote generally in the election of directors shall be required to amend, add, alter, change, repeal or adopt any provisions inconsistent with Sections 1, 2 or 3 of Article XI, Article XII or this Article XIII of this Certificate of Incorporation and the affirmative vote of not less than eighty percent (80%) of the voting power of all securities of the Corporation entitled to vote generally in the election of directors shall be required to amend, add, alter, change, repeal or adopt any provisions inconsistent with Section 4 of Article XI or this Article XIII with respect to Section 4 of Article XI. IN WITNESS WHEREOF, the Corporation has caused this Second Amended and Restated of Certificate to be duly executed this ____ day of ___________, 1997. By: -------------------------------------- John F. Davis, III President and Chief Executive Officer ATTEST: ----------------------------------- Ric L. Floyd, Secretary -6-
1 EXHIBIT 3.4 SECOND AMENDED AND RESTATED BYLAWS OF PEGASUS SYSTEMS, INC. (A DELAWARE CORPORATION) ARTICLE I. OFFICES AND FISCAL YEAR SECTION 1.1 REGISTERED OFFICE. The registered office of the Corporation shall be as stated in the Certificate of Incorporation until a change in such office is established by resolution of the Board of Directors and a statement of such change is filed in the manner provided by applicable law. SECTION 1.2 OTHER OFFICES. The Corporation may also have offices and keep its books, documents, and records at such other places within or without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. SECTION 1.3 FISCAL YEAR. The fiscal year of the Corporation shall end on the 31st day of December in each year or on such other date as the Board of Directors may designate by resolution. ARTICLE II. THE STOCKHOLDERS SECTION 2.1 TYPES OF STOCK. (a) The Corporation's Certificate of Incorporation, as amended (the "Certificate of Incorporation") currently authorizes two classes of capital stock - Common Stock and Preferred Stock. The aggregate number of shares of Common Stock and Series A Preferred which the Corporation has authority to issue is set forth in the Certificate of Incorporation. (b) Except as provided herein or in the Certificate of Incorporation, or except as may be provided by the laws of the State of Delaware, the holders of Common Stock shall have exclusively all rights of stockholders. SECTION 2.2 PLACE OF MEETING; ANNUAL MEETING. All meetings of the stockholders of the Corporation shall be held at the principal offices of the Corporation, or 2 at such other place within or without the State of Delaware as shall be designated by the Board of Directors in the notice of such meeting. The Board of Directors may fix by resolution the date and time of the annual meeting of the stockholders, and at said meeting the stockholders then entitled to vote shall elect directors to serve until the next annual meeting of stockholders and until their successors are duly nominated, qualified and elected, and shall transact such other business as may properly be brought before the meeting. SECTION 1.023 SPECIAL MEETINGS. Except as otherwise provided by applicable law, the Certificate of Incorporation, or these Bylaws, a special meeting of the stockholders of the Corporation entitled to vote may be called at any time only by the Chairman of the Board or the President of the Corporation or the Board of Directors. SECTION 1.024 NOTICE OF MEETINGS. Unless otherwise provided by applicable law, the Certificate of Incorporation, or these Bylaws, written notice of the place, date, and hour of every meeting of the stockholders, whether annual or special, shall be given to each stockholder of record entitled to vote at the meeting at the address of such stockholder as it appears on the records of the Corporation, not less than ten (10) nor more than sixty (60) calendar days before the date of the meeting. Every notice of a special meeting shall state the purpose or purposes thereof. SECTION 1.025 QUORUM. MANNER OF ACTING AND ADJOURNMENT. (a) Except as otherwise provided by the Certificate of Incorporation or these Bylaws, the record holders of at least a majority of the shares of capital stock of the Corporation issued and outstanding and entitled to vote thereat, must be present in person or represented by proxy to constitute a quorum at any annual or special meeting of the stockholders. Whether or not a quorum is present or represented at any meeting of the stockholders, the record holders of a majority of the shares of capital stock present or so represented shall have the power to adjourn the meeting from time to time. When a meeting is adjourned to another time or place, no notice need be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At any adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting. If an adjournment is for more than thirty (30) calendar days, or if after an adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting. Except as otherwise provided by applicable law, the Certificate of Incorporation or these Bylaws, the affirmative vote of the record holders of a majority of the shares of capital stock of the Corporation present in person or represented by proxy and entitled to vote on the subject matter at a meeting duly called and held with the necessary quorum, shall be the act of the stockholders at any annual or special meeting of stockholders. Except as otherwise required by applicable law or provided by the Certificate of Incorporation or these Bylaws, the stockholders present in person or by proxy at a meeting duly called and held can continue to do business with respect to any matters properly brought before the meeting, 2 3 until adjournment, notwithstanding withdrawal of enough stockholders to leave less than a quorum. (b) Shares of its own capital stock belonging to the Corporation, or to another corporation if a majority of the shares entitled to vote in the election of directors of such other corporation is held directly or indirectly by the Corporation, shall not be entitled to vote and shall not be counted for quorum purposes. SECTION 1.026 ORGANIZATION. At every meeting of the stockholders, the Chairman of the Board, or in the case of a vacancy in the office or absence of the Chairman of the Board, one of the following persons present in the order stated: the Vice Chairmen in their order of rank, the President, the Vice-Presidents in their order of rank, a chairman designated by the Board of Directors, or a chairman chosen by the stockholders entitled to cast two-thirds (2/3) of the votes that all stockholders present in person or by proxy are entitled to cast, shall act as chairman of the meeting, and the Secretary, or, in such person's absence, an Assistant Secretary, if any, or any person appointed by the chairman of the meeting, shall act as secretary of the meeting. SECTION 1.027 PROXIES. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. Every proxy shall be executed in writing by the stockholder, or by the stockholder's duly authorized attorney-in-fact, and shall be delivered to the secretary of the meeting at or prior to the time designated in the order of business for so delivering such proxies. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally. SECTION 1.028 CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Any action required or permitted to be taken at any annual or special meeting of stockholders may only be taken upon the vote of the stockholders at an annual or special meeting duly called and may not be taken by written consent of the stockholders. SECTION 1.029 VOTING LISTS. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) calendar days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting. The list shall be arranged in alphabetical order showing the address of each stockholder and the number of shares registered in the name of such stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least (10) calendar days prior to the meeting, either at a place within the city where the 3 4 meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section, or the books of the Corporation or are entitled to vote in person or by proxy at any annual or special meeting of the stockholders. SECTION 1.0210 VOTING PROCEDURES; JUDGES OF ELECTION. Except as otherwise provided by applicable law, the Certificate of Incorporation, or these Bylaws, or as directed by the chairman of the meeting, the election of directors and the vote upon any other matter need not be by written ballot. In advance of any meeting of stockholders, the Board of Directors may appoint one or more judges of election, who need not be stockholders, to act at such meeting or any adjournment thereof. If judges of election are not so appointed, the chairman of any such meeting may, and, upon the demand of any stockholder entitled to vote or such stockholder's proxy, at the meeting and before voting begins, shall appoint judges of election. In the case of judges appointed upon demand of a stockholder, the number of judges shall be either one (1) or three (3), as determined by the stockholders present or represented by proxy, entitled to cast a majority of votes that all stockholders present or so represented are entitled to cast thereon. No person who is a candidate for office shall act as a judge. In case any person appointed as judge fails to appear or refuses to act, the vacancy may be filled by appointment made by the Board of Directors in advance of the convening of the meeting, or at the meeting by the chairman of the meeting. Except as provided in the Certificate of Incorporation, if judges of election are appointed as aforesaid, they shall (a) determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) receive votes or ballots; (c) hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) count and tabulate all votes; (e) determine the results of the election or other vote; and (f) do such acts as may be proper to conduct the election or vote with fairness to all stockholders. If there be three (3) or more judges of election, the decision, act, or certificate of a majority shall be effective in all respects as the decision, act, or certificate of all. On request of the chairman of the meeting or of any stockholder entitled to vote or such stockholder's proxy, the judges shall make a report in writing of any challenge, question, or other matter determined by them, and shall execute a certificate of any fact found by them. 4 5 ARTICLE III. BOARD OF DIRECTORS SECTION 1.031 POWERS. The Board of Directors shall have full power to manage the business and affairs of the Corporation, and all powers of the Corporation, except those specifically reserved or granted to the stockholders by applicable law, the Certificate of Incorporation, these Bylaws, or that certain Rights Agreement dated as of June 25, 1996 to which the Corporation is a party (as it may be amended, the "Rights Agreement"), are hereby granted to and vested in the Board of Directors. Without limiting the foregoing, the Board of Directors may, if it so desires, appoint one or more advisory councils to the Board of Directors, consisting of such numbers and with such duties as the Board may deem appropriate. SECTION 1.032 NUMBER, NOMINATIONS, ELECTION, TERM OF OFFICE, REMOVAL, TERMINATION AND VACANCIES. 1. Number of Directors. The number of directors of the Corporation shall be fixed from time to time only by action of not less than a majority of the members of the Board of Directors then in office. The number of directors comprising the Board of Directors of the Corporation shall not be less than two (2) or more than twenty-five (25). 2. Classes. Subject to the rights, if any, of any series of Preferred Stock then outstanding, the directors shall be divided into three classes, designated Class I, Class II and Class III. The number of directors in each class shall be the whole number contained in the quotient arrived at by dividing the authorized number of directors by three, and if a fraction is also contained in such quotient then if such fraction is one-third (1/3) the extra director shall be a member of Class III and if the fraction is two-thirds (2/3) then one of the extra directors shall be a member of Class III and the other shall be a member of Class II. Upon filing of the Corporation's Second Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, Donald R. Dixon, John Biggs and W.C. Hammett, Jr. shall be members of Class I, Malcolm Highet, Bruce W. Wolff and Mark C. Wells shall be members of Class II, and Rockwell A. Schnabel, John F. Davis, III and Paul Travers shall be members of Class III. The term of office of directors in each class shall expire as follows: Class I shall expire at the 1998 annual meeting of stockholders, Class II shall expire at the 1999 annual meeting of stockholders, Class III shall expire at the 2000 annual meeting of stockholders. At each such meeting of stockholders, directors shall be elected to succeed those directors whose terms expire for a term of office to expire at the third succeeding annual meeting of stockholders after their election. All directors shall hold office until the annual meeting of stockholders for the year in which their term expires and until their successors are duly elected and qualified, or until their earlier death, resignation, disqualification or removal. 5 6 3. Vacancies. Subject to the rights, if any, of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, disqualification or removal may be filled only by a majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires and until such director's successor shall have been duly elected and qualified. 4. Removal. Any director or the entire Board of Directors may be removed only for cause and only by the vote of the holders of two-thirds (2/3) of the securities of the Corporation then entitled to vote at an election of directors voting together as a single class. SECTION 1.033 QUALIFICATIONS. All directors of the Corporation shall be natural persons, but need not be residents of Delaware or stockholders of the Corporation. SECTION 1.034 RESIGNATIONS. Any director of the Corporation may resign at any time by giving written notice to the Chairman of the Board, the President, or the Secretary of the Corporation. Such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Upon the effectiveness of such resignation, the vacancy created thereby shall be filled in the manner provided in Section 3.2 hereof. SECTION 1.035 ORGANIZATION. At every meeting of the Board of Directors, the Chairman of the Board, or in the case of a vacancy in the office or absence of the Chairman of the Board, one of the following officers present in the order stated: the President, the Vice Presidents in their order of rank, or a chairman chosen by the affirmative vote of the directors holding two-thirds (2/3) of the votes of the Board of Directors present, shall act as chairman of the meeting, and the Secretary, or, in the absence of the Secretary, an Assistant Secretary, if any, or any other person appointed by the chairman of the meeting, shall act as secretary of the meeting. SECTION 1.036 PLACE OF MEETING. All meetings of the Board of Directors of the Corporation shall be held at the principal offices of the Corporation, or at such other place within or without the State of Delaware as shall be designated in a notice of such meeting or otherwise. SECTION 1.037 ANNUAL AND REGULAR MEETINGS. The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual meeting of stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. If such annual meeting is not so held, then the annual meeting 6 7 of the Board of Directors may be held at such other time or place (within or without the State of Delaware) as shall be specified in a notice thereof given as required herein. Regular meetings of the Board of Directors may be held without notice at such time and place as shall be designated from time to time by the Board of Directors. At such regular meetings, the directors shall transact such business as may properly be brought before the meeting. Notice of regular meetings of the Board of Directors need not be given except as otherwise required by applicable law or these Bylaws. SECTION 1.038 SPECIAL MEETINGS. Special meetings of the Board of Directors may be held whenever called by the Chairman of the Board, the President or by the affirmative vote of twenty percent (20%) or more of the directors then in office. Except as otherwise provided by applicable law, the Certificate of Incorporation, or these Bylaws, notice of each such meeting shall be given to each director by telephone or in writing at least three (3) calendar days (in the case of notice by telephone, telegram, cable, or facsimile transmission) or seven (7) calendar days (in the case of notice by mail) before the time at which the meeting is to be held. Each such notice shall state the time and place of the meeting to be so held, and shall be deemed to be given at the time when so made by telephone, sent by telegram, cable, or facsimile transmission, or deposited in the U.S. mail. Unless otherwise indicated in the notice thereof, any and all business may be transacted at any special meeting. SECTION 1.039 QUORUM, MANNER OF ACTING, AND ADJOURNMENT. (a) Each director shall have one (1) vote on any matter voted upon by the Board of Directors. The voting and other rights of the Corporation's directors and stockholders are further defined and limited by the Certificate of Incorporation and the Rights Agreement. (b) Except as otherwise provided by applicable law, the Certificate of Incorporation, the Rights Agreement or these Bylaws, as amended from time to time, a majority of the total number of directors then in office shall constitute a quorum for the transaction of business at all meetings of the Board of Directors, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting to another date and time by giving notice to each director not less than five (5) calendar days before the time at which said adjourned meeting is to be held, in the manner set forth in Section 3.8 hereof. At any adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted at the meeting as originally called. SECTION 1.0310 CONSENT IN LIEU OF MEETING. Except as otherwise provided by applicable law, the Certificate of Incorporation, or these Bylaws, and notwithstanding Section 3.8 hereof, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or the committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or the committee, as the case may be. 7 8 SECTION 1.0311 CONFERENCE TELEPHONE MEETINGS. Except as otherwise provided by applicable law, the Certificate of Incorporation, or these Bylaws, one or more directors may participate in a meeting of the Board of Directors, or of any committee thereof, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this section shall constitute presence in person at such meeting. SECTION 1.0312 EXECUTIVE AND OTHER COMMITTEES. The Board of Directors may, by resolution adopted by the affirmative vote of a majority of the whole Board of Directors, designate and name an Executive Committee and one or more other committees, each committee to consist of one (1) or more directors, provided that any Executive Committee shall have at least three (3) directors. The Board may designate one (1) or more directors as alternate members of any committee to replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member (and the alternate or alternates, if any, designated for such member) of any committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another director to act at the meeting in the place of any such absent or disqualified member. Any such committee (to the extent provided in the resolution establishing such committee) shall conduct itself, including with respect to provisions for votes of its members, as set forth in resolutions adopted by the Board of Directors, and shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, expressly including the power and authority to declare a dividend, to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law (the "GCL"), and to authorize the seal of the Corporation to be affixed to all papers which may require it. Each committee designated pursuant to this section shall keep regular minutes of its meetings and report the same to the Board of Directors when required. SECTION 1.0313 COMPENSATION OF DIRECTORS. The Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor; provided that, the Board, in its discretion, may reduce the compensation of any director who is concurrently receiving compensation for services rendered to the Corporation as an officer thereof. Members of special or standing committees may be paid like compensation for attending committee meetings. SECTION 1.0314 INTERESTED DIRECTORS. No contract or transaction between the Corporation and one (1) or more of its directors or officers, or between the Corporation and 8 9 any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or of a committee thereof which authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose, if: (a) The material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors comprise less than a quorum; (b) The material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (c) the contract or transaction is fair to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. ARTICLE IV. NOTICE-WAIVERS SECTION 1.041 NOTICE. WHAT CONSTITUTES. Except as otherwise provided by applicable law, the Certificate of Incorporation or the Bylaws, any provision of applicable law, the Certificate of Incorporation or these Bylaws which requires notice to be given to any director or stockholder of the Corporation shall not be deemed or constituted to require personal notice (unless otherwise expressly provided therein), but rather such notice may be given via telephone, facsimile or first class mail addressed to such director or stockholder at his or her address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same is deposited in the U.S. mail. SECTION 1.042 WAIVERS OF NOTICE. Whenever any notice is required to be given under applicable law, the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Except as otherwise 9 10 provided by applicable law, the Certificate of Incorporation or these Bylaws, neither the business to be transacted at nor the purposes of, any regular or special meeting of the stockholders, directors, or a committee of directors need be specified in any written waiver of notice of such meeting. Attendance of a person, either in person or by proxy, at any meeting shall constitute a waiver of notice of such meeting, except when a person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting has not been lawfully called or convened. ARTICLE V. OFFICERS SECTION 1.051 NUMBER, QUALIFICATIONS AND DESIGNATION. The officers of the Corporation shall be chosen by the Board of Directors and shall be a President and a Secretary, and may include one or more Vice Presidents, a Treasurer, and such other officers as may be elected in accordance with the provisions of Section 5.3 of this Article V. One person may hold more than one (1) office. Except as provided below with respect to the Chairman of the Board, and Vice Chairmen of the Board, officers may, but need not be, directors or stockholders of the Corporation. The Board of Directors shall also elect, from among the members of the Board, a Chairman of the Board, and one or more Vice Chairmen of the Board, each of which shall be deemed to be an officer of the Corporation. SECTION 1.052 ELECTION, TERM OF OFFICE, RESIGNATION, AND REMOVAL. The officers of the Corporation, except those elected by delegated authority pursuant to Section 5.3 of this Article V, shall be elected annually by the Board of Directors, and each such officer shall hold his or her office until his or her successor shall have been duly elected and qualified, or until his or her earlier death, resignation or removal. Any officer may resign at any time upon written notice to the Corporation. Subject to the terms of any applicable employment or service agreement, all officers, agents, and employees shall be subject to removal, with or without cause, at any time by the Board of Directors [, the Chairman of the Board or the President]. The election or appointment of an officer shall not of itself create contract rights. Any vacancy caused by the death, resignation, or removal of any officer, or otherwise, may be filled by the Board of Directors or pursuant to delegated authority as provided in Section 5.3 hereof. SECTION 1.053 OTHER OFFICERS, COMMITTEES, AND AGENTS. The Board of Directors may from time to time elect such other officers, including Assistant Secretaries and Assistant Treasurers, and appoint such committees, employees, or other agents as it deems necessary. Such officers, committee members, employees, or other agents shall hold their offices for such terms and shall exercise such powers and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine by resolution. By resolution, the Board of Directors may delegate to any officer or committee the power to elect subordinate officers and to retain or appoint employees 10 11 or other agents, or committees thereof, and to prescribe the authority and duties of such subordinate officers, committees, employees, or other agents. Subject to the terms of any applicable employment or service agreement, all such subordinate officers, agents, and employees shall also be subject to removal, with or without cause, at any time by the officers or committee appointing them. SECTION 1.054 THE CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at meetings of the Board of Directors and at meetings of the stockholders. The Chairman of the Board shall counsel with and advise the President and perform such other duties as may be from time to time assigned to the Chairman of the Board of Directors. Except as otherwise provided by resolution of the Board, the Chairman of the Board shall be ex-officio a member of all committees of the Board. SECTION 1.055 THE VICE CHAIRMEN OF THE BOARD. The Vice Chairmen of the Board shall perform the duties of the Chairman of the Board in the Chairman's absence (in their order of rank) and such other duties as may from time to time be assigned to them by the Board of Directors, the Chairman of the Board, or the President. SECTION 1.056 THE PRESIDENT. The President shall perform all of the duties usually incident to such office, and such other duties as may from time to time be assigned to the President by the Board of Directors. In the absence of the Chairman of the Board and any Vice Chairmen of the Board, the President shall preside at all meetings of the stockholders and of the Board of Directors. SECTION 1.057 THE SECRETARY. The Secretary, or in the Secretary's absence an Assistant Secretary, (a) shall attend all meetings of the stockholders and of the Board of Directors and shall record the proceedings of the meetings of the stockholders and the Board of Directors and of committees of the Board in a book or books to be kept for that purpose; (b) shall see that notices are given and records and reports properly kept and filed by the Corporation as required by law; (c) shall be the custodian of the seal of the Corporation and see that it is affixed to all documents to be executed on behalf of the Corporation under its seal; and (d) in general, shall perform all duties incident to the office of Secretary, and such other duties as may from time to time be assigned to the Secretary by the Board of Directors, the Chairman of the Board, or the President. SECTION 1.058 THE TREASURER. The Treasurer, or in Treasurer's absence, an Assistant Treasurer, (a) shall have or provide for the custody of, and when proper pay out, disburse, or otherwise dispose of, the funds or other property of the Corporation; (b) shall collect and receive or provide for the collection and receipt of moneys earned by or in any manner due to or received by the Corporation; (c) shall deposit all funds in his custody as Treasurer in such banks or other places of deposit as the Board of Directors may from time to time designate; (d) shall keep accurate financial records and accounts and, whenever so required by the Board of Directors, render statements showing his transactions as Treasurer and the financial condition of the Corporation; and (e) in general, shall discharge 11 12 such other duties as may from time to time by assigned to the Treasurer by the Board of Directors, the Chairman of the Board, or the President. SECTION 1.059 SALARIES. The salaries and other compensation of the officers and agents of the Corporation elected or appointed by the Board of Directors shall be fixed from time to time by the Board of Directors. The salaries and other compensation of subordinate officers appointed pursuant to delegated authority under Section 5.03 hereof shall be fixed from time to time by the officers or committee appointing them. ARTICLE VI. CERTIFICATES OF STOCK, TRANSFER, ETC. SECTION 1.061 ISSUANCE. Each stockholder shall be entitled to a certificate or certificates for shares of stock of the Corporation owned by such stockholder upon request therefor. The stock certificates of the Corporation shall be consecutively numbered and shall be registered in the stock ledger and transfer books of the Corporation as they are issued. They shall be signed by the Chairman of the Board or by the President or a Vice President, and by the Secretary or an Assistant Secretary, if any, or by the Treasurer or an Assistant Treasurer, if any, and shall bear the corporate seal, which may be a facsimile, engraved, or printed. Any and all of the signatures upon such certificate may be a facsimile, engraved, or printed. In case any officer, transfer agent, or registrar who has signed, or whose facsimile signature has been placed upon, any share certificate shall have ceased to be such officer, transfer agent, or registrar before the certificate is issued, it may be issued with the same effect as if such person were such officer, transfer agent, or registrar at the date of its issue. SECTION 1.062 TRANSFER, LEGENDS, ETC. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation, or authority to transfer the Corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction upon its books. The Board of Directors may by resolution, (a) impose restrictions on transfer or registration of transfer of shares of stock of the Corporation, and (b) require as a condition to the issuance or transfer of such shares that the person or persons to whom such shares are to be issued or transferred agree in writing to such restrictions. In the event that any such restrictions on transfer or registration of transfer are so imposed, the Corporation shall require that such restrictions be conspicuously noted on all certificates representing such shares. [In addition, all shares of the Corporation's stock are subject to several restrictions and limitations as set forth in the Rights Agreement, which are to be noted on all certificates representing such shares.] SECTION 1.063 LOST, STOLEN, DEFACED, WORN OUT, OR DESTROYED. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen, defaced, worn-out, or destroyed, upon the making of an affidavit of that fact by the 12 13 person claiming the certificate of stock to be lost, stolen, defaced, worn out, or destroyed. When authorizing such issuance of a new certificate or certificates, the Corporation may, as a condition precedent thereto, (a) require the owner of any defaced or worn out certificate to deliver such certificate to the Corporation and order the cancellation of the same, and (b) require the owner of any lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as the Corporation shall require and to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen, or destroyed. Thereupon, the Corporation may cause to be issued to such person a new certificate in replacement for the certificate alleged to have been lost, stolen, defaced, worn out, or destroyed. Upon the stub of every new certificate so issued shall be noted the fact of such issue and the number, date, and name of the registered owner of the lost, stolen, defaced, worn out, or destroyed certificate in lieu of which the new certificate is issued. Every certificate issued hereunder shall be issued without payment to the Corporation for such certificate; provided that, there shall be paid to the Corporation a sum equal to any exceptional expenses incurred by the Corporation in providing for or obtaining any such indemnity and security as is referred to herein. SECTION 1.064 RECORD HOLDER OF SHARES. Except as otherwise provided by applicable law, the Certificate of Incorporation, or these Bylaws, the Corporation (a) shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, (b) shall be entitled to hold liable for any required calls and assessments a person so registered, and (c) shall not be bound to recognize (i) any entity or person as a transferee of stock unless such entity or person both complies with all transfer and other restrictions, if any, imposed hereby or by the Certificate of Incorporation, or (ii) any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof. Unless otherwise required under applicable law, the Corporation may treat a fiduciary as having capability and authority to exercise all rights of ownership in respect of shares of record in the name of a decedent holder, a person, firm, or corporation in conservation, receivership, or bankruptcy, a minor, an incompetent person, or a person under disability, as the case may be, for whom such fiduciary is acting, and the Corporation, its transfer agent, and its registrar, if any, upon presentation of evidence of appointment of such fiduciary shall be under no duty to inquire as to the powers of such fiduciary and shall not be liable for any loss caused by any act done or omitted to be done by the Corporation or its transfer agent or registrar, if any, in reliance thereon. SECTION 1.065 DETERMINATION OF STOCKHOLDERS OF RECORD. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payments of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion, or exchange of stock, or for the purpose of any other lawful action, the 13 14 Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than (10) calendar days before the date of such meeting, nor more than sixty (60) calendar days prior to any other action. If no record date is fixed: (a) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (b) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting provided that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 1.066 APPOINTMENT OF TRANSFER AGENTS, REGISTRARS, ETC. The Board of Directors may from time to time by resolution appoint (a) one (1) or more transfer agents and registrars for the shares of stock of the Corporation, (b) a plan agent to administer any employee benefit, dividend reinvestment, or similar plan of the Corporation, and (c) a dividend disbursing agent to disburse any and all dividends authorized by the Board and payable with respect to the shares of stock of the Corporation. The Board of Directors shall also have authority to make such other rules and regulations not inconsistent with applicable law, the Certificate of Incorporation, or these Bylaws, as it deems necessary or advisable with respect to the issuance, transfer, and registration of certificates for shares and the shares of stock represented thereby. ARTICLE VII. GENERAL PROVISIONS SECTION 1.071 DIVIDENDS. Subject to applicable law, the Certificate of Incorporation and the Rights Agreement, dividends upon the shares of capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock of the Corporation, or in any combination thereof, but only out of funds available for the payment of dividends as provided by applicable law. Any dividends declared upon the stock of the Corporation shall be payable on such date or dates as the Board of Directors shall determine by resolution. If the date fixed for the payment of any dividend shall in any year fall upon a legal holiday, then the dividend payable on such date shall be paid on the next day not a legal holiday. 14 15 Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its discretion, shall determine by resolution is proper as a reserve or reserves to meet contingencies, for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board of Directors shall so determine is in the best interests of the Corporation and its stockholders. The Board may modify or abolish any such reserves in the manner in which it was created. SECTION 1.072 CONTRACTS, ETC. Except as otherwise provided by applicable law, the Certificate of Incorporation, or these Bylaws, the Board of Directors may authorize any officer or officers, any employee or employees, or any agent or agents, to enter into any contract or to execute, acknowledge, or deliver any agreement, deed, mortgage, bond, or other instrument in the name of and on behalf of the Corporation and to affix the Corporation's seal thereon. Such authority may be general or confined to specific instances. SECTION 1.073 CHECKS. All checks, notes, obligations, bills of exchange, acceptances, or other orders in writing shall be signed by such person or persons as the Board of Directors may from time to time designate by resolution. SECTION 1.074 CORPORATE SEAL. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization, and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. SECTION 1.075 DEPOSITS. All funds of the Corporation shall be deposited from time to time to credit of the Corporation in such banks, trust companies, or other depositories as the Board of Directors may approve or designate, and all such funds shall be withdrawn only upon checks or other orders signed by such one or more officers, employees, or agents as the Board of Directors shall from time to time designate. 1. The City and Developer hereby agree that the funds paid by Developer for FM 720 as set forth in the Facilities Agreement (the "FM 720 Funds") will be used by the City for the construction of Lake Forest Drive from FM 720 to State Highway 121. 2. The City agrees to diligently move forward with the construction of two lanes of Lake Forest Drive from FM 720 to State Highway 121 by acquiring all necessary right of ways and funding in addition to the FM 720 Funds paid by Developer pursuant to the Facilities Agreement with construction to begin no later than December 31, 1997. 3. Developer will be reimbursed in full for all FM 720 Funds used for construction of Lake Forest Drive as payments are received by the City from land owners adjoining Lake Forest Drive from FM 720 to State Highway 121 15 16 or as otherwise collected by the City pursuant to applicable Roadway Impact Fee Ordinances. Any reimbursements received prior to payment in full by Developer of the FM 720 Funds will be a credit against amounts owed by Developer for this purpose pursuant to the Facilities Agreement. 4. In the event the City imposes a Roadway Impact Fee and FM 720 adjacent to Developer's property made the subject of the Facilities Agreement is included in the Improvements Plan, Developer will pay such portion of the Roadway Impact Fee as is represented by the construction costs for FM 720 adjacent to Developer's property made the subject of the Facilities Agreement and Developer shall pay the fee in the same manner as all other property owners in the roadway service area containing Developer's property made the subject of this Facilities Agreement. 5. In the event FM 720 adjacent to Developer's property made the subject of this Facilities Agreement has not been constructed within three (3) years of the date of this First Amendment or Lake Forest Drive from FM 720 to State Highway 121 has not been constructed to completion prior to December 31, 1998, all FM 720 Funds paid by Developer will be refunded to Developer with interest and Developer shall have no further obligation for payment of the FM 720 Funds. [SECTION 1.076 EXAMINATION OF CORPORATE RECORDS. Upon written demand under oath stating the purpose thereof, every stockholder of record shall have a right to examine, in person or by attorney or other agent, during ordinary business hours and for any proper purpose, the Corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent shall be the person who seeks the right of inspection, the demand under oath shall be accompanied by a power of attorney or other writing which authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the Corporation as its registered office in Delaware or at its principal place of business.] Any director shall have the right to examine the Corporation's stock ledger, a list of its stockholders, and its other books and records during ordinary business hours for a purpose reasonably related to his or her position as a director. SECTION 1.077 INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Corporation shall indemnify to the fullest extent authorized or permitted by law any current or former director or officer of the Corporation (or his or her testator or estate) made or threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether criminal, civil administrative, or investigative, by reason of the fact that he or she is or was a director or officer of the Corporation or is or was serving, at the request of the Corporation, as a director, officer, employee, or agent of another corporation, partnership, 16 17 joint venture, trust, employee benefit plan, or other enterprise. Subject to applicable law, the Corporation may indemnify an employee or agent of the Corporation to the extent that and with respect to such proceedings as, the Board of Directors may determine by resolution, in its discretion. SECTION 1.078 AMENDMENT OF BYLAWS. The Board of Directors is expressly authorized to adopt, amend or repeal the Bylaws of the corporation. Any Bylaws made by the directors under the powers conferred hereby may be amended or repealed by the directors or by the stockholders. Notwithstanding the foregoing and anything contained in the Bylaws to the contrary, the Bylaws shall not be amended or repealed by the stockholders, and no provision inconsistent therewith shall be adopted by the stockholders, without the affirmative vote of the holders of at least two-thirds (2/3) of the voting power of all shares of the corporation entitled to vote generally in the election of directors voting together as a single class. 17
1 EXHIBIT 4.3 RIGHTS AGREEMENT This Rights Agreement (the "AGREEMENT"), is entered into as of the 25th day of June, 1996, by and among Pegasus Systems, Inc., a Delaware corporation (the "COMPANY") and the purchasers of the Company's Series A Preferred Stock listed on Schedule I attached hereto (the "PURCHASERS") and, for purposes of certain provisions hereof, the stockholders listed on Schedule II hereto, including without imitation Lodging Network, Inc., a Delaware corporation ("LNI") (each an "EXISTING STOCKHOLDER" and collectively the "Existing Stockholders") and the stockholders listed on Schedule III hereto (each a "Management Holder" and collectively the "MANAGEMENT HOLDERS"). RECITALS A. The Purchasers and the Company are parties to that certain Series A Preferred Stock Purchase Agreement dated as of the date hereof (the "PURCHASE AGREEMENT"), B. The Existing Stockholders (other than LNI) and the Management Holders currently hold capital stock of the Company, and the parties desire to provide certain rights to such holders as provided herein. C. The Company and LNI have agreed that the Company shall repurchase from LNI a portion of the shares of capital stock held by LNI in The Hotel Clearing Corporation, a subsidiary of the Company ("HCC'') and shall issue shares of Common Stock of the Company to LNI upon conversion by LNI of the balance of the HCC shares held by LNI, and to grant certain rights to LNI as set forth herein. D. The execution of this Agreement is a condition to the closing of the transactions contemplated by the Purchase Agreement. E. The Purchasers, the Existing Stockholders, the Management Holders and the Company desire that the transactions contemplated by the Purchase Agreement be consummated. NOW, THEREFORE, in reliance on the foregoing recitals, and in and for the mutual covenants and consideration set forth herein, the parties hereto agree as follows: 1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: 1.1 The terms "AFFILIATE" and "AFFILIATED" shall refer to any person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended. For purposes of this definition, "person" shall mean any individual, firm, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, governmental authority or other entity of any kind, and shall include any successor (by merger or otherwise of such entity. 2 1.2 "COMMISSION" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. 1.3 "COMMON STOCK" shall mean the Company's Common Stock, $0.01 par value per share. 1.4 "CONVERSION STOCK" shall mean the Common Stock issued or issuable pursuant to conversion of the Series A Preferred. 1.5 "EXISTING STOCKHOLDERS" shall mean the Existing Stockholders as listed on Schedule II hereof and any person holding Other Shareholder Stock to whom the rights under this Agreement have been transferred in accordance with Section 14 hereof. 1.6 "HOLDER" shall mean any Purchaser, Existing Stockholder or Management Holder holding Registrable Securities and any person holding Registrable Securities to whom the rights under this Agreement have been transferred in accordance with Section 14 hereof. 1.7 "INITIATING HOLDERS" shall mean any Holder or Holders (other than Management Holders and Existing Stockholders) holding, in the aggregate, at least forty percent (40%) of the then outstanding Registrable Securities (not including Management Stock or Other Shareholder Stock). 1.8 The term "MAJOR HOLDER" shall mean each Holder (but not any Management Holder or Existing Stockholder) who is a holder of at least 50,000 shares of Registrable Securities (as adjusted for any stock split, stock dividend or similar capital reorganization), and permitted assignees under Section 17(e) hereof. 1.9 "MANAGEMENT HOLDERS" shall mean the Management Holders as listed on Schedule III hereof and any person holding Management Stock to whom the rights under this Agreement have been transferred in accordance with Section 14 hereof. 1.10 "REGISTRABLE SECURITIES" shall mean (a) the Conversion Stock and any Common Stock of the Company issued or issuable in respect of the Conversion Stock, or other securities issued or issuable pursuant to the conversion of the Series A Preferred upon any stock split, dividend, combination, recapitalization or similar event, or any Common Stock otherwise issued or issuable with respect to the Series A Preferred; (b) all shares of Common Stock of the Company currently held by the Existing Stockholders as well as the 67,300 shares of Common Stock to be issued to LNI in connection with the repurchase of HCC stock, as set forth on Schedule II hereto (the "Other Shareholder Stock"), and any Common Stock of the Company issued or issuable in respect of such Other Shareholder Stock upon any stock split, dividend, combination, recapitalization or similar event (which additional shares shall also be referred to as Other Shareholder Stock); and (c) with respect to any registration subsequent to the Company's initial Qualified Public Offering (as defined below), up to 25% of the shares of the Common Stock currently held by the Management Holders, as specified on Schedule III hereto, and held as of the time of such registration by Management Holders who shall continue to be employees or consultants to the Company (the "Management Stock"), and any Common Stock of the Company issued -2- 3 or issuable in respect of such Management Stock upon any stock split, dividend, combination, recapitalization or similar event (which additional shares shall also be referred to as Management Stock); provided, however, that shares of Common Stock or other securities shall only be treated as Registrable Securities if and so long as they have not been (i) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, or (ii) subject to Section 16 below, sold or are available for sale in the opinion of counsel to the Company in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale. 1.11 The terms "REGISTER," "REGISTEREd" and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement by the Commission. 1.12 "REGISTRATION EXPENSES" shall mean all expenses, except as otherwise stated below, incurred by the Company in complying with Sections 5, 6 and 7 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, fees and disbursements for one counsel for the Holders selected by the Holders and approved by the Company (which consent will not be unreasonably withheld), blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration, but excluding (a) the compensation of regular employees of the Company, which shall be paid in any event by the Company, and (b) Selling Expenses. 1.13 "RESTRICTED SECURITIES" shall mean the securities of the Company required to bear the legend set forth in Section 3 hereof. 1.14 "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. 1.15 "SELLING EXPENSES" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Holders and, except as set forth above, all reasonable fees and disbursements of counsel for any Holder other than the fees and disbursements of counsel included in Registration Expenses. 1.16 "SERIES A PREFERRED" shall mean the Company's Series A Preferred Stock, $0.01 par value per share, issued pursuant to the Purchase Agreement. 1.17 "UNDERWRITER" shall mean the managing underwriter or underwriters in a public offering pursuant to Section 5, Section 6 or Section 7 hereof. 2. RESTRICTIONS ON TRANSFERABILITY. The Series A Preferred and the Conversion Stock shall not be sold, assigned, transferred or pledged except upon the conditions specified in this Agreement, which conditions are intended to ensure compliance with the provisions of the Securities Act and -3- 4 applicable state and foreign securities laws. Each Purchaser shall cause any proposed purchaser, assignee, transferee, or pledgee of Series A Preferred or Conversion Stock held by such Purchaser to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Agreement. 3. RESTRICTIVE LEGEND. Each certificate representing (a) the Series A Preferred Stock, (b) the Conversion Stock and (c) any other securities issued in respect of the Series A Preferred or the Conversion Stock upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event shall (unless otherwise permitted by the provisions of Section 4 below) be stamped or otherwise imprinted with the following legends (in addition to any legend required under applicable state or foreign securities laws): (a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT. COPIES OF THE AGREEMENTS COVERING THE PURCHASE OF THESE SHARES, IMPOSING CERTAIN RIGHTS OF FIRST REFUSAL AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY." Each Purchaser consents to the Company making a notation on its records and giving instructions to any transfer agent of the Series A Preferred or the Common Stock in order to implement the restrictions on transfer established pursuant to this Agreement or applicable law. 4. NOTICE OF PROPOSED TRANSFERS. The holder of each certificate representing Restricted Securities by acceptance thereof agrees to comply in all respects with the provisions of this Section 4. Prior to any proposed sale, assignment, transfer or pledge of any Restricted Securities (other than (a) a transfer not involving a change in beneficial ownership or (b) in transactions involving the distribution without consideration of Restricted Securities by any of the Purchasers to any of its partners, or retired partners, or to the estate of any of its partners or retired partners, so long as each such transferee agrees in writing to be bound by the terms of this Agreement), unless there is in effect a registration statement under the Securities Act covering the proposed transfer, the holder thereof shall give written notice to the Company of such holder's intention to effect such transfer, sale, assignment or pledge. Each such notice shall describe the manner and circumstances of the proposed transfer, sale, assignment or pledge in sufficient detail, and shall be accompanied, at such holder's expense by either (a) an unqualified written opinion of legal counsel addressed to the Company, to the effect that the proposed transfer of the Restricted Securities may be effected without registration under the Securities Act, or (b) a "no action" -4- 5 letter from the Commission to the effect that the transfer of such securities without registration will not result in a recommendation by the staff of the Commission that action be taken with respect thereto, whereupon the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the holder to the Company. Each certificate evidencing the Restricted Securities transferred as above provided shall bear, except if such transfer is made pursuant to Rule 144 (or similar successor provision), the appropriate restrictive legend set forth in Section 3 above, except that such certificate shall not bear such restrictive legend if in the opinion of counsel for such holder and the Company such legend is not required in order to establish compliance with any provision of the Securities Act or this Agreement. 5. REQUESTED REGISTRATION. 5.1 Notice of Registration; Registration. In case the Company shall receive from Initiating Holders a written request that the Company effect any registration, qualification or compliance (other than a registration on Form S-3 or any successor form) with respect to at least 20% of the Registrable Securities then held by the Initiating Holders (or any lesser percentage resulting in an aggregate offering price to the public of at least $10,000,000 at a price of at least $13.00 per share (as adjusted for stock splits, dividends, subdivision, combinations, reclassifications and like events)), the Company will: (i) promptly give written notice of the proposed registration to all other Holders; and (ii) as soon as practicable, use all reasonable efforts to effect such registration, qualification or compliance (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request given within twenty (20) days after receipt of such written notice from the Company, provided, however, that the Company shall not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 5: (1) In any particular jurisdiction in which the Company would be required to qualify to do business or execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (2) Prior to the earlier of (a) three (3) years following the date of this Agreement, or (b) six months after the effective date of the registration statement pertaining to the first underwritten firm commitment public offering of securities of the Company for its own account (other than a registration relating solely to a Commission Rule 145 transaction or a registration relating solely to employee benefit plans); -5- 6 (3) After the Company has effected two (2) registrations pursuant to this Section 5 and such registrations have been declared or ordered effective and all or a portion of the securities offered pursuant to such registrations have been sold; or (4) If at the time of the request to register Registrable Securities the Company gives notice within thirty (30) days of such request that it is engaged or has bona fide plans to engage within thirty (30) days of the time of the request in a firmly underwritten registered public offering in which the Holders may include Registrable Securities pursuant to Section 5, 6 or 7 hereof. Subject to the foregoing clauses (l) through (4) and to Section 5.3, the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable after receipt of the request of the Initiating Holders. 5.2 Underwriting (a) If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to Section 5 and the Company shall include such information in the written notice referred to in Section 5.1. The right of any Holder to registration pursuant to Section 5 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent requested (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) as provided herein. (b) The Company shall (together with all Holders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the Underwriter selected for such underwriting by a majority in interest of the Initiating Holders. If any Holder disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the Underwriter and the Initiating Holders. The Registrable Securities and/or other securities so withdrawn from such underwriting shall also be withdrawn from such registration; provided, however, that, if by the withdrawal of such Registrable Securities a greater number of Registrable Securities held by other Holders may be included in such registration (up to the maximum of any limitation imposed by the underwriters), then the Company shall offer to all Holders who have included Registrable Securities in the registration the right to include additional Registrable Securities in proportion (as nearly as practicable) to the total amount of Registrable Securities held by each such Holder. (c) Notwithstanding any other provision of this Section 5, if the Underwriter determines that marketing factors require a limitation on the number of shares to be underwritten, the Underwriter may limit the number of Registrable Securities to be included in the registration and underwriting; provided, however, that the number of shares of Registrable Securities offered by the Holders that may be included in the registration and underwriting shall be allocated among the Holders in proportion, as nearly as practicable, to the respective aggregate amounts of Registrable Securities held by such Holders at the time of filing the registration statement. If the Underwriter has not so limited the -6- 7 number of Registrable Securities to be underwritten, the Company may include securities for its own account or the account of others in such registration if the Underwriter so agrees and if the number of Registrable Securities which would otherwise have been included in such registration and underwriting will not thereby be limited or the price applicable to such included Registrable Securities will not thereby be reduced. 5.3 Delay of Registration. If the Company shall furnish to the Initiating Holders a certificate signed by the President of the Company stating that, in the good faith judgment of the Board of Directors of the Company, it would be not in the best interests of the Company and its stockholders for such registration statement (including any supplement or amendment thereto) to be filed on or before the date filing would be required and it is therefore appropriate to defer such filing, then the Company may direct that such request for registration be delayed for a period not in excess of sixty (60) days, such right to delay a request to be exercised by the Company no more than twice in any twelve month period. 6. COMPANY REGISTRATION. 6.1 Notice of Registration. If at any time or from time to time the Company shall determine to register any of its equity securities, either for its own account or the account of a security holder or holders, other than (a) a registration relating solely to employee benefit plans, or (b) a registration relating solely to a Rule 145 transaction, the Company shall: (i) promptly give to each Holder written notice thereof, and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within twenty (20) days after receipt of such written notice from the Company, by any Holder. 6.2 Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 6.l(i). In such event the right of any Holder to registration pursuant to this Section 6 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company) enter into an underwriting agreement in customary form with the Underwriter, selected for such Underwriting by the Company. Notwithstanding any other provision of this Section 6, if the Underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the underwriter may limit, on a pro rata basis, the Registrable Securities to be included in such registration; provided, however, that in no public offering shall other holders of "piggyback" registration rights participate in such offering unless the Holders have participated to the full extent requested. The Company shall so advise all Holders distributing their securities through such underwriting and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated among all Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders at the time of filing the registration -7- 8 statement. To facilitate the allocation of shares in accordance with the above provisions, the Company may round the number of shares allocated to any Holder to the nearest one hundred (100) shares. If any Holder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the managing underwriter. 6.3 Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 6 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. 7. REGISTRATION ON FORM S-3. (a) If Initiating Holders request that the Company file a registration statement on Form S-3 (or any successor form to Form 5-3) for a public offering of shares of the Registrable Securities the reasonably anticipated aggregate price to the public of which, net of underwriting discounts and commissions, would exceed $500,000, and the Company is a registrant entitled to use Form S-3 to register the Registrable Securities for such an offering, the Company shall (i) promptly give written notice of the proposed registration to all other Holders, and (ii) as soon as practicable, use all reasonable efforts to effect such registration, qualification or compliance (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request given within twenty (20) days after receipt of such written notice from the Company, use all reasonable efforts to cause such Registrable Securities to be registered for the offering on such form and to cause such Registrable Securities to be qualified in such jurisdictions as the Initiating Holders may reasonably request; provided, however, that the Company shall not be obligated to effect more than four (4) registrations under this Section 7. The substantive provisions of Section 6.2, excluding all provisions relating to the rights of the Underwriter to exclude certain percentages of Registrable Securities for a subject offering, shall be applicable to each registration initiated under this Section 7. (b) Notwithstanding the foregoing, the Company shall not be obligated to take any action pursuant to this Section 7: (i) more than once in any twelve (12) month period; (ii) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (iii) if the Company, within ten (10) days of the receipt of the request of Initiating Holders pursuant to this Section 7, gives notice of its bona fide intention to effect the filing of a registration statement with the Commission within sixty (60) days of receipt of such request (other than with respect to a registration statement relating to a Rule 145 transaction, an offering solely to employees or any other registration which is not appropriate for the registration of Registrable Securities) in which such Holders can exercise their rights pursuant to Section 6 hereof; or (iv) during the period starting with the date sixty (60) days prior to the Company's estimated date of filing of, and ending on the date three (3) months immediately following, the effective date of any registration statement pertaining to securities of the Company (other -8- 9 than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective. (c) Registrations effected pursuant to this Section 7 shall not be counted as demands for registration or registrations effected pursuant to Section 5 or Section 6, respectively. 8. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the date of this Agreement, the Company shall not, without the consent of (i) Holders of in excess of 50% of the Registrable Securities then outstanding, and (ii) Holders of in excess of 50% of the Registrable Securities held by Holders other than Existing Holders and Management Holders, enter into any agreement granting any holder or prospective holder of any securities of the Company registration rights, including standoff rights, superior to the registration rights granted Holders hereunder. 9. EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with all registrations pursuant to Section 5, Section 6 and Section 7 shall be borne by the Company. Unless otherwise stated, all Selling Expenses relating to securities registered on behalf of the Holders shall be borne by the Holders of such securities pro rata on the basis of the number of shares so registered. In connection with any registration pursuant to Sections 5 and 6, if the participating Holders elect to be represented by counsel for the Company, the Company shall pay reasonable fees and disbursements of one counsel incurred in so representing such participating Holders. 10. REGISTRATION PROCEDURES. In the case of each registration, qualification or compliance effected by the Company pursuant to this Agreement, the Company shall keep each Holder or its counsel advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof At its expense the Company shall: (a) Prepare and file with the Commission a registration statement, and all requisite supplements and amendments thereto, with respect to such securities and use its best efforts to cause such registration statement, as amended, to become and remain effective for at least one hundred twenty (120) days; (b) Furnish to the Holders or their counsel participating in such registration and to the underwriters of the securities being registered such reasonable number of copies of the registration statement, and all supplements and amendments thereto, preliminary prospectus, final prospectus and such other documents as such underwriters may reasonably request in order to facilitate the public offering of such securities and such other information necessary to allow the Holders participating in such registration to remain reasonably informed about the public offering; (c) With respect to registrations effected pursuant to Section 6 and Section 7 above, use its best efforts to register and qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided, however, that the Company shall not be required in connection therewith or as a condition -9- 10 thereto to qualify to do business or to file a general consent to service for process in any such states or jurisdictions; (d) With respect to registrations effected pursuant to Section 7 above, in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the Underwriter of such offering; (e) Notify each Holder of Registrable Securities or its counsel covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; and (f) At the request of any Holder requesting registration of Registrable Securities pursuant to Section 5, Section 6 or Section 7 above, furnish to the Holders participating in such registration and to the underwriters, if any, of such offering, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration statement pursuant to SectionS, Section 6 or Section 7 above, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of counsel representing the Company for the purposes of registration addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter, dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. 11. INDEMNIFICATION. (a) The Company will indemnify each Holder, each of its officers and directors and partners, and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Agreement, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Securities Act, or the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), against all expenses, claims, losses, damages or liabilities (joint or several) (or actions in respect thereof), to which they become subject under the Securities Act or the Exchange Act, including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading, or any violation by the Company of the Securities Act or the Exchange Act or any rule or regulation promulgated thereunder applicable to the Company in connection with any such registration, qualification or -10- 11 compliance, and the Company will pay to each such Holder, each of its officers and directors, and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, any legal and any other expenses reasonably incurred as such expenses are incurred in connection with investigating, preparing or defending any such claim, loss, damage; liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder controlling person or underwriter and stated to be specifically for use therein; provided, however, that the indemnity agreement contained in this Section 11(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld. (b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act or the Exchange Act, and each other such Holder, each of its officers and directors and each person controlling such Holder within the meaning of Section 15 of the Securities Act or the Exchange Act, against all claims, losses, damages and liabilities (or actions in respect thereof) to which any of the foregoing persons may become subject under the Securities Act or the Exchange Act, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, such Holders, such directors, officers, persons, underwriters or control persons for any legal or any other expenses reasonably incurred as such expenses are incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein; provided, however, that the indemnity agreement contained in this Section 11(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, the liability of each Holder under this Section 11(b) shall be limited to an amount equal to the aggregate proceeds received by such Holder from the sale of Registrable Securities hereunder, unless such liability arises out of or is based on willful conduct by such Holder. (c) Each party entitled to indemnification under this Section 11 (the "INDEMNIFIED PARTY") shall give notice to the party required to provide indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of -11- 12 such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action and provided further, that the Indemnifying Party shall not assume the defense for matters as to which there is a conflict of interest or separate and different defenses. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. 12. INFORMATION BY HOLDER. The Holder or Holders of Registrable Securities included in any registration shall furnish to the Company or its counsel such information regarding such Holder or Holders, the Registrable Securities held by them and the distribution proposed by such Holder or Holders as the Company or its counsel may reasonably request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Agreement. 13. RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Securities to the public without registration, after such time as a public market legally exists for the Common Stock of the Company, the Company agrees to use its best efforts to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date that the Company becomes subject to the reporting requirements of the Securities Act or the Exchange Act; (b) Use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); (c) Take such action, including the voluntary registration of its Common Stock under Section 12 of the Exchange Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such registration under Section 12 to be taken as soon as practicable after the six-month period following the date on which the first registration statement filed by the Company for the offering of its equity securities to the general public is declared effective; and (d) So long as a Purchaser owns any Restricted Securities to furnish to the Purchaser forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company for an offering of its equity securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company and other information in the possession of or reasonably -12- 13 obtainable by the Company as a Purchaser may reasonably request in availing itself of any rule or regulation of the Commission allowing a Purchaser to sell any such securities without registration. 14. TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to register securities granted Holders under Sections 5, 6 and 7 may be assigned or transferred to any third party who acquires at least 50,000 shares of Registrable Securities (as may be appropriately adjusted upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event), provided that (a) such transfer may otherwise be effected in accordance with applicable securities laws, and (b) such assignee or transferee agrees to be bound by the terms of this Agreement and assumes all of the obligations of the transferring Holder hereunder. Notwithstanding the foregoing, however, the rights to cause the Company to register securities may be assigned to partners and constituent members, former partners and former constituent members and Affiliates of that Holder without regard to the foregoing share threshold or other requirements, provided that written notice thereof is promptly given to the Company. 15. STANDOFF AGREEMENT. Each Holder and each of the Existing Stockholders agree, in connection with the first registration of the Company's securities which covers Common Stock (or other securities) to be sold on its behalf to the general public in an underwritten initial public offering, upon request of the Company or the Underwriter of such initial public offering, not to sell, make any short sale of; loan, grant any option for the purchase of, or otherwise dispose of any of the Company's equity securities (other than those included in the registration) without the prior written consent of the Company or such Underwriter, as the case may be, for a period of time not to exceed one hundred eighty (180) days from the effective date of such registration; provided, however, that all officers, directors and holders of registration rights (including registration rights granted other than pursuant to this Agreement) enter into similar agreements and the Company uses all reasonable efforts to cause all of the holders of one percent (1%) or more of the outstanding voting securities of the Company to enter into similar agreements. 16. TERMINATION OF REGISTRATION RIGHTS. The rights granted pursuant to Sections 1 through 15 of this Agreement shall terminate as to any Holder at such time as Holder holds less than 1% of the Company's outstanding capital stock and may sell all of such Holder's shares under Rule 144 (or any successor provisions) promulgated under the Securities Act, or a successor rule, within a three-month period. 17. RIGHT OF FIRST REFUSAL FOR ISSUANCE OF NEW SECURITIES. The Company hereby grants to each Major Holder and permitted assignee under Section 17(e) the right of first refusal to purchase a Pro Rata Share (as defined below) of any New Securities (as defined in subsection 17(a)) which the Company may, from time to time, propose to sell and issue. A "PRO RATA SHARE," for purposes of this right of first refusal, shall be a fraction, the numerator of which is the sum of the number of shares of Common Stock then held by such Major Holder or issuable to such Major Holder upon conversion of the Series A Preferred held by such Major Holder, and the denominator of which is the sum of the total number of shares of Common Stock then outstanding and the number of shares of Common Stock issuable upon conversion or exercise of all outstanding capital stock options or warrants convertible into or exercisable for Common Stock. -13- 14 (a) Except as set forth below, "NEW SECURITIES" shall mean any shares of capital stock of the Company, including Common Stock and Preferred Stock whether now authorized or not. Notwithstanding the foregoing, "NEW SECURITIES" does not include (i) securities issued pursuant to the acquisition of another corporation by the Company by merger, purchase of all or substantially all of the assets or other transaction whereby the Company or its stockholders own not less than fifty-one percent (51%) of the voting power of the surviving or successor corporation, (ii) shares of the Company's Common Stock or Options exercisable for the purchase of Common Stock issued from and after the date hereof to employees, officers and directors of, and consultants to, the Company, pursuant to any incentive program or written agreement approved by the Board of Directors of the Company (net of any repurchases of such shares or any other shares of Common Stock originally issued to officers, directors, employees or consultants to the Corporation, and net of cancellation or expiration of options), (iii) securities issued in connection with lease or debt financing transactions, (iv) Common Stock issuable upon conversion of the Series A Preferred, and (v) securities issued solely pursuant to a stock split or stock dividend. (b) In the event that the Company proposes to undertake an issuance of New Securities, it shall give each Major Holder written notice of its intention, describing the type of New Securities, and the price and terms upon which the Company proposes to issue the same. Each such Major Holder shall have twenty (20) days from the date of receipt of any such notice to agree to purchase all but not a portion of its respective Pro Rata Share of such New Securities for the price and upon terms specified in the notice by giving written notice to the Company. (c) In the event that such Major Holder fails to exercise the right of first refusal within said twenty (20) day period, the Company shall have sixty (60) days thereafter to sell or enter into an agreement (pursuant to which the sale of New Securities covered thereby shall be closed, if at all, within thirty (30) days from the date of said agreement) to sell the New Securities not elected to be purchased by such Major Holder at the price and upon terms no more favorable to the purchasers of such securities than specified in the Company's notice. In the event that the Company has not sold the New Securities or entered into an agreement to sell the New Securities within said sixty (60) day period (or sold and issued New Securities in accordance with the foregoing within thirty (30) days from the date of said agreement), the Company shall not thereafter issue or sell any New Securities without first offering such securities in the manner provided above. (d) The right of first refusal granted under this Agreement shall terminate immediately prior to the closing of an initial public offering of the Common Stock of the Company to the general public which is effected pursuant to a registration statement filed with, and declared effective by, the Commission under the Securities Act. (e) The right of first refusal granted Major Holders under this Section may be in whole or in part assigned or transferred to any third party who acquires at least 50,000 shares of Registrable Securities (as may be appropriately adjusted upon a stock split, stock dividend, recapitalization, merger, consolidation or similar event), provided that, (a) such transfer may otherwise be effected in accordance with applicable securities laws, and (b) such assignee or transferee agrees to be bound by this Agreement and assumes the obligations of the transferring Major Holder hereunder. -14- 15 Notwithstanding the foregoing, however, the right of first refusal may be assigned by a Major Holder that is a partnership to any of its partners, that is a venture capital group or fund to an Affiliated entity or person, or that is a corporation to any of its shareholders without regard to the foregoing share threshold or other requirement, provided that (a) written notice thereof is promptly given to the Company, (b) such transfer may otherwise be effected in accordance with applicable securities laws, and (c) such assignee or transferee agrees to be bound by this Agreement and assumes the obligations of the transferring Major Holder hereunder. 18. AFFIRMATIVE COVENANTS. The Company and each Purchaser hereby covenants and agrees as follows: 18.1 Financial Information. (a) The Company shall mail the following reports to each Major Holder: (i) As soon as practicable after the end of each fiscal year, and in any event within 90 days thereafter, a copy of the annual audit report (prepared in accordance with generally accepted accounting principles) for such year for the Company and any consolidated subsidiary, including therein Consolidated balance sheets of the Company and any such subsidiary as of the end of such fiscal year, Consolidated statements of income and stockholders equity and statements of cash flow of the Company and any such subsidiary for such fiscal year, setting forth in each case in comparative form the corresponding figures for the preceding fiscal year, all duly certified by an independent public accounting firm selected by the Company's Board of Directors; (ii) As soon as practicable after the end of the first, second, third and fourth quarterly accounting periods in each fiscal year of the Company, and in any event within 45 days thereafter, a Consolidated budget model balance sheet of the Company as of the end of each such quarterly period, and Consolidated budget model statements of income and stockholders equity and Consolidated budget model statements of cash flows of the Company and any subsidiary for such period and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles (other than for accompanying notes), subject to changes resulting from year-end audit adjustments, and signed by the principal financial or accounting officer of the Company; (iii) As soon as practicable after the end of each month, and in any event within 30 days thereafter, Consolidated budget model balance sheets of the Company and any subsidiary as of the end of such month, and Consolidated budget model statements of income and stockholders' equity for each month and for the current fiscal year to date, and comparing such results to the then current business plan, prepared in accordance with generally accepted accounting principles (other than for accompanying notes), subject to changes resulting from year-end audit adjustments and signed by the principal financial or accounting officer of the Company; (iv) As soon as available (but in any event at least within 30 days before the commencement of its fiscal year), an annual budget and business plan prepared on a monthly basis for each fiscal year, together with any modifications thereto adopted through such fiscal year; -15- 16 (v) With respect to the financial statements called for in subsections (ii) and (iii) of this Section 18.1 (a), an instrument executed by the Chief Financial Officer or President of the Company and certifying that such financial statements were prepared in accordance with generally accepted accounting principles consistently applied with prior practice for earlier periods (with the exception of footnotes that may be required by generally accepted accounting principles) and fairly present the financial condition of the Company and its results of operation for the period specified, subject to period-end adjustment; and (vi) Such other information relating to the financial condition, business, prospects or corporate affairs of the Company as the Major Holder may from time to time reasonably request. (b) The Company shall also afford each Major Holder, at the principal offices of the Company, reasonable access to material documents of the Company and rights to examine without undue disruption the facilities and offices of the Company, upon at least five (5) days notice in advance of such visit to the Company from such Major Holder and upon receipt of a request from such Major Holder specifying which documents, offices and facilities such Major Holder wishes to inspect five (5) days in advance of such visit; but, in any event, not more than once every fiscal quarter. (c) The Company shall afford each Major Holder, reasonable Board of Directors' visitation rights. Such visitation rights shall include the right to designate one representative of the Major Holders (selected by the affirmative vote of a majority of the Major Holders) to (i) receive reasonable notice in advance of all Board of Directors' meetings, (ii) the right to receive, concurrently with receipt by members of the Board of Directors, all materials, reports and other written communications received by members of the Board of Directors and (iii) the right to attend all Board of Directors meetings. (d) The covenants set forth in this Section 18.1 shall terminate and be of no further force or effect at such time as the Company is required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. (e) Notwithstanding any other provisions of this Section 18.1 or Section 13(d), the Company may require as a condition precedent to any Major Holder's rights under this Section 18.1 or Section 13(d), that each person proposing to attend any meeting of the Board of Directors and each person to have access to any of the information provided by the Company to its Board of Directors shall agree to hold in confidence and trust and to act in a fiduciary manner with respect to all information so received during such meetings or otherwise; and, provided further, that the Company reserves the right not to provide such information to a Major Holder or its representative (or not to provide to a Major Holder such portions of the information which is sensitive vis & vis such Major Holder) and to exclude such Major Holder or its representative from any meeting or portion thereof to the extent necessary in order to prevent the breach of attorney client privilege or if such Major Holder or its representative is a competitor of the Company (including any of its direct or indirect subsidiaries). -16- 17 18.2 Confidential Information. Each Major Holder agrees that any information obtained by such Major Holder pursuant to Section 18.1 or Section 13(d) which is, or would reasonably be perceived to be, proprietary to the Company or otherwise confidential will not be disclosed without the prior written consent of the Company. Notwithstanding the foregoing, each Major Holder may disclose such information, on a need to know basis, to its employees, accountants or attorneys, or to the employees, accountants or attorneys of its general partner or investment manager (so long as each such person to whom confidential information is disclosed agrees to keep such information confidential), in compliance with a court order or when otherwise necessary to enforce any of the Major Holder's rights hereunder. Such information may also be disclosed to a Major Holder's constituent partners, members or shareholders (so long as each such person to whom confidential information is disclosed agrees to keep such information confidential). Each Major Holder further acknowledges and understands that any information will not be utilized by such Major Holder in connection with purchases and/or sales of the Company's securities except in compliance with applicable state and federal antifraud statutes. 18.3 Assignment of Rights to Financial Information. The rights and obligations pursuant to Sections 18.1 and 18.2 may be assigned or otherwise conveyed by any Major Holder, or by any subsequent transferee of any such rights to a transferee, upon prior written notice to the Company, upon the transfer by such Major Holder of at least 50,000 shares of Registrable Securities to any transferee other than a competitor or customer of the Company (including any of its direct or indirect subsidiaries); provided, however, that the Company shall not be obligated under Section 18.1 to provide to any transferee other than a person or entity affiliated with the transferor any information which the Company deems in good faith to be a trade secret or similar confidential information. 19. VOTING AGREEMENT. (a) For so long as the Purchasers or their Affiliates hold not less than an aggregate of 180,000 shares of Series A Preferred or Common Stock issued on conversion thereof (as appropriately adjusted for all stock splits, dividends, combinations, reclassifications and the like), each of the Existing Stockholders, Management Holders and Purchasers (and their Affiliates) agrees to vote all of the shares of Common Stock Series A Preferred or other securities of the Company entitled to vote in the election of directors, to elect two (2) persons designated by the Purchasers to serve as members of the Company's Board of Directors; provided, however, that if the size of the Board of Directors shall be increased or decreased, each of the Existing Stockholders, Management Holders and Purchasers (and their Affiliates) agrees to vote all of the shares of Common Stock Series A Preferred or other securities of the Company entitled to vote in an election of directors, to elect a number of persons designated by the Purchasers to serve as members of the Company's Board of Directors such that the number of persons designated by the Purchasers shall constitute at least 20% of the Board of Directors. The Purchasers have designated Donald Dixon and Rockwell Schnabel to serve as directors effective as of the date hereof The Company shall reimburse the reasonable expenses of Board meeting attendance by the representatives of the Purchasers. (b) In the event that any person designated to the Board of Directors in accordance with Section 19(a) above resigns or otherwise ceases to be a director, a replacement director shall be -17- 18 designated by the Purchasers and the terms of this Section 19 shall apply to any such replacement director for so long as it would otherwise apply to the initial director. (c) Each of the Purchasers, Management Holders and Existing Stockholders agrees to be present, in person or by proxy, at all meetings of shareholders of the Company so that all shares of voting securities held by such Purchaser, Management Holder or Existing Stockholder may be voted for the election of the directors as set forth in this Section 19. (d) So long as the provisions of this Section 19 are in effect, each certificate evidencing shares of voting securities held by the Purchasers, Management Holders and the Existing Stockholders shall bear a legend in substantially the following form: "THESE SECURITIES ARE SUBJECT TO CERTAIN RESTRICTIONS ON VOTING AS SET FORTH IN A RIGHTS AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF SUCH SHARES. A COPY OF SUCH AGREEMENT IS ON FILE AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS AND ITS REGISTERED OFFICE." (e) The provisions of this Section 19 shall terminate upon the closing of the Company's initial public offering of Common Stock pursuant to a registration statement declared effective by the Commission. 20. COMPANY RIGHT OF FIRST REFUSAL ON CERTAIN SALES OF SERIES A PREFERRED STOCK AND CONVERSION STOCK 20.1 General. In the event that a Holder proposes to make any sale or transfer of Series A Preferred and Conversion Stock (or proposed sale or transfer) otherwise permitted pursuant to this Agreement, to any proposed transferee which is not solely a financial investor and which proposes to acquire the shares for strategic business purposes and not solely as an investment, then prior to effecting such sale or transfer the Holder shall give the Company the opportunity to purchase such shares in the following manner: (i) Such Holder shall give notice (the "TRANSFER NOTICE") to the Company in writing of such intention, specifying the securities proposed to be sold or transferred, the proposed price per share therefor (the "TRANSFER PRICE"), the name of the proposed transferee or transferees and the other material terms upon which such disposition is proposed to be made, including such other terms and information as the Company may reasonably request in order to confirm the bona fide nature of the proposed transaction. (ii) The Company shall have the right, exercisable by written notice given by the Company to such Holder within ten (10) days after receipt of such Transfer Notice to purchase all (but not less than all) of the securities specified in such Transfer Notice. The Company may during such ten (10) day period advise such Holder of the Company's desire to exercise its right of first refusal set forth herein subject to the ability of the Company to secure financing. In such event, the Company shall -18- 19 have an additional thirty (30) days following the initial ten (10) day period in which to secure financing. At the end of the thirty (30) period, the Company shall advise such Holder as to whether the Company has successfully secured the financing. If not, the Company's exercise of its right of first refusal shall be deemed void and such Holder shall be entitled to consummate the proposed transaction with the third party or parties. (iii) If the Company exercises its right of first refusal hereunder, the closing of the purchase of the securities with respect to which such right has been exercised shall take place within thirty (30) days after the Company gives notice of such exercise, which period of time shall be extended if necessary to comply with applicable securities laws and regulations. Upon exercise of its right of first refusal, the Company and such Holder shall be legally obligated to consummate the purchase contemplated thereby and shall use their best efforts to secure any approvals required in connection therewith. (iv) If the Company does not exercise its right of first refusal hereunder within the ten (10) day period specified for such exercise (or, in the event that the right has been exercised subject to securing financing, within the additional thirty (30) day period specified above), such Holder shall be free, during the period of ninety (90) days following the expiration of such time for exercise to enter into an agreement to sell the securities specified in such Transfer Notice, to the specified proposed transferee or another investor which is solely a financial investor acquiring for investment purposes, on terms no less favorable to such Holder than the terms specified in such Transfer Notice, provided that the closing of the purchase and sale of such securities shall take place within sixty (60) days after such Holder enters into such agreement. 20.2 No Assignment of Rights of First Refusal The Company may not assign its rights of first refusal under this Section 20. 20.2 Termination The Company's right of first refusal set forth herein shall terminate upon the first to occur of (i) the closing of an initial public offering of the Common Stock of the Company to the general public which is effected pursuant to a registration statement filed with, and declared effective by, the Commission under the Securities Act, and (ii) such date as the Company shall be subject to the reporting requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. 21. MISCELLANEOUS. 21.1 Aggregation of Shares. For purposes of any provision of this Agreement requiring a person or entity to hold a minimum number of shares of Series A Preferred or Registrable Securities in order to gain the benefit of such provision, all shares beneficially owned by Affiliated entities or persons (including partners and constituent members and former partners and former constituent members) shall be aggregated together for the purposes of determining such Holder's status or rights under such provision. For purposes of this Section 21.1 the Company may rely on such person whom a group of related persons shall designate from time to time (which person shall initially be the Chief -19- 20 Financial Officer of Trident Capital, L.P., for Information Associates, L.P. and Information Associates, C.V. and related persons) for information relating to the affiliations of entities or persons. 21.2 Governing Law. This Agreement in all respects shall be governed by and construed and enforced in accordance with the corporate laws of the State of Delaware and (with respect to matters other than matters of corporate law) the laws of the State of Texas as such laws apply to contracts entered into and wholly to be performed within such state. In any litigation relating to this Agreement or the transactions contemplated hereby, the prevailing party shall be entitled to recover its costs and reasonable attorneys' fees. 21.3 Survival. The representations, warranties, covenants and agreements made herein shall survive any investigation made by any Purchaser and the closing of the transactions contemplated hereby. 21.4 Successors and Assigns. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 21.5 Entire Agreement; Amendment. This Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof; and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought; provided, however, that any provision of this Agreement may be amended, waived or modified with the written consent of (i) the Company, (ii) Holders of at least 50% of the outstanding shares of Registrable Securities, and (iii) Holders other than Existing Stockholders and Management Holders who hold at least a majority of the outstanding shares of Registrable Securities held by all holders other than Existing Stockholders and Management Holders. 21.6 Effect of Amendment or Waiver, Each Purchaser acknowledges that by the operation of Section 21.5 hereof the Holders of more than 50% of the outstanding shares of Registrable Securities shall have the right and power to diminish or eliminate all rights of such Holders under this Agreement. 21.7 Notices. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight -20- 21 prepaid or (d) one business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (i) if to a Purchaser, at such Purchaser's address as set forth in the Purchase Agreement, (ii) if to an Existing Stockholder, at such Existing Stockholder's address according to the Company's stock records, and (iii) if to the Company, at the address of its principal corporate offices (attention: Secretary), or at such other address as a party may designate by ten days' advance written notice to the other party pursuant to the provisions above. 21.8 Delays or Omissions. Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any Holder of any Registrable Securities, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such Holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Holder of any breach or default under this Agreement, or any waiver on the part of any Holder of any provisions or conditions of this agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any Holder, shall be cumulative and not alternative. 21.9 Counterparts. This Agreement may be executed in any number of counterparts, each of which may be executed by less than all of the Purchasers, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 21.10 Severability. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 21.11 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not considered in construing or interpreting this Agreement. -21- 22 [Signature Page to Rights Agreement] The foregoing agreement is hereby executed as of the date first above written. "COMPANY" PEGASUS Systems, INC. a Delaware corporation By: /s/ JOHN F. DOE III -------------------------------- Title: PRESIDENT ----------------------------- "PURCHASERS" INFORMATION ASSOCIATES, L.P. By: Trident Capital Management,L.L.C. Its: General Partner By: /s/ [ILLEGIBLE] -------------------------------- INFORMATION ASSOCIATES, C.V By: Trident Capital Management, L.L.C. Its: Investment General Partner By: /s/ [ILLEGIBLE] -------------------------------- "EXISTING STOCKHOLDERS" PEGASUS SYSTEMS, INC. By: -------------------------------- Its: ------------------------------- CHOICE HOTELS By: /s/ JAMES R. YOAKUM -------------------------------- Its: SA. Vice President ------------------------------- -22- 23 [Signature Page to Rights Agreement] ANASAZI, INC. By: /s/ [ILLEGIBLE] -------------------------------- Its: CEO ------------------------------- BEST WESTERN INTERNATIONAL By: /s/ [ILLEGIBLE] -------------------------------- Its: Board Representative for BWI ------------------------------- REED TRAVEL GROUP, A Division of Reed Elsevier Inc. By: /s/ [ILLEGIBLE] -------------------------------- Its: EVP Finance & Operations ------------------------------- HYATT HOTELS CORPORATION By: /s/ [ILLEGIBLE] 6-25-96 -------------------------------- Its: Executive-Vice President ------------------------------- INTER-CONTINENTAL HOTELS CORPORATION By: /s/ [ILLEGIBLE] -------------------------------- Its: Senior Vice President-Property Management ------------------------------- [ILLEGIBLE] FORTE HOTELS By: /s/ [ILLEGIBLE] -------------------------------- Its: EXECUTIVE DIRECTOR HOTELS ------------------------------- June 25th 1996 -23- 24 [Signature Page to Rights Agreement] ITT SHERATON CORPORATION By: /s/ [ILLEGIBLE] -------------------------------- Its: S.V.P. - CIO ------------------------------- LA QUINTA INNS, INC. By: /s/ [ILLEGIBLE] -------------------------------- Its: Sr. Vice President - Acct & Admin ------------------------------- MARRIOTT INTERNATIONAL, INC. By: /s/ BRUCE WOLFF -------------------------------- Its: Vice President, Distribution Sales ------------------------------- PROMUS HOTELS, INC. By: /s/ [ILLEGIBLE] 6/25/96 -------------------------------- Its: ------------------------------- UTELL INTERNATIONAL LTD. By: /s/ [ILLEGIBLE] -------------------------------- Its: Authorized Representative ------------------------------- CHOICE HOTELS INTERNATIONAL By: -------------------------------- Its: ------------------------------- HFS, INC. By: /s/ [ILLEGIBLE] -------------------------------- Its: VP MIS ------------------------------- TRUSTHOUSE FORTE CALIFORNIA, INC. By: -------------------------------- Its: ------------------------------- HILTON HOTELS CORPORATION By: /s/ [ILLEGIBLE] -------------------------------- Its: V.P. Marketing Distribution ------------------------------- -24- 25 [SIGNATURE PAGE TO RIGHTS AGREEMENT] LODGING NETWORK, INC. WESTIN HOTELS & RESORTS By: /s/ SCOTT A. SHEFIELD By: /s/ TIMOTHY M. COLEMAN ------------------------------- ------------------------------- Its: Vice-President Timothy M. Coleman ------------------------------- Its: Vice President-Distribution -------------------------------- /s/ JOHN F. DAVIS, III ------------------------------- John F. Davis, III "MANAGEMENT HOLDERS" /s/ JOHN F. DAVIS, III ------------------------------- John F. Davis, III /s/ BILL NICHOLSON ------------------------------- Bill Nicholson /s/ NICK JENT ------------------------------- Nick Jent /s/ LARRY WEARDEN ------------------------------- Larry Wearden /s/ PHIL HART ------------------------------- Phil Hart /s/ BRYAN DONOWHO ------------------------------- Bryan Donowho /s/ STEVE REYNOLDS ------------------------------- Steve Reynolds -25- 26 [SIGNATURE PAGE TO RIGHTS AGREEMENT] /s/ RIC FLOYD ------------------------------- Ric Floyd /s/ DENNIS CARPENTER ------------------------------- Dennis Carpenter /s/ NANCY CONKLIN ------------------------------- Nancy Conklin /s/ CAROLYN LANE ------------------------------- Carolyn Lane -26- 27 SCHEDULE I Purchasers: Information Associates, L.P. Information Associates, C.V. 28 SCHEDULE II Existing Stockholders: Anasazi Service Corporation Best Western International Choice Hotels International Trusthouse Forte California, Inc. Hilton Hotels Corporation Hospitality Franchise Systems, Inc. Reed Travel Group Hyatt Hotels Corporation Inter-Continental Hotels Corporation ITT Sheraton Corporation La Quinta Corporation Inns, Inc. Marriott International, Inc. Promus Hotels, Inc. Utell International, Ltd. Westin Hotels and Resorts John F. Davis, III 29 SCHEDULE III Management Holders: John F. Davis, III Joseph W. Nicholson Nick Jent Larry Wearden Phil Hart Bryan Donowho Steve Reynolds Ric L. Floyd Dennis Carpenter Nancy Conklin Carolyn Lane
1 EXHIBIT G No.1 PEGASUS SYSTEMS, INC. For the purchase of 259,292 Shares COMMON STOCK PURCHASE WARRANT THIS CERTIFIES that HOLIDAY HOSPITALITY CORPORATION (hereinafter called the "Holder") is entitled to purchase from PEGASUS SYSTEMS, INC., a Delaware corporation (hereinafter called the "Company"), upon the surrender of this Warrant to the Company at the principal office in Dallas, Texas, at any time on and after May 13, 1997 (the "Detachment Date"), and before the close of business on May 12, 1999 (the"Termination Date"), the number of fully paid and nonassessable shares of Common Stock, par value $.01 per share ("Common Stock"), set forth above, evidenced by a certificate therefor, upon payment of the lesser of $9.60 per share or 85% of the initial public offering price per share of the Company's Common Stock (the "Warrant Price") for the number of shares set forth herein above; provided, however, that under certain conditions set forth hereinafter, the number of shares of Common Stock purchasable upon the exercise of this Warrant may be increased or reduced and the Warrant Price may be adjusted. The Warrant Price shall be payable in cash, or by certified or official bank check, in United States dollars, to the order of the Company. No adjustment shall be made for any cash dividends on any shares of stock issuable upon exercise of this Warrant. The right of purchase represented by this Warrant is exercisable by Holder, its parent, subsidiary, affiliate or any other successor to all or substantially all of its business by sale of stock, sale of assets, merger or otherwise only, in its entirety only and only in respect of all of such shares. In the event this Warrant has not been exercised as required herein before the close of business on the Termination Date, it shall automatically terminate and be of no force and effect. Subject to the provisions hereof, Holder shall have the right to purchase from the Company (and the Company shall issue and sell to Holder) the number of fully paid and nonassessable shares of Common Stock specified in this Warrant, upon surrender of this Warrant to the Company at its office in Dallas, Texas and upon payment to the Company of the Warrant Price for the number of shares of Common Stock for which this Warrant is issued and any applicable taxes. Upon surrender of this Warrant, and payment of the Warrant Price as aforesaid, the Company shall issue and cause to be delivered with all reasonable dispatch to Holder a certificate for the number of full shares of Common Stock so purchased upon the exercise of this Warrant. Such certificate shall be deemed to have been issued and Holder shall be deemed to have become a holder of record of such shares as of the date of the surrender of this Warrant and payment of the Warrant Price as aforesaid. The rights of purchase represented by this Warrant shall be exercisable, at the election of Holder, once only for all and not less than all of the shares specified herein and, in the event this Warrant is exercised in respect of less than all of the shares specified therein such exercise shall be invalid and of no force or effect. There have been reserved, and the Company shall at all times keep reserved, out of the authorized and issued shares of Common Stock, a number of shares sufficient to provide for the exercise of the rights of purchase represented by this Warrant, and the transfer Agent for the Common Stock and every subsequent Transfer Agent for any shares of the Company's capital stock issuable upon the exercise of any of the rights of purchase aforesaid are hereby irrevocably -1- 2 authorized and directed at all times to reserve such number of authorized and unissued shares as shall be requisite for such purpose. The Warrant Price and number of shares subject to this Warrant shall be subject to adjustment from time to time as follows: a. In case the Company shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the Warrant Price in effect immediately prior to such subdivision shall be proportionately reduced and, in case the outstanding shares of the Common Stock of the Company shall be combined into a smaller number of shares, the Warrant Price in effect immediately prior to such combination shall be proportionately increased. b. Upon each adjustment of the Warrant Price pursuant to the provisions hereof, the number of shares issuable upon the exercise of this Warrant shall be adjusted by multiplying the Warrant Price in effect prior to the adjustment by the number of shares of Common Stock covered by the Warrant and dividing the product so obtained by the adjusted Warrant Price. c. Except upon consolidation or reclassification of the shares of Common Stock of the Company as provided for in subsections (a) or (f) hereof, the Warrant Price in effect at any time may not be adjusted upward or increased in any manner whatsoever. d. Irrespective of any adjustment or change in the Warrant Price or the number of shares of Common Stock actually purchasable under this Warrant, this Warrant shall continue to express the Warrant Price per share and the number of shares purchasable hereunder as the Warrant Price per share and the number of shares purchasable were expressed in this Warrant when initially issued with the adjustment or change reflected as set forth in subsection (g) hereof. e. If any capital reorganization or reclassification of the capital stock of the Company or consolidation or merger of the Company with another corporation or the sale of all or substantially all of its assets to another corporation shall be effected, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provision shall be made whereby Holder shall have the right to purchase and receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented by each such Warrant, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of shares of such Common Stock purchasable upon the exercise of the rights represented by this Warrant had such reorganization, reclassification, consolidation, merger or sale not taken place, and in any such case appropriate provisions shall be made with respect the rights and interests of Holder to the end that the provisions hereof (including without limitation provisions for adjustment of the Warrant Price and of the number of shares purchasable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be in relation to the shares of stock thereafter deliverable upon the exercise of this Warrant. -2- 3 f. No adjustment of the Warrant Price shall be made in connection with the issuance or sale of Common Stock issuable pursuant to any stock option plan or incentive compensation arrangements now or hereafter granted to employees of the Company or any of its subsidiaries in connection with their employment or the issuance or sale of shares of Preferred Stock. g. Whenever the Warrant Price is adjusted as herein provided, the Company shall provide a written statement to Holder showing in detail the facts requiring such adjustment and the Warrant Price and the number of shares of Common Stock purchasable upon exercise of this Warrant after such adjustment. h. The Company may retain a firm of independent certified public accountants of recognized standing (which may be the firm that regularly examines the financial statements of the Company) selected by the Board of Directors of the Company or the Executive Committee of said Board to make any computation required hereunder and a certificate signed by such firm shall be conclusive evidence of the correctness of any such computation. If Holder does not agree as to the correctness of such computation. Holder at their own expense may retain a firm of independent certified public accountants of recognized standings to develop a second computation. Such accounting firms shall attempt to resolve any differences of opinion with respect to such computations, but in the absence of such resolution, the matter shall be submitted to binding arbitration in Dallas, Texas in accordance with the then applicable rules of the American Arbitration Association. Notwithstanding any other provision hereof, to the extent permitted by applicable law, the Company shall provide written notice to Holder at least ten (10) days prior to the record date or other effective date for any of the following actions: dividends, mergers, liquidations, consolidations, reclassifications of stock, sale of substantially all of the assets or any other action for which stockholder approval is required by Delaware law. The Company shall issue a new warrant to be issued in place of this Warrant in the event this Warrant has been lost, stolen, defaced, worn-out, or destroyed, upon the making of an affidavit of that fact by Holder. When issuing a new warrant, the Company may, as a condition precedent thereto, (a) require the Holder of a defaced or worn out warrant to deliver such warrant to the Company and order the cancellation of the same, and (b) require the Holder of any lost, stolen or destroyed warrant or its legal representative, to advertise the same in such manner as the Company shall require and to give the Company a bond in such sum as it may direct as indemnity against any claim that may be made against the Company with respect to the warrant alleged to have been lost, stolen or destroyed. Thereupon, the Company may cause to be issued to Holder a new warrant in replacement for the warrant alleged to have been lost, stolen, defaced, worn out or destroyed. Upon the new warrant so issued shall be noted the fact of such issue and the number, date, and name of the registered Holder of the lost, stolen, defaced, worn out, or destroyed warrant in lieu of which the new warrant is issued. Every warrant issued hereunder shall be issued without payment to the Company for such warrant, provided that, there shall be paid to the Company a sum equal to any exceptional expenses incurred by the Company in providing for or obtaining any such indemnity and security as is referred to herein. -3- 4 Notwithstanding any other provision hereof, in the event this Warrant is exercised in connection with an initial public offering of the Company's stock or the sale of the Company, such exercise may be conditioned upon and subject to the consummation of such initial public offering or sale. The Company shall not be required to issue fractions of shares of Common Stock on the exercise or conversion of this Warrant. If any fraction of a share of Common Stock would, except for the provisions of this paragraph, be issuable on the exercise or conversion of this Warrant, the Company shall purchase such fraction for an amount in cash equal to the current fair market value of such fraction. The right to exercise this Warrant and purchase the stock as provided herein is expressly contingent upon and conditioned upon Holder being in material compliance with all of the material terms of that certain Distribution Services Agreement for Holiday Inn Worldwide between the Company and Holder and further provided that Holder has not terminated any of the Services (as defined therein), unless as a result of a breach of the Agreement by the Company, as of the exercise of this Warrant. Except as otherwise provided herein, nothing contained in this Warrant shall be construed as conferring upon Holder the right to vote or to consent or to receive notice as a stockholder in respect of the meetings of stockholders for the election of directors of the Company or any other matters, or any rights whatsoever as a stockholder of the Company. Any notice pursuant to this Warrant to be given or made by Holder or the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, or by next day delivery service for personal delivery, addressed (until another address is provided in writing by the Company or Holder) as follows with a copy to the Company's or Holder's legal departments: President Senior Vice President, Worldwide Reservations Pegasus Systems, Inc. Holiday Hospitality Corporation 3811 Turtle Creek Boulevard Three Ravinia Drive Suite 1100 Suite 2900 Dallas, Texas 75219 Atlanta, Georgia 30346 All the covenants and provisions of this Warrant by or for the benefit of the Company or Holder shall bind and inure to the benefit of their respect successors and assigns hereunder. This Warrant shall be deemed to be a contract made under the laws of the State of Texas and for all purposes shall be construed in accordance with the laws of said State. Nothing herein shall be construed to give to any person or corporation other than the Company and Holder any legal or equitable right, remedy or claim hereunder, but the terms of this Warrant shall be for the sole and exclusive benefit of Holder and the Company. Except as otherwise provided herein, this Warrant is not transferable. -4- 5 In connection with the exercise of this Warrant, Holder agrees to execute the Investment Representative Statement (or a substantially similar document) attached hereto as Exhibit A. IN WITNESS WHEREOF, this Warrant is hereby executed by the President and Secretary of Pegasus Systems, Inc. as the act of the Company. Date: May 27, 1997 PEGASUS SYSTEMS, INC. By: /s/ JOHN F. DAVIS, III ---------------------------------- John F. Davis, III, President ATTEST: By: /s/ RIC L. FLOYD ---------------------------------- Ric L. Floyd, Secretary -5- 6 INVESTMENT REPRESENTATION STATEMENT In connection with the exercise of Warrant Number 1 of Pegasus Systems, Inc. and the purchase of the Securities described therein, the undersigned Holder represents to the Company the following: (a) Holder is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Holder is acquiring these Securities for investment for Holder's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). (b) Holder acknowledges and understands that the Securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Holder's investment intent as expressed herein. Holder further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Holder further acknowledges and understands that the Company is under no obligation to register the Securities. Holder understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company and any other legend required under then applicable state or federal securities laws. (c) Holder is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the issuance of the Warrant to the Holder, the exercise will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited "brokers transaction" or in transactions directly with a market maker (as said term is defined under the Exchange Act); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of Securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable. -6- 7 EXHIBIT "A" TO COMMON STOCK PURCHASE WARRANT In the event that the Company does not qualify under Rule 701 at the time of issuance of the Warrant, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than one year after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than two years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above. (d) Holder further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A under the Securities Act or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Holder understands that no assurances can be given that any such other registration exemption will be available in such event. HOLIDAY HOSPITALITY CORPORATION, HOLDER By: ------------------------------------- Its: ------------------------------- Date: ------------------------- -7-
1 EXHIBIT 10.1 EXECUTIVE EMPLOYMENT AGREEMENT THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is being entered into as of June 25, 1996 (the "Closing Date") by and between Pegasus Systems, Inc., a Delaware corporation (the "Company"), and John F. Davis, III ("Executive"). RECITALS A. Executive has served as Chief Executive Officer of the Company since July 1995. B. Pursuant to a Series A Preferred Stock Purchase Agreement, dated as of the Closing Date, by and among the Company, and the entities listed on Exhibit A thereto (the "Purchasers"), the Purchasers are purchasing certain shares of Series A Preferred Stock, par value $0.01 per share, of the Company (the "Purchase"). C. The Purchasers have required, as a condition to consummating the Purchase, that Executive execute and deliver this Agreement. AGREEMENT In order to induce the Purchasers to consummate the Purchase, and in further consideration of the mutual covenants and agreements contained herein, the parties agree as follows: 1. EMPLOYMENT 1.1 TERM; DUTIES. (a) TERM. Subject to Section 1.6 below, Executive agrees to serve as an employee of the Company during the period commencing on the Closing Date and ending on the date four (4) years from the Closing Date, subject to automatic one year annual renewals if neither party has provided the other with a written notice expressing an intent to terminate the Executive's employment with the Company 60 days prior to the beginning of such renewal period (the "Employment Term"). (b) DUTIES. During the Employment Term,Executive shall serve as the Chief Executive Officer of the Company and in such capacity shall have such responsibilities and perform such duties as the Company's Board of Directors may specify from time to time consistent with such position. Executive agrees to serve the Company faithfully and to the best of his ability, and to devote substantially all of his working time, attention and efforts during the Employment Term to the business and affairs of the Company. Executive shall not serve as a director, employee, consultant or advisor to any other corporation (other than the Company's affiliates) or other business enterprise without the prior written consent of the Company; provided, however, that Executive may serve in any capacity with any civic, educational or charitable organization or any trade association without the approval of the Board, so long 2 as such activities do not interfere with his duties and obligations under this Agreement. Executive represents and warrants to the Company that he is under no contractual commitments inconsistent with his obligations set forth in this Agreement. 1.2 COMPENSATION. In consideration for all services to be performed under this Agreement, Executive shall receive the following compensation: (a) SALARY. Executive shall be paid a base salary at a rate of not less than $22,916.67 per month, subject to increase annually at the discretion of the Compensation Committee of the Board of Directors and payable at such times as other executives of the Company receive their regular salary payments (the "Base Salary"). (b) SIGNING BONUS. The Company shall pay to Executive on or before June 30, 1996 a signing bonus in the amount of $200,000. (c) BONUS PROGRAM. The Executive will be eligible to receive annual bonus payments in addition to the Base Salary. Such annual bonus shall be determined by the Compensation Committee in its discretion based on achievement of performance objectives established by the Compensation Committee of the Board of Directors from time to time. (d) OPTION. The Company shall grant to Executive an option (the "Option") (or, at Executive's election, a stock purchase right to purchase shares of Common Stock of the Company (the "Common Stock") for a total of 225,000 shares of Common Stock) at an exercise price of $2.68 per share. Subject to Section 1.6(b)(ii) below, such Option will vest 1/4 on the first anniversary of the Closing Date and 1/48 after each subsequent month of employment, so that such Option would be fully vested four (4) years after the Closing Date based on continued employment. (e) AUTOMOBILE ALLOWANCE. The Company agrees to pay Executive an automobile allowance of up to $911 per month. (f) LIFE INSURANCE. To the extent commercially practicable, the Company shall maintain life insurance with respect to Executive, in the amount of $2,000,000 with the Company as beneficiary and $1,000,000 with Executive's estate as beneficiary. The Company shall be entitled to withhold from the compensation payments otherwise required to be made to Executive such amounts as may be required under applicable tax laws and other applicable legal requirements. 1.3 OTHER BENEFITS. The Company shall provide to Executive, during the Employment Term such other benefits (including vacation) as the Company makes generally available to its other employees and makes generally available to its executives during the Employment Term, subject to Executive's satisfaction of the respective requirements for such benefits. -2- 3 The Hotel Industry Switch Company, The Hotel Clearing Corporation, the Hotel Clearing Corporation (U.K.) and TravelWeb, Inc., any salary, bonus or other compensation or benefit of any nature (whether relating to any period prior to the Closing Date or relating to any period after the Closing Date) except as expressly provided in Sections 1.2 and 1.3 above. Executive represents and warrants to the Company that he is not aware of any claims or rights against the Company arising directly or indirectly from his past employment with the Company, and Executive hereby releases and discharges the Company and its affiliates from all claims, rights, causes of action, demands and obligations arising directly or indirectly from his past employment with the Company. 1.5 EXPENSES. Executive shall be entitled to reimbursement from the Company for reasonable out-of-pocket business expenses reasonably incurred by Executive during the Employment Term in the performance of Executive's duties under this Agreement, in accordance with the Company policies in effect from time to time; provided however, that the Company shall not be required to reimburse Executive for any such expenses unless: (a) Executive presents vouchers and receipts indicating in reasonable detail the amount and business purpose of each of such expenses; and (b) Executive otherwise complies with the Company's reimbursement policies established from time to time and in effect during the Employment Term. 1.6 TERMINATION. (a) Executive and the Company acknowledge and agree that either the Company or Executive shall have the right to terminate Executive's employment, at any time during the Employment Term, with or without Cause (as defined in Section 1.7), by delivering written notice of termination to the other thirty (30) days prior to the date of termination. Upon any such termination of this Agreement, Executive's employment with the Company shall terminate and, except as provided in Section 1.6(b) or 1.6(c) below, as applicable, the Company shall have no further monetary obligation or other obligation of any nature to Executive under this Agreement or with respect to his employment or the termination of his employment (except as expressly required by applicable law). (b) If (i) the Company terminates this Agreement without Cause (as defined in Section 1.7 below) during the Employment Term, (ii) Executive satisfies all of his obligations relating to the termination of his employment under this Agreement as specified in Sections 2, 3 and 4.1 hereof), and (iii) Executive executes and delivers to the Company a general release of liability (satisfactory in form and substance to the Company) in favor of the Company, then so long as Executive does not breach Section 2, 3 or 4.1 hereof: (A) The Company shall pay to Executive the Base Salary referred to in Section 1.2(a) above for a period of twelve (12) months following the date of termination, payable over such twelve-month period at such times as executives of the Company receive their regular salary payments; (B) Vesting of the Option shall accelerate so that (i) if termination of employment occurs prior to the date being three (3) years and one (1) month after the Closing Date, Executive's Option shall vest for an additional 56,250 shares of Common Stock (in addition -3- 4 to shares vested as of the date of termination) or (ii) if termination of employment occurs on or after the date being three (3) years and one (1) month after the Closing Date, Executive's Option shall fully vest; and (C) The Company shall pay to Executive all accrued salary, any benefits under any plans of the Company in which Executive is a participant to the full extent of Executive's rights under such plans and any appropriate out-of-pocket business expense reimbursements. (c) If this Agreement is terminated other than pursuant to Section 1.6(b), including voluntary termination or termination by the Company with Cause, or by reason of death or disability, then so long as Executive does not breach Section 2, 3 or 4.1 hereof, Executive shall be entitled to payment of all accrued salary, vesting of the Option through the date of termination only, any further benefits under any plans of the Company in which Executive is a participant to the full extent of Executive's rights under such plans through the date of termination only, and any appropriate out-of-pocket business expense reimbursements. (d) The termination of this Agreement pursuant to this Section 1.6 or otherwise shall not limit or otherwise affect any of Executive's obligations under Sections 2, 3 and 4.1 hereof, which obligations shall survive any such termination. (e) Executive shall be entitled to no benefits, compensation or other payments or rights upon termination of employment except as expressly set forth under Section 1.6(b), 1.6(c) or 1.6(d), as applicable; provided, only, that to the extent the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") shall be applicable to the Company, Executive may be eligible following termination of employment to continue to receive group health plan benefits pursuant to COBRA by making the appropriate election and payments. 1.7 DEFINITION OF "CAUSE." Executive's employment with the Company shall be deemed to have been terminated for "Cause" if such employment is terminated due to: (a) habitual failure to report to work, which is not cured within sixty (60) days after written notice from the Board of Directors; (b) habitual substance abuse, which is not cured within sixty (60) days after written notice from the Board of Directors; (c) material breach of Executive's fiduciary duty to the Company or its affiliates, including without limitation, misappropriation of corporate assets, self dealing and violation of any noncompetition agreement or any confidential information and assignment agreement; (d) any intentional misconduct, fraud or bad faith on the part of Executive in the performance of his duties as an employee of the Company; -4- 5 (e) the conviction of Executive of, or the entry by Executive of a plea of guilty or no contest to, any felony, any activity constituting unlawful harassment, or any other malfeasance that could materially impair the reputation of the Company or Executive; and (f) the breach by Executive of any material provision in this Agreement, which is not cured within sixty (60) days after written notice from the Board of Directors. 1.8 DISABILITY. If, during the term of this Agreement, Executive, in the reasonable judgment of the Board of Directors, has failed to perform his duties under this Agreement on account of illness or physical or mental incapacity, and such illness or incapacity continues for a period of six (6) months, the Company shall have the right to terminate Executive's employment hereunder by written notification to Executive. 1.9 DEATH. In the event of Executive's death during the term of this Agreement, the date of termination shall be deemed to have occurred as of the last day of the month during which his death occurs. 2. CONFIDENTIAL INFORMATION. The Confidential Information and Invention Assignment Agreement entered into by the Executive as of the date hereof and attached hereto as Exhibit A is hereby incorporated by reference. 3. NON-COMPETITION AND NON-SOLICITATION 3.1 NON-COMPETITION. During the period commencing on the Closing Date and continuing until the date twelve (12) months after the termination of the Executive's employment with the Company (the "Noncompete Period"), Executive shall not, directly or indirectly, provide any service (as an employee, consultant or otherwise), support, product, or technology to any person or entity, residing or located in the states or provinces of North America and the countries of Europe, if such service, support, product or technology involves or relates to, in any material respect, the business of the Company as conducted during the term of Executive's employment (each a "Restricted Business"). The Company and the Executive agree that these limitations as to time, geographical area, and scope of activity to be restrained are reasonable and the limitations are necessary to protect the goodwill or other business interests of the Company. 3.2 NON-SOLICITATION. Executive further agrees that during the Noncompete Period, he will not: (a) directly or indirectly, personally or through others, encourage, induce, attempt to induce, solicit or attempt to solicit (on Executive's own behalf or on behalf of any other person or entity) the employment of (i) any employee of the Company or any of the Company's affiliates or (ii) any person who was within the previous twelve (12) months an employee of the Company or any of the Company's affiliates; -5- 6 (b) directly or indirectly, personally or through others, approach, contact, solicit, advise or do (or attempt to do) business with, or otherwise interfere with the relationship of the Company or any of the Company's affiliates with, any person or entity who is, was or is reasonably anticipated to become a customer or client of the Company or any of the Company's affiliates with respect to any Restricted Business. 3.3 SEPARATE COVENANTS. The covenants contained in Section 3.2(a) and (b) above shall be each construed as a series of separate covenants, one for each county, city, state and country of any geographic area where any business is presently carried on by the Company. Except for geographic coverage, each such separate covenant shall be identical in terms to the covenant contained in Section 3.2(a). If, in any judicial proceeding, a court refuses to enforce any of such separate covenants (or any part thereof), then such unenforceable covenant (or such part) shall be eliminated from this Agreement to the extent necessary to permit the remaining separate covenants (or portions thereof) to be enforced. In the event that the provisions of this Section 3 are deemed to exceed the time, geographic or scope limitations permitted by applicable law, then such provisions shall be reformed to the maximum time, geographic or scope limitations, as the case may be, permitted by applicable laws. 4. MISCELLANEOUS PROVISIONS. 4.1 SURRENDER OF REWARDS AND PROPERTY. At such time as Executive no longer serves as an Executive of the Company, Executive shall deliver promptly to the Company (a) all records, manuals, books, blank forms, documents, letters, memoranda, notes, notebooks, reports, data, tables, calculations or copies thereof in his possession or under his control which are the property of the Company or which relate in any way to the business, products, practices or techniques of the Company, and (b) all other property and Confidential Information of the Company in his possession or under his control, including all documents which contain any Confidential Information of the Company. 4.2 INDEPENDENCE OF OBLIGATIONS. The covenants of Executive set forth in this Agreement shall be construed as independent of any other agreement between Executive, on the one hand, and the Company, on the other. The existence of any claim or cause of action by Executive against the Company shall not constitute a defense to the enforcement of such covenants against Executive. 4.3 SPECIFIC PERFORMANCE. Executive agrees that in the event of any breach or threatened breach by Executive of any covenant, obligation or other provision contained in this Agreement, the Company shall be entitled (in addition to any other remedy that may be available to it) to (a) a decree or order of specific performance or mandamus to enforce the observance and performance of such covenant, obligation or other provision, and (b) injunction restraining such breach or threatened breach. 4.4 NON-EXCLUSIVITY. The rights and remedies of the Company hereunder are not exclusive of or limited by any other rights or remedies which the Company may have, whether at law, in equity, by contract or otherwise, all of which shall be cumulative (and not alternative). Without limiting the generality of the foregoing, the rights and remedies of the Company hereunder, and the obligations and liabilities of Executive hereunder, are in addition to their respective rights, remedies, obligations and liabilities under the law of unfair competition, misappropriation of trade secrets and the like. -6- 7 4.5 INDEMNIFICATION. Without in any way limiting any of the rights or remedies otherwise available to the Company, Executive shall hold harmless and indemnify the Company from and against, and shall compensate and reimburse the Company from, any loss, damage, injury, decline in value, lost opportunity, liability, exposure, claim, demand, settlement, judgment, award, fine, penalty, tax, fee (including reasonable attorneys' fees) charge, cost (including costs of investigation) or expense of any nature (collectively, the "Damages") which are directly or indirectly suffered or incurred at any time by the Company, or to which the Company otherwise becomes subject (regardless of whether or not such Damages relate to a third-party claim) and that arise from or are directly or indirectly connected with, any breach of any covenant or obligation of Executive contained herein. 4.6 NOTICES. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) one business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (i) if to Executive at his address as set forth herein, and (ii) if to the Company, at the address of its principal corporate offices (attention: Secretary), or at such other address as a party may designate by ten (10) days' advance written notice to the other party pursuant to the provisions above. 4.7 SEVERABILITY. If any provision of this Agreement or any part of any such provision is held under any circumstances to be invalid or unenforceable in any jurisdiction, then (a) such provision or part thereof shall, with respect to such circumstances and in such jurisdiction, be deemed amended to conform to applicable laws so as to be valid and enforceable to the fullest possible extent, (b) the invalidity or unenforceability of such provision or part thereof under any other circumstances and in such jurisdiction shall not affect the validity or enforceability of such provision or part thereof under any other circumstances or in any other jurisdiction and (c) such invalidity of enforceability of such provision or part thereof shall not affect the validity or enforceability of the remainder of such provision or the validity or enforceability of any other provision of this Agreement. Each provision of this Agreement is separable from every other provision of this Agreement, and each part of each provision of this Agreement is separable from every other part of such provision. 4.8 GOVERNING LAW. This Agreement shall be construed in accordance with, and governed in all by, the laws of the State of Texas (without giving effect to principles of conflicts of laws). 4.9 WAIVER. No failure on the part of either party to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of either party in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy. Neither party shall be deemed to have waived any claim arising out of this Agreement, or any power, right, privilege or remedy under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is -7- 8 expressly set forth in a written instrument duly executed and delivered on behalf of such party; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given. 4.10 CAPTIONS. The captions contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of this Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement. 4.11 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall constitute an original and all of which, when taken together, shall constitute one agreement. 4.12 FURTHER ASSURANCES. Each party hereto shall execute and/or cause to be delivered to the other party hereto such instruments and other documents and shall take such other actions as such other party may reasonably request to effectuate the intent and purposes of this Agreement. 4.13 ENTIRE AGREEMENT. This Agreement sets forth the entire understanding of the parties relating to the subject matter hereof and thereof and supersedes all prior agreements and understandings between the parties (including any prior agreements or understandings between Executive and any subsidiary of the Company) relating to the subject matter hereof and thereof, including without limitation the right to employment, employment compensation, severance and other compensation upon termination of employment and rights to acquire securities of the Company or any subsidiary which Executive may have to acquire securities of the Company, provided only that this Agreement shall not affect the Company's rights under the Amended and Restated Stockholders Agreement of the Company dated June 25, 1996, which shall continue in full force and effect. 4.14 AMENDMENTS. This Agreement may not be amended, modified, altered or supplemented other than by means of a written instrument duly executed and delivered on behalf of the Company and Executive. 4.15 ASSIGNMENT. This Agreement and all rights and obligations of Executive hereunder are personal to Executive and may not be transferred or assigned by Executive at any time. The Company may, assign its rights under this Agreement to any entity that assumes the Company's obligations hereunder in connection with any sale or transfer of all or a substantial portion of the Company's assets to such entity. 4.16 BINDING NATURE. Subject to Section 4.15, this Agreement will be binding upon and inure to the benefit of the Company and its successors and assigns and Executive and his representatives, executors, administrators, estate, heirs, successors and assigns. 4.17 ARBITRATION. Any disputes under this Agreement between the parties hereto shall be settled by arbitration in Dallas, Texas under the auspices of, and in accordance with the rules of, the American Arbitration Association, by an arbitrator who is mutually agreeable to the parties hereto, or, if the Company and Executive cannot agree on the selection of the arbitrator, then before three arbitrators, one of which shall be appointed by Executive, one of which shall be appointed by the Company, and the third of which shall be chosen by the American Arbitration Association (such arbitrator -8- 9 or arbitrators hereinafter referred to as the "Arbitrator"). The decision in such arbitration shall be final and conclusive on the parties and judgment upon such decision may be entered in any court having jurisdiction thereof. The parties hereby agree that the Arbitrator shall be empowered to enter an equitable decree mandating specific enforcement of the terms of this Agreement. The Company and Executive shall share equally all expenses of the Arbitrator incurred in any arbitration hereunder; provided, however, that the Company or Executive, as the case may be, shall bear all expenses of the Arbitrator and all of the legal fees and out-of-pocket expenses of the other party if the Arbitrator determines that the claim or position of such party was without reasonable foundation. Executive hereby consents to personal jurisdiction of the state and federal courts located in the State of Texas for any action or proceeding arising from or relating to this Agreement or relating to any arbitration in which the parties are participants. 4.18 SURVIVAL. The provisions of Sections 2, 3 and 4 hereof shall survive termination of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written. PEGASUS SYSTEMS, INC. By: JOHN W. BIGGS ----------------------------- Name: John W. Biggs --------------------------- Title: Chairman -------------------------- EXECUTIVE JOHN F. DAVIS, III --------------------------------- John F. Davis, III Address: 6043 Park Ln. ------------------------ Dallas, Tx 75225 --------------------------------- -9-
1 EXHIBIT 10.2 EXECUTIVE EMPLOYMENT AGREEMENT THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is being entered into as of June 25, 1996 (the "Closing Date") by and between Pegasus Systems, Inc., a Delaware corporation (the "Company"), and Joseph W. Nicholson ("Executive"). RECITALS A. Executive has served as Chief Information Officer of the Company since July 1995. B. Pursuant to a Series A Preferred Stock Purchase Agreement, dated as of the Closing Date, by and among the Company, and the entities listed on Exhibit A thereto (the "Purchasers"), the Purchasers are purchasing certain shares of Series A Preferred Stock, par value $0.01 per share, of the Company (the "Purchase"). C. The Purchasers have required, as a condition to consummating the Purchase, that Executive execute and deliver this Agreement. AGREEMENT In order to induce the Purchasers to consummate the Purchase, and in further consideration of the mutual covenants and agreements contained herein, the parties agree as follows: 1. EMPLOYMENT 1.1 TERM; DUTIES. (a) TERM. Subject to Section 1.6 below, Executive agrees to serve as an employee of the Company during the period commencing on the Closing Date and ending on the date four (4) years from the Closing Date, subject to automatic one year annual renewals if neither party has provided the other with a written notice expressing an intent to terminate the Executive's employment with the Company 60 days prior to the beginning of such renewal period (the "Employment Term"). (b) DUTIES. During the Employment Term, Executive shall serve as the Chief Information Officer of the Company and in such capacity shall have such responsibilities and perform such duties as the Chief Executive Officer or the Company's Board of Directors may specify from time to time consistent with such position. Executive agrees to serve the Company faithfully and to the best of his ability, and to devote substantially all of his working time, attention and efforts during the Employment Term to the business and affairs of the Company. Executive shall not serve as a 2 director, employee, consultant or advisor to any other corporation (other than the Company's affiliates) or other business enterprise without the prior written consent of the Company; provided, however, that Executive may serve in any capacity with any civic, educational or charitable organization or any trade association without the approval of the Board, so long as such activities do not interfere with his duties and obligations under this Agreement. Executive represents and warrants to the Company that he is under no contractual commitments inconsistent with his obligations set forth in this Agreement. 1.2 COMPENSATION. In consideration for all services to be performed under this Agreement, Executive shall receive the following compensation: (a) SALARY. Executive shall be paid a base salary at a rate of not less than $14,583 per month, subject to increase annually at the discretion of the Compensation Committee of the Board of Directors and payable at such times as other executives of the Company receive their regular salary payments (the "Base Salary"). (b) BONUS PROGRAM. The Executive will be eligible to receive annual bonus payments in addition to the Base Salary. Such annual bonus shall be determined by the Compensation Committee in its discretion based on achievement of performance objectives established by the Compensation Committee of the Board of Directors from time to time. (c) OPTION. The Company shall grant to Executive an option (the "Option") (or, at Executive's election, a stock purchase right to purchase shares of Common Stock of the Company (the "Common Stock") for a total of $112,500 shares of Common Stock) at an exercise price of $2.68 per share. Subject to Section 1.6(b)(ii) below, such Option will vest 1/4 on the first anniversary of the Closing Date and 1/48 after each subsequent month of employment, so that such Option would be fully vested four (4) years after the Closing Date based on continued employment. (d) AUTOMOBILE ALLOWANCE. The Company agrees to pay Executive an automobile allowance of up to $500 per month. (e) LIFE INSURANCE. To the extent commercially practicable, the Company shall maintain life insurance with respect to Executive, in the amount of $1,333,000 with the Company as beneficiary and $667,000 with Executive's estate as beneficiary. The Company shall be entitled to withhold from the compensation payments otherwise required to be made to Executive such amounts as may be required under applicable tax laws and other applicable legal requirements. 1.3 OTHER BENEFITS. The Company shall provide to Executive, during the Employment Term, such other benefits (including vacation) as the Company makes generally available to its other employees and makes generally available to its executives during the Employment Term, subject to Executive's satisfaction of the respective eligibility requirements for such benefits. -2- 3 1.4 NO OTHER COMPENSATION. Executive acknowledges and agrees that he shall not be entitled to receive from the Company or any other affiliate of the Company, including but not limited to, The Hotel Industry Switch Company, The Hotel Clearing Corporation, the Hotel Clearing Corporation (U.K.) and TravelWeb, Inc. any salary, bonus or other compensation or benefit of any nature (whether relating to any period prior to the Closing Date or relating to any period after the Closing Date) except as expressly provided in Sections 1.2 and 1.3 above. Executive represents and warrants to the Company that he is not aware of any claims or rights against the Company arising directly or indirectly from his past employment with the Company, and Executive hereby releases and discharges the Company and its affiliates from all claims, rights, causes of action, demands and obligations arising directly or indirectly from his past employment with the Company. 1.5 EXPENSES. Executive shall be entitled to reimbursement from the Company for reasonable out-of-pocket business expenses reasonably incurred by Executive during the Employment Term in the performance of Executive's duties under this Agreement, in accordance with the Company policies in effect from time to time; provided, however, that the Company shall not be required to reimburse Executive for any such expenses unless: (a) Executive presents vouchers and receipts indicating in reasonable detail the amount and business purpose of each of such expenses; and (b) Executive otherwise complies with the Company's reimbursement policies established from time to time and in effect during the Employment Term. 1.6 TERMINATION. (a) Executive and the Company acknowledge and agree that either the Company or Executive shall have the right to terminate Executive's employment at any time during the Employment Term with or without Cause (as defined in Section 1.7), by delivering written notice of termination to the other thirty (30) days prior to the date of termination. Upon any such termination of this Agreement, Executive's employment with the Company shall terminate and, except as provided in Section 1.6(b) or 1.6(c) below, as applicable, the Company shall have no further monetary obligation or other obligation of any nature to Executive under this Agreement or with respect to his employment or the termination of his employment (except as expressly required by applicable law). (b) If (i) the Company terminates this Agreement without Cause (as defined in Section 1.7 below) during the Employment Term, (ii) Executive satisfies all of his obligations relating to the termination of his employment under this Agreement as specified in Sections 2, 3 and 4.1 hereof), and (iii) Executive executes and delivers to the Company a general release of liability (satisfactory in form and substance to the Company) in favor of the Company, then so long as Executive does not breach Section 2, 3 or 4.1 hereof. (A) The Company shall pay to Executive the Base Salary referred to in Section 1.2(a) above for a period of twelve (12) months following the date of termination, payable over such twelve-month period at such times as executives of the Company receive their regular salary payments; -3- 4 (B) Vesting of the Option shall accelerate so that (i) if termination of employment occurs prior to the date being three (3) years and one (1) month after the Closing Date, Executive's Option shall vest for an additional 28,125 shares of Common Stock (in addition to shares vested as of the date of termination) or (ii) if termination of employment occurs on or after the date being three (3) years and one (1) month after the Closing Date, Executive's Option shall fully vest; and (C) The Company shall pay to Executive all accrued salary, any benefits under any plans of the Company in which Executive is a participant to the full extent of Executive's rights under such plans and any appropriate out-of-pocket business expense reimbursements. (c) If this Agreement is terminated other than pursuant to Section 1.6(b), including voluntary termination, termination by the Company with Cause, or by reason of death or disability, then so long as Executive does not breach Section 2, 3 or 4.1 hereof, Executive shall be entitled to payment of all accrued salary, vesting of the Option through the date of determination only, any further benefits under any plans of the Company in which Executive is a participant to the full extent of Executive's rights under such plans through the date of termination only and any appropriate out-of-pocket business expense reimbursements. (d) The termination of this Agreement pursuant to this Section 1.6 or otherwise shall not limit or otherwise affect any of Executive's obligations under Sections 2, 3, and 4.1 hereof, which obligations shall survive any such termination. (e) Executive shall be entitled to no benefits, compensation or other payments or rights upon termination of employment except as expressly set forth under Section 1.6(b), 1.6(c) or 1.6(d), as applicable; provided, only, that to the extent the Consolidated Omnibus Budget Reconciliation Act of 1985 (""COBRA'') shall be applicable to the Company, Executive may be eligible following termination of employment to continue to receive group health plan benefits pursuant to COBRA by making the appropriate election and payments. 1.7 DEFINITION OF "CAUSE." Executive's employment with the Company shall be deemed to have been terminated for "Cause" if such employment is terminated due to: (a) habitual failure to report to work, which is not cured within sixty (60) days after written notice from the Board of Directors; (b) habitual substance abuse, which is not cured within sixty (60) days after written notice from the Board of Directors; (c) material breach of Executive's fiduciary duty to the Company or its affiliates, including without limitation, misappropriation of corporate assets, self dealing and violation of any noncompetition agreement or any confidential information and assignment agreement; -4- 5 (d) any intentional misconduct, fraud or bad faith on the part of Executive in the performance of his duties as an employee of the Company; (e) the conviction of Executive of, or the entry by Executive of a plea of guilty or no contest to, any felony, any activity constituting unlawful harassment, or any other malfeasance that could materially impair the reputation of the Company or Executive; and (f) the breach by Executive of any material provision in this Agreement, which is not cured within sixty (60) days after written notice from the Board of Directors. 1.8 DISABILITY. If, during the term of this Agreement, Executive, in the reasonable judgment of the Board of Directors, has failed to perform his duties under this Agreement on account of illness or physical or mental incapacity, and such illness or incapacity continues for a period of six (6) months, the Company shall have the right to terminate Executive's employment hereunder by written notification to Executive. 1.9 DEATH. In the event of Executive's death during the term of this Agreement, the date of termination shall be deemed to have occurred as of the last day of the month during which his death occurs. 2. CONFIDENTIAL INFORMATION The Confidential Information and Invention Assignment Agreement entered into by the Executive as of the date hereof and attached hereto as Exhibit A is hereby incorporated by reference. 3. NON-COMPETITION AND NON-SOLICITATION 3.1 NON-COMPETITION. During the period commencing on the Closing Date and continuing until the date twelve (12) months after the termination of the Executive's employment with the Company (the "Noncompete Period"), Executive shall not, directly or indirectly, provide any service (as an employee, consultant or otherwise), support, product, or technology to any person or entity residing or located in the states or provinces of North America and the countries of Europe, if such service, support, product or technology involves or relates to, in any material respect, the business of the Company as conducted during the term of Executive's employment (each, a "Restricted Business"). The Company and Executive agree that these limitations as to time, geographical area, and scope of activity to be restrained are reasonable and the limitations are necessary to protect the goodwill or other business interests of the Company. 3.2 NON-SOLICITATION. Executive further agrees that during the Noncompete Period, he will not: (a) directly or indirectly, personally or through others, encourage, induced, attempt to induce, solicit or attempt to solicit (on Executive's own behalf or on behalf of any other person or entity) the employment of (i) any employee of the Company or any of the Company's affiliates or -5- 6 (ii) any person who was within the previous twelve (12) months an employee of the Company or any of the Company's affiliates; (b) directly or indirectly, personally or through others, approach, contact, solicit, advise or do (or attempt to do) business with, or otherwise interfere with the relationship of the Company or any of the Company's affiliates with, any person or entity who is, was or is reasonably anticipated to become a customer or client of the Company or any of Company's affiliates with respect to any Restricted Business. 3.3 SEPARATE COVENANTS. The covenants contained in Section 3.2(a) and (b) above shall be each construed as a series of separate covenants, one for each country, city, state and country of any geographic area where any business is presently carried on by the Company. Except for geographic coverage, each such separate covenant shall be identical in terms to the covenant contained in Section 3.2(a). If, in any judicial proceeding, a court refuses to enforce any of such separate covenants (or any part thereof), then such unenforceable covenant (or such part) shall be eliminated from this Agreement to the extent necessary to permit the remaining separate covenants (or portions thereof) to be enforced. In the event that the provisions of this Section 3 are deemed to exceed the time, geographic or scope limitations permitted by applicable law, then such provisions shall be reformed to the maximum time, geographic or scope limitations, as the case may be, permitted by applicable laws. 4. MISCELLANEOUS PROVISIONS. 4.1 SURRENDER OF REWARDS AND PROPERTY. At such time as Executive no longer serves as an Executive of the Company, Executive shall deliver promptly to the Company(a) all records, manuals, books, blank forms, documents, letters, memoranda, notes, notebooks, reports, data, tables, calculations or copies thereof in his possession or under his control which are the property of the Company, and (b) all other property and Confidential Information of the Company in his possession or under his control, including all documents which contain any Confidential Information of the Company. 4.2 INDEPENDENCE OF OBLIGATIONS. The covenants of Executive set forth in this Agreement shall be construed as independent of any other agreement or arrangement between Executive, on the one hand, and the Company, on the other. The existence of any claim or cause of action by Executive against the Company shall not constitute a defense to the enforcement of such covenants against Executive. 4.3 SPECIFIC PERFORMANCE. Executive agrees that in the event of any breach or threatened breach by Executive of any covenant, obligation or other provision contained in this Agreement, the Company shall be entitled (in addition to any other remedy that may be available to it) to (a) a decree or order of specific performance or mandamus to enforce the observance and performance of such covenant, obligation or other provision, and (b) injunction restraining such breach or threatened breach. -6- 7 4.4 NON-EXCLUSIVITY. The rights and remedies of the Company hereunder are not exclusive of or limited by any other rights or remedies which the Company may have, whether at law, in equity, by contract or otherwise, all of which shall be cumulative (and not alternative). Without limiting the generality of the foregoing, the rights and remedies of the Company hereunder, and the obligations and liabilities of Executive hereunder, are in addition to their respective rights, remedies, obligations and liabilities under the law of unfair competition, misappropriation of trade secrets and the like. 4.5 INDEMNIFICATION. Without in any way limiting any of the rights or remedies otherwise available to the Company, Executive shall hold harmless and indemnify the Company from and against, and shall compensate and reimburse the Company from any loss, damage, injury, decline in value, lost opportunity, liability, exposure, claim, demand, settlement, judgment, award, fine, penalty, tax, fee (including reasonable attorneys' fees) charge, cost (including costs of investigation) or expense of any nature (collectively, the "Damages") which are directly or indirectly suffered or incurred at any time by the Company, or to which the Company otherwise becomes subject (regardless of whether or not such Damages relate to a third-party claim) and that arise from or are directly or indirectly connected with, any breach of any covenant or obligation of Executive contained herein. 4.6 NOTICES. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt of, if earlier, (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) one business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (i) if to Executive at his address as set forth herein, and (ii) if to the Company, at the address of its principal corporate offices (attention: Secretary), or at such other address as a party may designate by ten (10) days' advance written notice to the other party pursuant to the provisions above. 4.7 SEVERABILITY. If any provision of this Agreement or any part of any such provision is held under any circumstances to be invalid or unenforceable in any jurisdiction, then (a) such provision or part thereof shall, with respect to such circumstances and in such jurisdiction, be deemed amended to conform to applicable laws so as to be valid and enforceable to the fullest possible extent, (b) the invalidity or unenforceability of such provision or part thereof under such circumstances and in such jurisdiction shall be affect the validity or enforceability of such provision or part thereof under any other circumstances or in any other jurisdiction and (c) such invalidity of enforceability of such provision or part thereof shall not affect the validity or enforceability of the remainder of such provision or the validity or enforceability of any other provision of this Agreement. Each provision of this Agreement is separable from every other provision of this Agreement, and each part of each provision of this Agreement is separable from every other part of such provision. -7- 8 4.8 GOVERNING LAW. This Agreement shall be construed in accordance with, and governed in all by, the laws of the State of Texas (without giving effect to principles of conflicts of laws). 4.9 WAIVER. No failure on the part of either party to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of either party in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy. Neither party shall be deemed to have waived any claim arising out of this Agreement, or any power, right, privilege or remedy under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of such party; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given. 4.10 CAPTIONS. The captions contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of this Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement. 4.11 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall constitute an original and all of which, when taken together, shall constitute one agreement. 4.12 FURTHER ASSURANCES. Each party hereto shall execute and/or cause to be delivered to the other party hereto such instruments and other documents and shall take such other actions as such other party may reasonably request to effectuate the intent and purposes of this Agreement. 4.13 ENTIRE AGREEMENT. This Agreement sets forth the entire understanding of the parties relating to the subject matter hereof and thereof and supersedes all prior agreements and understandings between the parties (including any prior agreements or understandings between Executive and any subsidiary of the Company) relating to the subject matter hereof and thereof, including without limitation the right to employment, employment compensation, severance and other compensation upon termination of employment and rights to acquire securities of the Company or any subsidiary which Executive may have to acquire securities of the Company, provided only that this Agreement shall not affect the Company's rights under the Amended and Restated Stockholders Agreement of the Company dated June 25, 1996, which shall constitute in full force and effect. 4.14 AMENDMENTS. This Agreement may not be amended, modified, altered or supplemented other than by means of a written instrument duly executed and delivered on behalf of the Company and Executive. -8- 9 4.15 ASSIGNMENT. This Agreement and all rights and obligations of Executive hereunder are personal to Executive and may not be transferred or assigned by Executive at any time. The Company may, assign its rights under this Agreement to any entity that assumes the Company's obligations hereunder in connection with any sale or transfer of all or a substantial portion of the Company's assets to such entity. 4.16 BINDING NATURE. Subject to Section 4.15, this Agreement will be binding upon and inure to the benefit of the Company and its successors and assigns and Executive and his representatives, executors, administrators, estate, heirs, successors and assigns. 4.17 ARBITRATION. Any disputes under this Agreement between the parties hereto shall be settled by arbitration in Dallas, Texas under the auspices of, and in accordance with the rules of, the American Arbitration Association, by an arbitrator who is mutually agreeable to the parties hereto, or, if the Company and Executive cannot agree on the selection of the arbitrator, then before three arbitrators, one of which shall be appointed by Executive, one of which shall be appointed by the Company, and the third of which shall be chosen by the American Arbitration Association (such arbitrator or arbitrators hereinafter referred to as the "Arbitrator"). The decision in such arbitration ???????????? court having jurisdiction thereof. The parties hereby agree that the Arbitrator ???????????? enter an equitable decree mandating specific enforcement of the terms of this Agreement. The Company and Executive shall share equally all expenses of the Arbitrator incurred in any arbitration hereunder; provided, however, that the Company or Executive, as the case may be, shall bear all expenses of the Arbitrator and all of the legal fees and out-of-pocket expenses of the other party if the Arbitrator determines that the claim or position of such party was without reasonable foundation. Executive hereby consents to personal jurisdiction of the state and federal courts located in the State of Texas for any action or proceeding arising from or relating to this Agreement or relating to any arbitration in which the parties are participants. 4.18 SURVIVAL. The provisions of Sections 2, 3 and 4 hereof shall survive termination of this Agreement. -9- 10 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written. PEGASUS SYSTEMS, INC. By: /s/ JOHN F. DAVIS, III ----------------------------- Name: John F. Davis, III ---------------------------- Title: President --------------------------- /s/ JOSEPH W. NICHOLSON --------------------------------- Name: Joseph W. Nicholson Address: ------------------------- --------------------------------- -10-
1 EXHIBIT 10.3 [PEGASUS SYSTEMS INC. LETTERHEAD] August 29, 1996 Mr. Jerome L. Galant 4444 Gloster Road Dallas, TX 75220 Dear Jerry, I am pleased to extend to you an offer of employment as Chief Financial Officer of Pegasus Systems, Inc. The terms of your employment are as follows: Effective: No later than October 1, 1996 Salary: $12,083.33 per month Bonus potential up to 30% Stock: 40,000 shares of the employee stock option plan at a strike price of $2.68 per share Vacation: Two weeks accrued on start date Comprehensive insurance and benefit program If you are in agreement with the above, please sign below and return this letter to me. We look forward to having you on board! Best regards, /s/ JOHN F. DAVIS, III John F. Davis, III CEO ---------------------- ------------------------- Jerome L. Galant Date Please note that Pegasus Systems, Inc. is an employment at-will organization and the above does not constitute an employment contract.
1 [PEGASUS LETTERHEAD] April 18, 1997 Michael R. Donahue 2110 Walters Northbrook, Ill. 60062 Dear Mike, I am pleased to extend to you an offer of employment as Chief Marketing Officer of Pegasus Systems, Inc. The terms of your employment are as follows: Base Salary: $13,750 per month Bonus: Up to 40% of annual base salary on the following basis: - 15% if company meets forecast - 10% based on mutually agreed goals - three quarters of one percent for each 1% company exceeds forecast up to 15% of your base salary Equity: 40,000 shares at $7.00 per share, vesting over four years. The shares vest at 25% after the first twelve months, and 2,500 shares per quarter thereafter. - Participation in future employee stock option plans as approved by the Compensation Committee Severance: Through the first 12 months of employment, the equivalent of 6 months salary; the second 12 months the equivalent of 9 months salary, and a full year after three years of service. Benefits: - Full medical and dental coverage paid by Pegasus; 50% family coverage paid by Pegasus. - 3 weeks vacation - participation in the Pegasus 401(k) plan, Pegasus matching up to 5% of base salary up to the maximum allowed by law. - Country club membership, up to $250.00 per month. Participation in a corporate sponsored membership, if Pegasus chooses to purchase a corporate membership. - Automobile allowance of $600. per month. 2 Michael Donahue April 18, 1997 Page Two Relocation: - 90 days temporary housing - One months salary as "settling in" allowance - $30,000 to cover closing and other costs - transportation and actual costs of the move - two house hunting trips for spouse Effective date: No later than May 15, 1997 If you are in agreement with the above, please sign below and return the letter to me. I look forward to having you on board! Sincerely, /s/ JOHN F. DAVIS, III John F. Davis, III Chief Executive Officer --------------------------------- Michael Donahue cc: Paul Travers Jerry Galant Chuck Ollinger
1 EXHIBIT 10.5 PEGASUS SYSTEMS, INC. AMENDED 1996 STOCK OPTION PLAN 1. Purposes of the Plan. The purposes of this Stock Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and any Parent or Subsidiary and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code and the regulations promulgated thereunder. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or the Compensation Committee appointed by the Board. (b) "Board" means the Board of Directors of the Company. (c) "Code" means the Internal Revenue Code of 1986, as amended. (d) "Committee" means the Compensation Committee appointed by the Board of Directors. (e) "Common Stock" means the Common Stock of the Company. (f) "Company" means Pegasus Systems, Inc. (g) "Consultant" means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services and is compensated for such services, and any director of the Company whether compensated for such services or not. If and in the event the Company registers any class of any equity security pursuant to the Exchange Act, the term Consultant shall thereafter not include directors who are not compensated for their services or are paid only a director's fee by the Company. (h) "Continuous Status as an Employee or Consultant" means that the employment or consulting relationship with the Company, any Parent or Subsidiary is not interrupted or terminated. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. A leave of absence approved by the Company shall include sick leave, military leave, or any other personal leave. For purposes of Incentive Stock Options, no such leave may exceed 90 days, unless 2 reemployment upon expiration of such leave is guaranteed by statute or contract, including Company policies. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. (i) "Disability" means total and permanent disability as defined in Section 22(e)(3) of the Code. (j) "Employee" means any person, including officers and directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company. (k) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (l) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator. (m) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. (n) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option. (o) "Option" means a stock option granted pursuant to the Plan. (p) "Optioned Stock" means the Common Stock subject to an Option. -2- 3 (q) "Optionee" means an Employee or Consultant who receives an Option. (r) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (s) "Permitted Transferee" means a member of a holder's immediate family, trusts for the benefit of such immediate family members, and partnerships in which the holder and such immediate family members are the only partners, provided that no consideration is provided for the transfer. (t) "Plan" means this Amended 1996 Stock Option Plan. (u) "Section 16(b)" means Section 16(b) of the Securities Exchange Act of 1934, as amended. (v) "Share" means a share of the Common Stock, as adjusted in accordance with Section 11 below. (w) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 975,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an option exchange program authorized by the Administrator, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if unvested Shares are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4. Administration of the Plan. (a) Initial Plan Procedure. Prior to the date, if any, upon which the Company becomes subject to the Exchange Act, the Plan shall be administered by the Board or the Compensation Committee appointed by the Board. (b) Plan Procedure after the Date, if any, upon Which the Company becomes Subject to the Exchange Act. With respect to Option grants made to Employees or Consultants, the Plan shall be administered by (A) the Board or (B) the Compensation Committee designated by the Board, which committee shall be constituted to satisfy the legal requirements, if any, relating to the -3- 4 administration of incentive stock option plans of state corporate and securities laws, of the Code, and of any stock exchange or national market system upon which the Common Stock is then listed or traded (the "Applicable Laws"). Once appointed, such Committee shall serve in its designated capacity until otherwise directed by the Board. The Board may increase the size of the Committee and appoint additional members, remove members (with or without cause) and substitute new members, fill vacancies (however caused), and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by Applicable Laws. (c) Powers of the Administrator. Subject to the provisions of the Plan and approval of any relevant authorities, including the approval, if required, of any stock exchange or national market system upon which the Common Stock is then listed, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(l) of the Plan; (ii) to select the Consultants and Employees to whom Options may from time to time be granted hereunder; (iii) to determine whether and to what extent Options are granted hereunder; (iv) to determine the number of shares of Common Stock to be covered by each such award granted hereunder; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder. Such terms and conditions may include, but are not limited to, the exercise price, the time or times when Options may be exercised, any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or the Shares relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vii) to determine whether and under what circumstances an Option may be settled in cash under Section 9(e) instead of Common Stock; (viii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option has declined since the date the Option was granted; (ix) to provide for the early exercise of Options for the purchase of unvested Shares, subject to such terms and conditions as the Administrator may determine; and -4- 5 (x) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan. (d) Effect of Administrator's Decision. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options. 5. Eligibility. (a) Nonstatutory Stock Options may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option may, if otherwise eligible, be granted additional Options. (b) Each Option shall be designated in the written option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (c) The Plan shall not confer upon any Optionee any right with respect to the continuation of the Optionee's employment or consulting relationship with the Company, nor shall it interfere in any way with the Optionee's right or the Company's right to terminate the Optionee's employment or consulting relationship at any time, with or without cause. 6. Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the stockholders of the Company, as described in Section 18 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 14 of the Plan. 7. Term of Option. The term of each Option shall be the term stated in the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. However, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. -5- 6 8. Option Exercise Price and Consideration. (a) The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Board, but shall be subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option, the per share exercise price shall be determined by the Administrator but shall, in no event, be less than fifty percent (50%) of the Fair Market Value per Share on the date of grant. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares acquired upon exercise of an Option have been owned by the Optionee for more than six months on the date of surrender and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option shall be exercised, (5) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price, or (6) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 9. Exercise of Option. (a) Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan. An Option may not be exercised for a fraction of a Share. -6- 7 An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 8(b) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 12 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Employment or Consulting Relationship. Upon termination of an Optionee's Continuous Status as an Employee or Consultant, other than upon the Optionee's death or Disability, the Optionee may exercise his or her Option, but only within such period of time as is specified in the Notice of Grant, and only to the extent that the Optionee was entitled to exercise it at the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant). In the absence of a specified time in the Notice of Grant, the Option shall remain exercisable for three (3) months following the Optionee's termination. In the case of an Incentive Stock Option, such period of time for exercise shall not exceed three (3) months from the date of termination. If, on the date of termination, the Optionee is not entitled to exercise the Optionee's entire Option, the Shares covered by the unexercisable portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. Notwithstanding the above, in the event of an Optionee's change in status from Consultant to Employee or Employee to Consultant, an Optionee's Continuous Status as an Employee or Consultant shall not automatically terminate solely as a result of such change in status. However, in such event, an Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option three months and one day following such change of status. (c) Disability of Optionee. In the event of termination of an Optionee's Continuous Status as an Employee or Consultant as a result of his or her Disability, the Optionee may, but only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the term of his or her Option as set forth in the Option Agreement), exercise the Option to the extent the Optionee was otherwise entitled to exercise it on the date of -7- 8 such termination. To the extent that the Optionee is not entitled to exercise the Option on the date of termination, or if the Optionee does not exercise the Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Shares covered by the Option shall revert to the Plan. (d) Death of Optionee. In the event of the death of an Optionee, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who has acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Optionee was entitled to exercise the Option at the date of death. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If, after death, the Optionee's estate or a person who acquires the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. (f) Rule 16b-3. Options granted to persons subject to Section 16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. 10. Stock Withholding to Satisfy Withholding Tax Obligations. At the discretion of the Administrator, Optionees may satisfy withholding obligations as provided in this Section 10. When an Optionee incurs tax liability in connection with an Option which tax liability is subject to tax withholding under applicable tax laws, and the Optionee is obligated to pay the Company an amount required to be withheld under applicable tax laws, the Optionee may satisfy the withholding tax obligation by electing to have the Company withhold from the Shares to be issued upon exercise of the Option that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined (the "Tax Date"). All elections by an Optionee to have Shares withheld for this purpose shall be made in writing in a form acceptable to the Administrator and shall be subject to the following restrictions: (a) the election must be made on or prior to the applicable Tax Date; (b) once made, the election shall be irrevocable as to the particular Shares of the Option as to which the election is made; -8- 9 (c) all elections shall be subject to the consent or disapproval of the Administrator. In the event the election to have Shares withheld is made by an Optionee and the Tax Date is deferred under Section 83 of the Code because no election is filed under Section 83(b) of the Code, the Optionee shall receive the full number of Shares with respect to which the Option is exercised but such Optionee shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date. 11. Transferability of Options and Rights. Incentive Stock Options granted under the Plan shall not be transferable otherwise than by will or the laws of descent and distribution, or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. Incentive Stock Options shall be exercisable during the lifetime of the Employee only by the Employee or by the Employee's guardian or legal representative (unless such exercise would disqualify it as an Incentive Stock Option). Unless the Committee otherwise provides in an agreement regarding the award of non-qualified stock options or rights (not granted in connection with an Incentive Stock Option), non-qualified stock options or rights (not granted in connection with Incentive Stock Options) may be transferred by the holder to Permitted Transferees, provided that there cannot be any consideration for the transfer. 12. Adjustments Upon Changes in Capitalization or Merger. (a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide -9- 10 for an Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option will terminate immediately prior to the consummation of such proposed action. (c) Acquisition Events (1) Consequences of Acquisition Events. Upon the occurrence of an Acquisition Event (as defined below), or the execution by the Company of any agreement with respect to an Acquisition Event, the Board shall take any one or more of the following actions with respect to then outstanding Options: (i) provide that outstanding Options shall be assumed or equivalent Options shall be substituted by the acquiring or succeeding entity (or an affiliate thereof), provided that any such Options substituted for Incentive Stock Options shall satisfy, in the determination of the Board, the requirements of Section 424(a) of the Code; (ii) upon written notice to the Optionees, provide that all then unexercised Options will become exercisable in full as of a specified date (the "Acceleration Date") prior to the Acquisition Event and will terminate immediately prior to the consummation of such Acquisition Event, except to the extent exercised by the Optionees between the Acceleration Date and the consummation of the Acquisition Event or (iii) in the event of an Acquisition Event under the terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share of Common Stock surrendered pursuant to such Acquisition Event (the "Acquisition Price") provide that all outstanding Options shall terminate upon consummation of such Acquisition Event and each Optionee shall receive, in exchange therefor, a cash payment equal to the amount (if any) by which (A) the Acquisition Price multiplied by the number of shares of Common Stock subject to such outstanding Options (whether or not then exercisable), exceeds (B) the aggregate exercise price of such Options. An "Acquisition Event" shall mean: (a) any merger or consolidation which results in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or acquiring entity) less than 60% of the combined voting power of the voting securities of the Company or such surviving or acquiring entity outstanding immediately after such merger or consolidation; (b) any sale of all or substantially all of the assets of the Company; (c) the complete liquidation of the Company; or (d) the acquisition of "beneficial ownership" (as defined in Rule 13d- 3 under the Exchange Act) of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities (other than through a merger or consolidation or an acquisition of securities directly from the Company) by any "person", as such term is used in Sections 13 (d) and 14 (d) of the Exchange Act other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any entity owned directly or indirectly by the stockholders of the Company in substantially the same proportion as their ownership of stock of the Company. -10- 11 (2) Assumption of Options Upon Certain Events. The Board may grant options under the Plan in substitution for stock and stock-based awards held by employees of another entity who become Employees as a result of a merger or consolidation of the employing entity with the Company or the acquisition by the Company of property or stock of the employing entity. The substitute options shall be granted on such terms and conditions as the Board considers appropriate in the circumstances. 13. Time of Granting Options. The date of grant of an Option shall, for all purposes, be the date on which the Administrator makes the determination granting such Option, or such other date as is determined by the Administrator. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant. 14. Amendment and Termination of the Plan. (a) Amendment and Termination. The Board may at any time amend, alter, suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act or with Section 422 of the Code (or any other applicable law or regulation, including the requirements of any stock exchange or national market system upon which the Common Stock is then listed), the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required. (b) Effect of Amendment or Termination. Any such amendment or termination of the Plan shall not affect Options already granted, and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company. 15. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange or national market system upon which the Common Stock is then listed or traded, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. -11- 12 16. Reservation of Shares. The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 17. Agreements. Options shall be evidenced by written agreements in such form as the Administrator shall approve from time to time. 18. Stockholder Approval. Continuance of the Plan shall be subject to approval by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such stockholder approval shall be obtained in the degree and manner required under applicable state and federal law and the rules of any stock exchange or national market system upon which the Common Stock is then listed or traded. -12-
1 EXHIBIT 10.6 PEGASUS SYSTEMS, INC. 1997 STOCK OPTION PLAN 1. Purposes of the Plan. The purposes of this Stock Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and any Parent or Subsidiary and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code and the regulations promulgated thereunder. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or the Compensation Committee appointed by the Board. (b) "Board" means the Board of Directors of the Company. (c) "Code" means the Internal Revenue Code of 1986, as amended. (d) "Committee" means the Compensation Committee appointed by the Board of Directors. (e) "Common Stock" means the Common Stock of the Company. (f) "Company" means Pegasus Systems, Inc. (g) "Consultant" means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services and is compensated for such services, and any director of the Company whether compensated for such services or not. If and in the event the Company registers any class of any equity security pursuant to the Exchange Act, the term Consultant shall thereafter not include directors who are not compensated for their services or are paid only a director's fee by the Company. (h) "Continuous Status as an Employee or Consultant" means that the employment or consulting relationship with the Company, any Parent or Subsidiary is not interrupted or terminated. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. A leave of absence approved by the Company shall include sick leave, military leave, or any other personal leave. For purposes of Incentive Stock Options, no such leave may exceed 90 days, unless -1- 2 reemployment upon expiration of such leave is guaranteed by statute or contract, including Company policies. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. (i) "Disability" means total and permanent disability as defined in Section 22(e)(3) of the Code. (j) "Employee" means any person, including officers and directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company. (k) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (l) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator. (m) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. (n) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option. (o) "Option" means a stock option granted pursuant to the Plan. (p) "Optioned Stock" means the Common Stock subject to an Option. -2- 3 (q) "Optionee" means an Employee or Consultant who receives an Option. (r) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (s) "Permitted Transferee" means a member of a holder's immediate family, trusts for the benefit of such immediate family members, and partnerships in which the holder and such immediate family members are the only partners, provided that no consideration is provided for the transfer. (t) "Plan" means this 1997 Stock Option Plan. (u) "Section 16(b)" means Section 16(b) of the Securities Exchange Act of 1934, as amended. (v) "Share" means a share of the Common Stock, as adjusted in accordance with Section 11 below. (w) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 375,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an option exchange program authorized by the Administrator, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if unvested Shares are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4. Administration of the Plan. (a) Initial Plan Procedure. Prior to the date, if any, upon which the Company becomes subject to the Exchange Act, the Plan shall be administered by the Board or the Compensation Committee appointed by the Board. (b) Plan Procedure after the Date, if any, upon Which the Company becomes Subject to the Exchange Act. With respect to Option grants made to Employees or Consultants, the Plan shall be administered by (A) the Board or (B) the Compensation Committee designated by the Board, which committee shall be constituted to satisfy the legal requirements, if any, relating to the -3- 4 administration of incentive stock option plans of state corporate and securities laws, of the Code, and of any stock exchange or national market system upon which the Common Stock is then listed or traded (the "Applicable Laws"). Once appointed, such Committee shall serve in its designated capacity until otherwise directed by the Board. The Board may increase the size of the Committee and appoint additional members, remove members (with or without cause) and substitute new members, fill vacancies (however caused), and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by Applicable Laws. (c) Powers of the Administrator. Subject to the provisions of the Plan and approval of any relevant authorities, including the approval, if required, of any stock exchange or national market system upon which the Common Stock is then listed, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(l) of the Plan; (ii) to select the Consultants and Employees to whom Options may from time to time be granted hereunder; (iii) to determine whether and to what extent Options are granted hereunder; (iv) to determine the number of shares of Common Stock to be covered by each such award granted hereunder; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder. Such terms and conditions may include, but are not limited to, the exercise price, the time or times when Options may be exercised, any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or the Shares relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vii) to determine whether and under what circumstances an Option may be settled in cash under Section 9(e) instead of Common Stock; (viii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option has declined since the date the Option was granted; (ix) to provide for the early exercise of Options for the purchase of unvested Shares, subject to such terms and conditions as the Administrator may determine; and -4- 5 (x) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan. (d) Effect of Administrator's Decision. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options. 5. Eligibility. (a) Nonstatutory Stock Options may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option may, if otherwise eligible, be granted additional Options. (b) Each Option shall be designated in the written option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (c) The Plan shall not confer upon any Optionee any right with respect to the continuation of the Optionee's employment or consulting relationship with the Company, nor shall it interfere in any way with the Optionee's right or the Company's right to terminate the Optionee's employment or consulting relationship at any time, with or without cause. 6. Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the stockholders of the Company, as described in Section 18 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 14 of the Plan. 7. Term of Option. The term of each Option shall be the term stated in the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. However, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. -5- 6 8. Option Exercise Price and Consideration. (a) The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Board, but shall be subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option, the per share exercise price shall be determined by the Administrator but shall, in no event, be less than fifty percent (50%) of the Fair Market Value per Share on the date of grant. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares acquired upon exercise of an Option have been owned by the Optionee for more than six months on the date of surrender and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option shall be exercised, (5) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price, or (6) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 9. Exercise of Option. (a) Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan. An Option may not be exercised for a fraction of a Share. -6- 7 An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 8(b) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 12 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Employment or Consulting Relationship. Upon termination of an Optionee's Continuous Status as an Employee or Consultant, other than upon the Optionee's death or Disability, the Optionee may exercise his or her Option, but only within such period of time as is specified in the Notice of Grant, and only to the extent that the Optionee was entitled to exercise it at the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant). In the absence of a specified time in the Notice of Grant, the Option shall remain exercisable for three (3) months following the Optionee's termination. In the case of an Incentive Stock Option, such period of time for exercise shall not exceed three (3) months from the date of termination. If, on the date of termination, the Optionee is not entitled to exercise the Optionee's entire Option, the Shares covered by the unexercisable portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. Notwithstanding the above, in the event of an Optionee's change in status from Consultant to Employee or Employee to Consultant, an Optionee's Continuous Status as an Employee or Consultant shall not automatically terminate solely as a result of such change in status. However, in such event, an Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option three months and one day following such change of status. (c) Disability of Optionee. In the event of termination of an Optionee's Continuous Status as an Employee or Consultant as a result of his or her Disability, the Optionee may, but only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the term of his or her Option as set forth in the Option Agreement), exercise the Option to the extent the Optionee was otherwise entitled to exercise it on the date of -7- 8 such termination. To the extent that the Optionee is not entitled to exercise the Option on the date of termination, or if the Optionee does not exercise the Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Shares covered by the Option shall revert to the Plan. (d) Death of Optionee. In the event of the death of an Optionee, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who has acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Optionee was entitled to exercise the Option at the date of death. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If, after death, the Optionee's estate or a person who acquires the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. (f) Rule 16b-3. Options granted to persons subject to Section 16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. 10. Stock Withholding to Satisfy Withholding Tax Obligations. At the discretion of the Administrator, Optionees may satisfy withholding obligations as provided in this Section 10. When an Optionee incurs tax liability in connection with an Option which tax liability is subject to tax withholding under applicable tax laws, and the Optionee is obligated to pay the Company an amount required to be withheld under applicable tax laws, the Optionee may satisfy the withholding tax obligation by electing to have the Company withhold from the Shares to be issued upon exercise of the Option that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined (the "Tax Date"). All elections by an Optionee to have Shares withheld for this purpose shall be made in writing in a form acceptable to the Administrator and shall be subject to the following restrictions: (a) the election must be made on or prior to the applicable Tax Date; (b) once made, the election shall be irrevocable as to the particular Shares of the Option as to which the election is made; -8- 9 (c) all elections shall be subject to the consent or disapproval of the Administrator. In the event the election to have Shares withheld is made by an Optionee and the Tax Date is deferred under Section 83 of the Code because no election is filed under Section 83(b) of the Code, the Optionee shall receive the full number of Shares with respect to which the Option is exercised but such Optionee shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date. 11. Transferability of Options and Rights. Incentive Stock Options granted under the Plan shall not be transferable otherwise than by will or the laws of descent and distribution, or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. Incentive Stock Options shall be exercisable during the lifetime of the Employee only by the Employee or by the Employee's guardian or legal representative (unless such exercise would disqualify it as an Incentive Stock Option). Unless the Committee otherwise provides in an agreement regarding the award of non-qualified stock options or rights (not granted in connection with an Incentive Stock Option), non-qualified stock options or rights (not granted in connection with Incentive Stock Options) may be transferred by the holder to Permitted Transferees, provided that there cannot be any consideration for the transfer. 12. Adjustments Upon Changes in Capitalization or Merger. (a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide -9- 10 for an Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option will terminate immediately prior to the consummation of such proposed action. (c) Acquisition Events (1) Consequences of Acquisition Events. Upon the occurrence of an Acquisition Event (as defined below), or the execution by the Company of any agreement with respect to an Acquisition Event, the Board shall take any one or more of the following actions with respect to then outstanding Options: (i) provide that outstanding Options shall be assumed or equivalent Options shall be substituted by the acquiring or succeeding entity (or an affiliate thereof), provided that any such Options substituted for Incentive Stock Options shall satisfy, in the determination of the Board, the requirements of Section 424(a) of the Code; (ii) upon written notice to the Optionees, provide that all then unexercised Options will become exercisable in full as of a specified date (the "Acceleration Date") prior to the Acquisition Event and will terminate immediately prior to the consummation of such Acquisition Event, except to the extent exercised by the Optionees between the Acceleration Date and the consummation of the Acquisition Event or (iii) in the event of an Acquisition Event under the terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share of Common Stock surrendered pursuant to such Acquisition Event (the "Acquisition Price") provide that all outstanding Options shall terminate upon consummation of such Acquisition Event and each Optionee shall receive, in exchange therefor, a cash payment equal to the amount (if any) by which (A) the Acquisition Price multiplied by the number of shares of Common Stock subject to such outstanding Options (whether or not then exercisable), exceeds (B) the aggregate exercise price of such Options. An "Acquisition Event" shall mean: (a) any merger or consolidation which results in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or acquiring entity) less than 60% of the combined voting power of the voting securities of the Company or such surviving or acquiring entity outstanding immediately after such merger or consolidation; (b) any sale of all or substantially all of the assets of the Company; (c) the complete liquidation of the Company; or (d) the acquisition of "beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities (other than through a merger or consolidation or an acquisition of securities directly from the Company) by any "person", as such term is used in Sections 13 (d) and 14 (d) of the Exchange Act other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any entity owned directly or indirectly by the stockholders of the Company in substantially the same proportion as their ownership of stock of the Company. -10- 11 (2) Assumption of Options Upon Certain Events. The Board may grant options under the Plan in substitution for stock and stock-based awards held by employees of another entity who become Employees as a result of a merger or consolidation of the employing entity with the Company or the acquisition by the Company of property or stock of the employing entity. The substitute options shall be granted on such terms and conditions as the Board considers appropriate in the circumstances. 13. Time of Granting Options. The date of grant of an Option shall, for all purposes, be the date on which the Administrator makes the determination granting such Option, or such other date as is determined by the Administrator. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant. 14. Amendment and Termination of the Plan. (a) Amendment and Termination. The Board may at any time amend, alter, suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act or with Section 422 of the Code (or any other applicable law or regulation, including the requirements of any stock exchange or national market system upon which the Common Stock is then listed), the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required. (b) Effect of Amendment or Termination. Any such amendment or termination of the Plan shall not affect Options already granted, and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company. 15. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange or national market system upon which the Common Stock is then listed or traded, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such -11- 12 Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. 16. Reservation of Shares. The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 17. Agreements. Options shall be evidenced by written agreements in such form as the Administrator shall approve from time to time. 18. Stockholder Approval. Continuance of the Plan shall be subject to approval by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such stockholder approval shall be obtained in the degree and manner required under applicable state and federal law and the rules of any stock exchange or national market system upon which the Common Stock is then listed or traded. -12- 13 PEGASUS SYSTEMS, INC. 1997 STOCK OPTION PLAN NOTICE OF GRANT Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Notice of Grant. [Optionee's Name and Address] ----------------- You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Stock Option Agreement, as follows: Grant Number --------------------------- Date of Grant --------------------------- Vesting Commencement Date --------------------------- Exercise Price per Share $ --------------------------- Total Number of Shares Granted --------------------------- Total Exercise Price $ --------------------------- Type of Option: Incentive Stock Option ---- Nonstatutory Stock Option ---- Term/Expiration Date: --------------------------- Vesting Schedule: This Option may be exercised, in whole or in part, in accordance with the following schedule: ------------------------------- -13- 14 Termination Period: This Option may be exercised for three (3) months after termination of employment or consulting relationship, or such longer period as may be applicable upon death or Disability of Optionee as provided in the Plan, but in no event later than the Term/Expiration Date as provided above. -14- 15 PEGASUS SYSTEMS, INC. 1997 STOCK OPTION PLAN OPTION AGREEMENT 1. Grant of Option. Pegasus Systems, Inc. (the "Company"), hereby grants to the Optionee (the "Optionee") named in the Notice of Grant, an option (the "Option") to purchase the total number of shares of Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price") subject to the terms, definitions and provisions of the 1997 Stock Option Plan (the "Plan") adopted by the Company, which is incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement. If designated in the Notice of Grant as an Incentive Stock Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. However, if this Option is intended to be an Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as a Nonstatutory Stock Option ("NSO"). 2. Exercise of Option. This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and with the provisions of Section 9 of the Plan as follows: (i) Right to Exercise. (a) This Option may not be exercised for a fraction of a Share. (b) In the event of Optionee's death, disability or other termination of the Optionee's Continuous Status as an Employee or Consultant, the exercisability of the Option is governed by Sections 6, 7 and 8 below, subject to the limitation contained in subsection 2(i)(c). (c) In no event may this Option be exercised after the date of expiration of the term of this Option as set forth in the Notice of Grant. (ii) Method of Exercise. This Option shall be exercisable by written notice (in the form attached as Exhibit A) which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder's investment intent with respect to such shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan. Such written notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by the Exercise Price. -1- 16 No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange or national market system upon which the Common Stock is then listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares. 3. Optionee's Representations. In the event the Shares purchasable pursuant to the exercise of this Option have not been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his or her Investment Representation Statement in the form attached hereto as Exhibit B. 4. Lock-Up Period. Optionee hereby agrees that if so requested by the Company or any representative of the underwriters (the "Managing Underwriter") in connection with any registration of the offering of any securities of the Company under the Securities Act, Optionee shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period (or such longer period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company) (the "Market Standoff Period") following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, that such restriction shall apply only to the first registration statement of the Company to become effective under the Securities Act that includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period. 5. Method of Payment. Payment of the Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee: (i) cash; or (ii) check; or (iii) surrender of other shares of Common Stock of the Company which (A) in the case of Shares acquired pursuant to the exercise of a Company option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the Exercise Price of the Shares as to which the Option is being exercised; or (iv) to the extent authorized by the Company, delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the Exercise Price. -2- 17 6. Restrictions on Exercise. This Option may not be exercised if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the Federal Reserve Board. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. 7. Termination of Relationship. In the event an Optionee's Continuous Status as an Employee or Consultant terminates, Optionee may, to the extent otherwise so entitled at the date of such termination (the "Termination Date"), exercise this Option during the Termination Period set out in the Notice of Grant. To the extent that Optionee was not entitled to exercise this Option at the date of such termination, or if Optionee does not exercise this Option within the time specified herein, the Option shall terminate. 8. Disability of Optionee. Notwithstanding the provisions of Section 6 above, in the event of termination of an Optionee's Continuous Status as an Employee or Consultant as a result of his or her Disability, Optionee may, but only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Notice of Grant) exercise the Option to the extent otherwise entitled to exercise it at the date of such termination. To the extent that Optionee is not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. 9. Death of Optionee. In the event of termination of Optionee's Continuous Status as an Employee or Consultant as a result of the death of Optionee, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the date of expiration of the term of this Option as set forth in Section 10 below), by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent the Optionee could exercise the Option at the date of death. 10. Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by Optionee. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 11. Term of Option. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option. The limitations set out in Section 7 of the Plan regarding Options designated as Incentive Stock Options and Options granted to more than ten percent (10%) stockholders shall apply to this Option. -3- 18 12. Tax Consequences. Set forth below is a brief summary as of the date of this Option of some of the federal tax consequences of exercise of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (i) Exercise of an ISO. If this Option qualifies as an ISO, there will be no regular federal income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject the Optionee to the alternative minimum tax in the year of exercise. (ii) Exercise of an NSO. There may be a regular federal income tax liability upon the exercise of an NSO. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Optionee is an Employee, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. (iii) Disposition of Shares. In the case of an NSO, if Shares are held for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. In the case of an ISO, if Shares transferred pursuant to the Option are held for at least one year after exercise and are disposed of at least two years after the Date of Grant, any gain realized on disposition of the Shares will also be treated as long-term capital gain for federal income tax purposes. If Shares purchased under an ISO are disposed of within such one-year period or within two years after the Date of Grant, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the difference between the Exercise Price and the lesser of (1) the Fair Market Value of the Shares on the date of exercise, or (2) the sale price of the Shares. (iv) Notice of Disqualifying Disposition of ISO Shares. If the Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (1) the date two years after the Date of Grant, or (2) the date one year after the date of exercise, the Optionee shall immediately notify the Company in writing of such disposition. Optionee agrees that Optionee may be subject to income tax withholding by the Company on the compensation income recognized by the Optionee. -4- 19 Pegasus Systems, Inc. By: --------------------------------- OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S 1997 STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE. Optionee acknowledges receipt of a copy of the Plan and represents that he is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option. Optionee further agrees to notify the Company upon any change in the residence address indicated below. Dated: ---------------------------- ---------------------------------- Optionee Residence Address: ---------------------------------- ---------------------------------- -5- 20 CONSENT OF SPOUSE The undersigned spouse of Optionee has read and hereby approves the terms and conditions of the Plan and this Option Agreement. In consideration of the Company's granting his or her spouse the right to purchase Shares as set forth in the Plan and this Option Agreement, the undersigned hereby agrees to be irrevocably bound by the terms and conditions of the Plan and this Option Agreement and further agrees that any community property interest shall be similarly bound. The undersigned hereby appoints the undersigned's spouse as attorney-in-fact for the undersigned with respect to any amendment or exercise of rights under the Plan or this Option Agreement. ------------------------------- Spouse of Optionee -6- 21 EXHIBIT A PEGASUS SYSTEMS, INC. 1997 STOCK OPTION PLAN EXERCISE NOTICE Pegasus Systems, Inc. 3811 Turtle Creek Boulevard Suite 1100 Dallas, Texas 75219 Attention: Secretary 1. Exercise of Option. Effective as of today, ___________, 19__, the undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase _________ shares of the Common Stock (the "Shares") of Pegasus Systems, Inc. (the "Company") under and pursuant to the 1997 Stock Option Plan, as amended (the "Plan") and the [ ] Incentive [ ] Nonstatutory Stock Option Agreement dated ________, 19___ (the "Stock Option Agreement"). 2. Representations of Optionee. Optionee acknowledges that Optionee has received, read and understood the Plan and the Stock Option Agreement and agrees to abide by and be bound by their terms and conditions. 3. Rights as Stockholder. Until the stock certificate evidencing such Shares is issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 12 of the Plan. Optionee shall enjoy rights as a stockholder until such time as Optionee disposes of the Shares or the Company and/or its assignee(s) exercises the Right of First Refusal hereunder. Upon such exercise, Optionee shall have no further rights as a holder of the Shares so purchased except the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Optionee shall forthwith cause the certificate(s) evidencing the Shares so purchased to be surrendered to the Company for transfer or cancellation. 4. Company's Right of First Refusal. Before any Shares held by Optionee or any transferee (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section (the "Right of First Refusal"). 22 (a) Notice of Proposed Transfer. The Holder of the Shares shall deliver to the Company a written notice (the "Notice") stating: (i) the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee (the "Proposed Transferee"); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s). (b) Exercise of Right of First Refusal. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below. (c) Purchase Price. The purchase price (the "Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Administrator in good faith. (d) Payment. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), in cash, by check, by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within 30 days after receipt of the Notice or in the manner and at the times set forth in the Notice. (e) Holder's Right to Transfer. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within 120 days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (f) Exception for Certain Family Transfers. Anything to the contrary contained in this Section notwithstanding, the transfer of any or all of the Shares during the Optionee's lifetime or on the Optionee's death by will or intestacy to the Optionee's immediate family or a trust for the benefit of the Optionee's immediate family shall be exempt from the provisions of this Section. "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the -2- 23 Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section. (g) Termination of Right of First Refusal. The Right of First Refusal shall terminate upon the closing of the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended. 5. Tax Consultation. Optionee understands that Optionee may suffer adverse tax consequences as a result of Optionee's purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultants Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice. 6. Restrictive Legends and Stop-Transfer Orders. (a) Legends. Optionee understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by state or federal securities laws at the time of the issuance of the Shares: THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR THE ISSUER OF THE SHARES (THE "ISSUER") HAS RECEIVED AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE WITH THE ACT. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THE SHARES REPRESENTED HEREBY. -3- 24 (b) Stop-Transfer Notices. Optionee agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (c) Refusal to Transfer. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred. 7. Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Optionee and his or her heirs, executors, administrators, successors and assigns. 8. Interpretation. Any dispute regarding the interpretation of this Agreement shall be submitted by Optionee or by the Company forthwith to the Administrator of the Plan, which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator shall be final and binding on the Company and on Optionee. 9. Governing Law; Severability. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas excluding that body of law pertaining to conflicts of law. Should any provision of this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable. 10. Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States mail by certified mail, with postage and fees prepaid, addressed to the other party at its address as shown below beneath its signature, or to such other address as such party may designate in writing from time to time to the other party. 11. Further Instruments. The parties agree to execute such further instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement. 12. Delivery of Payment. Optionee herewith delivers to the Company the full Exercise Price for the Shares. 13. Lock-Up Period. Optionee hereby agrees that if so requested by the Company or any representative of the underwriters (the "Managing Underwriter") in connection with any registration of the offering of any securities of the Company under the Securities Act, Optionee shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period (or such -4- 25 longer period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company) (the "Market Standoff Period") following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, that such restriction shall apply only to the first registration statement of the Company to become effective under the Securities Act that includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period. 14. Entire Agreement. The Plan, the Notice of Grant, and the Stock Option Agreement are incorporated herein by reference. This Agreement, the Plan, the Notice of Grant, the Stock Option Agreement and the Investment Representation Statement (if applicable) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof. Submitted by: Accepted by: OPTIONEE: Pegasus Systems, Inc. By: ------------------------------ Its: --------------------------- ----------------------------- (Signature) Address: --------------------------- --------------------------- -5- 26 EXHIBIT B INVESTMENT REPRESENTATION STATEMENT OPTIONEE : COMPANY : SECURITY : COMMON STOCK AMOUNT : DATE : In connection with the purchase of the above-listed Securities, the undersigned Optionee represents to the Company the following: (a) Optionee is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Optionee is acquiring these Securities for investment for Optionee's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). (b) Optionee acknowledges and understands that the Securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Optionee's investment intent as expressed herein. In this connection, Optionee understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Optionee's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future. Optionee further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Optionee further acknowledges and understands that the Company is under no obligation to register the Securities. Optionee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company and any other legend required under then applicable state or federal securities laws. (c) Optionee is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly from the issuer thereof, in a non-public offering subject 27 to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant of the Option to the Optionee, the exercise will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Exchange Act); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of Securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable. In the event that the Company does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than two years after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than three years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above. (d) Optionee further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A under the Securities Act, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Optionee understands that no assurances can be given that any such other registration exemption will be available in such event. Signature of Optionee: --------------------------------- Date: , 19 --------------------- --- -2-
1 EXHIBIT 10.7 AMENDMENT TO WORLD TRAVEL PAYMENT TRAVEL AGENCY COMMISSION SETTLEMENT PROGRAM CLIENT SERVICE AGREEMENT This Amendment to the World Travel Payment Travel Agency Commission Settlement Program Client Service Agreement dated as of June 19, 1993 ("Amendment") between THE HOTEL CLEARING CORPORATION ("Client") and CITIBANK, N.A. (NEW YORK) ("Citibank"). WITNESSETH: WHEREAS, Citibank and Client entered into a WORLD TRAVEL PAYMENT TRAVEL AGENCY COMMISSION SETTLEMENT PROGRAM CLIENT SERVICE AGREEMENT dated December 9, 1991 (the "Service Agreement"); and WHEREAS, certain hotel organizations that comprise the stockholders of Client (collectively, the "Members") provide information to Client regarding commission payments owed by the Members to travel industry suppliers outside of the United States ("Non-domestic Payments") under the Members' individual agreements with Client; and WHEREAS, Client in turn transmits Member-provided information to Citibank for processing through its Travel Agency Commission Settlement Program (the "Program"); and WHEREAS, Client and Citibank desire to expand the scope of transactions governed by the terms of the Service Agreement and make certain other changes to the Service Agreement; and WHEREAS, in exchange for such changes to the Service Agreement, Citibank is willing to make certain financial accommodations to Client, provided that the Members enter into agreements with Citibank requiring minimum levels of processing activity with respect to commission payments to travel suppliers located within the United States ("Domestic Payments") to be supplied by the Members ("Member Minimum Volume") to Citibank through Client (collectively, the "Member Volume Agreements"). NOW, THEREFORE, in exchange for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties agree that the Service Agreement is amended as follows: 1. Definitions. For purposes of this Amendment, the following definitions shall apply: (a) "HCC Minimum Volume" shall mean the minimum annual volume of domestic Chargeable Transactions required to be transmitted by Client to Citibank for processing pursuant to the Service Agreement and this Amendment as provided in Schedule A. (b) "HCC Deficit" shall mean the negative difference, if any, between the HCC Minimum Volume and the actual number of domestic Chargeable Transactions transmitted by Client to Citibank for processing pursuant to the Service Agreement and this Amendment. (c) "Member Deficit" shall mean the negative difference, if any, between the Member Minimum Volume and the actual number of domestic Chargeable Transactions transmitted by any Member through Client for processing pursuant to the Service Agreement and this Amendment. 1 2 (d) "HCC Deficit Payment" shall mean the amount to be paid or paid by Client to Citibank, in the event of an HCC Deficit, being equal to the HCC Deficit multiplied by US sixteen cents (US $.16). (e) "Member Deficit Payment" shall mean the amount to be paid or paid by Member to Citibank, in the event of a Member Deficit, being equal to the Member Deficit multiplied by US sixteen cents (US $.16). (f) "Other Service Programs" shall mean those agreements existing now or in the future between a Member and Citibank to process Domestic Payments. 2. Commitment Period. The Commitment Period under the Service Agreement is extended to December 31, 1998. Thereafter, the Commitment Period may be renewed as provided in Section 15(h) of the Service Agreement. During such Commitment Period and any renewal thereof, Client shall use Citibank as its exclusive vendor for the processing of Commission Payments to travel agents under contract with HCC, including both Domestic Payments and Non-domestic Payments. 3. Remittance. The Exhibit "A" attached hereto shall supersede the heretofore existing Exhibit "A" to the Service Agreement as of the date of this Amendment. As of the date of this Amendment, Client shall pay Citibank according to the terms of the attached Exhibit "A" for Domestic Payments and Non-domestic Payments for which information is transmitted on or after the date of this Amendment. Client shall pay Citibank according to the terms of Exhibit "A" in effect prior to the date of this Amendment for Non-domestic Payments for which information is transmitted prior to the date of this Amendment. 4. Special Services. Client may request, in writing, that Citibank perform special programming, system changes, enhancements, developments, customizations or special processing, provided, however, that Client shall be responsible for all developmental and processing costs associated with any such work. Client and Citibank shall negotiate in good faith and agree in writing upon the price, schedule, payment and other terms for such work, provided, however, that Citibank shall not be obligated to perform work that Citibank deems to be impracticable or not in the best interests of the Program. 5. Minimum Volume. (a) The start date for purposes of determining the number of Chargeable Transactions to be processed by Citibank on behalf of Client and its Members shall be the earlier of the first day Citibank processes a Domestic Payment or November 1, 1993. Client agrees to meet the HCC Minimum Volume set forth on Exhibit "A" hereto. Citibank and HCC hereby agree to dedicate the personnel and time necessary to perform their respective obligations for timely implementation of the system to begin live processing of Domestic Payments no later than November 1, 1993. In the event of an HCC Deficit, Citibank shall give written notice to Client of the amount and itemization (including each Member Deficit and excess information) and shall permit Client thirty (30) days within which to make an HCC Deficit Payment. In the event Client shall fail to make the HCC Deficit Payment within thirty (30) days of Client's receipt of Citibank's notice of the HCC Deficit Payment due and accompanying information as provided herein, Citibank may proceed to exercise its rights pursuant to the Member Volume Agreements to obtain Member Deficit Payments. Client shall receive a credit against any HCC Deficit for fees received by Citibank from Members for Other Service Programs. 2 3 (b) If Citibank collects Member Deficit Payments for any annual period that in the aggregate exceed the HCC Deficit, Citibank shall refund to HCC the excess amount. HCC's right to such refund shall not be transferable or assignable and shall terminate in the event of the corporate dissolution of HCC or HCC ceases doing business for any reason including, but not limited to, bankruptcy or insolvency, or a receiver or trustee is appointed to manage HCC's affairs, and such receiver or trustee is not discharged within sixty (60) days of appointment. 6. Form of Commission Payments. The existing text in Paragraph 5 of the Service Agreement is hereby designated as Paragraph 5(a) and the following is added as Paragraph 5(b) and Paragraph 5(c) respectively: (b) Notwithstanding the foregoing, all Domestic Payments and Non-domestic Payments in U.S. dollars, not sent by Electronic Transfer, will be sent by a corporate draft drawn on Citibank (for purposes of such U.S. dollar payments, the terms "Bank Check" or "Bank Checks" shall be deemed to refer to such corporate drafts, and the term "Drawee" shall be deemed to refer to Citibank). (c) In the event Client requests payment to be made by Electronic Transfer, such payments shall be made according to those Procedures (as defined in Paragraph 15(a) of this Agreement) detailing the processes, methods and practices designed to help ensure that transmissions, information, instructions, orders and requests for Electronic Transfers sent in the name of Client ("Electronic Transfer Instructions") are the authorized, unaltered and accurate Electronic Transfer Instructions of Client. The parties acknowledge certain inherent risks associated with transmitting Electronic Transfer Instructions. Client has reviewed the Procedures as they apply to Electronic Transfer Instructions and accepts them as appropriate. Provided Citibank has satisfied its obligations under the Procedures, Citibank may rely on such Electronic Transfer Instructions and shall not be responsible for the authorization, verification or accuracy of the information contained in an Electronic Transfer Instruction. In the event such Electronic Transfer Instruction contains errors or inaccuracies or requires changes to the extent not due to the negligence or willful misconduct of Citibank, Citibank shall have those remedies available to it as described in Paragraph 2 of this Agreement for Communications. For purposes of this Paragraph 5(c), the term "Citibank" shall include any of Citibank, N.A., its parent, subsidiaries, affiliates or branches providing services in connection with the Program. 7. Client Incentive. As an incentive to Client to reach the HCC Minimum Volume, Citibank shall make incentive payments to Client based on Domestic Payment processing volume according to the schedule attached hereto as Exhibit "B". 8. Citibank Incentive. As additional consideration for the benefits afforded HCC by this Amendment and the Service Agreement and Citibank's continued performance thereof, client shall pay to Citibank during the Commitment Period an amount equal to (i) 4.99% of the aggregate total of any dividend paid by Client to any Member or other stockholder of Client on or after the date of this Amendment and (ii) 4.99% of the aggregate total of any Participant Commissions (as defined in Client's unamended Participant Agreement with each of Client's common stockholders) paid on or after the date of this Amendment by Client to any Member or other stockholder. Client shall make this payment to Citibank prior to making any of the above-described payments to Members or stockholders. 9. Board Meetings. Citibank shall be entitled, but not obligated, to attend all meetings of Client's board of directors, and Client shall provide Citibank with complete copies of all board meeting minutes, commencing with the first board meeting after the execution of this Amendment. Client shall notify Citibank of all board 3 4 meetings in the same manner as Client notifies Client's directors. Citibank's presence shall not be required for a quorum or other similar purposes. 10. Financial Accommodation. In exchange for the obligations and undertakings of Client under this Amendment, Citibank shall pay to Client the sum of Two Million U.S. Dollars (U.S.$2,000,000.00) not later than seven (7) business days after the execution of this Amendment by Client and the execution of Member Volume Agreements by all Members existing as of the date of this Amendment. In the event Citibank fails to make such payment, this Amendment shall be terminated and of no force or effect. 12. Miscellaneous. The terms used herein shaH have the same meaning as in the Service Agreement unless the context of this Amendment specifically requires otherwise. The Service Agreement is hereby revised to be consistent with this Amendment. Except as specifically amended hereby, the Service Agreement shall continue in full force and effect unchanged. THE HOTEL CLEARING CORPORATION CITIBANK, N.A. (NEW YORK) By:/s/ JOHN F. DAVIS, III By: --------------------------- --------------------------- Printed Name Printed Name and Title: John F. Davis, III and Title: -------------------- -------------------- President -------------------- -------------------- 5 EXHIBIT "A" This Exhibit contains certain specifications of the World Travel Payment Travel Agency Commission Settlement Program ("Program") which Citibank, N.A. (New York) ("Citibank") will provide to The Hotel Clearing Corporation ("Client"). 1. Remitting Currency: U.S. Dollars 2. Payment Cycle: On or before the 13th business day after the end of the prior month's billing period, Client (or, in lieu of Client, any Member) shall remit via wire transfer to Citibank funds in the amount equal to the total monthly commission amount to be paid and Citibank shall at the option of each payee (where possible), initiate automated clearinghouse transactions, electronic funds transfers, or issuance of checks (in the form of checks written on a Citibank account and prepared by Citibank) on or before the 15th business day after the end of the prior month's billing period to each travel agent for the commission amount set forth in the statement. Also on or before such 15th business day Citibank shall remit via wire transfer to Client all fees due to Client as set forth on commission statements. This procedure and schedule shall be followed or as set forth in agreed-upon operating specifications. 3. Fee Schedule - Non-domestic Payments: Client shall pay Citibank a Transaction Fee for each Chargeable Transaction processed by Citibank pursuant to this Agreement. Such Transaction Fee shall be the greater of (i) US $0.30 for each Chargeable Transaction or (ii) US $3.00 for each statement sent to a travel agency detailing the items to which the Commission Payment applies in accordance with the Procedures ("Settlement Statement"). For purposes of this calculation, a "Chargeable Transaction" shall refer to a hotel reservation for which a Commission Payment is due to a travel agency and which is reported on a Settlement Statement sent by Citibank to the travel agency pursuant to this Agreement, including any adjustments which result in a change in the amount of the Commission Payment. "Chargeable Transactions" shall not include No Shows, Cancellations or Non-Commissionable Stays, as such terms are defined in the Procedures. Client shall pay Transaction Fees with its remittance for the corresponding Commission Payments. 4. Fee Schedule - Domestic Payments: Client shall pay Citibank fees for Domestic Payments per the following schedule: <TABLE> <S> <C> o Payment Preparation Fee (includes statement, forms, envelopes, check stock and check preparation) $.50/Payment o Chargeable Transaction Charge $.15/Transaction For purposes of this calculation, a "Chargeable Transaction" shall refer to a hotel reservation for which a Commission Payment is due to a travel agency and which is reported on a Settlement Statement sent by Citibank to the travel agency pursuant to this Agreement, including any adjustments which result in a change in the amount of the Commission Payment. "Chargeable Transactions" shall not include No Shows, Cancellations or Non-Commissionable Stays, as such terms are defined in the Procedures. Client shall pay Transaction Fees with its remittance for the corresponding Commission Payments. o Non-Chargeable Transaction Charge (Non-Chargeable Transaction Ratio to </TABLE> 6 <TABLE> <S> <C> <C> Total Transactions less than 50%) No Charge o Non-Chargeable Transaction Charge (Non-Chargeable Transaction Ratio to Total Transactions equal to or greater than 50%) $.075/Transaction o Mail Expenses At Cost o EFT (ACH) Payments (with Payment Advice) $.25/Payment o EFT (ACH) Payments (without Payment Advice) $.15/Payment o Diskette Production $10.00/Diskette o Mail Inserts $4.00/Thousand Inserts o Special Reports/Special Processing Runs o Test Market Module - Programming & Development $25,000 - Processing Runs (each cycle) $ 1,000 o Electronic Media Module - Programming & Development $18,000 o Fee Billing Module - Programming & Development $30,000 o VAT Tax Module - Programming & Development $15,000 o Customer Service System Input Module - Programming & Development $17,000 5. Method of Payment: ACH Debit to Client's Account 6. Client Minimum Volumes: 11/1/93 to 10/31/94 3,500,000 Chargeable Transactions 11/1/94 to 10/31/95 4,500,000 Chargeable Transactions 11/1/95 to 10/31/96 5,500,000 Chargeable Transactions 11/1/96 to 10/31/97 6,000,000 Chargeable Transactions 11/1/97 to 10/31/98 6,000,000 Chargeable Transactions </TABLE> Client's Initials Citibank's initials ------------------------- ------------------------- 7 EXHIBIT "B" INCENTIVE PAYMENTS: (a) Client shall pay to Citibank such fees and remittances as required by Exhibit "A." (b) Until this Agreement is terminated Citibank shall pay Client an incentive once per calendar quarter based upon Domestic Payments issued calculated as follows: (i) Multiply Client's average daily ending balance during the prior calendar quarter, net of any applicable reserve requirements, processing fees and debits for Commission Payments presented for payment, of the funds paid by Client as detailed in the Agreement for such type of payment, times (ii) 50%, times (iii) the average (calculated by counting actual elapsed days) of the daily quoted three month U.S. Treasury Bill (Secondary Market) Rate during such quarter; provided, however, if such calculation results in a negative number, Client shall pay Citibank an amount equal to such number multiplied by -1, which amount shall be payable by way of set-off against subsequent incentive payments Citibank may owe Client under this Agreement, and if this Agreement is subsequently terminated or Client is no longer entitled to incentive payments under this Agreement before such amount can be fully paid, then the portion of such amount not then satisfied shall be payable by direct payment from Client promptly upon Citibank's invoice therefor. Should, on any particular day, Client's ending balance of funds paid by Client as detailed in the Agreement, net of any reserve requirements, handling fees and debits for Commission Payments, be a negative number, then Client shall pay Citibank, in addition to any amounts owed pursuant to the preceding sentence, an amount equal to such number multiplied by -1, divided by 365 and then multiplied by the base rate on corporate loans at large U.S. money center commercial banks, adjusted to a per-diem basis, as reported in the Wall Street Journal (or, if no longer provided therein, such financial publication that Citibank shall designate) on the day such payment was due and payable. Such amount shall be payable by direct payment from Client promptly upon Citibank's invoice therefor. (c) To qualify for an incentive payment, Client must maintain a minimum annualized volume of Domestic Payments of $40 million. Client Initials Citibank initials ------------------------- ------------------------- 8 WORLD TRAVEL PAYMENT(SM) TRAVEL AGENCY COMMISSION SETTLEMENT PROGRAM CLIENT SERVICE AGREEMENT This is an agreement dated December 9, 1991 ("Agreement") by and between THE HOTEL CLEARING CORPORATION ("Client"), a Corporation organized under the laws of Delaware with its central office at Suite 1910, 3811 Turtle Creek Boulevard, Dallas Texas 75219, and CITIBANK N.A. (NEW YORK) ("Citibank"), a national banking association with its central office at 399 Park Avenue, New York, New York 10043, U.S.A. 1. Introduction. Citibank has developed a Travel Agency Commission Settlement Program (the "Program") under which Citibank has commission payments sent on behalf of travel suppliers (such payments are referred to collectively as the "Commission Payments") in amounts and made payable to such travel agencies located outside of the United States and its territories as the Program participant may elect. Client desires to participate in the Program and Citibank is willing to make such Program available to Client upon the terms and conditions set forth below. Therefore, for valuable consideration received, the parties agree as set forth in this Agreement. 2. Communications. Citibank, Citicorp and its subsidiaries will rely upon the worksheets, information, communications, instructions, orders and requests (individually referred to as a "Communication") they receive from Client. Consequently, Client will be presumed conclusively to have properly authorized all such Communications and the persons supplying such Communications. Client agrees that Citibank will not be responsible for the verification and accuracy of the information contained in a Communication. Citibank, Citicorp or any of its subsidiaries may charge to Client and Client will pay upon demand, any cost incurred by any of them in good faith arising out of its reliance upon a Communication should such Communication contain errors or inaccuracies or require changes to the extent not due to the negligence or willful misconduct of Citibank, Citicorp or any of its subsidiaries. This charge will be in addition to any other rights or remedies Citibank, Citicorp or any of its subsidiaries may have under this Agreement, at law or in equity. Citibank, Citicorp and its subsidiaries' books and records will be prima facie evidence (subject to any party's right to rebut such evidence) of such Communication, unless one of them receives the Communication in sufficient time to act on it via tested telex or in a writing with the original signature of one of Client's officers in which case such telex or writing will be the evidence of the Communication. 3. Remittance. (a) Client will pay Citibank for each Commission Payment Client instructs Citibank to send hereunder, plus the Transaction Fees associated with such Commission Payment as listed in the Client Profile (the "Profile") attached to this Agreement as Exhibit "A". Client will do this by (i) remitting to Citibank the total amount of such Commission Payment and Transaction Fees, (ii) making this payment in the Remitting Currency listed in the Profile, and (iii) having this payment sent to such accounts as Citibank may designate from time-to-time. Unless otherwise agreed in writing by Citibank, Client shall make each payment hereunder by an electronic wire transfer that provides Citibank with final settlement of good funds on the day Citibank receives the transfer. If, in Client's instructions to Citibank regarding such Commission Payment, Client has described the total amount of such Commission Payment in currencies other than the Remitting Currency, Client shall make its payment for such Commission Payment in the Remitting Currency equivalent at the exchange rates Citibank shall then determine for such payment. Commencing after the Adjustment Date set forth in the Profile, once each calendar year Citibank may adjust the Transaction Fees described in the Profile, which adjustment will become effective no sooner than ninety (90) days after Client's receipt of written notice of such adjustment. Increases in the -1- 9 Transaction Fees shall be limited as follows: (i) In the event of increases in bank charges, taxes, postage, telecommunication fees or other costs or expenses incurred by Citibank or assessed to Citibank by third parties in the course of performing services hereunder, the Transaction Fees shall be increased correspondingly, such increases to be in good faith and subject to verification by Client; (ii) increases in the Transaction Fees for any reason under the reasonable control of Citibank shall be limited to the percentage increase in the Consumer Price Index ("CPI") in the year of the Transaction Fee increase over the CPI for the prior year. For purposes of this Agreement, the applicable CPI shall be the Consumer Price Index, Chicago, Illinois /NY Indiana, all items, 1982-84=100, all urban consumers, as published by the Bureau of Labor Statistics of the United States government, or, if such CPI is no longer published, a substantially similar index for all metropolitan areas in the U.S. for the period in question. (b) Client will reimburse Citibank for any bank charges, fees and taxes (excluding those taxes based on Citibank's net income and those charges and fees incurred as a result of Citibank, Citicorp or its subsidiaries' negligence or misconduct) imposed on Citibank, Citicorp or any of its subsidiaries in the course of its proper execution of the services to be provided hereunder for (i) any Commission Payment sent, stopped or recalled hereunder, or (ii) any remittance sent by Client, in the event such charges are enacted or initially imposed after the date of this Agreement (collectively, the "New Charges"). Citibank shall promptly notify Client of such New Charges and Client shall have thirty (30) days after the date of such notice to notify Citibank that it will not be responsible for the New Charges. Client's failure to so notify Citibank of its rejection of the New Charges shall be deemed Client's agreement to reimburse Citibank for New Charges incurred after Citibank's notice to Client. Citibank shall be responsible for any New Charges incurred prior to its notice to Client, provided, however, that Citibank may suspend the performance of any services that would result in imposition of the New Charges until the earlier of Client's notification of acceptance or the expiration of such thirty (30) day period. All amounts due to Citibank hereunder shall be payable to Citibank immediately upon Citibank's demand for payment. (c) In the event the Client fails to make any payment as required in this Agreement, Citibank may, at its option and in addition to any other rights or remedies it may have, (i) stop payment on or recall any Commission Payment for which Client owes such payment or (ii) elect not to send or have sent out any further Commission Payments unless and until Client makes such payment. Citibank shall promptly notify Client should Citibank exercise any of its rights under this Paragraph 3(c). 4. Commission Payment Currency. Citibank will have Commission Payments sent under this Agreement in the currency which Client has requested if it is then available under the Program or, if not then available, in a currency which is then available and which Citibank believes in good faith would be preferable to the Commission Payment's beneficiary. For each Commission Payment being sent in a currency other than the Remitting Currency, Citibank will determine the non-Remitting Currency equivalent of the amount of such Commission Payment by using exchange rates Citibank determines in good faith for such Commission Payment that day. 5. Form of Commission Payments. The Commission Payments will be sent by bank check (individually referred to as a "Bank Check") drawn on Citibank branches, affiliates or correspondents (the branch or entity on which a Bank Check is drawn being a "Drawee"). However, at Client's option, Commission Payments will be sent by electronic transfer (individually referred to as an "Electronic Transfer") sent to a designated account at a depository financial institution (the "Receiving Bank"), but only to the extent Citibank has made Electronic Transfers available to Client under the Program. Citibank will determine, at its sole discretion using its professional skill and judgment, the form and format of each Bank Check and Electronic Transfer and will select the Citicorp subsidiary which will use its customary procedures to send each Bank Check and Electronic -2- 10 Transfer in accordance with this Agreement. As of the date of this Agreement, the only form of Electronic Transfers available to the Client under the Program is ACH credit transfers. 6. Sending Commission Payments. Citibank will cause the Commission Payments referred to in Paragraph 4 above to be sent in accordance with the Procedures and as Client has then instructed, provided: (a) such instruction, in the form of Commission Settlement Worksheets or as otherwise permitted by such Procedures, complies with all requirements of such Procedures, and (b) Citibank could confirm its receipt of payment for such Commission Payments in immediately available funds as required under this Agreement; but provided further that Citibank may elect to have any such Commission Payment sent even if part or all of the foregoing have not been satisfied. For purposes of this Agreement, a Commission Payment will be deemed sent when the applicable Citicorp subsidiary has completed, signed and mailed or otherwise sent out the applicable Bank check, or, in the case of an Electronic Transfer, when the applicable Citicorp subsidiary has transmitted instructions to a third party financial institution for the transfer or credit of funds, which, if properly executed, would electronically transfer such funds to the third parry financial institution. 7. Cancellations and Stop Payments. (a) Client may cancel its instructions to Citibank to send a Commission Payment provided Citibank or its designated affiliate receives from Client notice of such cancellation in sufficient time for Citibank and its designated affiliate to act thereon prior to sending such Commission Payment. Citibank will then refund to Client any amounts (excluding those fees, charges and taxes payable by Client under Paragraph 3(b) above) Client paid to Citibank for such canceled Commission Payment, or apply such amounts towards payment of other Commission Payments as Client may direct. (b) Should Client desire to cancel its instructions to send any Commission Payment by Electronic Transfer but Citibank or its designated affiliate fails to receive notice of such cancellation in sufficient time for it and its designated affiliate to act thereon prior to such Commission Payment being sent, Citibank shall refund Client's payment for such Commission Payment at Citibank's option only and then only when Citibank is in possession of the funds transferred or to be transferred by such Electronic Transfer and has received satisfactory confirmation of effective recall or cancellation of the Electronic Transfer. (c) Citibank shall comply with Client's request or instruction to stop payment on any Commission Payment sent by Bank Check but only if (i) Citibank receives such request or instructions in sufficient time before such Bank Check is settled or presented for payment for Citibank, its designated affiliate and any applicable Drawee to act upon such request or instructions, (ii) such request including its from and format complies with the procedures and requirements set out in the Procedures referenced in Paragraph 15(a) below, (iii) such stop payment can be made in accordance with applicable laws and regulations, such Procedures, and the applicable Drawee's policies, procedures and requirements which are subject to change without notice from time-to-time, and (iv) Client provides Citibank, its designated affiliate and the applicable Drawee with such security as any of them may reasonably require. (d) Citibank, Drawees and their affiliates shall treat each of Client's cancellation, recall or stop payment requests or instructions as continuing in effect unless and until Citibank receives Client's notice to rescind such request or instruction in sufficient time for Citibank and any applicable Drawee to act thereon. All notices to rescind, including its form and format, must comply with Citibank and the applicable Drawee or Receiving Bank's then current policies, procedures and requirements. -3- 11 (e) All refunds for cancellations, recalls and stop payments shall be made at such exchange rate as Citibank shall then determine, less costs, charges and expenses payable by Client pursuant to Paragraph 3(b) above, and are subject to foreign currency regulations. Client shall repay to Citibank any credit Client may receive from Citibank in connection with any Commission Payment for which Client has requested a cancellation, recall or stop payment but which Citibank was unable to cancel, recall or stop payment on due to Client's misdescription of such Commission Payment. 8. Laws and Regulations. The rights and obligations of the Client, Citibank, Citicorp and its subsidiaries under this Agreement are subject to and limited by all applicable local laws and regulations. Because these laws and regulations are subject to change without notice, Citibank, Citicorp and its subsidiaries do not make any representations with respect to such laws and regulations and Citibank cannot be liable to Client for any violation of such laws or regulations other than those violations which Citibank knowingly commits not in connection with a stop payment on a Bank Check effected pursuant to this Agreement. Notwithstanding the terms of Paragraph 6 above, neither Citibank nor the applicable Citicorp subsidiary will be required to send a Commission Payment or perform any actions that would be necessary to send such Commission Payment (a) if it would be impossible or impracticable to do so due to circumstances beyond it's control which could not have been reasonably or practicably prevented in the exercise of due care, or (b) if it would cause a violation of any applicable law or regulation. Citibank will notify Client immediately if Citibank or the applicable Citicorp subsidiary will be unable to send such Commission Payment or perform any such action in a timely manner. 9. Indemnity. Client will indemnify Citibank, Citicorp and its subsidiaries against and hold them harmless from any loss, liability or expense (including reasonable attorneys' fees) arising from (i) Citibank's request to stop payment on or recall a Commission Payment in connection with exercising its rights under Paragraph 3(c)(i) above, (ii) any action taken by any of them in good faith compliance with or reliance upon Client's instructions, applications, information or requests, or (iii) any claim which directly or indirectly arose out of any representation by Client to any third party which is inconsistent with the services to be provided by Citibank as set forth herein. Citibank will indemnify Client, its subsidiaries and affiliates against and hold them harmless from any loss, liability or expense (including reasonable attorneys' fees) arising from any claim which directly or indirectly arose out of any representation by Citibank to any third party which is inconsistent with the services to be provided by Citibank as set forth herein. However, in no event will either party hereto be liable to the other party for loss of good will or for special, indirect, incidental or consequential damages, regardless of whether any party has been advised of the possibility of such damages. 10. Liability. Citibank, at its expense, will quickly and expeditiously correct any errors in the performance of its obligations hereunder to the extent due to its negligence or misconduct. Client will promptly notify Citibank of the error as soon as the error first comes to Client's attention. If Client makes the notification orally, Client must send a written confirmation to Citibank within five (5) days. If Client fails to provide notification as and when aforesaid, Citibank will correct such error as provided above but only to such extent as would have been necessary had Client properly provided such notification. However, neither Citibank nor any Citicorp subsidiary, will be responsible for any errors, delays, mutilations, interruption, loss or non-performance due to events beyond its direct control which could not have been reasonably or practicably prevented in the exercise of due care, or due to any compliance with local banking practices or the laws, rules and regulations of any industry association, convention, clearing house, jurisdiction or governmental authority. 11. Trademarks; Advertising. Citibank will not use Client or any of its affiliates' names, trademarks or service marks without Client's prior written approval. Client will neither use the name, trademarks and service marks of Citicorp or any subsidiary of Citicorp nor advertise or promote the Program without Citibank's prior written approval. However, either party or any of their affiliates may use either party's name and address in any directory, listing, advertisement or promotional -4- 12 material to indicate in an accurate and non-misleading manner that Client has subscribed to the Program and is sending Commission Payments thereunder. 12. Termination. (a) Upon completion of the Commitment Period described in Paragraph 15(h) below, Client may terminate this Agreement at any time for any reason upon ninety (90) days prior written notice to Citibank. Citibank may terminate this Agreement at any time for any reason upon ninety (90) days prior written notice to Client. In addition, Citibank may by notice immediately terminate this Agreement without further formality or judicial interference being required upon the occurrence of any of the following events: (1) any default by Client in any of its agreements with any of its lenders, (2) the Client becoming unable to pay its debts as and when they become due or (3) the commencement of any assignment for the benefit of creditors or any bankruptcy, liquidation, winding-up, reorganization or similar proceedings involving the Client. Either party may by notice to the other immediately terminate this Agreement without further formality or judicial interference being required should the other party substantially breach any one of its material obligations under this Agreement. (b) Upon any termination of this Agreement, all sums due under this Agreement will be immediately due and payable without further notice or demand. (c) Notwithstanding any such termination, the terms and conditions of Paragraphs 2, 3, 7-11, 12, 13 and 15(c)-(f) of this Agreement will survive such termination. 13. Choice of Law and Jurisdiction. This Agreement and all documents, agreements and instruments related to this Agreement will be governed by and interpreted according to the laws of the State of New York, United States of America. Client, by this Agreement, submits to the non-exclusive jurisdiction of all courts within the State of New York. United States of America, waiving any objection which it then may have to the laying of venue of any action relating to this Agreement or any related document or instrument brought in such court. To the extent that the Client is located outside the United States of America and may have or acquire any sovereign immunity from the jurisdiction of any court or from any legal process, with respect to itself or its property, Client by this Agreement waives such immunity in respect of its obligations under this Agreement and all documents, agreements and instruments related thereto. 14. Assignment. This Agreement will be binding upon and inure to the benefit of Client and Citibank, their respective successors and assigns. However, neither party may assign or transfer any of its rights or obligations under this Agreement without the other party's prior written consent, which consent will not be unreasonably withheld, except that Citibank may, at its sole discretion, at any time assign or transfer any or all of its rights, duties or obligations under this Agreement to its parent, an affiliate or subsidiary. In the event Citibank assigns and transfers any of its rights and obligations under this Agreement to its parent, an affiliate or subsidiary, then Client shall retain recourse to Citibank, and Citibank shall remain responsible to Client, for the exercise and performance of such rights and obligations so assigned and transferred as though such assignment and transfer had not occurred, unless and until Client gives its written consent to such assignment and transfer, which consent shall not be unreasonably withheld. -5- 13 15. Miscellaneous Terms. (a) Upon entering into this Agreement the parties hereto shall work together expeditiously and in good faith to prepare three mutually agreeable documents containing specifications, requirements, forms and other details which the parties deem necessary to facilitate the efficient day-to-day operation of the Program and communications between the parties respecting the Program. These documents are the HCC Cash Functional Specifications, the HCC Cash-Citicorp Interface Specifications and the World Travel Payment/HCC Procedures, and the final agreed-upon versions of these documents, as revised from time to time pursuant to the provisions of this Paragraph 15(a), are referred to in this Agreement collectively as the "Procedures". The parties will be bound by the provisions set forth in the Procedures. However, upon ninety (90) days prior written notice thereof to Client, Citibank may amend or modify the Procedures as it may deem in good faith to be reasonably necessary (i) in order to improve or enhance the services provided under the Program or (ii) to comply with all applicable local banking practices or the laws, rules and regulations of any banking industry association, convention, clearing house or of any jurisdiction of governmental authority. Any amendment or modification under (i) above shall be subject to Client's consent, which consent shall not unreasonably be withheld, provided, however, that Client shall have first made a determination, reasonably and in good faith, that such change will result in an increase in Client's costs for, or reduction in Client's benefits derived from, availing itself of the Program. Notwithstanding the foregoing, if the terms and conditions of this Agreement are inconsistent with those of the Procedures, those of this Agreement will control and the Procedures will be deemed modified to be consistent with this Agreement. (b) Each party represents and warrants that (i) its exercise or performance of its rights or obligations under or by virtue of this Agreement will not violate any applicable law or regulation or any agreement to which it may now or hereafter be bound, and (ii) this Agreement represents valid obligations of such party and is fully enforceable against it according to its terms. Client acknowledges that it will use the Program only in connection with the payment of bona fide travel agency commissions. (c) This Agreement and the Procedures embody the entire and only understanding of the parties with respect to the subject matter hereof, and any and all other proposals, agreements or other writings are superseded by this Agreement. If any provision of this Agreement or the Procedures are declared to be invalid or unenforceable by a court of competent jurisdiction, the remaining provisions of this Agreement and the Procedures will remain in full force and effect despite such declaration. This Agreement may not be amended except by a written amendment signed by the parties hereto. The section headings are for convenience and are not part of this Agreement. (d) The failure or delay of either party to insist upon the performance of any term, covenant or condition of this Agreement or to exercise any right, remedy or privilege therein conferred, will not impair or be construed as waiving any of such terms, covenants, conditions, rights, remedies or privileges. (e) Each party shall hold all non-public information it obtains in connection with the Program from the other party to this Agreement regarding such other party, whether obtained now or later, strictly confidential and shall not disclose such information to any third party without the other party's prior written consent, except as follows: (i) Disclosures required by court order, court procedure, law or regulation, or any governmental department or agency. -6- 14 (ii) Disclosures to Citibank's parent, or any of its affiliates, subsidiaries, correspondents, auditors, consultants, accountants or attorneys, provided such party agrees to hold such disclosed information on a strictly confidential basis and provided such disclosure is necessary in order for Citibank to comply with its obligations under this Agreement; or (iii) Disclosures to a third party with respect to any individual Bank Check or Electronic Transfer, provided such third party already knows the serial number or other identifying number of such Bank Check or Electronic Transfer and such disclosure is necessary for Citibank to comply with its obligations under this Agreement. The sending of a Commission Statement in accordance with this Agreement shall not be deemed a violation of the provisions of this Paragraph 15(e). (f) Any and all information provided by Client to Citibank relating to a Reservation Transaction (as hereinafter defined), derived therefrom, or any information in any manner used, created or arising out of a Reservation Transaction, including but not limited to, the name, address (all or part thereof), telephone number or other identifying code, of any travel agent, hotel or hotel reservation service, the name, address (all or part thereof), telephone number or other identifying code identifying or relating to any customer, person or entity for whom or by whom a reservation is made, room rates, commissions, destinations, length of stay, dates of stay, departure or arrival points and intermediate stops, volumes of reservations by hotel, travel agent, in the aggregate or otherwise, is and shall be the sole and exclusive property of Client and shall not be disclosed to any third party or used by Citibank, its employees, agents or representatives, or any of its affiliates, subsidiaries or parent without the express written consent of Client, except as required in connection with the performance of this Agreement, or as required by court order, court procedure, law or regulation or any governmental department or agency. A "Reservation Transaction" is an individual reservation at a hotel property. However, in no event shall any of the following be deemed to be information relating to a Reservation Transaction, derived therefrom, or any information in any manner used, created or arising out of a Reservation Transaction: (i) Information which becomes publicly available through no fault of Citibank, or information derived or developed therefrom, or (ii) Information Citibank lawfully obtains from any third party, or information derived or developed therefrom, or (iii) Information already in the possession of Citibank, its parent or any of its subsidiaries or affiliates, or any information derived or developed therefrom, or (iv) Any and all client lists, potential client lists and accounts not derived in whole or in part from or specifically included in any Reservation Transactions or not covered by sub-paragraphs (i), (ii) or (iii) above, computer programs, software modules, programming capabilities, algorithms, processes, trade secrets, promotional techniques, books and records, financial and operating information, patents, trade marks, service marks, copyrights, inventions, improvements, ideas, discoveries, works of authorship, business practices and techniques and any other information, instruments and documents of any kind or nature whatsoever which is not derived in whole or in part from or specifically included in any Reservation Transaction or not covered by sub-paragraphs (i), (ii) or (iii) above, and which Citibank or its affiliates have developed or may -7- 15 develop in good faith for the purpose of providing the Program or any other World Travel Payment product or service whether provided to Client or to any other Citibank Client. Notwithstanding anything in this Agreement to the contrary, Citibank shall not be prevented from using the number of transactions or the amount of Transaction Fees for the purposes of analyzing or reporting the total volume of transactions, payments or their monetary value processed by Citibank under its commission settlement programs and services. (g) All notices which this Agreement specifically requires to be given in writing, but excluding those notices specifically required under the Procedures, shall be sent to the parties at the following addresses: If to Client: The Hotel Clearing Corporation ---------------------------------- 3811 Turtle Creek Blvd Suite 1910 ---------------------------------- Dallas, TX 75219 ---------------------------------- Attention: John F. Davis ----------------------- If to Citibank: Citibank, N.A. (New York) c/o Citicorp Global Cash Management Services 8430 West Bryn Mawr Avenue Chicago, Illinois 60631 Attention: World Travel Payment Product Director Either party may elect to change their address listed above by sending written notice of the new address to the other party. All notices sent pursuant to this paragraph shall be effective upon receipt by their addressee except that notices sent via courier shall be deemed received and effective the first business day following dispatch and notices sent via registered mail shall be deemed received and effective on the third business day following dispatch. (h) Commencing upon live usage of the Program by Client. Client shall instruct Citibank to have Commission Payments sent (excluding those Commission Payments which are subsequently canceled or stopped pursuant to this Agreement) for which Citibank shall have been properly paid, and which relate to the payment of travel agency commissions for a period of three (3) years. The period of time from the commencement of live usage of the Program until Client's satisfaction of the foregoing obligation shall be referred to in this Agreement as the "Commitment Period". During the Commitment Period, Client shall not use any third party to send Commission Payments to any travel agency located outside of the United States or its territories. The Commitment Period shall automatically renew for additional one (1) year periods. unless either parry advises the other of its intent not to renew at least ninety (90) days prior to the expiration of the initial Commitment Period or any subsequent Commitment Period. -8- 16 16. Effective Date. This Agreement will become effective and binding upon the parties on the date Citibank accepts this Agreement. Citibank shall use its best efforts to commence providing the Program to Client as soon as possible provided however Citibank shall have no obligation to commence providing the Program sooner than six (6) months after the Procedures are finally agreed upon pursuant to Paragraph 15(a) above. THE HOTEL CLEARING Accepted this 12 day of CORPORATION December, 1991. By: /s/ JOHN F. DAVIS, III CITIBANK, N.A. (NEW YORK) ------------------------------ [Authorized Signature] By: /s/ MARK MACKENZIE ----------------------------- Print Name [Authorized Signature] and Title: John F. Davis, III ------------------------- President Printed Name: and Title: Mark Mackenzie ---------------------- Vice President Citibank, N. A. CITIBANKS SALES AND MARKETING REPRESENTATIVES DO NOT HAVE AUTHORITY TO BIND CITIBANK. -9- 17 EXHIBIT "A" Client Profile This document sets forth certain specifications of the World Travel Payment Travel Agency Commission Settlement Program ("Program") which Citibank, N.A. (New York) ("Citibank") will provide for THE HOTEL CLEARING CORPORATION ("Client"). 1. Remitting Currency: U.S. Dollars 2. Payment Cycle: Monthly 3. Cut-off Day: -------------------------------------------------- 4. Client shall pay Citibank a Transaction Fee for each Chargeable Transaction processed by Citibank pursuant to this Agreement. Such Transaction Fee shall be the greater of (i) US $0.30 for each Chargeable Transaction or (ii) US $3.00 for each statement sent to a travel agency detailing the items to which the Commission Payment applies in accordance with the Procedures ("Settlement Statement"). For purposes of this calculation, a "Chargeable Transaction" shall refer to a hotel reservation for which a Commission Payment is due to a travel agency and which is reported on a Settlement Statement sent by Citibank to the travel agency pursuant to this Agreement, including any adjustments which result in a change in the amount of the Commission Payment. "Chargeable Transactions" shall not include No Shows, Cancellations or Non-Commissionable Stays, as such terms are defined in the Procedures. Client shall pay Transaction Fees with its remittance for the corresponding Commission Payments. 5. Payment Fee: N/A Check (X) one of these boxes to show how Citibank will collect this Fee: [X] Client will pay separately each month upon invoice. [ ] Citibank will charge the beneficiary. [ ] Citibank will charge Client's Owner/Operator/ Franchisor/Licensor. 6. Method of Payment: Wire (If ACH Debit, Client must provide proper ACH Debit Authorizations) 7. Adjustment Date: December 31, 1992 Client's Initials Citibank's initials [ILLEGIBLE] [ILLEGIBLE] ------------------------- -------------------------
1 EXHIBIT 10.8 FACILITIES MANAGEMENT AGREEMENT THIS FACILITIES MANAGEMENT AGREEMENT ("Agreement") is made and entered into as of January 1, 1996 (the "Effective Date"), by and between Pegasus Systems Inc. ("Pegasus"), a Delaware corporation, and Anasazi Inc. ("Anasazi"), a Delaware corporation. For purposes of this Agreement, Pegasus shall include its subsidiaries, The Hotel Industry Switch Company, The Hotel Clearing Corporation, and TravelWeb Inc. WHEREAS, Pegasus owns an automated reservation inquiry switching network which includes bulk data transfer capabilities and internet connectivity, which enables travel agents and other users to book, modify and cancel reservations at participating hotels through airline and other reservation systems, and also owns a commission consolidation system (these systems are collectively known as the "Switch"); WHEREAS, Anasazi currently houses the Switch at its principal place of business in Phoenix, Arizona, and has heretofore managed and operated the Switch pursuant to those certain Switch Management and Operation Agreements, dated January 4, 1991 and April 1, 1994 between THISCO and Anasazi, and that certain Network Operation, Customer Support and System Administration Proposal dated October 3, 1991 between HCC and Anasazi (the "Original Agreements"); WHEREAS, the parties have determined to terminate the Original Agreements and enter into a new facilities management agreement; and WHEREAS, Pegasus and Anasazi have determined that it would be mutually beneficial for Anasazi to continue to manage and operate the Switch under the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises, the mutual covenants herein contained, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS For purposes of this Agreement, except as provided otherwise herein, the capitalized terms used herein shall have the following meanings: "Affiliate" shall mean, with respect to any specified Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with, such specified Person. "Anasazi Commercial Software" shall mean the Anasazi Commercial Software described on Exhibit A. "Automated Lodging Reservation Inquiry Switching Network" shall mean a centralized system of hardware and software which provides data communication linkages between certain 1 2 reservation distribution systems and computerized reservation systems operated by lodging, cruise, tour, bus or restaurant entities who subscribe to one or more such distribution systems and which system allows travel agents or other persons or entities transmitting reservation-related data who subscribe to the distribution systems to query and/or make, modify and cancel lodging, cruise, tour, bus or restaurant reservations and receive confirmations of such transactions. "Bulk Data Transfer" (also, "BDT") shall mean the set of hardware and software components implemented by Pegasus which enables file transfers between HRSs and the Switch as well as file transfers between GDSs and the Switch. "Central Reservation System" shall mean a centralized or decentralized system of hardware and software which provides data communication linkages between databases of entities and a central database and which effects reservations and other reservations-related transactions on a centralized basis. "Central Reservation System Services" shall mean reservation and reservation-related services provided to entities using a Central Reservation System. "Charges" shall mean the fees, expenses and costs for which Pegasus is billed pursuant to Article VI of this Agreement "Emergency" shall mean a problem resulting in either a total loss of access to or operation of the Switch or a loss of a critical function with respect to the Switch or the Participant's interface including but not limited to loss of Type A, Type B, Phase I Logging, or significant performance degradation. "Equipment" shall mean the Hardware, the Network Components and the Support Equipment. "Event of Default" shall mean an event specified in Section 10.1 hereof. "Hardware" shall mean collectively the Hardware listed on Exhibits and all other computer hardware owned, leased or licensed by Pegasus and housed by, and with the approval of Anasazi, at the Switch Facility from time to time, together with any and all modifications, improvements, or enhancements thereof, additions thereto, and/or replacements therefor. "HCC" shall mean the hardware and software components implemented by Pegasus which enable the transfer of travel agent commission information between HRSs and financial institutions. "HRS" shall mean an automated reservations system operated primarily for the benefit of one or more companies. "Intellectual Property", or "Intellectual Property Rights", shall mean all trade secrets, copyrights, inventions (whether or not patentable), patents, trademarks, trade names and any other proprietary information and knowledge relating to, associated with, or used in connection with, the development, use and maintenance of the Switch and for the performance of the functions the Switch was designed to perform, including, but not limited to, any and all modifications thereto or enhancements thereof and all rights concerning source codes, object codes, execution programs and other information relating to the Switch whether now owned or hereafter acquired; provided, however, that with respect to the Anasazi Commercial Software, "Intellectual Property" and "Intellectual Property Rights" shall refer only to such of the foregoing information and rights as are expressly conveyed to Pegasus under license. "Losses" shall mean all losses, liabilities, damages, actions, claims, costs and expenses 2 3 (including, without limitation, reasonable attorneys' fees and disbursements) and costs of investigation, litigation, settlement, judgments, interest and penalties. "Monthly Fee" shall mean the Monthly Facilities Management Base Fee described in Article VI and Schedule VI. "Network Components" shall mean, collectively, the Network Components listed on Exhibit A and all other similar equipment and materials owned, leased or licensed by Pegasus and housed by, and with the approval of Anasazi, at the Switch Facility from time to time, together with any and all modifications, improvements or enhancements thereof, additions thereto, and/or replacements therefor. "Operations Manual" shall mean that certain UltraSwitch Operations Manual (Revision 3.0) dated March 3, 1996, as amended from time to time jointly by Pegasus and Anasazi. "Participant" shall mean an entity whose automated reservation system is connected to the Switch for the purpose of originating, communicating, or responding to requests for bookings or other transaction supporting those functions. "Participant Connection" shall mean any Participant's use of a Type A, Type B or HCC interface to the Switch. Each communication line requiring a unique data service unit (DSU), whether stand-alone or rack mounted, shall constitute one (1) connection regardless of whether the communication line is split by a multiplexor or similar device. "Person" shall mean a corporation, association, partnership, joint venture, organization, business, trust or any other entity or organization of any kind or character, including a government or any subdivision or agency thereof. "Phase I" shall mean "UltraConnect" which is the functionality of the Switch relating to the booking, modifying and canceling of reservations. "Phase II" shall mean "UltraSelect" which is the functionality of the Switch relating to property and room type availability, rate information, property descriptions and property policies and amenities. "Services" shall mean one or more services described in, or provided by Anasazi pursuant to, this Agreement "Software" shall mean collectively the software listed on Exhibit A and all other computer software owned, leased or licensed by Pegasus and, with the approval of Anasazi, used in connection with the operation of the Switch from time to time, together with any and all modifications, updates, improvements or enhancements thereof, additions thereto, and/or replacements therefor, and including all associated Intellectual Property Rights and all manuals, selling materials or other documentation prepared by the licenser or developer of such software describing the software and its performance characteristics and capabilities. "Support Equipment" shall mean collectively the Support Equipment listed on Exhibit A and all other similar equipment, including testing and diagnostic equipment owned, leased or licensed by Pegasus and housed by, and with the approval of Anasazi, at the Switch Facility from time to time, together with any and all modifications, improvements or enhancements thereof, additions thereto, and/or replacements therefor. "TravelWeb" is the service mark and trade name of Pegasus for its Internet site and includes the set of hardware and software components implemented by Pegasus which enables users of the 3 4 Internet to search for hotel properties, check property availability, book and cancel hotel reservations, and obtain access to other travel-related services. "UltraSwitch" shall mean the automated reservation inquiry switching network owned by Pegasus and used by Pegasus to provide services to Participants consisting of the Hardware, the Network Components, the Support Equipment and the Software, together with all related documentation, procedures and associated Intellectual Property Rights. "UltraSwitch" shall include Phase I, Phase II and Bulk Data Transfer functionalities. "Switch Facility" shall mean the location housing the Switch, currently being Anasazi's principal place of business at 7500 North Dreamy Draw Drive, Suite 120, Phoenix, Arizona 85020, or any substitute location provided by Anasazi pursuant to this Agreement. Anasazi may move the physical location of the Switch Facility to a comparable facility within North America at its sole expense; provided that the new facility provides functionality and performance comparable to the then existing facility. "Switch Production Environment" shall mean the Equipment and Software which is used to provide access to the Switch by Participants for the sending and receiving of production (non-test) transactions. "Switch Test Environment" shall mean the Equipment and Software which is used to facilitate Pegasus' development and testing of the Switch. "UltraSwitch Software" shall mean the UltraSwitch Software described on Exhibit A. ARTICLE II TERM 2.1 Initial Term. Subject to Article XI, the term of this Agreement will begin on the date hereof and shall extend for five (5) twelve month periods (each, a "Service Year") (the "Initial Term"), unless earlier terminated or extended in accordance with this Agreement 2.2 Renewal. Subject to Article XI, after the Initial Term, this Agreement shall automatically be renewed for consecutive periods of one (1) Service Year (each, a "Renewal Term") unless either party gives the other party written notice at least six (6) months prior to the termination date of the Initial Term or then current Renewal Term that the Agreement will not be renewed. Anasazi agrees to provide written notice of this provision to Pegasus at least nine (9) months prior to the expiration date of the Initial Term or then current Renewal Term; at Pegasus' option, any delay in such notice by Anasazi will extend the aforementioned six (6) month period to the extent of the delay. ARTICLE III ANASAZI SERVICES 3.1 Computer and Network Operations. Anasazi will provide Services with respect to the computer and network operations of the Switch as follows: (a) Operate the Switch using all due diligence and in a commercially reasonable manner in accordance with the Operations Manual, 24 hours per day, 7 days per week, including all holidays; 4 5 (b) Operate the Switch Test Environment from 8am through 5pm (local Dallas, Texas time) Monday through Friday exclusive of Anasazi holidays, and such additional times as are required to support development and testing to resolve Emergency problems. Anasazi will give its "best efforts" to operate the Switch Test Environment at other times as requested by Pegasus; (c) Provide facilities and utilities required to house and operate the Switch; (d) Provide uninterruptable power supply and emergency electrical generating equipment sufficient to provide continuous power to the Switch such that the Switch can be operated at full capacity for an indefinite period of time during power failures; (e) Have the right of reasonable approval of all Equipment provided by Pegasus, such approval to be based upon the space requirement, electrical power and cooling requirement, aesthetics, and operability of the Equipment proposed; (f) Act on Pegasus' behalf to initiate, and track to resolution, requests for repairs to Equipment and Software housed by Anasazi from Pegasus' vendors of maintenance contracts and other repair arrangements. (Anasazi will not be liable for "no trouble found" or other charges incurred by Pegasus as a result of Anasazi having initiated a service call so long as Anasazi used commercially reasonable procedures in determining that such a service call was appropriate.); (g) Purchase, on behalf of Pegasus as provided herein, certain Hardware and Software Components as requested and directed by Pegasus. Whenever appropriate, Anasazi shall purchase all such items in Pegasus' name and shall have the purchase order issued directly to Pegasus, to the attention of its chief financial officer. Any purchases made in Anasazi's name (e.g. to take advantage of an Anasazi discount) will be billed back to Pegasus at total cost plus a Fifteen (15) percent processing fee; (h) Maintain, pursuant to Section 3.5(a), a log of the events associated with the unavailability of the Switch to one or more of its respective Participants and provide Pegasus with copies of the log each month; (i) Provide Pegasus with reasonable access to the Switch and the Switch Facility housing the Switch Production Environment and the Switch Test Environment. In the event of an audit, Pegasus must provide a minimum of forty-eight hours notice to Anasazi prior to commencing the audit; (j) Provide the same level of security as commercially reasonable, for the Switch Test Environment and Switch Production Environment as Anasazi provides for its own equipment and operations; (k) Maintain the Switch and the Switch Facility in a commercially reasonable and professional manner and at least at the same level of efficiency as it maintains its own system operations; (l) Configure modems and DSUs as per Pegasus' directions and specifications for Participant connections to the Switch; (m) Anasazi will commit the following levels of resources to fulfilling the obligations set forth in this Agreement: 5 6 <TABLE> <CAPTION> Job Type Allocation --------- ---------- <S> <C> Account Manager 20% Network Operator Manager 25% Network Operator Supervisor 75% Network Operator Lead 100% Network Operator Lead 100% Network Operator Lead 100% Network Operator Jr. 100% Network Operator Jr. 100% </TABLE> 3.2 Technical Support Services. Anasazi will provide Pegasus with technical support services in accordance with the following: (a) Anasazi will make available to Pegasus technical resources to assist Pegasus in the analysis and resolution of i) system and software-related problems, ii) database-related problems, iii) telecommunication problems, and iv) telecommunication configurations. (b) Technical resources will be available 24 hours per day, 7 days per week, 365 days per year to assist Pegasus in dealing with Emergency problems. Anasazi shall begin execution of Pegasus' request for Emergency services no later than four hours following the request. (c) Schedulable technical resources requested by Pegasus will be billed on a time and materials basis at Anasazi's then prevailing rates. (d) Emergency technical resources requested by Pegasus will be billed at twice the then current hourly rate. (e) Anasazi will make its best effort to fulfill Pegasus' requests for technical support in a timely manner. 3.3 Software and Hardware Maintenance. Anasazi shall provide certain Software and Hardware maintenance services as follows: (a) Anasazi will perform routine and corrective maintenance to support and maintain the Anasazi Commercial Software as is reasonable and necessary for the operation of the Switch. This maintenance will be limited to correcting bugs within the Anasazi-written software. Protocol and gateway problems traced to Participants or to Pegasus- modified code, are covered under Section 3.2 (technical support services). In the event new releases of the Anasazi Commercial software are developed by Anasazi, such new releases will be made available to Pegasus as follows: in the event the new release has been developed through the mutual efforts of Pegasus or such development has been paid for, in whole or in part, by Pegasus, such new release shall be made available to Pegasus at no charge or in exchange for Pegasus' portion of the development costs, whichever is applicable. In the event Pegasus personnel have not been involved in the development of such new release nor has Pegasus paid for all or part of the development of such new release, then if the release is made generally available to Anasazi's customers, the new release shall be made available to Pegasus for a fee comparable to the fee generally charged to Anasazi's other customers. Anasazi will consider changes to the Anasazi Commercial Software as recommended or requested by Pegasus for the purposes of enhancing performance and expanding the functionality of the Anasazi Commercial Software. (b) Anasazi will administer third party maintenance contracts pursuant to Section 3.1(f). (c) Anasazi's technical support staff will use both the Switch Test Environment and certain 6 7 equipment provided by Anasazi for its computing needs pursuant to this Agreement only. Pegasus-provided telecommunications facilities will be used as required by this Agreement. The Switch Test Environment and communication equipment will be used solely to perform this Agreement and primarily for any development and testing of the Switch. 3.4 Physical Space and Utilities. Anasazi shall, at no additional cost to Pegasus, provide space and utilities at the Switch Facility for the Switch and its operations, including any expansions thereof or additions thereto mutually agreed upon by Pegasus and Anasazi, as follows: (a) Switch. Anasazi shall provide adequate space for the Switch. The space allocated to each component of the Switch shall meet or exceed those environmental requirements of the manufacturer of such component. (b) Supplies. Anasazi shall provide paper, printer ribbons and toner required for the provision of Services, and shall provide adequate storage space for all necessary Switch-related supplies, including, but not limited to, magnetic tapes, stock paper, custom forms and other computer and network supplies. Pegasus shall provide all magnetic media pursuant to Section 4.1(g). (c) Pegasus Personnel. Anasazi shall provide a furnished office equipped with a telephone and network connection for use by Pegasus personnel during visits to the Switch Facility. (d) Training and Meeting Space. Upon reasonable notice, Anasazi shall provide appropriately equipped facilities for all required training and meeting activities. (e) Utilities. Anasazi shall at all times provide or cause to be provided at the Switch Facility all of the utilities, including, but not limited to, electricity, gas, water and voice telephone service, necessary for the operation and performance of the Switch as contemplated in this Agreement. (f) Storage and Pick-Up. Anasazi shall provide, or cause to be provided, storage, pick-up and delivery services for off-site storage of magnetic and paper media on at least a weekly basis. 3.5 Monthly Status Report. Anasazi shall provide Pegasus with a monthly status report containing the following information: (a) a log of each occurrence of a System outage occurring during the month, and the number of minutes duration of each and the number of minutes each communications line and Participant was reported as down, and the diagnosed cause of the problem (the event list); (b) an analysis of communication line failures occurring during the month; (c) a log of all Hardware and Equipment maintenance and repair services performed during the month, which log shall include a description of all Equipment maintenance work performed, including the date, time, and duration of the maintenance work performed and a description of the cause for the work, either by describing the defect, real function or non-conforming performance giving rise to the maintenance work or by describing such work as regular, routine maintenance; (d) a list of items which in Anasazi's opinion requires the attention of Pegasus management, if any; (e) the UltraSwitch availability report for such month and, if the average UltraSwitch downtime for such month exceeds 0.25%, an analysis of the cause(s) and an action plan for addressing the cause(s) of such UltraSwitch downtime; (f) a report detailing hours billed to Pegasus for technical support services as provided in accordance with Section 3.2; (g) a report of dial back-up test results including all successes and failures; (h) a report of router fallback test results including all successes and failures; and (i) a report of BDT transfer successes and failures. 3.6 Electronic Communications. Anasazi shall maintain the Switch, facilities permitting Pegasus to access the Switch directly from Pegasus' home office and to communicate 7 8 with Anasazi via electronic mall, all at Pegasus' expense. 3.7 Marketing Materials. Anasazi shall promptly review and advise Pegasus with respect to the accuracy of all marketing materials prepared by or for Pegasus insofar as they describe the technical capabilities of the Switch and the services it provides. 3.8 Switch Test Environment Utilization. Anasazi shall, upon request, permit qualified employees, agents and representatives of Pegasus, the Participants and Anasazi to utilize the Switch Test Environment for maintenance, development, testing and other Switch related purposes. The use of the Switch Test Environment as a back-up to the Switch Production Environment has priority over all other uses of the Switch Test Environment and such usage shall be at the sole discretion of Anasazi. 3.9 Security Features and Fire Prevention. Anasazi will provide the same level of security, fire prevention and fire protection for all other Pegasus equipment and supplies as it provides for its own equivalent materials, but in any event it shall not be less than exists at the execution of this Agreement. 3.10 Participation in Dispute Resolution. As part of its duties hereunder, the Anasazi account manager assigned to Pegasus will, upon request, provide assistance to Pegasus in connection with resolution of disputes between Pegasus and the Participants as to the nature or quality of Switch services and/or the costs thereof. Assistance sought by Pegasus from Anasazi's technical support staff will be subject to the provisions of Section 3.2. 3.11 Operating Procedures. The Operations Manual establishes operating procedures for various activities, including, without limitation, routine maintenance of equipment, conversion to certain communications equipment, periodic testing of equipment, back-up routines, disaster recovery and escalation procedures for seeking appropriate assistance of Anasazi or Pegasus management and/or the vendor which has been contracted to provide equipment maintenance services in the event of system outages which cannot be quickly resolved, response to equipment and software failures, record keeping, preserving confidentiality for Participant information received through the Switch, computer operations, network management and liaison with communications vendors. In order to insure that these and the other mandated operating procedures are observed and properly implemented, Anasazi shall, among other things: (a) provide its employees with appropriate training, (b) provide its employees with working copies of such portions of the Operations Manual as are relevant to their respective responsibilities, (c) ensure that all Anasazi employees working on the Switch or given access to Confidential Information are subject to confidentiality agreements with Anasazi covering the Confidential Information, (d) enforce compliance with procedures specified in the Operations Manual and (e) create and appropriately distribute revisions of portions of the Operations Manual describing any agreed modified operating procedures. 3.12 Costs and Expenses. (a) Except as expressly hereinafter provided, Anasazi shall bear all of the costs and expenses arising from the performance of Anasazi's obligations under this Agreement, including but not limited to: (i) all costs associated with renting (or otherwise acquiring), finishing out, furnishing and providing security for the Switch Facility; (ii) all utility costs, including, without limitation, the costs of electricity, gas, water and voice telephone service; (iii) all employee related costs and expenses for Anasazi's employees, including salary expenses, overtime, bonuses, benefits, taxes, other compensation and the costs of training; and (iv) the maintenance costs specified in Section 3.3(a). Notwithstanding the foregoing, and without limiting Pegasus' other obligations or responsibilities under this Agreement, Pegasus shall bear: (i) the cost of installing at the Switch Facility any additional or replacement Switch-related equipment purchased by it or on its behalf with its approval; (ii) all costs associated 8 9 with the data communication lines used to operate the Switch, including installation costs and usage charges; (iii) the cost of magnetic media used in connection with the operation of the Switch as specified in Section 4.1(g); and (iv) the costs arising from Pegasus obligations described in Section 3.1(g). (b) With respect to any other costs for which neither Anasazi nor Pegasus is expressly obligated in the Agreement to cover or incur, the parties will promptly use best efforts to reach mutual agreement within thirty (30) days of such notice of such cost on the manner in which such cost will be allocated. Until resolution is reached, the parties will each bear 50% of such costs as they become due. ARTICLE IV CUSTOMER AND JOINT RESPONSIBILITIES 4.1 Pegasus Responsibilities. Pegasus will be solely responsible for performing and incurring all costs for the following obligations as a condition of Anasazi's Services under this Agreement: (a) Provide Equipment and Software required for the Switch, including all manuals and documentation provided by the manufacturers and distributors of such Equipment and software which art required for their efficient operation; (b) Provide Test Equipment for use in diagnosing telecommunications facilities used in the Switch Production Environment and Switch Test Environment; (c) Update Operations Manual as the Switch is enhanced and modified over time and as equipment and telecommunications facilities are upgraded and modified over time; (d) Provide and pay for all costs and expenses rising from maintenance contracts or other repair arrangements for all Equipment housed at the Switch Facility and provide notice of authorization to third party vendors enabling Anasazi to act on Pegasus' behalf to facilitate maintenance services; (e) Assume full responsibility for Participant maintenance requests and service; (f) Provide at Pegasus' sole discretion, maintenance contracts or direct maintenance of all Software and Equipment utilized in the operation of the Switch, including, but not limited to Informix and Interactive UNIX; (g) Provide all magnetic media required for operation of both the Switch Production Environment and Switch Test Environment; (h) As mutually agreed, provide enhancements to Software to implement interfaces with future system monitoring tools. These monitoring tools will be designed and implemented by Anasazi and will enhance the ability of system operators to monitor the functionality of the Switch; (i) Provide Anasazi with an "on-call" contact list to be used in the event of a problem with the Switch whose remedy is beyond she scope of the procedures set forth in the Operations Manual provided by Pegasus and which cannot be remedied by the primary on-call contact provided by Anasazi; 9 10 (j) Provide customer support services to Participants. 4.2 Anasazi Implemented Interfaces. Upon mutual agreement on terms between Pegasus and Anasazi, Anasazi may design, develop, document and implement new Participant interfaces to the Switch. These interfaces, following a brief post-implementation acceptance period, will be maintained by Pegasus pursuant to Section 4.1(e). ARTICLE V WARRANTIES AND DISCLAIMERS 5.1 Warranties. (a) Anasazi warrants that the "Average Switch Downtime", as described in Exhibit B, will not exceed 0.25% (twenty-five percent of one percent) of total scheduled UltraSwitch operating time each calendar month, provided that Anasazi will be released from such warranty if its failure resulted from a cause beyond its reasonable control, including, but not limited to, force majeure events, any act or omission of Pegasus or a Participant, or failure of a vendor to timely respond to service requests. For purposes of this Agreement, the "Average Switch Downtime" shall be calculated according to Exhibit B. (b) Should the "Average Switch Downtime" for any calendar month be exceeded, then Pegasus will be due a credit against the Switch Operating Fee for that month according to the following schedule: A total credit of $5,000 if unavailability is greater than 0.25% and less than or equal to 0.75% A total credit of $10,000 if unavailability is greater than 0.75% and less than or equal to 1.25% A total credit of $15,000 if unavailability is less than 1.25% The maximum credit in respect of calendar month is $15,000. (c) Anasazi will employ or otherwise retain individuals with the required skills and training sufficient to carry out its obligations under this Agreement. (d) The Switch Facility is reasonable and appropriate for purposes of housing and operating the Switch, assuming that there are no material changes to the configuration of the Switch. (e) If Anasazi breaches this warranty in a manner to lose or destroy billing data prior to Pegasus' billings to participants which contemplated such data, then Pegasus' sole remedy in respect of such reach will be (i) Anasazi's obligation to diligently assist Pegasus in the data re-creation and estimation process so as to provide Pegasus with reasonable billing data (which may include, but not be limIted to, reasonable estimates based on methodologies and categories of data used by the parties in prior similar circumstances) for the period effected by such breach no later than the tenth business day after the beginning of the month in which Participants are billed in respect of such data, and (ii) if the parties are unable to accomplish the foregoing by such date, then subject to the following sentence, Anasazi shall credit to Pegasus' billing account, a credit of up to $5,000 in liquidated damages per incident. Such credit will be applicable to incidents or breaches affecting in excess of 500 net bookings, shall be measured by amounts billed and uncollected due to Anasazi's breach (not to exceed $5,000), and shall be conditioned upon reasonable substantiation by Pegasus of its best efforts to mitigate its losses, including, but not limited to, good faith collection efforts on, estimated bills and obtaining contractual agreements with affected Participants (contracted with after the Effective Date) to pay estimated bills. 10 11 5.2 Disclaimer and Exclusion of Warranties. (a) While Anasazi may provide from time to time certain hardware, software or other items to Pegasus, Anasazi is primarily providing Services under this Agreement, and the provision of such other items is an incidental part of the Services and not the sale of goods within the meaning of the Uniform Commercial Code or other statute. (b) EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS ARTICLE V (BUT WITHOUT LIMITING ANASAZI'S EXPRESS CONTRACT OBLIGATIONS CONTAINED ELSEWHERE IN THIS AGREEMENT), ANASAZI MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, TO PEGASUS OR TO ANY OTHER PERSON, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES REGARDING THE MERCHANTABILITY, SUITABILITY, ORIGINALITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE (IRRESPECTIVE OF ANY PREVIOUS COURSE OF DEALINGS BETWEEN THE PARTIES OR CUSTOM OR USAGE OF TRADE), OR RESULTS TO BE DERIVED FROM THE USE, OF ANY SOFTWARE, SERVICES, HARDWARE OR OTHER MATERIALS PROVIDED UNDER THIS AGREEMENT. (c) This Article V sets forth Anasazi's total liability for a breach of any warranty contained in this Article V, without limiting Pegasus' remedies with respect to Anasazi's obligations contained elsewhere in this Agreement. ARTICLE VI CHARGES; PAYMENT 6.1 Charges. The Charges for the Services are set forth on Schedule VI to this Agreement. (a) The Monthly Facilities Management Base Fee for facilities management ("Monthly Fee") and the floor space fees described below will be subject to annual increases (beginning January 1, 1997) by a factor equal to the percentage change in the Consumer Price Index for the U.S. City Average for Other Goods and Services for All Urban Consumers as published by the U.S. Department of Commerce based on the 1982-1984 standard reference base area ("CPI"). The Monthly Fee will also be subject to the following annual adjustment: (i) The Monthly Fee will be increased or decreased at the end of each applicable month for each additional square foot of floor space required, or freed up, by Pegasus according to the following rates: - Computer Room Space: $5 per square foot per month. - Computer Lab Space: $3 per square foot per month. These adjustments will be applicable provided they do not reduce the Monthly Fee below its original value as set forth on Schedule VI. These adjustments will not be applicable to any non-operational Pegasus hardware which Anasazi may currently be storing within either of its computer rooms (e.g. USP1 and USP2). (b) The cost of services not otherwise described in this Agreement which Pegasus may request Anasazi to perform in the future, shall be based on Anasazi's then current time and materials rates. The current rates are set forth on Schedule VI and are subject to change in the event Anasazi shall change its then current prevailing standard hourly rates (as set forth on Schedule VI) generally applicable to its customers, and then, no more than once per Service 11 12 Year effective upon thirty (30) days prior written notice to Pegasus, provided that (i) in no one Service Year can the increase exceed a percentage equal to the percentage change in the CPI over the CPI for the prior twelve month period, plus 2% and (ii) Pegasus shall receive the same percentage discount (set forth on Schedule VI attached hereto) on the new then current prevailing standard hourly rates, provided that Pegasus is current on its payment obligations. Each request for service outside the scope of this Agreement made by Pegasus will be evaluated by Anasazi. After completing its evaluation, Anasazi will either decline to provide such service (e.g. based on unavailability of resources or scheduling conflicts) or shall submit to Pegasus its price and time estimate to provide the requested additional service, which will also advise Pegasus of any recurring costs of providing the requested additional service and costs of any additional hardware, software or other resources associated with the requested additional service. The parties will evidence any agreement on such additional services in a mutually executed writing. (c) Anasazi shall make operational training available to Pegasus, the Participants, prospective Participants and other users of the Switch pursuant to the Charges in Schedule VI. All training preparation and materials will be included in the hourly fees. Upon request, training will be provided at a Participant's or other non-Anasazi location at the same rates. (d) If Anasazi personnel travel with Pegasus' prior written approval to perform Agreement related services during the term of this Agreement, whether to provide training or for other purposes, Pegasus shall reimburse Anasazi for coach class air fare and other reasonable out-of-pocket expenses incurred during any month set forth on a separate billing statement. (e) The Monthly Fee shall be invoiced and billed on the first day of every month following the month to which the Monthly Fee applies. All fees and expenses set forth in this Agreement, including the Monthly Fee, are due within thirty (30) days following the date of the invoice. Notwithstanding anything to the contrary, unless directed by an arbitrator, the Monthly Fee is not subject to any set-off with respect to disputes and is deemed not to be divisible or allocable with respect to any claims or disputes of Pegasus. Any disputes on any other invoice must be communicated in writing to Anasazi, prior to the due date of the invoice, specifying the claimed discrepancy. Pegasus shall pay when due all undisputed amounts, and if the parties have failed to resolve the dispute within thirty (30) days after the applicable due date, then within five business days after such date, Pegasus must either pay by the due date the disputed amount and seek a credit pending dispute resolution or place such amount in an escrowed bank account designated for Anasazi's benefit (with interest allocated as the disputed amount is so allocated), pending resolution of the dispute. Any unresolved disputes will be subject to Article XII. (f) Any amounts payable which are not received by Anasazi by the due date shall bear interest of 1.5% per month provided that such rate shall be reduced by the percentage it exceeds the highest rate permitted by applicable law. (g) Pegasus will be responsible for any sales, use, excise or value-added taxes or duties payable by Anasazi on the Services as a whole or on a particular good or Service received by Pegasus or a Participant from Anasazi where the tax is imposed on Pegasus' or the Participant's acquisition or use of such Services or goods from Anasazi, and not by Anasazi's income or property. Pass-through items will be billed to Pegasus inclusive of any taxes billed to Anasazi. Anasazi represents that, to its knowledge, as of the execution date of this Agreement, there are no sales, use, excise or value added taxes or duties payable on the Services as a whole or on a particular good or Service received by Pegasus or a Participant from Anasazi where the tax is imposed on Pegasus' or the Participant's acquisition or use of such Services or goods from Anasazi, nor, to the knowledge of Anasazi, is any such tax or duty contemplated. The parties will reasonably cooperate with one another to enable each to 12 13 more accurately determine its tax liability and to minimize such liability to the extent legally permissible. (h) Any fees, costs or expenses arising from this Agreement which are not expressly set forth or allocated in this Agreement will be resolved pursuant to the procedures in Section 3.12(b). ARTICLE VII CONFIDENTIALITY 7.1 Confidential Information. Each of Anasazi and Pegasus acknowledges that the other possesses and will continue to possess information that has been developed or received by it, has commercial value in its business and is not in the public domain. Anasazi further acknowledges that it will receive information from Pegasus and Participants which has been created or received by Participants which has commercial value in its business and is not in the public domain. For purposes of this Agreement, "Confidential Information" shall mean (a) the terms of this Agreement; (b) all information of a party (including information received from Participants) marked "confidential," "restricted," "proprietary" or with a similar designation; (c) in the case of Pegasus, information in addition to the items specified in (b) above, including the source and object codes for the UltraSwitch Software, all plans, designs, drawings and specifications for the Switch, all Switch-related documentation and manuals, including the Operations Manual and the Switch functional specifications, and all information concerning the business, customers and finances of Pegasus and the Participants, all data or information received from Participants or Pegasus and processed or generated by the Switch and all trade secrets, confidential knowledge, know-how, technical information relating to the components of the Switch in which Pegasus has a proprietary interest (including, without limitation, all software programs, computer processing systems and techniques employed or used by Pegasus or a Participant and any related items such as specifications, layouts, flow charts, manuals, instruction books and programmer, technical and user documentation, any and all upgrades, enhancements, improvements or modifications to the foregoing), business information regarding business planning and operations of Pegasus and any Participant and all information and data received, processed or generated by the Switch pursuant to this Agreement or otherwise; and (d) in the case of Anasazi, information and, in addition to the items specified in (b) above, trade secrets, confidential knowledge, know-how, technical information, data or other proprietary information relating to Anasazi Commercial Software or other intellectual property used in the provision of Services (or to which Pegasus otherwise has access) and in which Anasazi or its Affiliate has a proprietary interest (including, without limitation, all source codes, object codes, software programs, computer processing systems and techniques employed or used by Anasazi or its Affiliates and any related items such as specifications, layouts, flow charts, manuals, instruction books and programmer, technical and user documentation, and any and all upgrades, enhancements, improvements or modifications to the foregoing), business information regarding business planning and operations of Anasazi and its Affiliates, and all information regarding Anasazi's provision of Services hereunder. Access by Anasazi personnel or any third party to Pegasus or Participant Confidential Information shall be limited solely and exclusively to the performance of this Agreement and such access shall be solely and exclusively by those persons reasonably necessary to perform or enforce this Agreement. Each party shall take all reasonable and necessary steps and precautions, consistent with the steps and precautions taken to protect its own confidential and proprietary information and materials, to assure that all Confidential Information of the other party or a Participant is not used or disseminated, directly or indirectly, in whole or in part, to any person or entity except as expressly permitted herein. 7.2 Obligations. Each party will use at least the same degree of care to prevent disclosing to other Persons the Confidential Information of the other party as it employs to avoid unauthorized disclosure, publication or dissemination of its own information of a similar nature; provided, 13 14 however, subject to Section 7.1, that each party may disclose such information to its employees, agents, subcontractors and vendors who have a need to know such information and who have been advised by the disclosing party of the obligation to preserve such information's confidentiality. Furthermore, neither Anasazi nor Pegasus will: (a) utilize, sell, assign, lease, otherwise dispose of or commercially exploit the Confidential Information of the other party except as expressly contemplated by this Agreement; (b) acquire any right in or assert any lien against the Confidential Information of the other party; or (c) refuse for any reason (including a default or material breach of this Agreement by the other party) to promptly return the other party's Confidential Information to it if requested to do so. Upon expiration or termination of this Agreement for any reason, each party shall return promptly to the other party all Confidential Information in such party's possession and certify in writing to the other party its compliance with this sentence. 7.3 Exclusions. Notwithstanding the foregoing, this Article VII will not apply to any particular information of a party that the other party can demonstrate: (a) was, at the time of disclosure to it, in the public domain; (b) after disclosure to it, becomes part of the public domain through no fault of the receiving party; (c) was in the possession of the receiving party at the time of disclosure to it without being subject to another confidentiality agreement; (d) was received after disclosure to it from a third party who had a lawful right to disclose such information to it; or (e) was independently developed by the receiving party without reference to Confidential Information of the furnishing party. In addition, a party shall not be considered to have breached its obligations under this Article VII for disclosing Confidential Information of the other party: (a) as required pursuant to an arbitration proceeding conducted in accordance with Article XI, provided that such disclosure is made in accordance with the approval or at the direction of the Arbitration Panel; or (b) if in the opinion of such party's counsel, such disclosure is required by legal process or pursuant to any applicable statute, rule or regulation provided that, except with respect to securities laws disclosure obligations, such party advises the other party prior to making such disclosure in order that the other party may object to such disclosure, take action to assure confidential handling of the Confidential Information, or take such other appropriate action to protect the Confidential Information. 7.4 Loss of Confidential Information. In the event of any disclosure or loss of, or inability to account for, any Confidential Information of the furnishing party, the receiving party will promptly notify the furnishing party. 7.5 No Implied Rights. Nothing contained in this Article VII shall be construed as obligating a party to disclose any particular Confidential Information to the other party, or as granting to or conferring on a party, expressly or implied, any rights or license to the Confidential Information of the other party, except as otherwise provided herein. 7.6 Publicity. Neither party will, without the other party's prior written consent, use the name, service marks or trademarks of the other party or any of its Affiliates. 7.7 Limited Use of Certain Information. Notwithstanding the foregoing, the parties may disclose to other Persons the existence and general nature of this Agreement. 7.8 Equitable Remedies. Each party acknowledges that if it breaches (or attempts or threatens to breach) its obligations under this Article VII, the other party will be irreparably harmed. Accordingly, if a court of competent jurisdiction should find that a party has breached (or attempted or threatened to breach) any such obligations, such party will not oppose the entry of an appropriate order compelling performance by such party and restraining it from any further breaches (or attempted or threatened breaches). 7.9 No Solicitation. During the term of this Agreement and for one year after its termination or expiration, neither party shall solicit for employment or retention as a contractor, retain, hire or employ any employee of the other party, or contractor primarily engaged in the provision of services 14 15 to or on behalf of the other party except whereas mutually agreed upon by the Presidents of both Anasazi and Pegasus. 7.10 Survival. The rights and obligations of the parties under this Article VII (excluding Section 7.9 hereof) shall survive the termination of this Agreement for ten (10) years. ARTICLE VIII INTELLECTUAL PROPERTY 8.1 Ownership. Anasazi acknowledges that, except for its ownership of the Anasazi Commercial Software, it has neither an ownership interest in, nor a license to use, nor a lien against, the Switch or any of the components thereof, and that: (a) Pegasus has all right, title and interest in and to UltraSwitch, HCC and BDT; (b) Anasazi has granted to Pegasus a non-exclusive, non-transferable license to use the Anasazi Commercial Software pursuant to a license dated December 31, 1990; and (c) Pegasus has granted to Anasazi a non-exclusive, nontransferable license to use the UltraSwitch, HCC and BDT Software in the Switch Facility during the term of this Agreement and only pursuant to the terms of this Agreement. Anasazi shall permit the components of the Switch to bear such signage or other notices and shall execute such UCC statements and other documents as Pegasus reasonably requests to record ownership interests in the components of the Switch of Pegasus, its lender(s), its lessor(s) or other persons with a protectable interest in the Switch. Anasazi shall not remove any tags, labels or other notices of ownership interests in the components of the Switch which Pegasus causes to be affixed to the components of the Switch. ARTICLE IX LIABILITY LIMITATIONS: INDEMNIFICATION 9.1 Limitation of Liability. (a) If Anasazi shall, during the Initial Term or any Renewal Term, be liable to one or more of Customer and the Participants as a result of any disputes, controversies or claims of any kind or nature arising under or in connection with this Agreement or the relationship created hereby (whether any such breaches, disputes, controversies or claims are based upon contract, tort (including negligence) or any other legal theory), all Losses from all such breaches, disputes, controversies or claims are limited to actual and provable damages which are reasonably incurred by Pegasus. The cumulative amount of all such Losses (including, but not limited to, liquidated damages or penalties) recoverable against Anasazi for all such breaches, disputes, controversies and claims during the entire Term and any Renewal Term(s), will not exceed, in the aggregate, an amount equal to the total amount of Anasazi's Charges under this Agreement for the six months immediately preceding the Arbitration Panel's (as defined in Schedule 12.1) then current final determination of the amount of damages recoverable against Anasazi. (b) NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT TO THE CONTRARY (EXCEPT FOR THE CATEGORY OF DAMAGES PROVIDED FOR IN SECTION 5.1 HEREOF), IN NO EVENT SHALL ANASAZI, ANY OF ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE FOR ANY DAMAGES OF PEGASUS, ANY PARTICIPANT OR ANY OTHER PERSON WHICH: (i) WERE NOT REASONABLY FORESEEABLE BY A PERSON OR ENTITY IN ANASAZI'S POSITION; (ii) ARE SPECULATIVE IN NATURE; (iii) ARE NOT READILY OR REASONABLY 15 16 DETERMINABLE AND PROVABLE IN DOLLAR TERMS; (iv) CONSTITUTE PUNITIVE DAMAGES, LOSS OF GOODWILL OR OTHER SIMILAR INTANGIBLE; OR (v) COULD HAVE BEEN AVOIDED, USING REASONABLE DILIGENCE, BY PEGASUS, SUCH PARTICIPANT OR SUCH OTHER PERSON. (c) Exceptions. Notwithstanding the foregoing provisions of Section 9.1(a), the liability limitations contained in such subsection shall not apply with respect to proven damages caused solely and directly by Anasazi's intentional misconduct constituting a violation of applicable civil or criminal law, or other acts for which a limitation is unenforceable as construed by applicable law. However, the foregoing exception shall not apply if such damages were directly caused by Anasazi's employee or agent and (i) Anasazi had exercised reasonable care in supervising such employee or agent or (ii) such employee or agent was acting materially outside the scope of his or her employment or agency without Anasazi's knowledge. (d) Exculpation. Unless resulting from Anasazi's negligence or breach of this Agreement, in the event of any alleged defect or failure in the Required Equipment or any other Equipment or any other Software utilized by Pegasus or any Participant, such Person shall look solely to its rights and remedies under its agreements with the Equipment or Software providers and will bring no claims against Anasazi or any of its Affiliates as a result of such alleged defect or failure including claims of non-performance or breach of Anasazi's obligations under this Agreement. (e) Limitations on Actions. Pegasus may not assert any cause of action against Anasazi under this Agreement that occurred more than two years prior to the filing of the suit or the commencement of arbitration proceedings alleging such cause of action. (f) Duty to Mitigate. Each party shall have a duty to mitigate damages for which the other party is responsible. (g) Acknowledgment. Pegasus and Anasazi expressly acknowledge that the limitations contained in this Section 9.1 represent the express agreement of the parties with respect to the allocation of risks between the parties, including the level of risk to be associated with the provision of the Services as related to the amount of the payments to be made to Anasazi for such Services, and each party fully understands and irrevocably accepts such limitations. (h) Force Majeure. No party shall be liable for any default or delay in the performance of its obligations under this Agreement if and to the extent such default or delay is caused, directly or indirectly, by; (i) fire, flood, elements of nature or other acts of God; (ii) any outbreak or escalation of hostilities, war, riots or civil disorders in any country; (iii) any act or omission of the other party or any governmental authority; (iv) any labor disputes (whether or not the employees' demands are reasonable or within the party's power to satisfy), except that Pegasus shall have the right, if not in contravention of applicable law or a labor agreement to which Anasazi is bound, to replace any absent employees (and shall in such case, supervise them), solely for purposes of minimizing any disruption to Switch operations; or (v) nonperformance by a third party (despite using all reasonable, necessary, diligent and expedient efforts by a party to cause such performance or to prevent or cure such events) excluding, however, in the case of Pegasus, the nonpayment of any Participant of any charges owed to Pegasus, or any other similar cause beyond the reasonable control of such party including, without limitation, failures or fluctuations in telecommunications equipment or lines or other equipment beyond the reasonable control of such party. Force majeure events shall not, on their face, excuse, reduce or delay Anasazi's obligations to provide back-up power pursuant to Section 3.1(d), air conditioning or to promptly access backup communication lines unless such event renders such alternate power supply, air conditioning 16 17 or backup communication lines unavailable. In any such event, the non- performing party will be excused from any further performance or observance of the obligations so affected only for as long as such circumstances prevail and such party continues to use commercially reasonable efforts to recommence performance or observance as soon as practicable. 9.2 Indemnities. (a) Indemnity by Anasazi. Anasazi agrees to defend and indemnify Pegasus and hold Pegasus, its stockholders, directors, officers, employees, consultants, representatives and agents harmless from, against, for and in respect of any and all damages, losses, obligations, liabilities, costs and expenses, including reasonable attorneys' fees and other costs and expenses incident to any suit, action, investigation, claim or proceeding suffered, sustained, incurred or required to be paid by Pegasus by reason of: (i) the gross negligence or willful misconduct of Anasazi, its directors, officers, employees, consultants, representatives or agents; or (ii) any actual or alleged infringement or violation of any third party copyright, patent, trademark, trade name, trade secret or other proprietary right arising from Anasazi's use of the Anasazi Commercial Software in its provision of Services pursuant to this Agreement; provided, however, that Anasazi's obligation to indemnify and hold Pegasus harmless shall not apply to any modification or enhancement of the Anasazi Commercial Software during the term of this Agreement which was performed by or on behalf of Pegasus without Anasazi's consent. The limitations in Section 9.1 hereof are applicable to Anasazi's indemnification obligations herein. (b) Indemnity by Pegasus. Pegasus agrees to defend and indemnify Anasazi and hold Anasazi, its stockholders, directors, officers, employees, consultants, representatives and agents harmless from, against, for and in respect of any and all damages, losses, obligations, liabilities, costs and expenses, including reasonable attorneys' fees and other costs and expenses incident to any suit, action, investigation, claim or proceeding suffered, sustained, incurred or required to be paid by Anasazi by reason of: (i) any claim, demand, charge, action, cause of action or other proceeding asserted by any Participant or other third party (e.g. Pegasus' third party vendors covered by this Agreement) against Anasazi or any of its Affiliates which arises in connection with, or relates to (or is claimed to relate to), any of the Services provided to Pegasus or to any Participant under this Agreement, including, without limitation, any such claim, demand, charge, action, cause of action or other proceeding resulting from the breach or alleged breach by Anasazi or Pegasus of any of its respective obligations under this Agreement or from, in whole or part, the negligence or alleged negligence of Anasazi in providing the Services hereunder; (ii) the gross negligence or willful misconduct of Pegasus, its stockholders, directors, officers, employees, consultants, representatives or agents; and (iii) any action or alleged infringement or violation of any copyright, patent, trademark, trade name, trade secret or other proprietary right of any other person resulting from any development, modification or enhancement of the Switch Software and the Anasazi Commercial Software during the term of this Agreement which was performed by an employee, agent, consultant or representative of Pegasus. (c) Infringement Claims. In the event: (i) a claim or action is brought alleging infringement or violation of any copyright, patent, trademark, trade name, trade secret or other proprietary, right of another person; or (ii) the UltraSwitch Software and/or the Anasazi Commercial Software is held to constitute an infringing use, then the indemnifying party may, at its sole expense and with the prior consent of the indemnified party, which consent will not be unreasonably withheld, settle such claim, action or judgment by either: (a) obtaining an exclusive, worldwide, royalty-free license from the third party to enable the indemnified party to continue to use the Switch Software and/or a non-exclusive, worldwide, royalty-free license from the third party to enable the indemnified party to continue to use the Anasazi Commercial Software; (b) modify the Switch Software and/or the Anasazi Commercial 17 18 Software so that its continued use becomes non-infringing; or (c) replace the Switch Software and/or the Anasazi Commercial Software with equally suitable, functionally equivalent, non-infringing software. (d) Indemnification for Third-Party Claims. Notwithstanding anything else contained in this Agreement, no obligation to indemnify which is set forth in this Article IX shall apply unless the party claiming indemnification notifies the other party as soon as practicable (within sixty (60) days after the notice, or such shorter period as is required to avoid any prejudice in the claim, suit or proceeding) of any matters in respect of which the indemnity may apply and of which the notifying party has knowledge and gives the other party the opportunity to control the response thereto and the defense thereof; provided, however, that the party claiming indemnification shall have the right to participate in any legal proceedings to contest and defend a claim for indemnification involving a third party and to be represented by its own attorneys, all at such party's cost and expense; provided further, however, that no settlement or compromise of an asserted third party claim other than the payment of money may be made without the prior written consent of the party claiming indemnification. (e) Claims Period. Any claim for indemnification under this agreement must be made prior to the earlier of: (a) one year after the party claiming indemnification becomes aware of the event for which indemnification is claimed; or (b) one year after the earlier of the termination of this Agreement or the expiration of the Term of this Agreement. ARTICLE X EVENTS OF DEFAULT 10.1 Nature of Event. The term "Event of Default" means the occurrence of any one or more of the following events: (a) The failure of Anasazi or Pegasus to perform, observe or comply with any covenant, term or agreement contained in the Agreement; or (b) Pegasus or Anasazi shall have: (i) applied for or consented to the appointment of a conservator, receiver, trustee, liquidate or custodian or the like of itself or of its property; (ii) admitted in writing its inability to pay its debts generally as they become due; (iii) made a general assignment for the benefit of creditors; (iv) become or been adjudicated as bankrupt or insolvent; (v) filed a voluntary petition of bankruptcy under the federal bankruptcy laws of the United States or filed a voluntary petition or answer seeking reorganization, an arrangement with creditors or an order for relief or seeking to take advantage under any bankruptcy, insolvency or other similar law; (vi) filed an answer admitting the material allegations of, or consented to, or defaulted in, a petition filed against it in any proceeding under any bankruptcy, insolvency or other similar law; (vii) consented to the entry of an order for relief in an involuntary case under any 18 19 bankruptcy, insolvency or other similar law; (viii) had a proceeding instituted against it in any court of competent jurisdiction under any bankruptcy, insolvency or other similar law seeking an order for relief or an adjudication in bankruptcy, reorganization, dissolution, winding up, liquidation, composition or arrangement with creditors, a readjustment of debts, the appointment of a conservator, receiver, trustee, liquidator or custodian or the like of itself for of its property, or other like relief under any bankruptcy, insolvency or other similar law, and such court shall have entered an order of decree which remains unstayed and in effect for a period of sixty (60) consecutive days. 10.2 Notice and Opportunity to Cure. Upon the occurrence of an Event of Default, the non-defaulting party shall notify the defaulting party in writing of such default and shall allow the defaulting party fifteen (15) days following the defaulting party's receipt of such notice within which to cure such default, during which 15 day period the non-defaulting party shall not exercise any of the remedies available to it under Section 10.3; provided, however, (i) that if the default is non-payment by Pegasus of any Charge (other than the Monthly Charge which if not paid by the due date shall have a cure period of five (5) business days) which was not disputed pursuant to the procedures in Section 6.1(f), then the cure period shall be ten (10) business days after receipt of notice, and (ii) notwithstanding the foregoing, if the occurrence of an Event of Default causes either a total loss of operation of the Switch or a loss of one or more of the critical functions of the Switch such that the Switch cannot be restored to full operation within 24 hours of the occurrence of such Event of Default, then the non-defaulting party may notify the defaulting party of such default and immediately exercise one or more of the remedies available to it under Section 10.3. 10.3 Remedies. Upon the occurrence of an Event of Default and the expiration of the applicable cure period as provided in Section 10.2, the non- defaulting party shall have the right to: (a) Terminate this Agreement in accordance with the provisions of Articles X and XI; (b) Exercise any and all rights or remedies against the defaulting party afforded by the laws of the applicable jurisdiction, including but not limited to, those afforded by this Agreement and those available at law or in equity; provided, however, that: (i) no party shall have a right of set-off except as directed by an arbitrator; (ii) Pegasus shall not be entitled to seek or obtain injunctive relief in response to a termination notice from Anasazi (to suspend Services or terminate the Agreement) for a non-payment Event of Default unless and until it has commenced arbitration pursuant to Article XII, has escrowed in an account for Anasazi's benefit all Charges in default and prepays prior to each month during which arbitration is pending or conducted, at minimum, the Monthly Fee plus an amount equal to the average of all monthly invoiced amounts during the prior three months; and (iii) the amount of monetary damages Anasazi shall be required to pay Pegasus under this Section 10.3(b), together with the amounts Anasazi shall be required to pay Pegasus under Section 9.2(a), shall in no event exceed the limitation(s) described in Section 9.1. 10.4 Remedies Not Exclusive. Except to the extent monetary damages are limited pursuant to the provisions of Sections 9.1 and 9.2, no remedy herein conferred upon or reserved to the parties under this Article XI or under any other provision of this Agreement is intended to be exclusive, but rather each such remedy shall be cumulative of and in addition to all other rights and remedies granted to the parties at law or in equity, whether given hereunder or thereafter existing, and whether or not the parties shall have instituted any suit or any other action in connection therewith. 10.5 Fees and Expenses. Should an Event of Default occur and the non- defaulting party employ attorneys or incur other expenses for the enforcement or performance of any covenant, term or agreement of the defaulting party hereunder, if the arbitrator so determines, the defaulting party 19 20 shall on demand pay to the non-defaulting party the reasonable fees of such attorneys and such other reasonable expenses so incurred. 10.6 Waivers. The acceptance by either part at any time and from time to time of performance by the other party shall not be deemed to be a waiver of any default or Event of Default then existing. No waiver by either party of any particular default or Event of Default shall be deemed to be a waiver of any default or Event of Default other than the particular default or Event of Default waived. No delay or omission by either party in exercising any right or remedy hereunder shall impair such right or remedy or be construed as a waiver thereof or any acquiescence therein, nor shall any single or partial exercise of any such right or remedy preclude other or further exercise thereof, or the exercise of any other right or remedy hereunder or otherwise. ARTICLE XI TERMINATION 11.1 Termination. This Agreement may be terminated and abandoned without further notice at any time upon the occurrence of the following events: (a) Pegasus and Anasazi may mutually terminate this Agreement in writing at any time; (b) Upon the occurrence of an Event of Default and the expiration of the applicable cure period, if any, the non-defaulting party may terminate this Agreement pursuant to Section 10.3, or Anasazi, at its option, may terminate or suspend all or a portion of the Services until a non-payment Event of Default has been cured; (c) Pegasus may terminate this Agreement in the event a fire, flood, or other disaster occurs which results in either a total loss of operation of the Switch or a loss of one or more critical functions of the Switch such that the Switch cannot be restored to full operation within 96 hours of the occurrence of such event; (d) Pegasus or Anasazi may terminate this Agreement if any court or governmental agency restrains, enjoins, prohibits, invalidates, or sets aside the consummation of any of the transactions contemplated hereby; (e) Pegasus may terminate this Agreement at any time following the acquisition by one or more of the Participants of 50% or more of Anasazi's assets or 50% or more of Anasazi's outstanding voting securities; (f) Pegasus may terminate this Agreement at any time upon its election to withdraw from the hotel reservation switching business for a period of at least two (2) years; provided, however, Pegasus shall give Anasazi six (6) months prior written notice of its intent to terminate this Agreement pursuant to this subsection (f); and (g) Pegasus may terminate this Agreement within twelve months following the acquisition of 50% or more of Anasazi's assets or 50% or more of Anasazi's voting securities provided that such notice shall not provide an effective termination date beyond the 12 month period and shall be provided to the acquiring party or successor no later than six (6) months after the acquisition date. (h) Notwithstanding any other provision herein, Pegasus may terminate this agreement upon providing at least six months notice of termination to Anasazi. 20 21 11.2 Effect of Termination. Upon the termination of this Agreement pursuant to the provisions of Section 11.1: (a) Within ten (10) days after effective date of termination, Anasazi shall submit to Pegasus a final billing statement for all unpaid fees owed to it by Pegasus for services performed by Anasazi prior to the date of termination. The billing statement shall be prepared by Anasazi and paid by Pegasus in accordance with the terms of Article VI; provided, however, if this Agreement shall be terminated by Pegasus for any reason other than upon the occurrence of an Event of Default by Anasazi under Section 11.1(b) hereof, such payments shall be made upon delivery by Anasazi of those items set forth in subsections 11.2(b) through (d) hereof; (b) In the event this Agreement is terminated by Pegasus pursuant to Sections 11.1(b)-(e), within ten (10) business days after the termination of this Agreement, Anasazi shall deliver to Pegasus all notebooks, data, information and other material acquired, compiled or generated by Anasazi with respect to the Switch. (c) Within ten (10) business days after the termination of this Agreement, Anasazi and Pegasus shall deliver to each other all Confidential Information furnished to either of them by the other, together with all copies of the same. (d) In the event this Agreement is terminated by Pegasus pursuant to Sections 11.1(b)-(e), immediately upon termination of this Agreement or at such earlier date as Pegasus reasonably requests, Anasazi shall deliver to Pegasus or Pegasus' designee, for the cost of the media upon which it is provided, a copy of each Switch data tape then in Anasazi's possession, a copy of the source and object codes in their then current forms for the Anasazi Commercial Software and copies of such Switch records as Pegasus reasonably requests, and make the Hardware, the Network Components, the Support Equipment and the Software available for packing and pick-up by Pegasus and/or its designees, at Pegasus' expense. (e) In the event this Agreement is terminated pursuant to Section 11.1(a), or terminated by Pegasus pursuant to Section 11.1(b)-(d), to facilitate transition to operation of the Switch by a party other than Anasazi, and subject to Pegasus' payment to Anasazi of all outstanding amounts due under invoices rendered, Anasazi shall make personnel knowledgeable in Switch operations, the Hardware, the Network Components, the Support Equipment and the Software available to train and consult with Pegasus and/or Pegasus' designees as reasonably requested during the two-month period following termination, provided, however, that Anasazi shall not be required to provide such resources in excess of the hours and periods otherwise provided for under Article III hereof, and provided that such non-Pegasus designees shall enter into a confidentiality agreements with Anasazi with terms at least as stringent as those in Article VII hereof. Pegasus shall pay for such services at Anasazi's then prevailing hourly rate(s) for the level(s) of personnel rendering such services, and shall reimburse the traveling expenses of such personnel, if any, in accordance with Section 6.1(d). 11.3 Survival of Certain Covenants. In the event this Agreement is terminated in accordance with this Article XI, this Agreement shall be of no further force or effect, except for Articles VII, VIII, XI, XII and XIII which shall not be affected by the termination of this Agreement but shall survive the termination hereof pursuant to their terms. 21 22 ARTICLE XII DISPUTE RESOLUTION 12.1 Dispute Resolution Procedures. Schedule XII attached hereto sets forth the procedures governing any and all disputes arising between the parties hereunder or in connection herewith. ARTICLE XIII GENERAL 13.1 Relationship of Parties. (a) In furnishing the Services to Pegasus, Anasazi is acting only as an independent contractor. This Agreement is not intended to create a joint employer, shared employee or leased employee relationship with respect to any employees of either party. Except as otherwise expressly provided in this Agreement, Anasazi has the sole right to supervise, manage, contract, direct, procure, provide or cause to be provided, all Services to be provided pursuant to this Agreement. Except as otherwise expressly provided in this Agreement, Anasazi does not undertake by this Agreement or otherwise to perform any obligation of Pegasus, whether regulatory or contractual, or to assume any responsibility for the business or operations of Pegasus. Under no circumstances shall Anasazi be considered or deemed under this Agreement to be a joint venture or partner of Pegasus or in any relationship with Pegasus under this Agreement carrying with it fiduciary or trust responsibilities, and no other similar relationship is intended or created between the parties pursuant to this Agreement (b) Except for Anasazi's current business relationship with Avis Rent A Car System, Inc. and except as otherwise permitted by Pegasus in writing, Anasazi covenants and agrees that it will not, at any time during the term of this Agreement, directly or indirectly: (i) own or control more than 50% of the equity or assets of any business which engages in the creation, development, installation, maintenance or operation of an Automated Lodging Reservation Inquiry Switching Network; (ii) manage or operate any business which, directly or indirectly, engages in the creation, development, installation, maintenance or operation of an Automated Lodging Reservation Inquiry Switching Network; or (iii) serve as a consultant, contractor, advisor, programmer or supervisor in the creation, development, installation, maintenance or operation of any Automated Lodging Reservation Inquiry Switching Network. The remedy at law for any breach or attempted breach by Anasazi of the provisions of this Section 13.1(b) will be inadequate and Pegasus shall be entitled to temporary or permanent injunctive relief against any breach or attempted breach of such provision without the necessity of posting bond or proving actual damages. It is the express intention of the parties hereto to comply with all laws which may be applicable to this Section 13.1(b). Should any restriction contained in this Section 13.1(b) be found to exceed in duration or scope the restriction permitted by law, it is expressly agreed that the covenant not to compete contained in this Section 13.1(b) may be reformed or modified by the final judgement of a court of competent jurisdiction to reflect a lawful and enforceable duration or scope. If any one or more of the provisions contained in this Section 13. 1(b) shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. (c) Except as otherwise permitted by Anasazi in writing, Pegasus covenants and agrees that it will not, at any time during the term of this Agreement, directly or indirectly (i) own or control at least 50% of the equity or assets of any U.S.-based business which engages in the creation, development, installation, licensing, maintenance or operation of any Central Reservation System marketed in competition with Anasazi or contemplated to be marketed in 22 23 competition with Anasazi or which engages in the business of providing Central Reservation System Services which is in competition with Anasazi or which contemplates being in competition with Anasazi; (ii) manage or operate any business which, directly or indirectly, engages in the creation, development, installation, maintenance or operation of a Central Reservation System marketed in competition with Anasazi or contemplated to be marketed in competition with Anasazi or which engages in the business of providing Central Reservation System Services which is in competition with Anasazi or which contemplates being in competition with Anasazi; or (iii) serve as a consultant, contractor, advisor, programmer or supervisor in the creation, development, installation, maintenance or operation of a Central Reservation System or in the provision of Central Reservation System Services, which business is in competition with Anasazi or contemplates being in competition with Anasazi, provided that nothing herein is intended to prohibit Pegasus from engaging in general consulting activities which are in its normal and ordinary course of business activities pertaining to the exploitation of the Switch and further provided that nothing herein shall prohibit Pegasus from entering into agreements with central reservation system providers to include in the central reservation system provider's system any one or more of the products or services offered by Pegasus. The remedy at law for any breach or attempted breach by Pegasus of the provisions of this Section 13.1(c) will be inadequate and Anasazi shall be entitled to temporary or permanent injunctive relief against any breach or attempted breach of such provision without the necessity of posting bond or proving actual damages. It is the express intention of the parties hereto to comply with all laws which may be applicable to this Section 13.1(c). Should any restriction contained in this Section 13.1(c) be found to exceed in duration or scope the restriction permitted by law, it is expressly agreed that the covenant not to compete contained in this Section 13.1(c) may be reformed or modified by the final judgment of a court of competent jurisdiction to reflect a lawful and enforceable duration or scope. If any one or more of the provisions contained in this Section 13.1(c) shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. (d) Notwithstanding the foregoing, either party shall have the right to terminate this Agreement without liability upon six months prior written notice if: (i) 50% of more of the assets or equity of Anasazi are proposed to be sold to an entity or person owning, operating, controlling or participating, directly or indirectly, in at least 50% or more of a business engaged in the operation or commercial exploitation of an Automated Lodging Reservation Switching Network; or (ii) 50% of more of the assets or equity of Pegasus are proposed to be sold to an entity or person owning, operating, controlling or participating, directly or indirectly, in at least 50% or more of a business engaged in the operation or commercial exploitation of a Central Reservation System or Central Reservation System Services. 13.2 Consents and Approvals. If either party requires the consent or approval of the other party for the taking of, or omitting to take, any action under this Agreement, such consent or approval shall not be unreasonably withheld or delayed. 13.3 Notices. Except as otherwise expressly provided in this Agreement and except for routine operational communications, any notice or other communication under this Agreement to either party shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally (or by courier) or sent by telex, telecopy, other facsimile transmission (with confirmation), or certified or registered mail, postage prepaid as follows: 23 24 If to Anasazi, to: Anasazi Inc. 7500 N. Dreamy Draw Drive Suite 120 Phoenix, AZ 85020 Facsimile transmission: (602) 861-7687 Attention: Joe Atteridge If to Pegasus, to: Pegasus Systems Inc. 3811 Turtle Creek Blvd. Suite 1100 Dallas, TX 75219 Facsimile transmission: (214) 528-5675 Attention: John F. Davis With a copy (which shall not constitute effective notice) to: Ric Floyd, Counsel A party may from time to time change its address or designee for notification purposes by giving the other party prior notice in the manner specified above of the new address or the new designee and the subsequent date upon which the change will be effective. 13.4 Account Manager. Anasazi and Pegasus shall each designate one person, and shall notify each other immediately in writing of the person so designated, who shall serve as the Account Manager for all communication regarding the performance of their respective duties and obligations under this Agreement. The person designated as the Account Manager by Anasazi and Pegasus shall be fully authorized and empowered by Anasazi and Pegasus, respectfully to act, in his or her sole discretion, for and on behalf of Anasazi and Pegasus, respectfully in response to any communication regarding performance under this Agreement. 13.5 Assignment. Anasazi's rights and duties under this Agreement are personal and not assignable without the prior written consent of Pegasus, except Anasazi may, without the consent of Pegasus, assign its rights and duties under this Agreement to an Affiliate, provided that such assignee agrees in writing to be bound by this Agreement. Anasazi may subcontract with third parties to provide required services, but will retain ultimate responsibility for ensuring that such services are properly rendered. Pegasus' rights and duties may be assigned without Anasazi's consent to any entity which Pegasus controls or which purchases either (a) more than 50% of the assets of the business in which the Switch is used or (b) a controlling interest in Pegasus, provided the assignee agrees in writing to be bound by this Agreement. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted assigns and successors. 13.6 Legal Compliance. Pegasus shall ensure that; (a) the services offered by Pegasus ("Pegasus Services") to Participants and others through the provision of Services by Anasazi; (b) the materials provided to Anasazi for use in connection with the Services; (c) the methods used by Pegasus to offer, sell and deliver Pegasus' Services to Pegasus; and (d) the contents of all advertising, marketing and promotional communications, comply with all applicable laws and regulations. Pegasus will possess all authorizations, consents, registrations, exemptions and licenses necessary to offer, sell and deliver, and to engage Anasazi to offer, sell and deliver, Pegasus' Services to Pegasus' customers in all jurisdictions where such offers, sales and deliveries are to be made. Anasazi shall ensure that it complies with all applicable laws and regulations with respect to the provision of Services under this Agreement. 24 25 13.7 No Third-Party Beneficiaries. Nothing contained in this Agreement is intended to confer upon any Person (other than the parties hereto) any rights, benefits or remedies of any kind or character whatsoever, and no Person (including, without limitation, the Participants) shall be deemed a third-party beneficiary under or by reason of this Agreement. 13.8 Amendment and Modification: No Waiver. This Agreement may be amended or modified only by a written instrument duly executed by the parties hereto. The failure of either party at any time or times to require performance of any provision of this Agreement shall not affect the right of a party at a later time (not to exceed 12 months after the non-performance) to enforce such provision. 13.9 Severability. If any provision or portion of a provision of this Agreement or the application of any such provision or portion of a provision to any Person or circumstance, shall be declared judicially or by the Arbitration Panel (as defined in Schedule XII) to be invalid, unenforceable or void, such decision shall not have the effect of invalidating or voiding the remainder of this Agreement (or the remainder of the provision), it being the intent and agreement of the parties that this Agreement shall be deemed amended by modifying such provision or portion thereof to the extent necessary to render it valid, legal and enforceable while preserving its intent or, if such modification is not possible, by substituting therefor another provision or portion thereof that is valid, legal and enforceable and that achieves the same objective. 13.10 Entire Agreement. This Agreement (including the Schedules hereto) and the documents and instruments executed and delivered in connection herewith constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior and contemporaneous agreements and understandings, whether written or oral, between the parties with respect to the subject matter hereof, and there are no representations, understandings or agreements relating to the subject matter hereof that are not fully expressed in this Agreement and the documents and instruments executed and delivered in connection herewith. All Schedules attached to this Agreement are expressly made a part of, and incorporated by reference into, this Agreement. This Agreement, as of the Effective Date, shall have the effect of terminating and nullifying the Original Agreements (including all addenda and amendments thereto) and the parties' rights and obligations thereunder, except for liabilities incurred prior the Effective Date. Notwithstanding anything to the contrary in this Agreement or the Original Agreements, Pegasus hereby terminates its rights and Anasazi's obligations of the Original Agreements, and Anasazi, as of the Effective Date, shall not be bound thereby, but shall be bound by the provisions of Section 13.1 thereof. 13.11 Governing Law. This Agreement shall be construed in accordance with, and the rights of the parties shall be governed by, the substantive laws of the State of Arizona without giving effect to any choice-of-law rules that may require the application of the laws of another jurisdiction. 13.12 Certain Construction Rules. The description of any Services contained in the Schedules is qualified in its entirety by reference to the information set forth in the provisions of this Agreement. To the extent that the provisions of this Agreement and of the Schedules are in any respect inconsistent, the provisions of this Agreement shall govern and control. To the extent that one or more provisions in the Operations Manual is inconsistent with or in contravention of this Agreement (including the Schedules), this Agreement shall govern, and unless the Agreement is mutually amended by the parties to address the inconsistency, the Operations Manual will be amended or implemented by the parties to conform to the Agreement. The Article and Section headings and the table of contents contained in this Agreement are for convenience of reference only and shall in no way define, limit, extend or describe the scope or intent of any provisions of this Agreement. In addition, as used in this Agreement, unless otherwise provided to the contrary, (a) all references to days, months, quarters or years shall be deemed references to calendar days, months, quarters or years, and b) any reference to a "Section," "Article," or "Schedule" shall be deemed to refer to a Section or Article of this Agreement or a Schedule attached to this Agreement. 25 26 13.13 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which taken together shall constitute one instrument binding on all the parties, notwithstanding that all the parties are not signatories to the original or the same counterpart. 26 27 IN WITNESS WHEREOF, this Agreement has been duly executed by the parties as of the date first above written. ANASAZI INC. By:/s/ J. ATTERIDGE ---------------------------- Name: J. ATTERIDGE -------------------------- Title: PRESIDENT & COO ------------------------- PEGASUS SYSTEMS, INC. By: /s/ B. NICHOLSON ---------------------------- Name: B. NICHOLSON -------------------------- Title: PRESIDENT ------------------------- 27 28 SCHEDULE VI ANASAZI CHARGES Subject to the provisions of Article VI, the Monthly Facilities Management Fee will initially be $39,530 per calendar month. HOURLY RATES (as of January 1, 1996) <TABLE> <CAPTION> -------------------------------------------------------------------------------- Standard Hourly Rate Pegasus Rate -------------------------------------------------------------------------------- <S> <C> <C> VP Dir, Sr. Management $225 $175 Sr. Consultant $175 $150 Project Manager $150 $135 Sr. System Administrator $150 $135 System Administrator $100 $ 90 Sr. System Engineer $135 $115 System Engineer $100 $ 90 Jr. System Engineer $ 75 $ 65 System Analyst $100 $ 90 Sr. Database Analyst $125 $100 Database Analyst $ 75 $ 65 Sr. QA Analyst $ 95 $ 85 Tester $ 50 $ 45 Tech Writer $ 55 $ 45 Support Analyst $ 55 $ 45 Application Trainer $ 55 $ 45 </TABLE> Anasazi reserves the right to apply the Standard Hourly Rate during any period in which Pegasus is overdue on the payment of any charge o Travel time to/from Customer is charged portal to portal. o Reasonable travel, lodging and incidental expenses are additional. 29 SCHEDULE XII ARBITRATION PROCEDURES DISPUTE RESOLUTION 1. Arbitration. If the parties are unable to resolve any dispute, controversy or claim between the parties of any kind or nature arising under or in connection with the Agreement or the relationship of the parties under the Agreement (a "Dispute") informally or in accordance with the procedures, if any, set forth in the Agreement relating to such Dispute, then such Dispute shall be submitted to mandatory and binding arbitration at the election of either party (the "Disputing Party"). The procedures set forth in this Schedule 12.1 shall be governed by The Federal Arbitration Act, 9 U.S.C. Section 1, et seq. Except as otherwise provided in this Section 1, the arbitration shall be pursuant to the Commercial Arbitration Rules of the American Arbitration Association (the "AAA"). a. Initiation of Arbitration; Selection of Arbitration Panel. To initiate the arbitration, the Disputing Party shall notify the other party in writing (the "Dispute Notice"), which shall (i) describe in reasonable detail the nature of the Dispute, (b) state the amount of the claim, (iii) specify the requested relief, and (iv) name an arbitrator who (A) has been licensed to practice law in the United States for at least ten years, (B) is not then an employee of either party or of an Affiliate of either party, and (C) has not been retained or employed by or rendered professional services to either party or an Affiliate of either party for a five-year period prior thereto (the "Basic Qualifications"). Within 15 days after the other party's receipt of the Dispute Notice, such other party shall file, and serve on the Disputing Party, a written statement (i) answering the claims set forth in the Dispute Notice and including any affirmative defenses of such party; (ii) asserting any counterclaim, which shall (A) describe in detail the nature of the Dispute relating to the counterclaim, (B) state the amount of the counterclaim, and (C) specify the requested relief; and (iii) naming a second arbitrator satisfying the Basic Qualifications. Promptly, but in any event within 15 days thereafter, the two arbitrators so named shall select a third neutral arbitrator from a list provided by the AAA of potential arbitrators who satisfy the Basic Qualifications and who have no past or present relationships with the parties or their counsel, except as otherwise disclosed in writing to and approved by the parties. The arbitration shall be heard by a panel of the three arbitrators so chosen (the "Arbitration Panel"), with the third arbitrator so chosen serving as the chairperson of the Arbitration Panel. b. Conduct of Arbitration. The arbitration hearing shall be held in such neutral location as the parties may mutually agree. The Arbitration Panel is specifically authorized to render partial or full summary judgment as provided for in the Federal Rules of Civil Procedure. The Federal Rules of Evidence shall apply to the arbitration hearing. The party bringing a particular claim or asserting an affirmative defense shall have the burden of proof with respect thereto. The arbitration proceedings and all testimony, filings, documents and information relating to or presented during the arbitration proceedings shall be deemed to be Confidential Information subject to Article VII of the Agreement. The Arbitration Panel shall have no power or authority, under the Commercial Arbitration Rules of the AAA or otherwise, to relieve the parties from their agreement hereunder to arbitrate or otherwise to amend or disregard any provision of the Agreement or the Schedules thereto, including this Schedule 12.1, including without limitation the provisions of this Section 1. c. Findings and Conclusions. Within 15 days after the closing of the arbitration hearing, the Arbitration Panel shall prepare and distribute to the parties a writing setting forth the Arbitration Panel's findings of fact and conclusions of law relating to the Dispute, including the reasons for the giving or denial of any award. The findings and conclusions and the award, if any, shall be deemed to be Confidential Information subject to Article VII of the Agreement. d. Expeditious Proceedings. The Arbitration Panel is instructed to schedule promptly all discovery and other procedural steps and otherwise to assume case management initiative and control to effect an efficient and expeditious resolution of the Dispute. The Arbitration Panel is authorized to issue monetary sanctions against either party if, upon a showing of good cause, such party is unreasonably delaying the proceeding. e. Award. Any award rendered by the Arbitration Panel shall be final, conclusive and binding upon the parties and any judgment thereon may be entered and enforced in any court of competent jurisdiction. f. Expenses of Proceeding. Each party shall bear 50% of all fees, costs and expenses of the arbitrators, and notwithstanding any law to the contrary, each party shall bear all the fees, costs and expenses of its own attorneys, experts and witnesses; provided, however, that in connection with any judicial proceeding to compel arbitration pursuant to this Agreement or to enforce any award rendered by the Arbitration Panel, the prevailing party in such a proceeding shall be entitled to recover reasonable attorneys' fees and expenses incurred in connection with such proceeding, in addition to any other relief to which it may be entitled. 1 30 2. Effect of Contract Rights During Arbitration. Nothing in this Schedule 12.1 shall be construed to prevent a party from exercising or enforcing its rights and remedies or to excuse a party from performing an obligation (including, but not limited to, making payments when due) set forth in, and pursuant to, the terms of the Agreement, notwithstanding the initiation and pendency of an arbitration proceeding. The provisions of Section 10.3(b) of the Agreement are incorporated herein as part of the arbitration procedures. 2 31 EXHIBIT A COMPONENTS OF THE SWITCH Hardware 1. Those certain transaction processing engines (TPEs) provided by Pegasus. 2. Those certain communication engines (CEs) provided by Pegasus. 3. That certain communication equipment provided by Pegasus for the purpose of establishing and maintaining electronic data communication links amongst UltraSwitch, HCC, BDT and Participants. 4. Those certain communication interface boards used in the CEs. 5. Those certain items of hardware comprising part of the Switch Test Environment for the Switch. 6. Those certain items of hardware comprising the Lanyon Terminal interface System. 7. Those certain items of hardware comprising the Bulk Data Transfer System. 8. Those certain items of hardware comprising the TravelWeb System. Network Components 1. An Ethernet network, which includes sub-networks. 2. A network management system. Software 1. DC/OSx operating system software (including the C programming language) obtained under license from Pyramid Technology Corporation pursuant to a Software Binaries Sublicense Agreement for use in connection with the operation of the TPEs. 2. Interactive UNIX operating system software obtained under license from the vendor pursuant to self-executing "shrink-wrap" or "box-top" license for use in connection with the operation of the CEs. 3. Informix data base software obtained under license from the vendor thereof pursuant to a self-executing "shrink-wrap" or "box-top" license for use in conjunction with the UNIX operating system in connection with the operation of the TPEs. 4. Anasazi Commercial Software (KivaNet) which includes a subset of "primitives" (macro language) for lodging systems and other common-use modules (algorithms and techniques with general applicability to many types of data processing applications) and protocol gateways, either currently in existence or created in conjunction with the performance of this Agreement, all as obtained under license from Anasazi dated December 31, 1990 for use in connection with the Switch. 32 5. UltraSwitch software developed by Anasazi and Pegasus exclusively for use in connection with the Switch and acquired by Pegasus pursuant to the Development, License and Funding Agreement dated November 14, 1988, as amended, including all Participant interface processes and all software developed by Anasazi and Pegasus pursuant to the Software Development Agreement dated January 6, 1992, as amended, and additional functionality as developed from time to time. 6. Those certain items of software comprising the Lanyon Terminal interface System. 7. SCO UNIX operating system software obtained under license from the vendor pursuant to self-executing "shrink-wrap" or "box-top" license for use in connection with the operation of BDT. 8. BSDI UNIX operating system software obtained under license from the vendor pursuant to self-executing "shrink-wrap" or "box-top" license for use in connection with the operation of TravelWeb. 9. Just Logic data base software obtained under license from the vendor thereof pursuant to a self-executing "shrink-wrap" or "box-top" license for use in conjunction with the UNIX operating system in connection with the operation of TravelWeb. 10. Netscape Netsite Commerce Server web server software obtained under license from the vendor pursuant to self-executing "shrink-wrap" or "box-top" license for use in connection with the operation of TravelWeb. 11. All manuals, selling materials or other documentation prepared by the licenser or developer of any of the foregoing software describing the software and its performance characteristics and capabilities. 33 Average Switch Downtime The following System/Component Recovery Table shall be used to determine the Average Switch Downtime each month referred to in Section 5.1 of the Agreement. This Table may be amended from time to time by mutual agreement of THISCO and Anasazi. Only the amount of time in excess of the Maximum Time Allocated for the Events included in this table shall be used to calculate the Average Switch Downtime. SYSTEM/COMPONENT RECOVERY TABLE <TABLE> <CAPTION> Maximum Time Failure Events Requiring Recovery by Anasazi Allocated ==================================================================================================================================== <S> <C> <C> General UltraSwitch o TPE Hardware Fallback, Spring Forward or Reboot 45 Min. o Comm Engine Fallback, Spring Forward or Reboot 20 Min. o Comm Engine or TPE Software Install or Problem Requiring Cycle of All Software 15 Min. o Comm Engine or TPE Software Install or Problem Requiring Cycle of Subset of All Software 5 Min. Communications o DSU or Modem Fallback 15 Min. </TABLE> <TABLE> <CAPTION> Maximum Time Commercial Software and Operator Error Allocated ==================================================================================================================================== <S> <C> <C> o Anasazi Commercial Software Recovery 0 Min. o Anasazi Computer Operator Error Recovery 0 Min. </TABLE> <TABLE> <CAPTION> Maximum Time Failure Events Requiring Notification by Anasazi Allocated ==================================================================================================================================== <S> <C> <C> General UltraSwitch o TPE or Comm Engine Hardware Recovery Successful. Vendor to be Notified 60 Min. o TPE or Comm Engine Hardware Recovery Failed. Vendor to be Notified 15 Min. o TPE or Comm Engine Recover Software Recoverable on Running System or During Unsuccessful Software Install. THISCO to be Notified 60 Min. o TPE or Comm Engine Unrecoverable Software Problem on Running System or during an Unsuccessful Software Install. THISCO to be Notified 15 Min. Communications o DSU, Modem, or T-1 Rack (and its global components) Recovery Successful Vendor to be Notified 60 Min. o DSU, Modem, or T-1 (and its global components) Recovery Failed Vendor to be Notified 15 Min. o Comm Lane Dial Back Up Successful Vendor to be Notified 15 Min. o Comm Lane Dial Back Up Unsuccessful Vendor to be Notified 15 Min. </TABLE> 34 AMENDMENT TO SOFTWARE LICENSE AGREEMENT This Amendment dated as of April 1, 1994 (the "Amendment") to the Software License Agreement dated December 31, 1994 by and between Anasazi Inc., a Delaware corporation ("Anasazi") and The Hotel Industry Switch Company, a Delaware corporation ("THISCO") ("License Agreement"). The parties hereby amend the License Agreement only to the extent as follows: 1. The parties have mutually terminated the Operations Agreement dated January 4, 1991 in order to enter into a successor Facilities Management Agreement dated the date hereof ("Facilities Management Agreement"). 2. The parties hereby update and amend the License Agreement to redefine "Operations Agreement" (the defined term in the License Agreement) to be "that certain Facilities Management Agreement dated as of April 1, 1994 between the parties or any successor agreement which generally provides for operational and other support services provided exclusively by Anasazi to THISCO in respect of the Switch." 3. Except for the foregoing, the meanings of the defined terms in this Amendment are the same as those meanings in the License Agreement, and the License Agreement remains the same. ANASAZI INC. By: /s/ [ILLEGIBLE] ----------------------------- Title: PRESIDENT -------------------------- THE HOTEL INDUSTRY SWITCH COMPANY By: /s/ [ILLEGIBLE] ----------------------------- Title: PRESIDENT --------------------------
1 EXHIBIT 10.9 [COMDISCO LOGO] BUSINESS CONTINUITY SERVICES MASTER AGREEMENT This Master Agreement is dated December 13, 1996 by and between COMDISCO DISASTER RECOVERY SERVICES, A DIVISION OF COMDISCO, INC. ("COMDISCO" or "CDRS") with offices at 6111 North River Road, Rosemont, Illinois 60018 and Pegasus Systems, Inc. ("Customer") with offices at 3811 Turtle Creek Blvd., Suite 1100, Dallas, TX 75219. Each party acknowledges that it has read this Master Agreement, understands it, and agrees to be bound by its terms and conditions. MASTER AGREEMENT AND SCHEDULES Comdisco will provide business continuity Services under the terms and conditions of this Master Agreement and its Schedules. The parties can enter into a Schedule for the following types of Services: 1. Backup Capability 2. Continuous Availability Services ("CAS") 3. Telecommunication Services 4. Professional Services Each Schedule contains the specific terms and conditions for the business continuity Services provided by Comdisco. If there is a conflict between any Schedule and this Master Agreement, the terms of the Schedule will govern. THIS AGREEMENT IS GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS WITH REGARD TO ITS CONFLICT OF LAW PROVISIONS. Certain capitalized terms used in this Master Agreement are defined in Section 11. COMDISCO DISASTER RECOVERY PEGASUS SYSTEMS, INC. SERVICES, a division of --------------------------------------- Comdisco, Inc. Customer --------------------------------------- --------------------------------------- By: /s/ VICTOR J. FRICAS By: [ILLEGIBLE] -------------------------------- ----------------------------------- Victor J. Fricas Title: Senior Vice President Title: Chief Information Officer ----------------------------- -------------------------------- 2 TERMS AND CONDITIONS SECTION 1. BUSINESS CONTINUITY SERVICES If designated in a signed Schedule between the parties, Comdisco will provide the following Services to assist Customer in preparing for and recovering from a Disaster at the Customer Facility. 1.1. Backup Capability. During a Disaster at the Customer Facility, Comdisco will provide Customer with access to the Backup Capability and Recovery Center. Customer will notify Comdisco via the Comdisco Disaster Notification Hot Line if a Disaster occurs at the Customer Facility. Comdisco will ask Customer's personnel to provide Customer's assigned authorization code. Immediately after receipt of the Disaster notification and authorization code, Comdisco will begin preparation of the Backup Capability for account by Customer. 1.2 Continuous Availability Services. Comdisco provides the following CAS Services for Customers: 1) Transaction Protection Services (Electronic Vaulting, Remote Journaling, Data Shadowing); 2) Standby Services (Standby Processing, Standby Data); and 3) Facility Management Services. Comdisco will provide Customer with the CAS Services described in the Schedule with the equipment and software and at the CAS Facility listed in the Schedule. If Customer declares a Disaster, in accordance with Section 1.1, Comdisco will provide Customer with prompt access to Customer's data and equipment, if any, stored at the CAS Facility. 1.3 Telecommunication Services. Comdisco will provide Customer with the networking capability and telecommunications equipment described in a Schedule to connect the Backup Capability or CAS Service to Customer's designated site(s). 1.4 Test Time. During each contract year, Customer will have the number of hours of Test Time listed in each Schedule. Comdisco may reschedule Test time due to the receipt of a Disaster notification from another Subscription Holder. 1.5 Comdisco-Owned Equipment at Customer Location. Upon Disaster declaration, Comdisco will ship the equipment designated as "Shipped Equipment" or "Mobile Cluster Equipment" in a Schedule to a location within the United States designated by Customer within the time frame designated in the Schedule, or if not designated, then within a commercially reasonable time frame. Customer will pay all costs associated with shipping the equipment to and from the Customer location and assumes all risk of loss for the equipment. Customer will pay the daily Usage Fee indicated in the Schedule, or if none is indicated, a mutually agreed-upon daily Usage Fee, for the equipment while at the Customer location. Customer will de-install and return the equipment to Comdisco's designated location when its use is completed. 1.6 Customer-Owned Equipment at Comdisco Location. Comdisco will store the Customer-Owned Equipment indicated in a Schedule at the Recovery Center or CAS Facility, as applicable. Customer will pay the storage fee set forth in the Schedule and all costs associated with shipping the Customer-Owned Equipment to and from the Comdisco location. Also, Customer retains responsibility for all maintenance costs and risk of loss for the Customer-Owned Equipment. 1.7 Professional Services. Comdisco will provide the Professional Services and deliverables as described in a Schedule. SECTION 2. FEES 2.1 Service Fees. Beginning on the Commencement Date, Customer will pay the monthly Service Fees sated in the Schedule on the first of each month of the Term as specified in the invoice for the Service. Customer will pay the Professional Service Fees as specified in the Schedule. 2.2 Disaster Notification Fee. Customer will pay the Disaster Notification Fee stated in a Schedule, if possible, within twenty-four (24) hours, but no later than seven (7) days, after Disaster notification. 2.3 Usage Fees. Customer agrees to pay Comdisco the Usage Fees stated in a Schedule for use of the Backup Capability during a Disaster. 2.4 Expenses. Customer will reimburse Comdisco within thirty (30) days from the receipt of invoice for the cost of any additional goods or services provided to Customer during its use of the Backup Capability. For Professional Services, Customer will reimburse Comdisco for expenses, including travel, maintenance, report production and administrative support. 2.5 Fee Increase. Any increase in a Service Fee will be limited by Comdisco to a maximum of six percent (6%) per year per Schedule. Increases are effective on the annual anniversary of the Commencement Date of each Schedule. 2.6 Late Fee. Whenever any payment is not made when due, Customer will pay interest at the lesser of prime rate of interest as reported by the Wall Street Journal on the date payment is due plus five percent (5%) or the maximum amount permitted by law. 2.7 Taxes. Customer will pay or reimburse Comdisco for any taxes, fees or other charges imposed by state, local or federal authority resulting from this Agreement, or from any activities hereunder, except for taxes based on Comdisco's net income. SECTION 3. MULTIPLE DISASTERS 3.1 Upon declaration of a Disaster, Customer will have priority access to the Backup Capability during the Priority Access Period over 1) Comdisco Subscription Holders who declare a Disaster after Comdisco's receipt of Customer's Disaster notification; and 2) Subscription Holders who are scheduled to Test or who are testing. During the Priority Access Period, Customer will not be required by Comdisco to share the Backup Capability with any other Subscription Holder. After the Priority Access Period, any other Comdisco Subscription Holder who declares a Disaster will be entitled to priority use of the Backup Capability. If a Multiple Disaster occurs, Comdisco will log the Disaster notifications in the order in which they are received. 3.2 If during a Multiple Disaster, the Backup Capability is unavailable for Customer's use,Comdisco will assist customer in relocating to the alternate Comdisco Backup Capability most capable of accommodating Customer's processing needs. However, because Multiple Disasters could occur, Customer acknowledges that Customer may not have access to and use of a backup Capability. 3 SECTION 4. CUSTOMER RESPONSIBILITIES 4.1 Customer will follow the procedures and policies in the Comdisco Recovery Support Manual. While using a Backup Capability, Customer represents and warrants that it will: 1) supply and license all necessary programs and data for Test Time and Disaster recovery; 2) furnish all required supplies, materials, and storage media not provided with the Backup Capability; 3) remove all data and Customer provided programs from the Backup Capability equipment after a Test or Disaster; and 4) provide all necessary personnel for a Test or a Disaster recovery. Customer is responsible for the adequacy and accuracy of all data, programs, and procedures that Customer furnishes. CAS Customers agree to comply with all "Customer Responsibilities" specified in a CAS Schedule. 4.2 Customer is responsible for establishing any audit controls, back-up files, back-up programs, security procedures and check points in connection with Customer's use of the Services. 4.3 Customer may not, without the consent of Comdisco, hire any person who is, or was at any time within the year preceding the offer of employment, an employee of Comdisco. GENERAL PROVISIONS SECTION 5. TERM. The term of this Master Agreement begins upon signature by both parties and continues as long as any Schedule is in effect. A Schedule begins on the Commencement Date and continues through the Initial Term or, if no Initial Term is indicated, until the Services are completed. The Initial Term of each Schedule will be automatically extended for successive twelve (12) month periods unless terminated pursuant to Section 9, "Termination". SECTION 6. WARRANTIES AND LIABILITY. 6.1 WARRANTIES. Comdisco warrants to Customer that neither the Professional Services nor the deliverables will infringe any copyright, patent, or trade secret of any third party. Comdisco will defend at its expense any action brought against Customer which claims the Professional Services or deliverables infringe a patent, copyright or trade secret of any third party. Comdisco will indemnify Customer and pay any costs and damages incurred by Customer due to the claim if Customer notifies Comdisco promptly in writing of the claim and Comdisco fully participates in the defense or settlement of the claim. Comdisco will not be liable for any claim of infringement based on any software, data, or materials not supplied by Comdisco. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, COMDISCO MAKES NO WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 6.2 LIABILITY. Comdisco's liability to Customer for direct damages from any cause whatsoever arising out of any Schedule will not, in any event, exceed the aggregate of the Service Fees paid by Customer for that Schedule during the twelve (12) month period preceding the month in which Customer's loss or damage is incurred. This limitation of liability will not apply to the indemnities set forth in Section 6.1 or Section 7. UNDER NO CIRCUMSTANCES, WILL EITHER PARTY BE LIABLE FOR INDIRECT, SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. SECTION 7. MUTUAL INDEMNIFICATION. A party will indemnify (the "Indemnifying Party") and hold the other party (the "Indemnified Party") and any parent, subsidiaries and affiliates and the employees and agents of it, harmless against any and all claims, liabilities, losses, damages and causes of action relating to personal injury, death, or property damage arising out of the intentional or negligent acts or omissions of the Indemnifying Party due to its performance or non-performance of this Agreement. However, the Indemnifying Party will not be responsible for injury attributable to the negligent acts or omissions of the Indemnified Party and any parent, subsidiaries, affiliates, agents and employees of it. SECTION 8. CONFIDENTIALITY AND COPYRIGHTS. 8.1 CONFIDENTIALITY. Each party (including its employees, agents, and contractors) will use the same standard of care to protect any proprietary or confidential information of the other disclosed during negotiation or performance of this Agreement that it used to protect its own proprietary or confidential information. This Agreement, its Schedules, Comdisco's security system, access control system, recovery support manuals, support documentation, and any deliverables are confidential information of Comdisco for Customer's internal use only. 8.2 COPYRIGHTS. The deliverables contain copyrighted material of Comdisco. Comdisco grants Customer the right to duplicate the deliverables as necessary for its internal use only. Comdisco reserves all other copyrights in the deliverables. SECTION 9. TERMINATION. At the end of the Term, either party may terminate a Schedule by giving the other party at least ninety (90) days prior written notice of termination. A party may, by written notice, terminate a Schedule for cause without further obligation if the other party to the Schedule fails to cure a material default under that Schedule. Any material default(s) must be specifically identified in the notice of termination. The notified party will have thirty (30) days to remedy the default(s). Failure to remedy the specified material default(s) within thirty (30) days will give cause for immediate termination. If a termination is due to Customer's material default, Customer will immediately pay to Comdisco the amounts then owing and the present value (discounted at the prime rate of interest as published in the Wall Street Journal on the date of default) of the Fees due for all of the remaining Term of the Schedule that was terminated plus reasonable attorney's fees as liquidated damages and not as a penalty. SECTION 10. MISCELLANEOUS. 10.1 Comdisco will maintain a proper operating environment for the equipment which supplies the Services and will adhere to vendor recommended policies and procedures for proper maintenance. 10.2 Customer may not assign this Agreement or any of its rights or obligations (except to its successor pursuant to a merger, consolidation or sale of all or substantially all of its assets) without obtaining the prior written consent of Comdisco. 10.3 The waiver by either party of a breach of any provision in this Agreement will not be construed as a waiver of any subsequent breach. 4 10.4 This Agreement is the entire agreement between the parties and supersedes all other oral or written agreements or understandings between the parties concerning the Services. This Agreement may not be modified unless in writing and signed by the party against whom enforcement of the modification is sought. 10.5 Except for Disaster notifications, all notices must be in writing and will be deemed received three (3) days after mailing if sent by certified mail, postage prepaid, return receipt requested, to the address set forth above. 10.6 No third party is intended to be, or will be construed to be, a beneficiary of any provision of this Agreement nor have any right to enforce any of its provisions or to pursue any remedy for its breach. 10.7 If any provision of this Agreement is held invalid, illegal or unenforceable, the remaining provisions will remain unimpaired and that provision will be replaced by a mutually acceptable valid, legal and enforceable provision that is closest to the original intent of the parties. 10.8 Any provision of this Agreement which by its nature would continue beyond a termination of this Agreement will survive any termination. 10.9 Schedules may be entered into by Customer or any of its subsidiaries, divisions or affiliates and such entity will be deemed "Customer" for that Schedule. However, the Customer set forth above is jointly and severally liable for the performance of the obligations under all Schedules. 10.10 Comdisco will not be considered in default under this Agreement due to any failure in its performance due to causes beyond its control. SECTION 11. DEFINITIONS AGREEMENT -- means this Master Agreement and any Schedule which incorporates it by reference. BACKUP CAPABILITY -- means the equipment (or compatible and functionally equivalent equipment) and Services described in a Schedule. COMMENCEMENT DATE -- means the date set forth in each Schedule. CUSTOMER FACILITY -- means Customer's facility at the address designated in the Schedule. CAS FACILITY -- means the Comdisco data center where the Continuous Availability Services are provided. CUSTOMER-OWNED EQUIPMENT -- means equipment, as designated in a Schedule, owned by Customer that the parties agree will be stored at the Comdisco Recovery Center or CAS Facility listed in the Schedule. DATA CENTER SUPPORT AREA -- means space provided with a raised-floor Backup Capability to accommodate Customer's system/application programmers and operators who manage the raised-floor equipment. Data Center Support Area may only be used in conjunction with a raised-floor Backup Capability Disaster notification, and by up to twenty (20) concurrent Customer data center support personnel. DISASTER -- means an unplanned interruption in business operations at the Customer Facility due to causes beyond Customer's control. DISASTER NOTIFICATION FEE -- means the fee stated in a Schedule assessed upon the occurrence of each separate Disaster which causes Customer to request access to the Backup Capability or data stored at the CAS Facility. INITIAL TERM -- means the number of full months listed on the Schedule. MULTIPLE DISASTER -- means Disaster notifications from more than one Subscription Holder entitled to access a Backup Capability for the same or overlapping periods. PRIORITY ACCESS PERIOD -- means six (6) weeks for all Backup Capabilities except a Shell. The Priority Access Period for a Shell is twelve (12) months. RECOVERY CENTER -- means the Comdisco facility where the Backup Capability is provided. SCHEDULE -- means a Schedule or Statement of Work which incorporates the terms and conditions of this Master Agreement. SERVICES -- means any or all services provided under this Agreement. SHELL -- means a raised floor and air-conditioned space suitable for a fully operational computer equipment environment. The Shell is for the duplication of the raised-floor Backup Capability in a Schedule for long term Disaster recovery and, unless indicated in a Schedule, may not be used concurrently with the raised-floor Backup Capability, except during a reasonable transition period to the Shell. SUBSCRIPTION FEE -- means the monthly Service Fee for a Backup Capability. SUBSCRIPTION HOLDER -- means another Comdisco customer who has a disaster recovery subscription with Comdisco. TERM -- means the Initial Term plus any renewal term. TEST TIME -- means use of the Backup Capability by Customer to test its Disaster recovery procedures and verify the operation of its critical applications on the Backup Capability. USAGE FEE -- means the fee assessed for the period during which the Backup Capability is used. For purposes of determining the Usage Fee, the term "daily" mean search period of twenty-four (24) consecutive hours starting at the hour when Customer accesses the Backup Capability or twenty-four (24) hours after Comdisco's receipt of a Disaster notification, whichever occurs first. 3/15/95 5 ADDENDUM TO THE BUSINESS CONTINUITY SERVICES MASTER AGREEMENT DATED DECEMBER 13, 1996 BETWEEN COMDISCO, INC. AND PEGASUS SYSTEMS, INC. The terms and conditions of the above Master Agreement are hereby amended and modified as follows: 1. Section 1.5 Comdisco owned Equipment at Customer Location. To the end of the first sentence add the following: "taking into account the immediacy of the circumstances." 2. Section 1.6. Customer Owned Equipment at Comdisco Location. To the end of this Section add the following sentence: "Notwithstanding anything to the contrary contained in this Section Comdisco will indemnify Customer for the loss of any Equipment lost at a Comdisco Location in the event that the loss or damage is due to the negligence or willful misconduct of Comdisco or its agents or employees." 3. Section 2.4 Expenses. To the end of this Section add the following: "Comdisco shall only be entitled to reimbursement for expenses that were reasonably and necessarily incurred or specifically requested." 4. Section 3.1 To the end of this Section add the following: "Upon request Comdisco will supply Customer with the number of other Subscription Holders who are subscribing to the same equipment configuration as Customer along with the approximate geographic locations of said Subscription Holders." 5. Section 5 Term. To the end of this Section add the following: "Comdisco shall give Customer 180 days written notice prior to the end of the Term of a Schedule and in the event Comdisco fails to give such notice then Customer shall have the right to terminate the effected Schedule upon 30 days notice. No such notice shall be effective prior to the end of the current Term of the Schedule." 6. Section 7 Mutual Indemnification. In line 6 delete the word "intentional" and replace with the words "willful misconduct." In line 10, before the word "negligent" insert the words "willful misconduct or." 6 7. Section 9 Termination. To the end of this Section add the following: "Notwithstanding anything to the contrary contained in this Section Customer shall have the right to terminate a Schedule immediately if the Comdisco default occurs during a Disaster and such default would materially prevent Customer from recovering." 8. Section 10.10 To the end of this Section add the words "which could not reasonably be foreseen and prevented." 9. Section 11 Definitions. In the definition for Disaster delete the words "due to causes beyond Customer's control" and replace with the words "which could not reasonably be foreseen and prevented." COMDISCO, INC. PEGASUS SYSTEMS, INC. BY: /s/ VICTOR J. FRICAS BY: [ILLLEGIBLE] ------------------------- ----------------------------- Victor J. Fricas TITLE: Senior Vice President TITLE: Chief Information Officer ---------------------- -------------------------- DATE: January 10, 1997 DATE: December 31, 1996 ----------------------- --------------------------- 7 SCHEDULE A-1 DATED DECEMBER 13, 1996 TO THE MASTER AGREEMENT DATED DECEMBER 13, 1995 BETWEEN COMDISCO DISASTER RECOVERY SERVICES, A DIVISION OF COMDISCO, INC. ("CDRS") AND PEGASUS SYSTEMS, INC. ("CUSTOMERS") 1. CUSTOMER FACILITY Pegasus Systems, Inc. c/o Anasazi, Inc. 7500 N. Dreamy Draw Dr., Ste. 120 Phoenix, AZ 85020 2. CDRS BACKUP CAPABILITY: COMPUTER RECOVERY CENTER and CUSTOMER CONTROL CENTER - Carlstadt, NJ QUANTITY MACHINE TYPE SERVER OPTIONS -------- ------------ -------------- 1 NILE 150 Corporate Business Server w/6 CPU w/512 MB Memory Requires: DC/OSX 79 IMU 7 DISK OPTIONS ------------ 24GB SCSI Disk HAAS-3 SCSI Drives - 2.14 GB REMOVABLE MEDIA OPTIONS ----------------------- 1 8mm 8mm Cartridge Library-Quad Drive-40 Tapes (J2447-944) TERMINAL/PRINTER OPTIONS ------------------------ 1 Console 19" Color X-Display DATA COMMUNICATIONS INTERFACE OPTIONS ------------------------------------- 1 Ethernet Dual Ethernet Adapters (J2076) 1 Asynch 16-Port Terminal Server 3. CUSTOM OPTIONS: A. COMPUTER RECOVERY AND CUSTOMER CONTROL CENTER OPTIONS - Carlstadt, NJ None 8 Pegasus Systems, Inc. Nile Schedule Dated December 13, 1996 Page 2 4. INITIAL TERM: Forty-eight (48) Months, commencing January 1, 1997 5. TEST TIME: Thirty-Two (32) Hours/Year 6. FEES: A. MONTHLY SUBSCRIPTION BASIC EQUIPMENT CONFIGURATION........................Includes Schedules A-2, A-3, & Consulting Statement of Work dated December 13, 1996 MONTHLY TOTAL - Year 1...........................$10,000 MONTHLY TOTAL - Year 2...........................$12,000 MONTHLY TOTAL - Year 3............................$8,167 MONTHLY TOTAL - Year 4............................$8,167 B. DISASTER NOTIFICATION (Per Occurrence)...............$11,000 C. DAILY USAGE BACKUP CAPABILITY (Access Six (6) Weeks)..............$5,500 7. SPECIAL TERMS: A. The equipment described in this Schedule may be substituted by CDRS with comparable and fully compatible systems. B. Monthly Subscription Fees do not include Customer's costs for items such as remote or dedicated telephone lines and common carrier (long distance or telephone company) services incurred during Test Time or Disaster. C. ADDITIONAL EQUIPMENT AT TIME OF DISASTER (NOT ON FLOOR) 2 CPU's w/256 MB Memory In the event of a Disaster, CDRS agrees to acquire the equipment indicated as "ATOD" above (the "ATOD Equipment") within a commercially reasonable time frame and install it at the Backup Capability taking into account the immediacy of the circumstances. Customer agrees to pay the fair market daily rental rate for the use of the ATOD Equipment during a Disaster. The daily rental for this ATOD Equipment will commence on the date of installation and continue through the date of 9 Pegasus Systems, Inc. Nile Schedule Dated December 13, 1996 Page 3 de-installation. Customer agrees to pay all in-transit insurance, transportation, installation and de-installation costs associated with the ATOD Equipment. The fair market daily rental rate is the amount obtainable in an arm's-length transaction between an informed and willing buyer/user and an informed and willing seller under no compulsion to sell. D. MODIFICATION TO MASTER AGREEMENT 1. Section 9, Termination To the end of Section 9. Termination, add the following sentence: "Notwithstanding anything to the contrary contained in this Agreement Customer shall have the option to terminate this Schedule in the event that Comdisco fails to have, or properly maintain as per the terms of this Agreement, the Equipment listed on this Schedule and fails to cure such deficiency within 30 days of written notice from Customer." E. All Fees set forth in this Schedule are firm if accepted by Customer before December 31, 1996. CDRS reserves the right to adjust the Fees in this Schedule if it is not executed by Customer by December 31, 1996. F. EARLY TERMINATION OPTION Customer may terminate this Schedule upon the expiration of the 24th month of the Term of this Schedule or on an annual contract year basis thereafter (the "Termination Date"). On the first of the month prior to the Termination Date, Customer will be obligated to pay CDRS all fees and charges due through the Termination Date. This option can only be exercised (i) if Customer is not in default and upon at least 120 days prior written notice to CDRS, and (ii) if the Early Termination Option under Schedules A-1, A-2, and A-3 have been simultaneously exercised. This Schedule is issued pursuant to the Master Agreement identified above. All of the terms, conditions, representations and warranties of the Master Agreement are incorporated herein and made a part hereof. This Schedule constitutes a separate Agreement with respect to the Backup Capability subscribed to hereunder. ACCEPTED: PEGASUS SYSTEMS, INC. COMDISCO DISASTER RECOVERY SERVICES. A DIVISION OF COMDISCO, INC. By: /s/ [ILLEGIBLE] By: /s/ VICTOR J. FRICAS -------------------------------- ----------------------------------- Victor J. Fricas Title: Chief Information Officer Title: Senior Vice President ----------------------------- -------------------------------- Date: December 31, 1996 Date: January 9, 1997 ------------------------------ --------------------------------- 10 SCHEDULE A-2 DATED DECEMBER 13, 1996 TO THE MASTER AGREEMENT DATED DECEMBER 13, 1995 BETWEEN COMDISCO DISASTER RECOVERY SERVICES, A DIVISION OF COMDISCO, INC. ("CDRS") AND PEGASUS SYSTEMS, INC. ("CUSTOMER") 1. CUSTOMER FACILITY: Pegasus Systems, Inc. c/o Anasazi, Inc. 7500 N. Dreamy Draw Dr., Ste. 120 Phoenix, AZ 85020 2. CDRS BACKUP CAPABILITY: COMPUTER RECOVERY CENTER and CUSTOMER CONTROL CENTER - Carlstadt, NJ <TABLE> <CAPTION> QUANTITY MACHINE TYPE SERVER OPTIONS -------- ------------ -------------- <S> <C> <C> 1 S1000E SPARCserver 1000E Compatible Server w/4 CPU - 60 MHZ SuperSPARC w/1 GB Main Memory Requires: Solaris 2.5.1 or Greater DISK OPTIONS ------------ 4.1 GB SCSI Disk SCSI Disk (Internal) 16.0 GB SCSI Array EMC Symmetrix Disk Array REMOVABLE MEDIA OPTIONS ----------------------- 1 CD-ROM SmCD - 644 MB 1 8mm 8mm Cartridge Drive - 7/14 GB TERMINAL/PRINTER OPTIONS ------------------------ 1 Console Color Monitor - 17" DATA COMMUNICATIONS INTERFACE OPTIONS ------------------------------------- 1 Ethernet Ethernet Adapter (FSBE/S) 2 Async Asynchronous Ports 1 NCC Network Control Center w/24 Dial Tone Lines for Data Circuit Recovery w/Diagnostic and Test Equipment </TABLE> 11 Pegasus Systems, Inc. SUN Schedule A-2 Dated December 13, 1996 Page 2 1 LANBRIDGING CDRS LAN Bridging Service 1 CDRS LAN Bridge w/ 1 Ethernet Port(s) w/ 1 V.35 Port(s) Connecting Recovery Centers: Carlstadt, NJ Grand Prairie, TX 3. CUSTOM OPTIONS: A. COMPUTER RECOVERY AND CUSTOMER CONTROL CENTER OPTIONS - Carlstadt, NJ None 4. INITIAL TERM: Forty-Eight (48) Months, commencing January 1, 1997 5. TEST TIME: Thirty-Two (32) Hours/Year 6. FEES: A. MONTHLY SUBSCRIPTION BASIC EQUIPMENT CONFIGURATION......... $ Included in Schedule A-1 Dated December 13, 1996 MONTHLY TOTAL................... $ Included in Schedule A-1 Dated December 13, 1996 B. DISASTER NOTIFICATION (Per Occurrence).................... $4,000 C. DAILY USAGE BACKUP CAPABILITY (Access Six (6) Weeks).................. $2,000 7. SPECIAL TERMS: A. The equipment described in this Schedule may be substituted by CDRS with comparable and compatible systems. B. Monthly Subscription Fees do not include Customer's costs for items such as remote or dedicated telephone lines and common carrier (long distance or telephone company) services incurred during Test Time or Disaster. 12 Pegasus Systems, Inc. SUN Schedule A-2 Dated December 13, 1996 Page 3 C. MODIFICATION TO MASTER AGREEMENT 1. Section 9, Termination To the end of Section 9. Termination, add the following sentence: "Notwithstanding anything to the contrary contained in this Agreement Customer shall have the option to terminate this Schedule in the event that Comdisco fails to have, or properly maintain as per the terms of this Agreement, the Equipment listed on this Schedule and fails to cure such deficiency within 30 days of written notice from Customer." D. All Fees set forth in this Schedule are firm if accepted by Customer before December 31, 1996. CDRS reserves the right to adjust the Fees in this Schedule if it is not executed by Customer by December 31, 1996. F. EARLY TERMINATION OPTION Customer may terminate this Schedule upon the expiration of the 24th month of the Term of this Schedule or on an annual contract year basis thereafter (the "Termination Date"). On the first of the month prior to the Termination Date, Customer will be obligated to pay CDRS all fees and charges due through the Termination Date. This option can only be exercised (i) if Customer is not in default and upon at least 120 days prior written notice to CDRS, and (ii) if the Early Termination Option under Schedules A-1, A-2, and A-3 have been simultaneously exercised. This Schedule is issued pursuant to the Master Agreement identified above. All of the terms, conditions, representations and warranties of the Master Agreement are incorporated herein and made a part hereof. This Schedule constitutes a separate Agreement with respect to the Backup Capability subscribed to hereunder. ACCEPTED: PEGASUS SYSTEMS, INC. COMDISCO DISASTER RECOVERY SERVICES, A DIVISION OF COMDISCO, INC. By: [ILLEGIBLE] By: /s/ VICTOR J. FRICAS ------------------------------ -------------------------------- Victor J. Fricas Title: Chief Information Officer Title: Senior Vice President --------------------------- ------------------------------ Date: December 31, 1996 Date: 1/9/97 ---------------------------- ------------------------------- 13 WORKAREA SCHEDULE A-3 DATED DECEMBER 13, 1996 TO THE MASTER AGREEMENT DATED DECEMBER 13, 1996 BETWEEN COMDISCO DISASTER RECOVERY SERVICES, A DIVISION OF COMDISCO, INC. ("CDRS") AND PEGASUS SYSTEMS, INC. ("CUSTOMER") 1. CUSTOMER FACILITY: Pegasus Systems, Inc. 3811 Turtle Creek Blvd., Suite 1100 Dallas, TX 75219 2. CDRS BACKUP CAPABILITY: EMERGENCY RESPONSE BACKUP CAPABILITY RECOVERY FACILITY: SOUTHWESTERN COMPUTER RECOVERY FACILITY Grand Prairie, TX <TABLE> <CAPTION> QUANTITY TYPE DESCRIPTION -------- ---- ----------- <S> <C> <C> Workarea(s): (Customer Personnel Maximum = 25) 25 Stations Pre-wired Workspace for (25) Stations 25 Phonesets Digital Phonesets w/Basic Phone Service 1 Facsimile Device CCITT Group III Fax Machine 1 Copier 12 copies/minute Copier PC/LAN Stations: 22 PC/LAN Stations 486,66 MHz Processor or Above w/16MB Memory and each with: (1) Fixed Disk Drive 240 MB Hard Drive (1) Diskette Drive 3.5" (1.44 MB) Disk Drive (1) Monitor VGA Color Monitor (1) Ethernet Ethernet Adapter Mobile Cluster PC/486 Stations: (Shipped Next Business Day to Recovery Facility) 10 PC/LAN Station 486,33 MHz Processor w/8MB Memory and with: (1) Fixed Disk Drive 120 MB Hard Drive (1) Diskette Drive 3.5" (1.44 MB) Disk Drive (1) Monitor VGA Color Monitor (1) Mouse Microsoft Compatible Mouse (1) Ethernet Ethernet Adapter LAN Server(s): 1 PC/Server Pentium, 60 MHz Processor w/32MB Memory with: (1) Fixed Disk Drive 4 GB Hard Drive </TABLE> 14 Pegasus Systems, Inc. Workarea Schedule A-3 Dated December 13, 1996 Page 2 <TABLE> <S> <C> <C> (1) Diskette Drive 3.5" (1.44 MB) Disk Drive (1) Monitor VGA Color Monitor (1) Ethernet Ethernet Adapter 1 4mm Tape Drive 4mm DAT DDS-2 Compatible Tape Drive w/ Adaptec SCSI Interface LAN Connectivity: 1 LAN Hub Ethernet Hub Equipment 30 Ethernet Ethernet 10Base-T Ports 1 Ethernet Maximum Physical Ethernet 10Base-T Segments LAN Printer(s): 1 Laser Printer Hewlett Packard LaserJet 4 w/ 6 MB Memory and HP JetDirect Ethernet Card 1 LAN BRIDGING CDRS LAN Bridging Service 1 CDRS LAN Bridge w/ 1 Ethernet Port(s) w/ 1 V.35 Port(s) Connecting Recovery Centers: Carlstadt, NJ Grand Prairie, TX </TABLE> 3. INITIAL TERM: Forty-Eight (48) Months commencing January 1, 1997 4. TEST TIME: Twenty four (24) hours per contract year in eight (8) hour increments. 5. FEES: A. MONTHLY SUBSCRIPTION FEE FOR EMERGENCY RESPONSE BACKUP CAPABILITY <TABLE> <S> <C> WORKAREA w/ (25) STATIONS PC/LAN STATIONS (22) MOBILE CLUSTER PC'S (8) PC/SERVER (1) MONTHLY TOTAL........................$ Included in Schedule A-1 Dated December 13, 1996 </TABLE> 15 Pegasus Systems, Inc. Workarea Schedule A-3 Dated December 13, 1996 Page 3 B. DISASTER NOTIFICATION FEE (Per Occurrence) . . . . . . . $2,500 C. DAILY USAGE FEE (Per Station/Day Access Up to Six (6) Weeks) . . . . . . . . . . . . . . . . . . . . $ 50 6. SPECIAL TERMS: A. Monthly Subscription Fees do not include Customer's costs for items such as remote or dedicated telephone lines and common carrier (long distance or telephone company) services incurred during Test Time or Disaster. B. The equipment described in this Schedule may be substituted by CDRS with comparable or equivalent units. C. CDRS provided PC/LAN Stations and PC/Server will be equipped with DOS 5.0 or higher version level software. Customer will provide station/server application software and network operating system software. Customer represents and warrants that it has taken all reasonable precautions to protect the Customer supplied software and computer systems from infection by any computer virus. CDRS represents and warrants that it has taken all reasonable precautions to protect the CDRS supplied software and computer systems from infection by any computer virus. D. During the first scheduled test, CDRS and Customer will conduct testing for compatibility of Customer's Home Tape System media and software on the Tape Drive and SCSI interface referenced above in the Backup Capability. If not compatible, Customer can elect to provide their own Tape Drive System for testing and disaster support or CDRS can provide the compatible Tape Drive Unit and/or interface as needed, for an additional monthly fee. E. In the event of a Disaster, and at the customers request, CDRS agrees to ship the equipment indicated as the "Mobile Cluster" equipment above to the Backup Recovery Facility within the next day after Disaster Notification, unless otherwise noted. Customer will pay CDRS a daily rental rate equal to one percent (1%) of the purchase price, including tax, of the equipment for each day the Equipment is utilized by Customer. This daily rental rate will commence on the date of installation and continue through the date of de-installation. A minimum thirty day rental rate will be assessed for each Disaster Notification by Customer. The total of daily rental will not exceed one hundred percent (100%) of the purchase price, including tax, of the equipment. Customer agrees to reimburse CDRS or pay for all in-transit insurance and transportation costs associated with the Equipment. One hundred percent (100%) of the daily rental rate may be applied towards the purchase of the equipment if the Customer elects to purchase the equipment from CDRS. Customer is responsible for all installation, deinstallation, return transportation and site preparation at the Customer Facility. F. MODIFICATION TO MASTER AGREEMENT 1. SECTION 9, TERMINATION To the end of Section 9. Termination, add the following sentence: "Notwithstanding anything to the contrary contained in this Agreement Customer shall have the option to terminate this Schedule in the event that Comdisco fails to have, or properly maintain as per the terms of this Agreement, the Equipment listed on this Schedule and fails to cure such deficiency within 30 days of written notice from Customer." 16 Pegasus Systems, Inc. Worlcarca Schedule A-3 Dated December 13, 1996 Page 4 G. All fees set forth in this Schedule are firm if accepted by Customer before December 31, 1996. CDRS reserves the right to adjust the Fees in this Schedule if it is not executed by Customer by December 31, 1996. H. EARLY TERMINATION OPTION Customer may terminate this Schedule upon the expiration of the 24th month of the Term of this Schedule or on an annual contract year basis thereafter (the "Termination Date"). On the first of the month prior to the Termination Date, Customer will be obligated to pay CDRS all fees and charges due through the Termination Date. This option can only be exercised (i) if Customer is not in default and upon at least 120 days prior Pls. Initial written notice to CDRS, and (ii) if the Early Termination Option /s/ VF under Schedules A-1, A-2, and A-3 have been simultaneously ------------ exercised. This Schedule is issued pursuant to the Master Agreement identified above. All of the terms, conditions, representations and warranties of the Master Agreement are incorporated herein and made a part hereof. This Schedule constitutes a separate Agreement with respect to the Backup Capability subscribed to hereunder. ACCEPTED: PEGASUS SYSTEMS, INC. COMDISCO DISASTER RECOVERY SERVICES, A DIVISION OF COMDISCO, INC. By: [ILLEGIBLE] By: /s/ VIC FRICAS ----------------------------- -------------------------------- Vic Fricas Title: Chief Information Officer Title: Senior Vice President -------------------------- ----------------------------- Date: December 31, 1996 Date: 1/9/97 -------------------------- -----------------------------
1 EXHIBIT 10.10 This MASTER SERVICE AGREEMENT between the below-named Client and Genuity Inc. ("Provider" or "GENUITY") (collectively referred to as the "Parties") establishes the terms and conditions under which Provider will provide communications services to the client. ------------------------------------------------------------------------------- Client TravelWeb, Inc. State of Incorporation: Delaware Principal Place of Business: Address: 3811 Turtle Creek Suite 110 Dallas, TX 75219 Address for notices: Attn: Mr. Bill Nicholson Provider: Genuity Inc. Address for Notices: State of Incorporation: Nevada Genuity Inc. Principal Place of Business 4041 N. Central 4041 N. Central Phoenix, AZ 85012 Phoenix, AZ 85012 Attn: Contract Administration ------------------------------------------------------------------------------- 1. The Parties anticipate that Client may, at Client's sole discretion, issue one or more Data Service Orders ("Service Orders") describing certain services which Client desires to purchase from Provider, and which set forth the prices, minimum term of service and other service specific details. All Service Orders shall be subject to the terms and conditions of this Master Service Agreement for the duration of the Service Order. If a Service Order is accepted in writing by an authorized representative of Provider, it shall supersede any and all prior agreements or understandings with respect to the service described therein, and shall, together with such terms and conditions, comprise the full and final agreement of the Parties. No term or condition hereof shall be modified except by written agreement of both Parties and any preprinted terms and conditions which may appear on Client's order form are expressly rejected and are void. As used in this document, the word "Term" shall mean the total duration of a Service Order and the phrase "Initial Term" shall mean the minimum term of service as specified in a Service Order. The word "Agreement" shall apply to all promises, terms and conditions of the Parties contained in this Master Service Agreement or a Service Order. 2. The Initial Term of this Agreement shall be as set forth in the Service Order placed hereunder and shall extend thereafter until terminated by either Party upon no less than ninety (90) days' prior written notice. However, Provider may terminate this Agreement or suspend service hereunder at any time upon: (a) any failure of Client to pay any undisputed amounts as provided in this Agreement, which event shall permit Provider to terminate this Agreement and suspend service immediately upon notice to Client; (b) any breach by Client of any material provision of this Agreement continuing for thirty (30) days after receipt of notice thereof; (c) any insolvency, bankruptcy, assignment for the benefit of creditors, appointment of a trustee or receiver or similar event with respect to Client; or (d) any governmental prohibition or required alteration of services to be provided hereunder or any violation of an applicable law, rule or regulation. Any termination shall not relieve Client of its obligation to pay any charges incurred hereunder prior to such termination. The Parties' rights and obligations which by their nature would extend beyond the termination, cancellation or expiration of this Agreement shall survive such termination, cancellation or expiration. 3. Client is responsible for all Recurring and Non-Recurring Charges from and after the Date of Acceptance, except that installation and start-up fees may be invoiced by Provider for payment by Client concurrently with signature of this Agreement by Provider. For purposes of this Agreement, the Date of Acceptance is the earlier of 1) the date Client signs a Client Acceptance Letter or 2) two (2) business days after Provider establishes a connection in which the Provider-furnished service is functioning properly. Recurring Charges will be prorated for the first and last month of the Agreement if service is not provided for a complete month. Proration of a monthly charge will be based on the number of days connection was available divided by total days in the month. Provider's targeted service installation intervals are thirty (30) days after order acceptance for on-net services and forty-five (45) days for off-net services. In the event Client requests Provider to attempt to accelerate the order process to install services more quickly, Client shall pay an Order Expedite charge of $500. Order Expedite charges will apply to each site ordered for which expended installation is requested. 4. During the Term Client shall pay Provider for services at the rates set forth in the Service Order. Normal service charges shall be invoiced monthly in advance. All amounts owed by Client shall be paid within thirty (30) days after the date of the invoice and Provider reserves the right to charge interest on all delinquent payments at an annualized rate of 2 percentage points above the prime rate as announced in the Wall Street Journal from time to time. 5. Provider's bill shall separately identify any excise, sales, use, or other taxes applicable to Provider's provision of service or equipment to Client, and all such taxes, however designated (excepting those based on Provider's net income), shall be paid by Client in addition to any other amount owing. Provider will not collect any otherwise applicable tax if Client first provides Provider with a valid tax exemption certificate. 6. At Client's request, Provider will respond to Client's report of service interruption and attempt to resolve all problems of connectivity. If it is determined that all facilities, systems and equipment furnished by Provider are functioning properly, and that the connectivity problem arose from some other cause, Provider will recover labor and materials cost for services actually performed at the following rates, which shall be the usual and customary rates for similar services provided by Provider to all clients in the same locality. Labor (4 hour Minimum Charge): 7 a.m. to 7 p.m. week days/$150 per hour per Technician All other times: $225 per hour per Technician Materials: Cost to Provider x 1.15 Provider reserves the right to modify the above rates upon ninety (90) days advance written notice to Client. Provider shall also be entitled to recover from Client reasonable travel and related expenses of technicians required to travel in connection with such services. 7. Provider may substitute, change or rearrange any equipment, facility or system used in providing services at any time and from time to time, but shall not thereby alter the technical parameters of the services provided thereunder. Provider may at its discretion limit the burstable capacity available to Client to a maximum of three (3) times the number of megabits purchased by Client hereunder. 8. Client shall not cause or allow any facility or equipment of Provider to be rearranged, moved, removed, disconnected, altered, or repaired without Provider's prior written consent, which consent shall not be unreasonably withheld. Client shall not create or allow any liens or other encumbrances to be placed on any Provider equipment, facility or system arising from any act, transaction or circumstance relating to Client. If Client elects to relocate or otherwise change the place of services after commencement of the installation of facilities, Client shall pay any disconnection, early cancellation or termination charges reasonably incurred by Provider for the original location and installation charges for the new location. 9. Provider will grant a credit allowance for service interruption calculated and credited in fifteen (15) minute increments. A 2 service interruption will be deemed to have occurred only if service becomes unusable to Client as a result of failure of Provider's facility, equipment, or personnel used to provide the service in question, and only where the interruption is not the result of: (i) the negligence or acts of Client or its agents; (ii) the failure or malfunction of non-Provider equipment or systems not provided by Provider; (iii) circumstances or causes beyond the control of Provider; or (iv) a service interruption caused by scheduled service maintenance, alteration, or implementation. Such credits will be granted only if (a) Client affords Provider full and free access to Client's premises to make appropriate repairs, maintenance, testing, etc.; and (b) Client does not unreasonably continue to use the service on an impaired basis. For purposes of canceling or terminating a service provided under this Agreement for a Provider service interruption, such service interruption order must equal either twenty four (24) hours of cumulative service outages during any continuous twelve (12) month period or a single outage of eight (8) hours or more. The foregoing states Client's sole remedy for service interruption under the Agreement, and in no event shall Provider be liable for harm to business, lost revenues, lost savings, or lost profits suffered by Client, regardless of the form of action, whether in contract, warranty, strict liability, or tort, including without limitation negligence of any kind, whether active or passive. 10. Provider's entire liability for any claim, loss, damage or expense from any cause whatsoever shall in no event exceed sums actually paid to Provider by Client, during the three (3) months immediately preceding the month of such occurrence, for the specific service giving rise to the claim. Notwithstanding the foregoing, Provider shall not be liable for any indirect, incidental, consequential, punitive or special damages. No action or proceeding against Provider shall be commenced more than one (1) year after service is rendered. 11. There are no warranties, representations or agreements, express or implied either in fact or by operation of law, statutory or otherwise, including warranties of merchantability or fitness for a particular purpose or arising from a particular course of dealing, except those expressly set forth herein. Provider makes no representations as to results that will be obtained by the use of the service hereunder. PROVIDER shall not be liable to Client for damages or for alteration, theft, loss or destruction of data, programs or systems from accident, fraud, third party intrusion or otherwise, for failure of authentication or encryption, or for failure of firewall protection or other security failures, unless the same shall have been caused by the intentional act of Provider. 12. In the event that Client cancels or terminates service at any time during the Initial Term of this Agreement or any renewal thereof for any reason whatsoever other than a service interruption (as described in Paragraph 9 above), Client agrees to pay Provider as liquidated damages (which shall not be deemed a penalty) the following sums which shall become due and owing as of the effective date of cancellation or termination and be payable in accordance with Paragraph 3 above: 1) all Non-Recurring charges specified in the Service Order and reasonably expended by Provider to establish service to Client; plus 2) if cancellation or termination results from a default by Client, any disconnection, early cancellation or termination charges reasonably incurred by Provider; plus 3) all Recurring Charges specified in the Service Order for the balance of the then current Term of this Agreement. 13. Client shall allow Provider continuous access and right-of-way to Client's premises to the extent reasonably determined by Provider to be appropriate to the provision and maintenance of services, equipment, facilities, and systems hereunder. Client shall furnish Provider, at no charge, such equipment space and electrical power as is reasonably determined by Provider to be required and suitable to render services hereunder. 14. Client shall be liable for any damage to Provider equipment, facility, and system which is caused by: (a) negligent or willful acts or omissions of Client or its agents, employees or suppliers; or (b) malfunction or failure of any equipment or facility provided by Client or its agents, employees or suppliers. Client is responsible for identifying, monitoring, removing and disposing of any existing hazardous materials (e.g., friable asbestos) prior to any construction or installation work being performed by Provider at Client's premises and Client shall indemnify, defend, and hold Provider harmless from any claim, suit, loss, cost, or expense, including fines, abatement charges, legal fees and court costs incurred in connection with hazardous materials on Client's premises. 15. Client is solely responsible for the content of any transmissions using Provider's services, or any other use of Provider's services, by Client or by any person or entity Client permits to access Provider's services (a "User"). Client agrees that it and any User will not use the services for illegal purposes (including but not limited to infringement of copyright or trademark, misappropriation of trade secrets, prohibited munitions export, wire fraud, invasion of privacy, pornography, obscenity and libel), or to interfere with or disrupt other network users, network services or network equipment. Disruptions include, but are not limited to, distribution of unsolicited advertising or chain letters, repeated harassment of other network users, wrongly impersonating another such user, falsifying one's network identity for improper or illegal purposes, posting unsolicited articles to large numbers of such users or to inappropriate groups, sending unsolicited mass e-mailings, propagation of computer worms and viruses, and using the network to make unauthorized entry to any other machine accessible via the network. If Provider has reasonable grounds to believe that Client is utilizing the services for any such illegal or disruptive purpose, Provider may suspend or terminate its services to Client hereunder immediately upon notice to Client. Client shall defend, indemnify, and hold harmless Provider from and against all liabilities and costs (including reasonable attorneys' fees) arising from any and all claims by any person based upon the content of any transmissions by Client or any User using Provider's services or any other use of Provider's services by Client or any User. 16. If so requested, Provider may assign on a temporary basis a reasonable number of Internet Protocol ("IP") addresses from the address space assigned to Provider by the InterNIC. The Client acknowledges that these addresses are the property of Provider, are assigned to Client as a service by Provider, and are not portable as such term is used by InterNIC. Provider reserves the right to change these address assignments at any time during the term of this Agreement if the architecture of Provider's network so requires it however, Provider shall use reasonable efforts to avoid any disruption to Client resulting from a renumbering requirement. Provider will give Client as much notice as possible of any requirement to renumber. Client agrees that the addresses provided by Provider shall be returned to Provider on the effective date of termination of this Agreement, and that any renumbering required of Client thereafter shall be the sole responsibility of Client. 17. Provider warrants that all traffic originating from Client will be routed to the destination address via Provider's network, provided that the IP addresses in use by Client are part of Provider's assigned address space. If Client has or acquires its own IP addresses, Client shall confirm that all other networks will accept and route traffic from Client. 18. Neither Party may assign this Agreement without the written consent of the other Party (which consent shall not be unreasonably withheld or unduly delayed), except that Provider may assign its rights and obligations hereunder: (a) to any subsidiary, parent company, or affiliate of Provider; (b) pursuant to any sale or transfer of substantially all the business of Provider; or (c) pursuant to any financing, merger, or reorganization of Provider, Client represents that it is purchasing Provider's services for use in Client's business and agrees that it will not assign, sell or make available all or any part of such purchase or services to any competitor of Provider. 19. If any provision of this Agreement is held by a court to be invalid, void or unenforceable, the remainder of this Agreement shall nevertheless remain unimpaired and in effect. 20. No license, joint venture or partnership, express or implied, is granted by Provider pursuant to this Agreement. 21. Each Party agrees to maintain in strict confidence for a period of five (5) years from disclosure all plans, designs, drawings, trade secrets, and other proprietary information of the other Party This document is the confidential and proprietary property of Provider and belongs exclusively to it. Page 2 3 which is disclosed in written or electronic form pursuant to this Agreement. No obligation of confidentiality shall apply to disclosed information which the recipient 1) already possessed without obligation of confidentiality; 2) develops independently; or 3) rightfully receives without obligation of confidentiality from a third party. 22. Except for payment of money, neither Party shall be liable for any delay or failure in performance of any part of this Agreement to the extent such delay or failure is caused by an event of Force Majeure, including but not limited to, fire, flood, explosion, accident, war, strike, embargo, governmental requirement, civil or military authority, Act of God, inability to secure materials, labor or transportation, acts or omissions of common carrier or warehouseman, failure of performance by third-party supplier, or any other causes beyond its reasonable control. Any such delay or failure shall suspend the Agreement until the Force Majeure condition ceases and the Term shall be extended by the length of the suspension. 23. If this Agreement is entered into by more than one Client, each is jointly and severally liable for all agreements, covenants and obligations herein. 24. Provider may use Client's name as a reference with third parties and as part of Provider's general advertising materials. 25. This Agreement shall be governed by the laws of the State of Arizona without regard to its choice of law provisions. The Parties agree that the exclusive jurisdiction for all actions on claims hereunder or relating hereto shall be the state and/or federal courts located in Phoenix, Arizona. In any action between the Parties to enforce any material provision of this Agreement, the prevailing Party shall be entitled to recover its legal fees and court costs from the non-prevailing Party in addition to whatever other relief a court may award. 26. Each person executing this Agreement on behalf of Providers or Client represents and warrants that such person has been fully empowered to do so, and that all necessary corporate actions (if any) required for the execution of agreements have been taken. 27. This Agreement may be executed in one or more counterparts, each of which shall be an original and all of which together shall be constitute one and the same instrument. 28. The following are incorporated herein by reference and are agreed to by the Parties: Genuity Inc.: /s/ T.S. ZIMMERMAN ----------------------- By: T.S. Zimmerman ----------------------------- Title: Director of Finance ----------------------------- Date: 1-17-97 ----------------------------- TravelWeb, Inc.: /s/ BILL NICHOLSON ------------------- By: Bill Nicholson ----------------------------- Title: President ----------------------------- Date: 97/1/15 ----------------------------- This document is the confidential and proprietary property of Provider and belongs exclusively to it. Page 3 4 ADDENDUM TO THE MASTER SERVICE AGREEMENT BETWEEN GENUITY AND TRAVELWEB, INC. Notwithstanding the foregoing provisions of the Master Service Agreement, the parties hereto agree as follows: Section one is hereby amended to include the quote forms for current and future services to be a part of this Master Service Agreement As long as any certain specific requests TravelWeb, Inc. may have are spelled out in a Genuity order form and signed by a Genuity representative, the order form shall be considered a part of this Master Service Agreement. Section Two is hereby amended to include "However, Genuity and/or Client may terminate the Agreement or suspend service at any time in the event of a breach or failure to pay, bankruptcy, or government prohibition. Section Six is hereby amended to include a one hour response time after the Client contacts Genuity regarding a service interruption. This is to say, after a representative from the client has contacted a service representative from Genuity by dialing 1 888 GENUITY, the Genuity service department will have one hour to report back to the client as to the status of the Client's request. This in no way implies Genuity guarantees that the problem can be corrected within one hour. The hourly rates posted in Section Six are hereby capped at what they are listed at in this Master Service Agreement for the duration of this contract. Furthermore, in the event the problems are as a result of some failure by Genuity to provide the services contracted for by the Client, the Client does not have to pay any of the hourly charges. Section Nine is hereby amended to include "in the event of a service interruption which is equal to 12 hours over a 12 month period or a single outage of 4 hours or more, Client may cancel or terminate service." Section Eleven is hereby amended to include "any negligent acts and/or failure to act as required to provide the services set forth herein." Section Twelve is hereby amended to include "In the event Client elects to cancel or terminate the service due to a breach or failure on Genuity's part, Client owes Genuity nothing. Furthermore, if Genuity cancels or terminates service to Client, the maximum charge to Client will be 90 days of service costs." Section Eighteen is hereby amended to expand the right of assignment to the Client of this agreement making the right to assign mutual. 5 Section Twenty Two is hereby amended to include the deletion of Genuity's failure to perform due to inability to secure materials, labor or transportation, acts or omissions of common carrier or warehouseman. Additionally, Acts of God are limited to those acts which are not reasonably foreseen and which could not reasonably be protected against. Section Twenty Four is hereby amended to include "permission for Genuity to use Client's name in advertising will be permitted provided it is submitted in writing and approved by Client first. Genuity Inc. TravelWeb, Inc. By: /s/ THOMAS S. ZIMMERMAN By: /s/ BILL NICHOLSON ------------------------------ ----------------------------- Name: T. S. Zimmerman Name: Bill Nicholson Title: Director of Finance Title:
1 EXHIBIT 10.12 TRAVELWEB(TM) PARTICIPANT AGREEMENT FOR INTERNET PAGES, ON LINE AVAILABILITY AND RESERVATIONS This Agreement is entered into by and between TravelWeb, Inc. as successor in interest to The Hotel Industry Switch Company (hereinafter called "TWI") and Hyatt Corporation (hereinafter called "Participant") to be effective on the latest date of execution by both parties hereto on the terms and conditions as set forth herein (the "Agreement"). I. DEFINITIONS The following definitions shall be applicable to this Agreement: 1.1 TravelWeb(TM). The trade name and trademark owned by TWI for its service to provide access to information on hotels, resorts, cruise lines and other travel and lodging subjects and a limited access to TravelWeb(TM) Participant's reservation system with the interactive capability to permit an operator of a Client Computer (as hereinafter defined) to make a reservation. 1.2 Internet. A worldwide network of computers with information which is accessible by Client Computers. 1.3 TravelWeb(TM) Participant. A person or entity who enters into an agreement with TWI to publish Internet Pages (as hereinafter defined) and (at its option) to provide access to the TravelWeb(TM) Participant's reservation system with the capability to make a reservation. 1.4 TravelWeb(TM) Publication. One or more pages of Materials (as hereinafter defined) to be developed into Internet Pages (as hereinafter defined). 1.5 TravelWeb(TM) Order. A written order form, reasonably acceptable to TWI and in the form prescribed by TWI, executed by TWI and Participant setting forth the information necessary for the publication of Internet Pages (as hereinafter defined) from the Materials (as hereinafter defined) and the agreed fees and costs to be paid for the order. 1.6 Change Order. A written change, on a form prescribed by TWI, in the TravelWeb(TM) Order mutually agreed to and executed by TWI and Participant. 1.7 Client Computer. A computer with access to information on the Internet. -1- 2 1.8 TravelWeb Reservation. A TravelWeb Reservation is a reservation made with a TravelWeb(TM) Participant via TravelWeb(TM) by an operator of a Client Computer. 1.9 Net TravelWeb Reservation. Net TravelWeb Reservations within a particular time period equals the number of reservations made by an operator of a Client Computer via TravelWeb(TM) within such time period, less the number of reservations made by an operator of a Client Computer as to which notice of cancellation is received via TravelWeb(TM) within such time period. 1.10 Net Net TravelWeb Reservation. Net Net TravelWeb Reservations within a particular time period equals the number of reservations made by an operator of a Client Computer via TravelWeb(TM) within such time period less cancellations, chargebacks, rebookings of reservations, package bookings, and any reservation for which a fee has already been paid. 1.11 Materials. All of the information, in documentary form or otherwise, provided to TWI by Participant to be used by TWI to create and publish the Internet Pages. 1.12 TravelWeb(TM) Activity Report. An on line report available only to Participant and Cyber Publishing, Inc. via TravelWeb providing information regarding the viewing of Participant's Internet Pages by operators of Client Computers (to include, without limitation, daily transaction statistics, hourly transaction statistics, total transfers by client domain and reversed subdomain, total transfers from each archive section and previous full summary period) and all available data prepared by TWI regarding TravelWeb Reservations with Participant. 1.13 Internet Page. The finished informational product created and published by TWI from the Materials pursuant to this Agreement and a TravelWeb(TM) Order or a Change Order which appears on an individual Client Computer screen and which is available on and is accessible by Client Computers on the Internet. 1.14 Authorized Representative. An authorized representative is any person or entity with the express right, authority and/or obligation to perform the obligations of or act on behalf of TWI or Participant with respect to this Agreement. 1.15 Certificate of Internet Page Acceptance. Written acceptance by Participant of the Internet Pages and authorization to publish them. The Certificate of Internet Page Acceptance will be in a form prescribed by TWI. -2- 3 1.16 Interface. The connection created by TWI between TravelWeb(TM) and Participant's Reservation System pursuant to the technical and functional design specifications set forth in the UltraSwitch UltraSelect HRS Interface Specifications (the "Specifications") which shall be compatible with Participant's reservation system as of the date of this Agreement. 1.17 Interactive Portion of TravelWeb(TM). The functional capability provided by TWI via the Interface of on line Client Computers' access via TravelWeb and the most recent version of Netscape Navigator (or any other browser approved by TWI's Technical Committee) to a Participant's Reservation system with the capability to make and cancel a reservation. II. INTENT OF THIS AGREEMENT 2.1 Mutual Intent. It is mutually intended that this Agreement and all documents made reference to herein, set forth, in its entirety, all of the terms, conditions, rights and obligations of TWI and Participant with respect to the publishing of Internet Pages by TWI and the installation and operation of the Interface by TWI as specifically set forth herein. This Agreement is not exclusive and Participant may publish the Internet Pages and accept Internet Reservations with any other person or entity. III. CREATION AND PUBLICATION OF A TRAVELWEB(TM) BROCHURE; DUTIES AND OBLIGATIONS OF TWI AND PARTICIPANT 3.1 TravelWeb(TM) Order. The TravelWeb(TM) Order shall be completed in the form attached hereto (the "TravelWeb(TM) Order Form") and shall contain all of the information requested on the form for TWI to publish the Internet Pages requested by Participant. The TravelWeb(TM) Order Form may be amended or replaced by TWI at any time without notice prior to any TravelWeb(TM) Order being executed. To be effective, any TravelWeb(TM) Order Form must be executed by an Authorized Representative of TWI and Participant. A new TravelWeb(TM) Order Form shall be completed and agreed to with respect to each TravelWeb(TM) Publication to be created and published by TWI for the benefit of Participant pursuant to this Agreement. 3.2 Materials for Creation and Publication of the Internet Pages. Participant shall be solely responsible for providing to TWI all Materials reasonable and necessary for TWI to create and publish the Internet Pages pursuant to the TravelWeb(TM) Order. All Materials shall be in form, substance, condition and format as required by TWI and shall meet or exceed all of the requirements set forth in the TravelWeb(TM) Order Form and in all other reasonable and -3- 4 necessary requirements requested by TWI. TWI is hereby authorized to utilize, consistent with the TravelWeb(TM) Order and for no other purposes other than those expressly set forth in this Agreement, all copyrights, trademarks, trade names, service marks or other proprietary marks or symbols contained within the Materials (collectively, "Participant's Marks"). 3.3 Processing the Order Creation of the Internet Pages: Approvals. TWI shall process the TravelWeb(TM) Order pursuant to the schedule set forth therein. Upon creation of the Internet Pages to be published pursuant to the TravelWeb(TM) Order and this Agreement (but prior to such publication), TWI shall deliver to Participant, for inspection and approval, the completed Internet Pages. Participant shall, within fourteen (14) days of such delivery, make any and all written corrections or proposed amendments it may have to the Internet Pages and shall provide TWI with written notice detailing such corrections and/or proposed amendments. In the event the Internet Pages are approved, Participant shall, within fourteen (14) days of receipt of the Internet Pages, provide TWI with a Certificate of Acceptance. Notwithstanding the above and foregoing, in the event Participant does not provide written notice to TWI of corrections or proposed amendments or approving the Internet Pages within fourteen (14) days of receipt of the Internet Pages, approval of the Internet Pages shall be deemed not given by Participant to TWI and TWI shall not be authorized to publish the Internet Pages on the Internet; however, TWI may immediately invoice Participant for all fees and costs associated with the TravelWeb Order or Change Order and Participant shall be deemed to have waived any dispute of such invoice. 3.4 Authority to Publish. Participant hereby authorizes and directs TWI to publish on the Internet as part of TravelWeb(TM) the approved Internet Pages. 3.5 TravelWeb Management. THISCO shall be responsible for all costs associated with the connection of the TravelWeb server to Internet and all hardware and software maintenance for such server. THISCO shall insure that the server is monitored for failures 24 hours per day, seven days per week and will use commercially reasonable efforts to assure that the server is operational and available on the Internet 98% of the time, 24 hours per day, seven days per week for each 90-day period. IV. THE INTERFACE: DUTIES AND OBLIGATIONS OF TWI AND PARTICIPANT 4.1 Duties of TWI. TWI shall be responsible for all costs associated with the production, development, service and maintenance of the Interface and the Interactive Portion of TravelWeb including, but not limited to providing all reasonable and necessary personnel, technical support, hardware and -4- 5 software to produce the Interface between Client Computers and Participant's reservation system meeting or exceeding the Specifications. Subject to Section 9.2 hereof and acts of third parties, the Interactive Portion of TravelWeb will be operable at least 98% of the time measured 24 hours per day, 7 days per week for each rolling 90-day period after the Interface has been completed. TWI will periodically review and update, as is reasonable and necessary, all security applications of the Interactive Portion of TravelWeb including, without limitation, the current reservation limits. 4.2 Duties of Participant. Participant shall provide all reasonable and necessary personnel and technical support, reasonable and necessary programming and modification of its reservation system and all other reasonable and necessary accommodations to produce a dependable and operable Interface with its reservation system and shall cooperate fully with TWI personnel to produce the Interface. Through the Interface, Participant will permit access to Participant's reservation system by all Client Computers utilizing TravelWeb(TM) and the most recent version of Netscape Navigator (or any other server approved by TWI's Technical Committee) and will permit all such Client Computers to reserve and cancel rooms available to be reserved in Participant's reservation system and to make credit card payments to Participant in connection with the TravelWeb Reservation. 4.3 Implementation of the Interface. It is acknowledged by Participant that the Interface has been created and is operable. 4.4 Security Problems. Notwithstanding any other provision set forth herein, in the event Participant experiences losses resulting from security breaches in the usage of the Interactive Portion of TravelWeb and/or the Interface, or the Technical Committee of TWI determines that additional security measures should be implemented, Participant shall immediately provide notice to TWI of any such security breach and otherwise may immediately terminate the Interactive Portion of TravelWeb and/or the Interface and refuse to accept any transaction until such time as the security problem has been cured or additional security measures are implemented. Participant's right to terminate the Interactive Portion of TravelWeb and/or the Interface shall be Participant's sole and exclusive remedy for any such security breach. 4.5 Enhancement or Modification of the Interactive Portion of TravelWeb(TM). TWI may undertake to modify the operation or enhance the capability of the Interactive Portion of TravelWeb(TM). In such event, TWI shall provide notice to Participant of such modification or enhancement at least 30 days prior to such modification or enhancement taking effect and will make such adjustments and modifications to TravelWeb(TM) at TWI's sole expense, as are reasonable and necessary to maintain the Interface with Participant. -5- 6 Participant agrees to cooperate with TWI with regard to its modification or enhancement of the Interactive Portion of TravelWeb(TM). 4.6 Modification of Participant's Reservation System. In the event Participant modifies its reservation system or modification of its reservation system is required for Participant if it continues to participate in the Interactive Portion of TravelWeb(TM), Participant shall pay for such modification to its reservation system. In the event Participant modifies its reservation system and such modification requires TWI to modify the Interface or the Interactive Portion of TravelWeb(TM) to maintain the Interface and to comply with its functional specifications with Participant, Participant shall pay TWI its standard consulting rate and all reasonable expenses incurred by TWI as a result of the modification. V. FEES AND COSTS 5.1 Creation and Publication Fees. For the creation and development of the Internet Pages from the Materials provided by Participant to TWI, Participant shall pay to TWI the fees and costs set forth on each TravelWeb(TM) Order Form and/or Change Order Form. Fees and costs charged in connection with each TravelWeb(TM) Order are subject to change without notice for all TravelWeb(TM) Orders which have not been executed. 5.2 Monthly Maintenance Fees. For maintaining the Internet Pages on the Internet and the management, supervision and operation of the software, hardware and facilities management associated with the TravelWeb connection, Participant shall pay to TWI a monthly maintenance fee as follows: 1 - 50 properties $3.00 per property 51 - 200 properties $2.75 per property 201 - 400 properties $2.50 per property over 400 properties $1,000 The monthly maintenance fee is due for each month during which Internet Pages have been published on the Internet pursuant to this Agreement. 5.3 TravelWeb Reservation Fees. For each Net TravelWeb Reservation during the first 12 months after the date hereof, Participant shall pay to TWI a fee of $2.00 (the "TravelWeb Reservation Fee"). Prior to the expiration of 12 months after the date hereof and on or before each anniversary date hereof, Participant and TWI shall diligently and in good faith attempt to agree on a new TravelWeb Reservation Fee to be applicable for each subsequent 12 -6- 7 month period. In the event Participant and TWI do not agree on a new TravelWeb Reservation Fee to be applicable for each 12 month period as provided herein, either party may terminate the portions of this Agreement with respect to the Interactive Portion of TravelWeb and the parties shall be relieved of their responsibilities set forth herein with respect to the Interactive Portion of TravelWeb. The TravelWeb Reservation Fee is in addition to the fees to be paid by Participant for transactions utilizing The Hotel Industry Switch Company's UltraSwitch system. Notwithstanding the above and foregoing, Participant shall have the option to renew for any period at a mutually agreed Net TravelWeb Reservation fee. 5.4 Communication Line Costs. Participant shall pay all costs of communication lines required for the Interface and operation of the Interactive Portion of TravelWeb. 5.5 Payment of Fees and Costs. TWI shall provide to Participant a monthly invoice itemizing all fees and costs and Participant shall pay each invoice upon receipt and each invoice shall be past due thirty (30) days thereafter. VI. TRAVELWEB(TM) REPORTS 6.1 TravelWeb(TM) Activity Reports. TWI shall provide to Participant via TravelWeb(TM) current on line TravelWeb(TM) Activity Reports. VII. TERM AND TERMINATION 7.1 Term. Unless terminated as provided herein, the term of this Agreement shall begin on the date this Agreement is executed by both parties and shall terminate on the date of its first (1st) anniversary. This Agreement shall be automatically renewed and extended for additional one (1) year terms unless, at least sixty (60) days prior to the expiration of any one (1) year term, either party hereto shall give notice of its intent not to renew and extend this Agreement. 7.2 Termination. This Agreement may only be terminated prior to the expiration of each one (1) year term or any extended term (if applicable) in the event of a breach hereof and the failure to cure within the applicable time period as provided herein or in the event this Agreement is not performable as the result of an event of force majeure as set forth in Section 9.2 hereof. -7- 8 7.3 Effect of Termination. In the event this Agreement is terminated as permitted herein or the term of this Agreement expires without being renewed and extended, the publication of all Internet Pages and access to Participant's reservation system via TravelWeb shall cease and all duties and obligations as set forth herein shall immediately cease and terminate except for the provisions set forth in Article VIII, Sections 9.7, 9.8, 10.1 and Articles 11 and 12 hereof and any payments which may be due after the date of termination and all Materials shall be returned to Participant. VIII. INTELLECTUAL PROPERTY AND DATA 8.1 Ownership of Materials. Participant represents and warrants that it is the sole and exclusive owner, or has the authorized right of use in connection herewith, of all Materials and Participant's Marks to be used hereby, by virtue of common or statutory law, used in connection therewith and that the publication of same on the Internet Pages is and shall be, at all times material hereto, legal and shall not, in any manner, violate any applicable law or the rights of any third party. 8.2 Protection of Intellectual Property Rights. Participant shall be solely and exclusively responsible for the protection of any and all of its intellectual property including, but not limited to the inclusion of any and all statutory or other notices customarily used or required for purposes of providing notice of ownership or protection of Participant's Marks in connection with the Materials, the Internet Pages and the Interactive Portion of TravelWeb(TM). 8.3 Ownership of Internet Pages. The Internet Pages, shall, at all times material to this Agreement, be and remain the property of Participant. TWI may not use or publish the Internet Pages in any manner other than pursuant to this Agreement without the prior written consent of Participant. 8.4 TravelWeb Reservation Information. Subject to Participant's right to receive information pursuant to Section 6.1 hereof, TWI shall own all statistical data regarding a Client Computer's access to TravelWeb and the name and address of the user of each Client Computer accessing TravelWeb provided TWI shall not use or distribute such data in any manner which is specific to Participant or reasonably determinable as related to Participant (except as required to perform this Agreement). TWI may use all aggregate data generated from the Interactive Portion of TravelWeb provided such data is not specific to Participant or reasonably determinable as related to Participant, and does not indicate that a customer is a customer of Participant. -8- 9 IX. DEFAULT 9.1 Events of Default. Subject to Section 9.2 below, any one of the following will be considered an Event of Default: (i) The failure of either party to pay any amount due hereunder within the time required; (ii) The failure of Participant or any of its participating affiliates or franchisees to satisfy the obligations set forth in this Agreement; (iii) The refusal or failure of either party (including Participant's participating affiliates, or subsidiaries) to perform diligently and in good faith each and every material provision of this Agreement; or (iv) The commencement by either party of a voluntary case under Chapter 11 or 7 of the United States Bankruptcy Code, as from time to time in effect, the commencement against either party of an involuntary case under said Chapter 11 or 7, either party seeking relief as a debtor under any applicable law, other than said Chapter 11 or 7, of any jurisdiction relating to the liquidation or reorganization of debtors or the modification of the rights of creditors, the entry of a court order adjudging the party bankrupt or insolvent, ordering its liquidation or reorganization or assuming custody or appointing a receiver or other custodian of its property, or its making an assignment for the benefit of, or entering into a composition with, its creditors. 9.2 Force Majeure. It will not constitute an Event of Default if such event listed in Section 9.1 is caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if any such occurrence results in any of the events described in Section 9.1, and the same continues for more than thirty (30) consecutive days, either party may terminate this Agreement by providing notice as required herein. 9.3 Notice of Default and Opportunity to Cure. Upon the occurrence of an Event of Default, the non-defaulting party shall give notice of such default to the defaulting party and, in the event of a monetary default, the defaulting party shall have ten (10) days from the date of such notice within which to cure such default or, in the event of a non-monetary default, the defaulting party shall have twenty (20) days within which to cure such default. In the event -9- 10 such default is not cured within the time required herein, this Agreement may then be terminated. 9.4 Effect of Default. (i) By Participant. In the event of a default of this Agreement by Participant and the failure of Participant to cure such default after notice and opportunity to cure as provided herein, TWI shall be entitled (i) to terminate this Agreement and TWI's obligations and duties set forth herein shall cease (ii) to retain Materials, the Internet Pages and any and all other Materials used by, developed, or created by TWI in the performance of this Agreement, and (iii) pursue any and all claims for fees and costs agreed to be paid pursuant to this Agreement without any offset for mitigation resulting from TWI's terminated obligation to continue to develop and create Internet Pages as required by the TravelWeb(TM). Order. It is acknowledged and agreed by Participant that the damages to TWI for a default on this Agreement by Participant would be difficult, if not impossible, to measure and that the balance unpaid on any Travelweb(TM) Order in addition to any unpaid TravelWeb Reservation Fees or other fees is a fair and reasonable estimate of TWI's damages in the event of such default and shall be the total amount due TWI in such event. (ii) By TWI. In the event of a default of this Agreement by TWI and the failure of TWI to cure such default after notice and opportunity to cure as provided herein, Participant may terminate this Agreement and TWI shall deliver to Participant all Materials and all other materials used, developed and/or created by TWI in the development and creation of the Internet Pages and TWI shall refund to Participant all amounts paid pursuant to the TravelWeb(TM) Order less a reasonable amount (no greater than the price set forth on the applicable TravelWeb Order) for such portion of the development and creation of the Internet Pages accomplished by TWI as represented by the Materials delivered to Participant. 9.5 Risk of Internet Usage. Each party acknowledges and agrees that the Internet is a communication medium over which the parties have no control and that its continued utilization in its present form at current costs is uncertain. Therefore, if at any time during the term of this Agreement the cost of access to the Internet increases or there is imposed a fee or cost for use of the Internet communication lines, or there is imposed any law, governmental ruling, or regulation the result of which increases the cost of access to or usage of the Internet or otherwise makes it impractical, in either party's sole discretion, to continue to perform this Agreement, either party may, upon notice to the other party, immediately terminate the Interactive Portion of TravelWeb, the interface, and/or this Agreement without such action constituting an event of default. -10- 11 9.6 Errors on Internet Pages. Not withstanding any other provision hereof, in the event an Internet Page published pursuant to this Agreement contains an error caused by TWI, its employees, agents or subcontractors, other than an error arising from TWI's gross negligence or willful misconduct, Participant's sole and exclusive remedy for such error shall be TWI's obligation to remove such Internet Page from TravelWeb within twenty four (24) hours of becoming aware or notified of such error and shall then cure such error by correcting the information contained on the Internet Page and restoring the corrected and approved Internet Page as promptly as reasonably possible but in no event later than seven (7) days of date of notice from Participant of such error, each at TWI's sole cost and expense. 9.7 Waiver of Consequential Damages. Neither party shall be liable to the other for any consequential damages proximately caused or resulting from any default of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. 9.8 Disclaimer and Limitation of Liabilities. TWI WILL NOT BE RESPONSIBLE OR LIABLE FOR (i) ANY FALSIFICATIONS OR INACCURACIES IN THE MATERIAL OR THE INTERNET PAGES; (ii) NOR WILL IT HAVE ANY LIABILITY FOR ANY ACT OR FAILURE TO ACT WITH RESPECT TO THE INTERNET PAGES UNLESS EXPRESSLY SET FORTH HEREIN, OR (iii) ANY CLAIM, DAMAGE OR LIABILITY OF ANY NATURE ARISING OUT OF A CLIENT COMPUTER'S ACCESS TO PARTICIPANT'S RESERVATION SYSTEM AND/OR ANY TRANSACTION OR THE USE OF A CREDIT CARD OR OTHER DEBIT DEVISE IN CONNECTION THEREWITH, EXCEPT TO THE EXTENT RESULTING FROM THE FAILURE OF THE INTERACTIVE PORTION OF TRAVELWEB TO PERFORM PURSUANT TO THE SPECIFICATIONS (PROVIDED HOWEVER, TWI SHALL NOT BE LIABLE FOR ANY FAILURE OR DEFECT RESULTING FROM ANY THIRD PARTY SOFTWARE APPLICATION SET FORTH AS PART OF THE SPECIFICATIONS) OR FROM TWI'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE, ARE DISCLAIMED BY TWI AND WAIVED BY PARTICIPANT. X. INDEMNIFICATION 10.1 Indemnification in the Event of Certain Losses. Subject to the other provisions hereof, Participant agrees to indemnify, defend and hold harmless TWI and TWI's partners successors, assigns, subsidiaries, affiliates, and each such entities directors, officers, employees and stockholders, from and -11- 12 against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("TWI's Losses") occurring on account of Participant's fault except to the extent dye to the fault of TWI. Subject to the other provisions hereof, TWI agrees to indemnify, defend and hold harmless Participant, and Participant's partners, successors, assigns, subsidiaries, affiliates, and each such entities directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("Participant's Losses") occurring on account of TWI's fault except to the extent due to the fault of Participant. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 10.1, such indemnified party shall give prompt notice thereof to the indemnifying party and the indemnifying party shall be entitled to participate therein or, to the extent that it shall wish, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses, in each case subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. Whether or not an indemnifying party elects to assume the defense of any action or claim, the indemnifying party shall not compromise or settle any such action or claim without the indemnified party's written consent (which consent shall not be unreasonably withheld). The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. XI. CONFIDENTIALITY 11.1 Confidential Information. During the term of this Agreement, it is acknowledged by Participant and TWI that each may receive or have access to confidential and proprietary information of the other party including, but not limited to, the UltraSwitch UltraSelect HRS Interface Specifications, Participant's reservation system specification, marketing information, business plans, financial information and other proprietary information or trade secrets ("Confidential Information"). Each party acknowledges that it shall not acquire any ownership or other rights in or to Confidential Information of the other, and shall use the Confidential Information only for the purposes of the performance of this Agreement, and shall keep confidential and not disclose the Confidential Information to any other person, firm or corporation without the prior written consent of the other party. Any Confidential Information transmitted in writing or by other tangible media shall remain the property of the owner and shall be returned to the -12- 13 owner at its request, together with all copies made thereof, at the conclusion of this Agreement. The parties agree that the provisions of this Section 11 shall extend, without limitation, beyond the date of the expiration or other conclusion of this Agreement. Each party agrees to take all reasonably avoidable measures, at their own expense, to ensure that the other party's Confidential Information is not accessible to other persons and to upgrade such measures as often as necessary and practicable. 11.2 Use of Marks. Participant acknowledges that "TravelWeb(TM)" is a trade name and servicemark of TWI and that it shall not use such mark without the prior written approval of TWI. Except as otherwise permitted herein, TWI agrees that it shall not use any of Participant's Marks or any portion thereof or elements contained therein without Participant's prior written consent. XII. MISCELLANEOUS 12.1 Controlling Law. This Agreement will be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. Any action brought relating to or arising out of this Agreement must be brought in the state or federal courts situated in the county and state of the residence or principal place of business of the party against whom the action is brought (or any of them, if more than one). 12.2 Notice. All notices and other communications contemplated hereby must be in writing (except in the case of electronically transmitted data) and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, (d) sent by telecopy with confirmation of receipt of telecopy to the number indicated, or (e) transmitted directly to the recipient by electronic data transmission pursuant to arrangements made between the parties. Such notices and other communications (except in the case of electronically transmitted data) shall be addressed as follows: IF TO TWI: IF TO PARTICIPANT: 3811 Turtle Creek Blvd. Hyatt Corporation Suite 1100 200 W. Madison Dallas, Tx 75219 Chicago, IL 60606 Attention: John F. Davis, III Attention: John Lavin (if by telecopy: (214) 528-5675) (if by telecopy: (312) 920-2409) With a copy to General Counsel [at same address] (if by telecopy to: (312 750-8581) -13- 14 or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices will be deemed given and received when received. 12.3 Binding Effect. This Agreement will be binding upon and will inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 12.4 Assignment; Authorized Agents. This Agreement is not assignable by either party without the prior written consent of the other and such consent shall not be unreasonably withheld or delayed; provided, however, it is acknowledged and agreed that the obligations of TWI as set forth in paragraphs 3.2 and 3.3 herein may be performed by Cyber Publishing, Inc. or such other Authorized Representative. Notwithstanding any restrictions herein on assignment or transfer, either party shall have the right at its option to assign and transfer all of its rights and interests hereunder to any entity or entities which may be spun-off from either party, to the extent such rights and interests relate to properties which will be owned, leased, licensed or managed by, or services to be performed by, such entity or entities. Following the date of such spin-off, such entity or entities shall be solely responsible for the performance of any and all covenants, agreements, indemnities and other obligations of any kind hereunder as they relate to such properties or services and the assigning party, its subsidiaries, affiliates, licensees and successors, and each of such entities and their officers, directors, employees and agents shall be released from any and all such covenants, agreements, indemnities and other obligations of any kind hereunder, without however, in any way increasing the Net Reservation fee or any other fees or charges payable by Participant hereunder. 12.5 Entire Agreement. This Agreement, the Exhibits hereto, and the documents made reference to herein (and any replacements and/or amendments thereto) shall constitute the entire, sole and exclusive agreement between TWI and Participant with respect to the subject matter set forth herein and shall supersede and cause the mutual termination of any and all other agreements, oral or written with respect to TravelWeb including, but not limited to, that certain TravelWeb Participant Agreement between The Hotel Industry Switch Company and Participant with an effective date of July 15, 1995. Each party hereto acknowledges that it has not relied upon any representation or promise not set forth herein. 12.6 Parties Independence. This Agreement will not constitute a partnership, joint venture or similar arrangement. The parties hereto -14- 15 are separate and distinct entities independently contracting with each other at arms length. TRAVELWEB, INC. BY: /s/ JOHN F. DAVIS, III ---------------------------------- John F. Davis President DATE: January 17, 1996 -------------------------------- PARTICIPANT: HYATT CORPORATION BY: /s/ [ILLEGIBLE] ---------------------------------- --------------------------------- ITS: Associate General Counsel --------------------------------- DATE: January 12, 1996 -------------------------------- -15-
1 EXHIBIT 10.13 TRAVELWEB PARTICIPANT AGREEMENT This Agreement is executed on the dates indicated but to be effective July 15, 1995 and is hereby entered into by and between The Hotel Industry Switch Company (hereinafter called "THISCO") and INTER-CONTINENTAL HOTELS CORPORATION (hereinafter called "Participant") on the terms and conditions as set forth herein (the "Agreement"). I. DEFINITIONS The following definitions shall be applicable to this Agreement: 1.1 TravelWeb. A tradename owned by THISCO for its service to provide a catalog of information on hotels, resorts, cruise lines and other travel and lodging subjects which is accessible by a Client Computer (as hereinafter defined) on the Internet. 1.2 Internet. A worldwide network of computers with information which is accessible by Client Computers (as hereinafter defined). 1.3 TravelWeb Participant. A person or entity who enters into an agreement with THISCO for the creation and publishing of Internet Pages (as hereinafter defined). 1.4 TravelWeb Publication. One or more pages of Materials (as hereinafter defined) to be developed into Internet Pages (as hereinafter defined). 1.5 TravelWeb Order. A written order form, acceptable to THISCO and in the form prescribed by THISCO, executed by THISCO and Participant setting forth the information necessary for the publication of Internet Pages (as hereinafter defined) from Participant's Materials (as hereinafter defined) and the agreed fees and costs to be paid for the order. A copy of the current TravelWeb Order Form (with additional required documents attached thereto) is attached hereto and marked Exhibit A. 1.6 Change Order. A written change, on a form prescribed by THISCO, in the TravelWeb Order mutually agreed to and executed by THISCO and Participant. 1.7 Client Computer. A computer with access to information on the Internet. 1.8 Materials. All of the information, in documentary form or otherwise, provided to THISCO by Participant to be used by THISCO to publish the Internet Pages. -1- 2 1.9 TravelWeb Access Information. Information regarding TravelWeb access by Client Computers as is gathered by THISCO and made available to Participant which shall include daily transaction statistics, hourly transaction statistics, total transfers by client domain, total transfers by reversed sub domain, total transfers from each archive section and previous full summary period. 1.10 Internet Page. The finished informational product created and published by THISCO from the Materials pursuant to this Agreement and a TravelWeb Order or a Change Order which appears on an individual Client Computer screen and which is available on and is accessible by Client Computers on the Internet. 1.11 Authorized Representative. An authorized representative is any person or entity with the express right, authority and/or obligation to perform the obligations of or act on behalf of THISCO or Participant with respect this Agreement. 1.12 Certificate of Acceptance. Written acceptance by Participant of the Internet Pages and authorization to publish them. The Certificate of Acceptance will be in a form prescribed by THISCO. II. INTENT OF THIS AGREEMENT 2.1 Mutual Intent. It is intended by both parties to this Agreement that this Agreement, all exhibits hereto, and all other documents made reference herein, sets forth, in its entirety, all of the terms, conditions, rights and obligations of THISCO and Participant with respect to the publishing of Internet Pages by THISCO for the benefit of Participant as more specifically set forth herein. III. CREATION AND PUBLICATION OF A TRAVELWEB BROCHURE; DUTIES AND OBLIGATIONS OF THISCO AND PARTICIPANT 3.1 TravelWeb Order. The TravelWeb Order shall be completed and shall be in the form attached hereto and marked Exhibit A (the "TravelWeb Order Form") and shall contain all of the information necessary for THISCO to publish the Internet Pages requested by Participant. The TravelWeb Order Form may be amended or replaced by THISCO at any time without notice prior to any TravelWeb Order being executed and such new or amended form need not be attached hereto as a replacement for Exhibit A to be effective and to supersede Exhibit A. To be effective, any TravelWeb Order Form must be executed by an Authorized Representative of THISCO and Participant. A new TravelWeb Order Form shall be completed and -2- 3 agreed to with respect to each TravelWeb Publication to be created and published by THISCO for the benefit of Participant pursuant to this Agreement. 3.2 Materials for Creation and Publication of the Internet Pages. Participant shall be solely responsible for providing to THISCO all Materials reasonable and necessary for THISCO to create and publish the Internet Pages pursuant to the TravelWeb Order. All Materials shall be in form, substance, condition and format as required by THISCO and shall meet or exceed all of the requirements set forth on Exhibit A hereto and all other reasonable and necessary requirements requested by THISCO. Exhibit A (or any other similar document setting forth the requirements for the Materials) may be amended by THISCO at any time. Subject to the terms of this Agreement, THISCO is hereby authorized to utilize, consistent with the TravelWeb Order and for no other purposes other than those expressly set forth in this Agreement, all copyrights, trademarks, trade names, service marks or other proprietary marks or symbols contained within the Materials. 3.3 Processing the Order; Creation of the Internet Pages; Approvals. THISCO shall process the TravelWeb Order pursuant to the schedule set forth therein. Upon creation of the Internet Pages to be published pursuant to the TravelWeb Order and this Agreement (but prior to such publication), THISCO shall deliver to Participant, for inspection and approval, the completed Internet Pages. Participant shall, within fourteen (14) days of such delivery, make any and all written corrections or proposed amendments it may have to the Internet Pages and shall provide THISCO with written notice detailing such corrections and/or proposed amendments. In the event the Internet Pages are approved, Participant shall, within fourteen (14) days of receipt of the Internet Pages, provide THISCO with a Certificate of Acceptance. Notwithstanding the above and foregoing, in the event Participant does not provide written notice to THISCO of corrections or proposed amendments or approving the Internet Pages within fourteen (14) days of receipt of the Internet Pages, approval of the Internet Page shall be deemed not given by Participant to THISCO and THISCO shall not be authorized to publish the Internet Pages on the Internet; however, THISCO may immediately invoice Participant for all fees and costs associated with the TravelWeb Order and/or Change Order and Participant shall be deemed to have waived any dispute of such invoice. THISCO may not modify or amend the approved Internet Pages without Participant's prior written consent. 3.4 Authority to Publish. Participant hereby authorizes and directs THISCO to publish on the Internet as part of TravelWeb the approved Internet Pages. 3.5 TravelWeb Management. THISCO shall be responsible for all costs -3- 4 associated with the connection of the TravelWeb server to Internet and all hardware and software maintenance for such server. THISCO shall insure that the server is monitored for failures 24 hours per day, seven days per week and will use commercially reasonable efforts to assure that the server is operational and available on the Internet 24 hours per day, seven days per week. IV. FEES AND COSTS 4.1 Creation and Publication Fees. For the creation and development of the Internet Pages from the Materials provided by Participant to THISCO, Participant shall pay to THISCO the fees and costs set forth on each TravelWeb Brochure Order and/or Change Order. Fees and costs charged in connection with each TravelWeb Brochure Order are subject to change without notice for all TravelWeb Brochure Orders which have not been executed. 4.2 Monthly Maintenance Fees. For maintaining the Internet Pages on the Internet and the management and operation of the TravelWeb, Participant shall pay to THISCO a monthly maintenance fee as follows: 1 - 50 properties $3.00 per property 51 - 200 properties $2.75 per property 201 - 400 properties $2.50 per property over 400 properties $1000 The monthly maintenance fee is for each property for which an Internet Page appears for all or any portion of a month and shall be due on or before the thirtieth (30th) day after the date of the invoice. 4.3 Additional Hypertext Connections. For all hypertext connections to Internet sites not on TravelWeb, Participant shall pay to THISCO Five Dollars ($5.00) per additional site. 4.4 Payment of Fees and Costs. THISCO shall invoice Participant for all fees and costs and Participant shall pay each invoice within thirty (30) days of the date of such invoice. In the event any amount is not paid as required, all unpaid amounts shall incur interest at one and one-quarter percent (1 1/4%) per month (15% per annum) until paid in addition to the other remedies provided herein. V. TERM AND TERMINATION 5.1 Term. Unless terminated as provided herein, the initial term of this -4- 5 Agreement shall be from the date hereof through the first anniversary date hereof provided, however, this Agreement shall be automatically renewed and extended for additional one (1) year terms unless, at least sixty (60) days prior to the expiration of the initial or any extended term, either party shall terminate this Agreement by providing written notice to the other party of such termination. 5.2 Effect of Termination. Upon termination of this Agreement, the publication of all Internet Pages by THISCO shall cease and all duties and obligations as set forth herein shall immediately cease and terminate except for the those provisions that expressly state otherwise and the provisions set forth in Article 6, Sections 7.6, 7.7, 9.1 and Articles 10 and 11 hereof and any payments which may be due after the date of termination and all Materials shall be returned to Participant. VI. INTELLECTUAL PROPERTY AND MATERIALS 6.1 Ownership of Materials. Participant represents and warrants that it is the sole and exclusive owner, or has the unlimited authorized right of use in connection herewith, of all Materials, copyrights, trademarks, trade names, service marks and any and all other intellectual property rights, by virtue of common law or statutory, used in connection therewith and that the publication of same on the Internet Pages is and shall be, at all times material hereto, legal and shall not, in any manner, infringe upon or violate any applicable law or rights of any third party. 6.2 Protection of Intellectual Property Rights. Participant shall be solely and exclusively responsible for the protection of any and all of its intellectual property including, but not limited to the inclusion of any and all statutory or other notices customarily used or required for purposes of providing notice of ownership or protection of such intellectual property in connection with the Materials and the Internet Pages. 6.3 Ownership of Internet Pages. The Internet Pages, shall, at all times be and remain the property of Participant. THISCO may not use or publish the Internet Pages in any manner other than pursuant to this Agreement without the prior written consent of Participant. Participant may use and republish the Internet Pages upon payment to THISCO of all costs associated with providing the Internet Pages to Participant. VII. DEFAULT 7.1 Events of Default. Subject to Section 7.2 below, any one of the following will be considered an Event of Default: -5- 6 (i) The failure of either party to pay any amount due hereunder within the time required; (ii) The failure of either party (including Participant's participating affiliates and franchisees) to satisfy the obligations set forth in this Agreement; (iii) The material breach by either party of this Agreement; or (iv) If either THISCO or Participant (the "Defaulting Party") becomes insolvent, takes any step leading to its cessation as a going concern, or ceases business operations for reasons other than a strike and other than assignment as allowed by this Agreement, then the other party (the "Insecure Party") may immediately terminate this Agreement upon written notice to the other party unless the Defaulting Party immediately gives the Insecure Party adequate assurance of the future performance of this Agreement. If bankruptcy proceedings are commenced with respect to the Defaulting Party, and if this Agreement has not otherwise terminated, then the Insecure Party may suspend all further performance of this Agreement until the Defaulting Party assumes or rejects this Agreement pursuant to Section 365 of the Bankruptcy Code or any similar or successor provision. Any such suspension of further performance by the Insecure Party pending the Defaulting Party's assumption or rejection will not be a breach of this Agreement. 7.2 Force Majeure. It will not constitute an Event of Default if such event listed in Section 7.1 is caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if any such occurrence results in any of the events described in Section 6.1, and the same continues for more than thirty (30) consecutive days, either party may terminate this Agreement by providing notice as required herein. 7.3 Notice of Default and Opportunity to Cure. Upon the occurrence of an Event of Default, the non-defaulting party shall give notice of such default to the defaulting party and, in the event of a monetary default, the defaulting party shall have ten (10) days from the date of such notice within which to cure such default or, in the event of a non-monetary default, the defaulting party shall have twenty (20) days within which to cure such default. In the event such default is not cured within the time required herein, this Agreement may then be terminated. -6- 7 7.4 Effect of Default. (i) By Participant. In the event of a default of this Agreement by Participant and the failure of Participant to cure such default after notice and opportunity to cure as provided herein, THISCO shall be entitled (i) terminate this Agreement and THISCO's obligations and duties set forth herein shall cease (ii) to retain all materials, the Internet Pages and any and all other Materials used by, developed or created by THISCO in the performance of this Agreement, and (iii) pursue any and all claims for fees and costs agreed to be paid pursuant to this Agreement without any offset for mitigation resulting from THISCO's terminated obligation to continue to develop and create Internet Pages as required by the TravelWeb Brochure Order. It is acknowledged and agreed by Participant that the damages to THISCO for a default on this Agreement by Participant would be difficult, if not impossible, to measure and that the balance unpaid on any TravelWeb Brochure Order would represent a fair and reasonable estimate of THISCO's damages in the event of such default. (ii) By THISCO. In the event of a default of this Agreement by THISCO and the failure of THISCO to cure such default after notice and opportunity to cure as provided herein, Participant may terminate this Agreement and THISCO shall deliver to Participant all Materials and all other materials used, developed and/or created by THISCO in the development and creation of the Internet Pages and THISCO shall refund to Participant all amounts paid pursuant to the TravelWeb Brochure Order less a reasonable amount for such parties of the development and creation of the Internet Pages accomplished by THISCO as represented by the Materials delivered to Participant. 7.5 Errors on Internet Pages. Notwithstanding any other provision hereof, but except as provided in Section 9.1, in the event an Internet Page published pursuant to this Agreement contains an error caused by THISCO, Participant's sole and exclusive remedy for such error shall be THISCO's obligation to cure such error by correcting the information contained on the Internet Page within ten (10) days of receipt of notice of such error. 7.6 Waiver of Consequential Damages. Except as provided in Section 9.1, neither party shall be liable to the other for any consequential damages proximately caused or resulting from any default of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. 7.7 Disclaimer and Limitation of Liabilities. EXCEPT AS PROVIDED IN SECTION 9.1, THISCO WILL NOT BE RESPONSIBLE OR LIABLE TO PARTICIPANT FOR ANY FALSIFICATIONS OR INACCURACIES IN THE -7- 8 MATERIAL OR THE INTERNET PAGES NOR WILL IT HAVE ANY LIABILITY TO PARTICIPANT FOR ANY ACT OR FAILURE TO ACT WITH RESPECT TO THE INTERNET PAGES UNLESS EXPRESSLY SET FORTH HEREIN, EXCEPT TO THE EXTENT RESULTING FROM THISCO'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE, ARE DISCLAIMED BY THISCO AND WAIVED BY PARTICIPANT. VIII. TRAVELWEB ACCESS INFORMATION 8.1 Access Reports. Periodically, THISCO shall provide to Participant a report containing TravelWeb Access Information. IX. INDEMNIFICATION 9.1 Indemnification in the Event of Certain Losses. Participant agrees to indemnify and hold harmless THISCO and THISCO's affiliates, directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees), arising out of the performance of this Agreement ("THISCO's Losses") occurring on account of Participant's fault and through no fault of THISCO. THISCO agrees to indemnify and hold harmless Participant, and Participant's affiliates, directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) arising out of the performance of this Agreement ("Participant's Losses") occurring on account of THISCO's fault and through no fault of Participant. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 9.1, such indemnified party shall give prompt notice thereof to the indemnifying party and the indemnifying party shall be entitled to participate therein or, to the extent that it shall wish, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses, in each case subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation OF both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. Whether or not an indemnifying party elects to assume the defense of any action or claim, -8- 9 the indemnifying party shall not compromise or settle any such action or claim without the indemnified party's written consent (which consent shall not be unreasonably withheld). The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. X. CONFIDENTIALITY 10.1 Confidential Information. During the term of this Agreement, it is acknowledged by Participant and THISCO that each may receive or have access to confidential and proprietary information of the other party including, but not limited to, marketing information, business plans, financial information, and trade secrets ("Confidential Information"). Each party acknowledges that it shall not acquire any ownership or other rights in or to Confidential Information of the other, and shall use the Confidential Information only for the purposes of the performance of this Agreement, and shall keep confidential and not disclose the Confidential Information to any other person, firm or corporation without the prior written consent of the other party. Any Confidential Information transmitted in writing or by other tangible media shall remain the property of the owner and shall be returned to the owner at its request, together with all copies made thereof, at the conclusion of this Agreement. The parties agree that the provisions of this Section 10 shall be in perpetuity. However, this provision shall not in any way restrict the rights of either party to disclose information that: (i) is required by the other party to be disclosed in the performance of the services specified herein; (ii) is specifically requested by the other party to be disclosed; (iii) is specifically requested by authorized staff of either party to be disclosed; (iv) is or becomes generally available to the public other than by breach of this Agreement; or (v) either party is required by law to disclose; provided, however, that prior to such disclosure the disclosing party shall immediately notify the other party in writing if it believes that there will be a legal requirement to disclose, so that the non-disclosing party can determine the most appropriate means of disclosure and so that the non-disclosing party is provided the opportunity to contest the disclosure requirement through legal means. 10.2 Use of Marks. Participant acknowledges that "TravelWeb" is a service mark of THISCO and that it shall not use such mark without the prior written approval of THISCO. Except as otherwise permitted herein, THISCO agrees that it shall not use any copyright Materials, service mark, trademark or trade name of Participant without Participant's prior written consent. Notwithstanding the preceding provisions of this Section 10.2, either party to this Agreement may, for purposes consistent with the use of the name and/or logo of other hotel companys participating in TravelWeb, utilize the proper trade names, service marks, trademarks and logos of the other party. -9- 10 XI. MISCELLANEOUS 11.1 Controlling Law. This Agreement will be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. Subject to the agreement to arbitrate and the jurisdiction and venue provisions set forth in Section 10.1 hereof, any action brought relating to or arising out of this Agreement must be brought in the state or federal courts situated in the county and state of the residence or principal place of business of the party against whom the action is brought (or any of them, if more than one). 11.2 Notice. All notices and other communications contemplated hereby must be in writing (except in the case of electronically transmitted data) and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, (d) sent by telecopy with confirmation of receipt of telecopy to the number indicated, or (e) transmitted directly to the recipient by electronic data transmission pursuant to arrangements made between the parties. Such notices and other communications (except in the case of electronically transmitted data) shall be addressed as follows: IF TO THISCO: 3811 Turtle Creek Blvd. Suite 1100 Dallas, TX 75219 Attention: John F. Davis, III (if by telecopy to: (214) 528-5675) IF TO PARTICIPANT: Inter-Continental Hotels Corporation 1120 Avenue of the Americas New York, NY 10036 Attention: General Counsel (if by telecopy to: (212) 852-6414) with a copy to: Inter-Continental Hotels Group Ltd. Devonshire House, Mayfair Place London, England WlX 5FX Attention: Sr. Vice President Marketing & Sales (if by telecopy to: 44 171 355 6504) or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices will be deemed given and received when received. 11.3 Binding Effect. This Agreement will be binding upon and will inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. -10- 11 11.4 Assignment; Authorized Agents. This Agreement is not assignable by Participant without the prior written consent of THISCO and such consent shall not be unreasonably withheld or delayed. Any of the duties and obligations of THISCO may be assigned by THISCO or performed by any Authorized Representative of THISCO. 11.5 Entire Agreement. This Agreement and the Exhibits hereto (and any replacements and/or amendments thereto) shall constitute the entire, sole and exclusive agreement between THISCO and Participant with respect to the subject matter set forth herein and shall supersede any and all other agreements, oral or written. Each party hereto acknowledges that it has not relied upon any representation or promise not set forth herein. 11.6 Parties Independence. This Agreement will not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. THE HOTEL INDUSTRY SWITCH COMPANY BY: /s/ JOHN F. DAVIS, III --------------------------------- John F. Davis, III President DATE: 6/29/95 --------------------------------- PARTICIPANT: INTER-CONTINENTAL HOTELS CORPORATION BY: [ILLEGIBLE] --------------------------------- ITS: Executive Vice President --------------------------------- DATE: 23 June 1995 --------------------------------- -11-
1 EXHIBIT 10.14 TRAVELWEB PARTICIPANT AGREEMENT This Agreement is entered into by and between The Hotel Industry Switch Company, a Delaware corporation (hereinafter called "THISCO") and HILTON HOTELS CORPORATION, a Delaware corporation (hereinafter called "Participant") to be effective on the latest date of execution by the parties hereto on the terms and conditions as set forth herein (the "Agreement"). I. DEFINITIONS The following definitions shall be applicable to this Agreement: 1.1 TravelWeb. A tradename owned by THISCO for its service to provide a catalog of information on hotels, resorts, cruise lines and other travel and lodging subjects which is accessible by a Client Computer (as hereinafter defined) on the Internet. 1.2 Internet. A worldwide network of computers with information which is accessible by Client Computers (as hereinafter defined). 1.3 TravelWeb Participant. A person or entity who enters into an agreement with THISCO for the creation and publishing of Internet Pages (as hereinafter defined). 1.4 TravelWeb Publication. One or more pages of Materials (as hereinafter defined) to be developed into Internet Pages (as hereinafter defined). 1.5 TravelWeb Order. A written order form, reasonably acceptable to THISCO and in the form prescribed by THISCO, executed by THISCO and Participant setting forth the information necessary for the publication of Internet Pages (as hereinafter defined) from the Materials (as hereinafter defined) and the agreed fees and costs to be paid for the order. A copy of the current TravelWeb Order Form (with additional required documents attached thereto) is attached hereto and marked Exhibit A. 1.6 Change Order. A written change, on a form prescribed by THISCO, in the TravelWeb Order mutually agreed to and executed by THISCO and Participant. 1.7 Client Computer. A computer with access to information on the Internet. -1- 2 The monthly maintenance fee is for each property with an Internet Page published for all or any portion of a month and is due upon receipt and shall be past due thirty (30) days thereafter for each month during which an Internet Page has been published on TravelWeb pursuant to this Agreement. 2. This First Amendment shall be and hereby is incorporated into the Agreement for all intents and purposes and all terms, provisions and definitions of the Agreement shall apply. 3. Except where inconsistent with the terms of this First Amendment, the Agreement is hereby ratified and affirmed in all respects. This First Amendment shall be effective upon the date set forth above upon execution by both parties. TRAVELWEB, INC. By: ------------------------------------- John F. Davis, III President Date: ----------------------------------- HILTON HOTELS CORPORATION By: ------------------------------------- ------------------------------------- Its: ----------------------------------- Date: ----------------------------------- -2- 3 1.8 Materials. All of the information, in documentary form or otherwise, provided to THISCO by Participant to be used by THISCO to publish the Internet Pages. 1.9 Trave]Web Access Information. Information regarding TravelWeb access by Client Computers as is gathered by THISCO and made available to Participant which shall include daily transaction statistics, hourly transaction statistics, total transfers by client domain, total transfers by reversed sub domain, total transfers from each archive section and previous full summary period, which shall include the date, time, page number and originating domain for all accesses to Participant's TravelWeb Pages. 1.10 Internet Page. The finished informational product created and published by THISCO from the Materials pursuant to this Agreement and a TravelWeb Order or a Change Order which appears on an individual Client Computer screen and which is available on and is accessible by Client Computers on the Internet. 1.11 Authorized Representative. An authorized representative is any person or entity with the express written right, authority and/or obligation to perform the obligations of or act on behalf of THISCO or Participant with respect to this Agreement. 1.12 Certificate of Acceptance. Written acceptance by Participant of the Internet Pages and authorization to publish them. The Certificate of Acceptance will be in a form prescribed by THISCO. II. INTENT OF THIS AGREEMENT 2.1 Mutual Intent. It is intended by both parties to this Agreement that this Agreement and all exhibits hereto set forth, in its entirety, all of the terms, conditions, rights and obligations of THISCO and Participant with respect to the publishing of Internet Pages by THISCO for the benefit of Participant as more specifically set forth herein. THISCO agrees to enter into separate agreements on the same terms and conditions with each of Participant's franchisees which may, from time to time, notify THISCO of their intent to enter into such an agreement. Ill. CREATION AND PUBLICATION OF A TRAVELWEB BROCHURE; DUTIES AND OBLIGATIONS OF THISCO AND PARTICIPANT 3.1 TravelWeb Order. The TravelWeb Order shall be completed in the form attached hereto and marked Exhibit A (the "TravelWeb Order Form") and shall contain all of the information requested on the form for THISCO to -2- 4 publish the Internet Pages requested by Participant. The TravelWeb Order Form may be amended or replaced by THISCO at any time without notice prior to any TravelWeb Order being executed and such new or amended form need not be attached hereto as a replacement for Exhibit A to be effective and to supersede Exhibit A. To be effective, any TravelWeb Order Form must be executed by an Authorized Representative of THISCO and Participant. A new TravelWeb Order Form shall be completed and agreed to with respect to each TravelWeb Publication to be created and published by THISCO for the benefit of Participant pursuant to this Agreement. 3.2 Materials for Creation and Publication of the Internet Pages. Participant shall be solely responsible for providing to THISCO all Materials reasonable and necessary for THISCO to create and publish the Internet Pages pursuant to the TravelWeb Order. All Materials shall be in form, substance, condition and format as mutually agreed and shall meet or exceed all of the requirements set forth on Exhibit A hereto and all other reasonable and necessary requirements requested by THISCO and mutually agreed with Participant. Exhibit A may be amended by THISCO at any time. THISCO is hereby authorized to utilize, consistent with the TravelWeb Order, all copyrights, trademarks, trade names, service marks or other proprietary marks or symbols contained within the Materials (collectively, "Participant's Marks"), provided that THISCO hereby acknowledges and agrees that it does not have and shall not gain any usage or other rights or interests of any kind in and to any Materials or Participant's Marks at any time. 3.3 Processing the Order; Creation of the Internet Pages; Approvals. THISCO shall process the TravelWeb Order pursuant to the schedule set forth therein but no later than fourteen (14) business days from the date of receipt thereof. Upon creation of the Internet Pages to be published pursuant to the TravelWeb Order and this Agreement (but prior to such publication), THISCO shall (i) deliver to Participant a printed black and white copy of the completed Internet Pages and (ii) notify Participant of and permit Participant access to the TravelWeb server via its Client Computer to view the completed Internet Pages. Participant shall, within seven (7) business days of such delivery and notification, make any and all written corrections or proposed amendments it may have to the Internet Pages and shall provide THISCO with written notice detailing such corrections and/or proposed amendments. In the event the Internet Pages are approved, Participant shall, within seven (7) business days of receipt of the Internet Pages, provide THISCO with a Certificate of Acceptance. In the event Participant does not provide written notice to THISCO of corrections or proposed amendments or approving the Internet Pages within seven (7) business days of receipt of the Internet Pages, the Internet Page shall be -3- 5 deemed disapproved by Participant and THISCO shall not publish the Internet Pages on the Internet. 3.4 Authority to Publish. Participant hereby authorizes and directs THISCO to publish on the Internet as part of TravelWeb the approved Internet Pages. No Internet Page may be changed or revised without Participant's express written permission. IV. FEES AND COSTS 4.1 Creation and Publication Fees. For the creation and development of the Internet Pages from the Materials provided by Participant to THISCO, Participant shall pay to THISCO the fees and costs set forth on each TravelWeb Brochure Order and/or Change Order provided however the price for page construction shall not exceed Seventy Five Dollars ($75.00) per page, the price for picture processing shall not exceed Forty Five ($45.00) per picture and the price for data entry shall not exceed Twenty Dollars ($20.00) per page. Fees and costs charged in connection with each TravelWeb Brochure Order are subject to change only by mutual agreement. 4.2 Monthly Maintenance Fees. For maintaining the Internet Pages on the Internet and the management and operation of the TravelWeb, Participant shall pay to THISCO a monthly maintenance fee as follows: 1 - 10 properties $25 11 - 30 properties $50 31 - 50 properties $100 51 - 100 properties $250 101 - 500 properties $500 over 500 properties $1000 Franchises $2.50 per property The monthly maintenance fee is for each property with an Internet Page published for all or any portion of a month and is due upon receipt and shall be past due thirty (30) days thereafter for each month during which an Internet Page has been published on TravelWeb pursuant to this Agreement. 4.3 Additional Hypertext Connections. For all hypertext connections to Internet sites not on TravelWeb, Participant shall pay to THISCO Five Dollars ($5.00) per additional site. 4.4 Payment of Fees and Costs. THISCO shall invoice Participant for all fees and costs and Participant shall pay each invoice upon receipt and each invoice shall be past due thirty (30) days thereafter. -4- 6 V. TERM AND TERMINATION 5.1 Term. Unless terminated as provided herein, the term of this Agreement shall begin on the date this Agreement is executed by both parties and shall terminate on the date of its first (lst) anniversary hereof. This Agreement shall be automatically renewed and extended on the same terms and conditions for additional one (1) year terms thereafter unless, at least sixty (60) days prior to the expiration of the initial one (1) year term or the expiration of any additional one (1) year term, either party hereto shall give notice of its intent not to renew and extend this Agreement. 5.2 Termination. This Agreement may only be terminated prior to the expiration of the initial one (1) year term or any extended term (if applicable) in the event of a breach hereof and the failure to cure within the applicable time period as provided herein or in the event this Agreement is not performable as the result of an event of force majeure as set forth in Section 7.2 hereof. 5.3 Effect of Termination. In the event this Agreement is terminated as permitted herein or the term of this Agreement expires without being renewed and extended, the publication of all Internet Pages shall immediately cease and all duties and obligations as set forth herein shall immediately cease and terminate except for the provisions set forth in Article 6, Sections 7.6, 7.7, 9.1 and Articles 10 and 11 hereof and any payments which may be due after the date of termination and all Materials shall be returned to Participant. VI. INTELLECTUAL PROPERTY AND MATERIALS 6.1 Ownership of Materials. Participant represents and warrants that it is the sole and exclusive owner, or has the authorized right of use in connection herewith, of all Materials, and Participant's Marks to be used hereby, by virtue of common or statutory law, used in connection therewith and that the publication of same on the Internet Pages is and shall be, at all times material hereto, legal and shall not, in any manner, violate any applicable law or the rights of any third party. 6.2 Protection of Intellectual Property Rights. Participant shall be solely and exclusively responsible for the protection of any and all of its intellectual property including, but not limited to the inclusion of any and all statutory or other notices customarily used or required for purposes of providing notice of ownership or protection of Participant's Marks in connection with the Materials and the Internet Pages. -5- 7 6.3 Ownership of Internet Pages. Subject to Section 3.2 hereof, the Internet Pages, shall, at all times material to this Agreement, be and remain the property of Participant and may be used by Participant to be available for receiving on the Internet via a server other than TravelWeb. THISCO may not use or publish the Internet Pages or any portion thereof or elements contained therein in any manner other than pursuant to this Agreement without the prior written consent of Participant. VII. DEFAULT 7.1 Events of Default. Subject to Section 7.2 below, any one of the following will be considered an Event of Default: (i) The failure of either party to pay any amount due hereunder within the time required; (ii) The refusal or failure of either party (including Participant's participating affiliates or subsidiaries) to perform diligently and in good faith each and every material provision of this Agreement; or (iii) The commencement by either party of a voluntary case under Chapters 11 or 7 of the United States Bankruptcy Code, as from time to time in effect, the commencement against either party of an involuntary case under said Chapters 11 or 7, either party seeking relief as a debtor under any applicable law, other than said Chapters 11 or 7, of any jurisdiction relating to the liquidation or reorganization of debtors or the modification of the rights of creditors, the entry of a court order adjudging the party bankrupt or insolvent, ordering its liquidation or reorganization or assuming custody or appointing a receiver or other custodian of its property, or its making an assignment for the benefit of, or entering into a composition with, its creditors. 7.2 Force Majeure. It will not constitute an Event of Default if such event listed in Section 7.1 is caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays. utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if any such occurrence results in any of the events described in Section 6.1, and the same continues for more than thirty (30) consecutive days, either party may terminate this Agreement by providing notice as required herein. 7.3 Notice of Default and Opportunity to Cure. Upon the occurrence of an Event of Default, the non-defaulting party shall give notice of such default to the defaulting party and, in the event of a monetary default, the -6- 8 defaulting party shall have ten (10) business days from the date of such notice within which to cure such default or, in the event of a non-monetary default, the defaulting party shall have twenty (20) business days within which to cure such default. In the event such default is not cured within the time required herein, this Agreement may then be terminated. 7.4 Effect of Default. (i) By Participant. In the event of a default of this Agreement by Participant and the failure of Participant to cure such default after notice and opportunity to cure as provided herein, THISCO shall be entitled (i) to terminate this Agreement and THISCO's obligations and duties set forth herein shall cease (ii) to cease use of all Materials, the Internet Pages and any and all other Materials used by, developed, or created by THISCO in the performance of this Agreement, and (iii) pursue any and all claims for fees and costs agreed to be paid pursuant to this Agreement with offset for mitigation resulting from THISCO's terminated obligation to continue to develop and create Internet Pages as required by the TravelWeb Order Form. It is acknowledged and agreed by Participant that the damages to THISCO for a default on this Agreement by Participant would be difficult, if not impossible, to measure and that the balance unpaid on any TravelWeb Order Form is a fair and reasonable estimate of THISCO's damages in the event of such default and shall be the total amount due THISCO in such event. (ii) By THISCO. In the event of a default of this Agreement by THISCO and the failure of THISCO to cure such default after notice and opportunity to cure as provided herein, Participant may terminate this Agreement and THISCO shall deliver to Participant all Materials and all other materials used, developed and/or created by THISCO in the development and creation of the Internet Pages and THISCO shall refund to Participant all amounts paid pursuant to the TravelWeb Brochure Order less a reasonable amount no greater than the price set forth on the applicable TravelWeb Order Form for such parts of the development and creation of the Internet Pages accomplished by THISCO as represented by the Materials delivered to Participant. 7.5 Errors on Internet Pages. Notwithstanding any other provision hereof, in the event an Internet Page published pursuant to this Agreement contains an error caused by THISCO, other than an error arising from THISCO's gross negligence or willful misconduct, Participant's sole and exclusive remedy for such error shall be THISCO's obligation to remove such Internet Page from the Travel Web within twenty four (24) hours of becoming aware, or notified of, such error, and shall then cure such error by correcting the information contained on the Internet Page and restoring the corrected and approved Internet Page to the TravelWeb as promptly -7- 9 as possible but in no event later than seven (7) days of the date of notice from Participant of such error, each at THISCO's sole cost and expense. 7.6 Waiver of Consequential Damages. Neither party shall be liable to the other for any consequential damages proximately caused or resulting from any default of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. 7.7 Disclaimer and Limitation of Liabilities. THISCO WILL NOT BE RESPONSIBLE OR LIABLE FOR ANY FALSIFICATIONS OR INACCURACIES IN THE MATERIAL OR THE INTERNET PAGES NOR WILL IT HAVE ANY LIABILITY FOR ANY ACT OR FAILURE TO ACT WITH RESPECT TO THE INTERNET PAGES UNLESS EXPRESSLY SET FORTH HEREIN, OR EXCEPT TO THE EXTENT RESULTING FROM THISCO'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE, ARE DISCLAIMED BY THISCO AND WAIVED BY PARTICIPANT. VIII. TRAVELWEB ACCESS INFORMATION 8.1 TravelWeb Access Information. There shall be available to Participant via TravelWeb current on line reports containing TravelWeb Access Information. IX. INDEMNIFICATION 9.1 Indemnification in the Event of Certain Losses. Participant agrees to indemnify, defend and hold harmless THISCO and THISCO's partners, successors, assigns, subsidiaries, affiliates, and each such entity's directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("THISCO's Losses") occurring on account of Participant's fault except to the extent due to the fault of THISCO. THISCO agrees to indemnify, defend and hold harmless Participant, and Participant's partners, successors, assigns, subsidiaries, affiliates, and each such entities' directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("Participant's Losses") occurring on account of THISCO's fault except to the extent due to the fault of Participant. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 9.1, such indemnified party shall give prompt notice thereof to the indemnifying party and the -8- 10 indemnifying party shall be entitled to participate therein or, to the extent that it shall wish, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses, in each case subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. Whether or not an indemnifying party elects to assume the defense of any action or claim, the indemnifying party shall not compromise or settle any such action or claim without the indemnified party's written consent (which consent shall not be unreasonably withheld). The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. X. CONFIDENTIALITY 10.1 Confidential Information. During the term of this Agreement, it is acknowledged by Participant and THISCO that each may receive or have access to confidential and proprietary information of the other party including, but not limited to, marketing information, business plans, financial information, and trade secrets ("Confidential Information"). Each party acknowledges that it shall not acquire any ownership or other rights in or to Confidential Information of the other, and shall use the Confidential Information only for the purposes of the performance of this Agreement, and shall keep confidential and not disclose the Confidential Information to any other person, firm or corporation without the prior written consent of the other party. Any Confidential Information transmitted in writing or by other tangible media shall remain the property of the owner and shall be returned to the owner at its request, together with all copies made thereof, at the conclusion of this Agreement. The parties agree that the provisions of this Section 10 shall extend without limitation beyond the date of the expiration or other conclusion of this Agreement. THISCO agrees to take all reasonably avoidable measures at THISCO's sole cost and expense to ensure that Participant's Confidential Information is not accessible to other persons, and to upgrade such measures as often as necessary and practicable. 10.2 Use of Marks. Participant acknowledges that "TravelWeb" is a service mark of THISCO and that it shall not use such mark without the prior written approval of THISCO, which shall not be unreasonably withheld or delayed and which shall not be required for internal uses and uses consistent with this Agreement and the promotion of TravelWeb to prospective viewers of Internet Pages. Except as otherwise permitted herein, THISCO agrees that it shall not use any of Participant's Marks or -9- 11 any portion thereof or elements contained therein without Participant's prior written consent. XI. MISCELLANEOUS 11.1 Controlling Law. This Agreement will be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. Any action brought relating to or arising out of this Agreement must be brought in the state or federal courts situated in the county and state of the residence or principal place of business of the party against whom the action is brought (or any of them, if more than one). 11.2 Notice. All notices and other communications contemplated hereby must be in writing (except in the case of electronically transmitted data) and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, (d) sent by telecopy with confirmation of receipt of telecopy to the number indicated, or (e) transmitted directly to the recipient by electronic data transmission pursuant to arrangements made between the parties. Such notices and other communications (except in the case of electronically transmitted data) shall be addressed as follows: IF TO THISCO: IF TO PARTICIPANT: 3811 Turtle Creek Blvd. Hilton Hotels Corporation Suite 1100 9336 Civic Center Drive Dallas, TX 75219 Beverly Hills, California 90210 Attention: John F. Davis, III (if by telecopy to: Attention: Mr. Bruce Rosenberg (214) 528-5675) (if by telecopy to: (310) 859-2513) cc: General Counsel or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices will be deemed given and received when received. 11.3 Binding Effect. This Agreement will be binding upon and will inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 11.4 Assignment; Authorized Agents. This Agreement is not assignable by either party without the prior written consent of the other and such consent -10- 12 shall not be unreasonably withheld or delayed. Provided however, it is acknowledged and agreed that the obligations of THISCO as set forth in Paragraphs 3.2 and 3.3 herein may be performed by Cyber Publishing, Inc. or such other third party with whom THISCO may contract to perform such services. 11.5 Entire Agreement. This Agreement and the Exhibits hereto shall constitute the entire, sole and exclusive agreement between THISCO and Participant with respect to the subject matter set forth herein and shall supersede any and all other agreements, oral or written. Each party hereto acknowledges that it has not relied upon any representation or promise not set forth herein. 11.7 Parties' Independence. This Agreement will not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. THE HOTEL INDUSTRY SWITCH COMPANY a Delaware corporation BY: /s/ JOHN F. DAVIS, III ------------------------------------------ John F. Davis, III President DATE: April 27, 1995 ---------------------------------------- PARTICIPANT: HILTON HOTELS CORPORATION a Delaware corporation BY: /s/ ROBERT DIRKS ------------------------------------------ Robert Dirks ITS: Senior Vice President Marketing - Hotel Operations DATE: April 20, 1995 -11-
1 EXHIBIT 10.15 TRAVELWEB PARTICIPANT AGREEMENT This Agreement is entered into by and between The Hotel Industry Switch Company, a Delaware corporation (hereinafter called "THISCO") and HILTON INTERNATIONAL CO., a Delaware corporation (hereinafter called "Participant") to be effective on the latest date of execution by the parties hereto on the terms and conditions as set forth herein (the "Agreement"). I. DEFINITIONS The following definitions shall be applicable to this Agreement: 1.1 TravelWeb. A tradename owned by THISCO for its service to provide a catalog of information on hotels, resorts, cruise lines and other travel and lodging subjects which is accessible by a Client Computer (as hereinafter defined) on the Internet. 1.2 Internet. A worldwide network of computers with information which is accessible by Client Computers (as hereinafter defined). 1.3 TravelWeb Participant. A person or entity who enters into an agreement with THISCO for the creation and publishing of Internet Pages (as hereinafter defined). 1.4 TravelWeb Publication. One or more pages of Materials (as hereinafter defined) to be developed into Internet Pages (as hereinafter defined). 1.5 TravelWeb Order. A written order form, reasonably acceptable to THISCO and in the form prescribed by THISCO, executed by THISCO and Participant setting forth the information necessary for the publication of Internet Pages (as hereinafter defined) from the Materials (as hereinafter defined) and the agreed fees and costs to be paid for the order. A copy of the current TravelWeb Order Form (with additional required documents attached thereto) is attached hereto and marked Exhibit A. 1.6 Change Order. A written change, on a form prescribed by THISCO, in the TravelWeb Order mutually agreed to and executed by THISCO and Participant. 1.7 Client Computer. A computer with access to information on the Internet. -1- 2 1.8 Materials. All of the information, in documentary form or otherwise, provided to THISCO by Participant to be used by THISCO to publish the Internet Pages. 1.9 TravelWeb Access Information. Information regarding TravelWeb access by Client Computers as is gathered by THISCO and made available to Participant which shall include daily transaction statistics, hourly transaction statistics, total transfers by client domain, total transfers by reversed sub domain, total transfers from each archive section and previous full summary period, which shall include the date, time, page number and originating domain for all accesses to Participant's TravelWeb Pages. 1.10 Internet Page. The finished informational product created and published by THISCO from the Materials pursuant to this Agreement and a TravelWeb Order or a Change Order which appears on an individual Client Computer screen and which is available on and is accessible by Client Computers on the Internet. 1.11 Authorized Representative. An authorized representative is any person or entity with the express written right, authority and/or obligation to perform the obligations of or act on behalf of THISCO or Participant with respect to this Agreement. 1.12 Certificate of Acceptance. Written acceptance by Participant of the Internet Pages and authorization to publish them. The Certificate of Acceptance will be in a form prescribed by THISCO. II. INTENT OF THIS AGREEMENT 2.1 Mutual Intent. It is intended by both parties to this Agreement that this Agreement and all exhibits hereto set forth, in its entirety, all of the terms, conditions, rights and obligations of THISCO and Participant with respect to the publishing of Internet Pages by THISCO for the benefit of Participant as more specifically set forth herein. THISCO agrees to enter into separate agreements on the same terms and conditions with each of Participant's franchisees which may, from time to time, notify THISCO of their intent to enter into such an agreement. III. CREATION AND PUBLICATION OF A TRAVELWEB BROCHURE; DUTIES AND OBLIGATIONS OF THISCO AND PARTICIPANT 3.1 TravelWeb Order. The TravelWeb Order shall be completed in the form attached hereto and marked Exhibit A (the "TravelWeb Order Form") and shall contain all of the information requested on the form for THISCO to -2- 3 publish the Internet Pages requested by Participant. The TravelWeb Order Form may be amended or replaced by THISCO at any time without notice and such new or amended form need not be attached hereto as a replacement for Exhibit A to be effective and to supersede Exhibit A. To be effective, any TravelWeb Order Form must be executed by an Authorized Representative of THISCO and Participant. A new TravelWeb Order Form shall be completed and agreed to with respect to each TravelWeb Publication to be created and published by THISCO for the benefit of Participant pursuant to this Agreement. 3.2 Materials for Creation and Publication of the Internet Pages. Participant shall be solely responsible for providing to THISCO all Materials reasonable and necessary for THISCO to create and publish the Internet Pages pursuant to the TravelWeb Order. All Materials shall be in form, substance, condition and format as mutually agreed and shall meet or exceed all of the requirements set forth on Exhibit A hereto and all other reasonable and necessary requirements requested by THISCO and mutually agreed with Participant. Exhibit A may be amended by THISCO at any time. THISCO is hereby authorized to utilize, consistent with the TravelWeb Order, all copyrights, trademarks, trade names, service marks or other proprietary marks or symbols contained within the Materials (collectively, "Participant's Marks"), provided that THISCO hereby acknowledges and agrees that it does not have and shall not gain any usage or other rights or interests of any kind in and to any Materials or Participant's Marks at any time. 3.3 Processing the Order; Creation of the Internet Pages; Approvals. THISCO shall process the TravelWeb Order pursuant to the schedule set forth therein but no later than fourteen (14) business days from the date of receipt thereof. Upon creation of the Internet Pages to be published pursuant to the TravelWeb Order and this Agreement (but prior to such publication), THISCO shall (i) deliver to Participant a printed black and white copy of the completed Internet Pages and (ii) notify Participant of and permit Participant access to the TravelWeb server via its Client Computer to view the completed Internet Pages. Participant shall, within seven (7) business days of such delivery and notification, make any and all written corrections or proposed amendments it may have to the Internet Pages and shall provide THISCO with written notice detailing such corrections and/or proposed amendments. In the event the Internet Pages are approved, Participant shall, within seven (7) business days of receipt of the Internet Pages, provide THISCO with a Certificate of Acceptance. In the event Participant does not provide written notice to THISCO of corrections or proposed amendments or approving the Internet Pages within seven (7) business days of receipt of the Internet Pages, the Internet Page shall be deemed disapproved by Participant and THISCO shall not publish the Internet Pages on the Internet. -3- 4 3.4 Authority to Publish. Participant hereby authorizes and directs THISCO to publish on the Internet as part of TravelWeb the approved Internet Pages. No Internet Page may be changed or revised without Participant's express written permission. IV. FEES AND COSTS 4.1 Creation and Publication Fees. For the creation and development of the Internet Pages from the Materials provided by Participant to THISCO, Participant shall pay to THISCO the fees and costs set forth on each TravelWeb Brochure Order and/or Change Order provided however the price for page construction shall not exceed Seventy Five Dollars ($75.00) per page, the price for picture processing shall not exceed Forty Five Dollars ($45.00) per picture and the price for data entry shall not exceed Twenty Dollars ($20.00) per page. Fees and costs charged in connection with each TravelWeb Brochure Order are subject to change only by mutual agreement. 4.2 Monthly Maintenance Fees. For maintaining the Internet Pages on the Internet and the management and operation of the TravelWeb, Participant shall pay to THISCO a monthly maintenance fee as follows: 1 - 50 properties $3.00 per property 51 - 200 properties $2.75 per property 201 - 400 properties $2.50 per property over 400 properties $1,000 The monthly maintenance fee is due on or before the fifth (5th) day of each month following a month during which Internet Pages have been published on the Internet pursuant to this Agreement. 4.3 Additional Hypertext Connections. For all hypertext connections to computers or servers connected to Internet not on TravelWeb, Participant shall pay to THISCO Five Dollars ($5.00) per additional hypertext connection to computers or servers connected to Internet not on TravelWeb. 4.4 Payment of Fees and Costs. THISCO shall invoice Participant for all fees and costs and Participant shall pay each invoice upon receipt and each invoice shall be past due thirty (30) days thereafter. V. TERM AND TERMINATION 5.1 Term. Unless terminated as provided herein, the term of this Agreement shall begin on the date this Agreement is executed by both parties and shall terminate on the date of its first (1st) anniversary hereof. This -4- 5 Agreement shall be automatically renewed and extended on the same terms and conditions for additional one (1) year terms thereafter unless, at least sixty (60) days prior to the expiration of the initial one (1) year term or the expiration of any additional one (1) year term, either party hereto shall give notice of its intent not to renew and extend this Agreement. 5.2 Termination. This Agreement may only be terminated prior to the expiration of the initial one (1) year term or any extended term (if applicable) on the occurrence of an Event of Default set forth in Section 7.1 and the failure to cure within the applicable time period as provided herein or in the event this Agreement is not performable as the result of an event of force majeure as set forth in Section 7.2 hereof. 5.3 Effect of Termination. In the event this Agreement is terminated as permitted herein or the term of this Agreement expires without being renewed and extended, the publication of all Internet Pages shall immediately cease and all duties and obligations as set forth herein shall immediately cease and terminate except for the provisions set forth in Article 6, Sections 7.6, 7.7, 9.1 and Articles 10 and 11 hereof and any payments which may be due after the date of termination and all Materials shall be returned to Participant. VI. INTELLECTUAL PROPERTY AND MATERIALS 6.1 Ownership of Materials. Participant represents and warrants that it is the sole and exclusive owner, or has the authorized right of use in connection herewith, of all Materials, and Participant's Marks to be used hereby, by virtue of common or statutory law, used in connection therewith and that the publication of same on the Internet Pages is and shall be, at all times material hereto, legal and shall not, in any manner, violate any applicable law or the rights of any third party. 6.2 Protection of Intellectual Property Rights. Participant shall be solely and exclusively responsible for the protection of any and all of its intellectual property including, but not limited to the inclusion of any and all statutory or other notices customarily used or required for purposes of providing notice of ownership or protection of Participant's Marks in connection with the Materials and the Internet Pages. 6.3 Ownership of Internet Pages. Subject to Section 3.2 hereof, the Internet Pages, shall, at all times material to this Agreement, be and remain the property of Participant and may be used by Participant to be available for receiving on the Internet via a server other than TravelWeb. THISCO may not use or publish the Internet Pages or any portion thereof or elements -5- 6 contained therein in any manner other than pursuant to this Agreement without the prior written consent of Participant. VII. DEFAULT 7.1 Events of Default. Subject to Section 7.2 below, any one of the following will be considered an Event of Default: (i) The failure of either party to pay any amount due hereunder within the time required; (ii) The refusal or failure of either party (including Participant's participating affiliates or subsidiaries) to perform diligently and in good faith each and every material provision of this Agreement; or (iii) The commencement by either party of a voluntary case under Chapters 11 or 7 of the United States Bankruptcy Code, as from time to time in effect, the commencement against either party of an involuntary case under said Chapters 11 or 7, either party seeking relief as a debtor under any applicable law, other than said Chapters 11 or 7, of any jurisdiction relating to the liquidation or reorganization of debtors or the modification of the rights of creditors, the entry of a court order adjudging the party bankrupt or insolvent, ordering its liquidation or reorganization or assuming custody or appointing a receiver or other custodian of its property, or its making an assignment for the benefit of, or entering into a composition with, its creditors. 7.2 Force Majeure. It will not constitute an Event of Default if such event listed in Section 7.1 is caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if any such occurrence results in any of the events described in Section 6.1, and the same continues for more than thirty (30) consecutive days, either party may terminate this Agreement by providing notice as required herein. 7.3 Notice of Default and Opportunity to Cure. Upon the occurrence of an Event of Default, the non-defaulting party shall give notice of such default to the defaulting party and, in the event of a monetary default, the defaulting party shall have ten (10) business days from the date of such notice within which to cure such default or, in the event of a non-monetary default, the defaulting party shall have twenty (20) business days within which to cure such default. In the event such default is not cured within the time required herein, this Agreement may then be terminated. -6- 7 7.4 Effect of Default. (i) By Participant. In the event of a default of this Agreement by Participant and the failure of Participant to cure such default after notice and opportunity to cure as provided herein, THISCO shall be entitled (i) to terminate this Agreement and THISCO's obligations and duties set forth herein shall cease (ii) to cease use of all Materials, the Internet Pages and any and all other Materials used by, developed, or created by THISCO in the performance of this Agreement, and (iii) pursue any and all claims for fees and costs agreed to be paid pursuant to this Agreement with offset for mitigation resulting from THISCO's terminated obligation to continue to develop and create Internet Pages as required by the TravelWeb Order Form. It is acknowledged and agreed by Participant that the damages to THISCO for a default on this Agreement by Participant would be difficult, if not impossible, to measure and that the balance unpaid on any TravelWeb Order Form is a fair and reasonable estimate of THISCO's damages in the event of such default and shall be the total amount due THISCO in such event. (ii) By THISCO. In the event of a default of this Agreement by THISCO and the failure of THISCO to cure such default after notice and opportunity to cure as provided herein, Participant may terminate this Agreement and THISCO shall deliver to Participant all Materials and all other materials used, developed and/or created by THISCO in the development and creation of the Internet Pages and THISCO shall refund to Participant all amounts paid pursuant to the TravelWeb Brochure Order less a reasonable amount no greater than the price set forth on the applicable TravelWeb Order Form for such parts of the development and creation of the Internet Pages accomplished by THISCO as represented by the Materials delivered to Participant. 7.5 Errors on Internet Pages. Notwithstanding any other provision hereof, in the event an Internet Page published pursuant to this Agreement contains an error caused by THISCO, its employees, agents, or subcontractors, other than an error arising from THISCO's, its employees, agents or subcontractors gross negligence or willful misconduct, Participant's sole and exclusive remedy for such error shall be THISCO's obligation to remove such Internet Page from the Travel Web within twenty-four (24) hours of becoming aware, or notified of, such error, and shall then cure such error by correcting the information contained on the Internet Page and restoring the corrected and approved Internet Page to the TravelWeb as promptly as possible but in no event later than seven (7) days of the date of notice from Participant of such error, each at THISCO's sole cost and expense. 7.6 Waiver of Consequential Damages. Neither party shall be liable to the other for any consequential damages proximately caused or resulting from -7- 8 any default of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. 7.7 Disclaimer and Limitation of Liabilities. THISCO WILL NOT BE RESPONSIBLE OR LIABLE FOR ANY FALSIFICATIONS OR INACCURACIES IN THE MATERIAL OR THE INTERNET PAGES NOR WILL IT HAVE ANY LIABILITY FOR ANY ACT OR FAILURE TO ACT WITH RESPECT TO THE INTERNET PAGES UNLESS EXPRESSLY SET FORTH HEREIN, OR EXCEPT TO THE EXTENT RESULTING FROM THISCO'S, ITS EMPLOYEES', AGENTS', OR SUBCONTRACTORS' GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE, ARE DISCLAIMED BY THISCO AND WAIVED BY PARTICIPANT. VIII. TRAVELWEB ACCESS INFORMATION 8.1 TravelWeb Access Information. There shall be available to Participant via TravelWeb current on line reports containing TravelWeb Access Information. IX. INDEMNIFICATION 9.1 Indemnification in the Event of Certain Losses. Participant agrees to indemnify, defend and hold harmless THISCO and THISCO's partners, successors, assigns, subsidiaries, affiliates, and each such entity's directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("THISCO's Losses") occurring on account of Participant's fault except to the extent due to the fault of THISCO. THISCO agrees to indemnify, defend and hold harmless Participant, and Participant's partners, successors, assigns, subsidiaries, affiliates, and each such entities' directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("Participant's Losses") occurring on account of THISCO's, its employees', agents', or subcontractors' fault except to the extent due to the fault of Participant. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 9.1, such indemnified party shall give prompt notice thereof to the indemnifying party and the indemnifying party shall be entitled to participate therein or, to the extent that it shall wish, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party -8- 9 shall not be liable to the indemnified party for any fees of other counsel or other expenses, in each case subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. Whether or not an indemnifying party elects to assume the defense of any action or claim, the indemnifying party shall not compromise or settle any such action or claim without the indemnified party's written consent (which consent shall not be unreasonably withheld). The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. X. CONFIDENTIALITY 10.1 Confidential Information. During the term of this Agreement, it is acknowledged by Participant and THISCO that each may receive or have access to confidential and proprietary information of the other party including, but not limited to, marketing information, business plans, financial information, and trade secrets ("Confidential Information"). Each party acknowledges that it shall not acquire any ownership or other rights in or to Confidential Information of the other, and shall use the Confidential Information only for the purposes of the performance of this Agreement, and shall keep confidential and not disclose the Confidential Information to any other person, firm or corporation without the prior written consent of the other party. Any Confidential Information transmitted in writing or by other tangible media shall remain the property of the owner and shall be returned to the owner at its request, together with all copies made thereof, at the conclusion of this Agreement. The parties agree that the provisions of this Section 10 shall extend without limitation beyond the date of the expiration or other conclusion of this Agreement. THISCO agrees to take all reasonably avoidable measures at THISCO's sole cost and expense to ensure that Participant's Confidential Information is not accessible to other persons, and to upgrade such measures as often as necessary and practicable. 10.2 Use of Marks. Participant acknowledges that "TravelWeb" is a service mark of THISCO and that it shall not use such mark without the prior written approval of THISCO, which shall not be unreasonably withheld or delayed and which shall not be required for internal uses and uses consistent with this Agreement and the promotion of TravelWeb to prospective viewers of Internet Pages. Except as otherwise permitted herein, THISCO agrees that it shall not use any of Participant's Marks or any portion thereof or elements contained therein without Participant's prior written consent. -9- 10 XI. MISCELLANEOUS 11.1 Controlling Law. This Agreement will be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. Any action brought relating to or arising out of this Agreement must be brought in the state or federal courts situated in the county and state of the residence or principal place of business of the party against whom the action is brought (or any of them, if more than one). 11.2 Notice. All notices and other communications contemplated hereby must be in writing (except in the case of electronically transmitted data) and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, (d) sent by telecopy with confirmation of receipt of telecopy to the number indicated, or (e) transmitted directly to the recipient by electronic data transmission pursuant to arrangements made between the parties. Such notices and other communications (except in the case of electronically transmitted data) shall be addressed as follows: IF TO THISCO: IF TO PARTICIPANT: 3811 Turtle Creek Blvd. Hilton International Co. Suite 1100 International Court Dallas, TX 75219 2 - 3 Rhodes Way Attention: John F. Davis, III Watford, Herts WD24YW (if by telecopy to: Attention: Legal Department (214) 528-5675) with a copy to Geoffrey Breeze (if by telecopy to: 44 1923 817319) or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices will be deemed given and received when received. 11.3 Binding Effect. This Agreement will be binding upon and will inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 11.4 Assignment; Authorized Agents. This Agreement is not assignable by either party without the prior written consent of the other and such consent shall not be unreasonably withheld or delayed. Provided however, it is acknowledged and agreed that the obligations of THISCO as set forth in Paragraphs 3.2 and 3.3 herein may be performed by Cyber Publishing, Inc. -10- 11 or such other third party with whom THISCO may contract to perform such services. 11.5 Entire Agreement. This Agreement and the Exhibits hereto shall constitute the entire, sole and exclusive agreement between THISCO and Participant with respect to the subject matter set forth herein and shall supersede any and all other agreements, oral or written. Each party hereto acknowledges that it has not relied upon any representation or promise not set forth herein. 11.7 Parties' Independence. This Agreement will not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. THE HOTEL INDUSTRY SWITCH COMPANY a Delaware corporation BY: /s/ JOHN F. DAVIS, III ---------------------------- John F. Davis, III President DATE: 30th May 1995 -------------------------- PARTICIPANT: HILTON INTERNATIONAL CO. a Delaware corporation BY: /s/ GEOFFREY B. BREEZE -------------------------- Geoffrey Breeze Vice President - Corporate Marketing DATE: 18 May 1995 ------------------------- -11-
1 EXHIBIT 10.16 TRAVELWEB(SM) PARTICIPANT AGREEMENT FOR INTERNET PAGES, ON LINE AVAILABILITY AND RESERVATIONS This Agreement is entered into by and between TravelWeb, Inc. (hereinafter called "TWI") and Choice Hotels International, Inc. (hereinafter called "Participant") to be effective on the latest date of execution by both parties hereto on the terms and conditions as set forth herein (the "Agreement"). I. DEFINITIONS The following definitions shall be applicable to this Agreement: 1.1 TravelWeb(SM). The service mark and trade name owned by TWI for its service to provide access to information on hotels, resorts, cruise lines and other travel and lodging subjects and a limited access to TravelWeb(sm) Participant's reservation system with the interactive capability to permit an operator of a Client Computer (as hereinafter defined) to make a reservation. 1.2 Internet. A worldwide network of computers with information which is accessible by Client Computers. 1.3 TravelWeb(sm) Participant. A person or entity who enters into an agreement with TWI to publish Internet Pages (as hereinafter defined) and to provide access to the TravelWeb(sm) Participant's reservation system with the capability to make and cancel a reservation. 1.4 TravelWeb(sm) Order Form. A written order form, acceptable to TWI and in the form prescribed by TWI, executed by TWI and Participant setting forth the information necessary for the publication of Internet Pages (as hereinafter defined) from the information available on the UltraSelect Course Filter database (for "Lite Line" pages) or from Materials (as hereinafter defined) (for brochures) and, in the event different from those set forth on Exhibit A hereto, the agreed fees and costs to be paid for the order. 1.5 Change Order. A written change, on a form prescribed by TWI, in the TravelWeb(sm) Order mutually agreed to and executed by TWI and Participant. 1.6 Client Computer. A computer with access to information on the Internet. -1- 2 1.7 TravelWeb(sm) Reservation. A TravelWeb(sm) Reservation is a reservation made with a TravelWeb(sm) Participant via TravelWeb(sm) by an operator of a Client Computer. 1.8 Net TravelWeb(sm) Reservation. Net TravelWeb(sm) Reservations within a particular time period equals the number of reservation made by an operator of a Client Computer via TravelWeb(sm) within such time period, less the number of reservations made by an operator of a Client Computer as to which notice of cancellation is received via TravelWeb(sm) within such time period. 1.9 Materials. All of the information, in documentary form or otherwise, provided to TWI by Participant to be used by TWI to create and publish the Internet Pages. 1.10 TravelWeb(sm) Activity Report. An on line report available only to Participant and its Authorized Representatives via TravelWeb(sm) providing information regarding the viewing of Participant's Internet Pages by operators of Client Computers (to include, without limitation, daily transaction statistics, total transfers by client domain and total transfers from each archive section) and all available data prepared by TWI regarding TravelWeb(sm) Reservations with Participant. 1.11 Internet Page. The finished informational product created and published by TWI from the information in the UltraSelect Course Filter database (for "Lite Line" pages) and the Materials (for brochures) pursuant to this Agreement and a TravelWeb(sm) Order or a Change Order which appears on an individual Client Computer screen and which is available on and is accessible by Client Computers on the Internet. 1.12 Authorized Representative. An authorized representative is any person or entity with the express right, authority and/or obligation to perform the obligations of or act on behalf of TWI or Participant with respect to this Agreement. 1.13 Certificate of Internet Page Acceptance. Written acceptance by Participant of the Internet Pages and authorization to publish them. The Certificate of Internet Page Acceptance will be in a form prescribed by TWI. 1.14 Interface. The connection created by TWI between TravelWeb(sm) and Participant's Reservation System pursuant to the technical and functional design specifications set forth in the UltraSwitch UltraSelect HRS Interface Specifications (the "Specifications"). -2- 3 1.15 Interactive Portion of TravelWeb(sm). The functional capability provided by TWI via the Interface of on-line Client Computers' access via TravelWeb(sm) to a Participant's Reservation system with the capability to make and cancel a reservation. II. INTENT OF THIS AGREEMENT 2.1 Mutual Intent. It is mutually intended that this Agreement and all documents made reference to herein, set forth, in its entirety, all of the terms, conditions, rights and obligations of TWI and Participant with respect to the publishing of Internet Pages by TWI and the installation and operation of the Interface by TWI as specifically set forth herein. This Agreement is not exclusive and Participant may publish the Internet Pages and accept Internet Reservations with any other person or entity. III. CREATION AND PUBLICATION OF A TRAVELWEB(TM) LITE LINE INTERNET PAGES; DUTIES AND OBLIGATIONS OF TWI AND PARTICIPANT 3.1 TravelWeb(sm) Order. A TravelWeb(sm) Order may be for "Lite Line" pages, which shall contain only the information available from the UltraSelect Course Filter database, or for brochures, which shall contain information from the Materials provided by Participant. Each TravelWeb(sm) Order shall be completed by the respective property on a TravelWeb(sm) Order Form. The TravelWeb(sm) Order Form may be amended or replaced by TWI at any time without notice prior to any TravelWeb(sm) Order being executed. To be effective, any TravelWeb(sm) Order Form must be executed by an Authorized Representative of TWI and Participant. A new TravelWeb(sm) Order Form shall be completed and agreed to with respect to each request for Internet Pages to be created and published by TWI. 3.2 Materials for Creation and Publication of the Internet Pages. TWI shall use the information available in the UltraSelect Course Filter database for Lite Line Pages. Participant shall be solely responsible for providing to TWI all Materials reasonable and necessary for TWI to create and publish all other Internet Pages pursuant to the TravelWeb(sm) Order. All Materials shall be in form, substance, condition and format as required by TWI and shall meet or exceed all of the requirements set forth in the TravelWeb(sm) Order Form and in all other reasonable and necessary requirements requested by TWI. TWI is hereby authorized to utilize, consistent with the TravelWeb(sm) Order and for no other purposes other than those expressly set forth in this Agreement, all copyrights, trademarks, trade names, service marks or other proprietary -3- 4 marks or symbols contained within the Materials (collectively, "Participant's Marks"). 3.3 Processing the Order: Creation of the Internet Pages Approvals. TWI shall process the TravelWeb(SM) Order pursuant to the schedule set forth therein. Upon creation of the Internet Pages to be published pursuant to the TravelWeb(SM) Order and this Agreement, TWI shall deliver to Participant, for inspection and approval, the completed Internet Pages. Participant shall, within seven (7) days of such delivery, make any and all written corrections or proposed amendments it may have to the Internet Pages and shall provide TWI with written notice detailing such corrections and/or proposed amendments. In the event the Internet Pages are approved, Participant shall, within seven (7) days of receipt of the Internet Pages, provide TWI with a Certificate of Acceptance. Notwithstanding the above and foregoing, in the event Participant does not provide written notice to TWI of corrections or proposed amendments or approving the Internet Pages within seven (7) days of receipt of the Internet Pages, approval of the Internet Pages shall be deemed given by Participant to TWI and TWI shall be authorized to publish the Internet Pages on the Internet. As used in this Section 3.3, Participant shall mean the parent corporate entity of Participant with respect to LiteLine pages and refers to Participant's franchised hotels with respect to brochures. 3.4 Authority to Publish. Participant hereby authorizes and directs TWI to publish on the Internet as part of TravelWeb(SM) the approved or deemed approved Internet Pages. 3.5 TravelWeb(SM) Management. TWI shall be responsible for all costs associated with the connection of the TravelWeb(SM) server to the Internet and all hardware and software maintenance for such server. TWI shall insure that the server is monitored for failures 24 hours per day, seven days per week and will use commercially reasonable efforts to assure that the server is operational and available on the Internet 98% of the time, 24 hours per day, seven days per week for each rolling 90-day period. IV. THE INTERFACE: DUTIES AND OBLIGATIONS OF TWI AND PARTICIPANT 4.1 Duties of TWI. TWI shall be responsible for all costs associated with the production, development, service and maintenance of the Interface and the Interactive Portion of TravelWeb(SM) including, but not limited to providing all reasonable and necessary personnel, technical support, hardware and software to produce the Interface between Client Computers and Participant's reservation system meeting or exceeding the Specifications. TWI will periodically review and update, as is reasonable and necessary, all -4- 5 security applications of the Interactive Portion of TravelWeb(SM) including, without limitation, the current Client Computer use limitations. 4.2 Duties of Participant. Participant shall provide all reasonable and necessary personnel and technical support, reasonable and necessary programming and modification of its reservation system and all other reasonable and necessary accommodations to produce a dependable and operable Interface with its reservation system and shall cooperate fully with TWI personnel to produce the Interface. Through the Interface, Participant will permit access to Participant's reservation system by all Client Computers utilizing TravelWeb(SM) and will permit all such Client Computers to reserve and cancel rooms available to be reserved in Participant's reservation system and to make credit card payments to Participant in connection with the TravelWeb(SM) Reservation. Neither the Internet Pages nor the information contained in Participant's reservation system shall contain any information which is intended to or is otherwise likely to cause any user of a Client Computer to make a reservation with Participant by any means other than the Interactive Portion of TravelWeb(SM) except that the listing may contain the franchised hotel's direct telephone number. 4.3 Implementation of the Interface. The Interface shall be implemented pursuant to a mutually agreeable schedule. 4.4 Enhancement or Modification of the Interactive Portion of TravelWebsm. TWI may undertake to modify the operation or enhance the capability of the Interactive Portion of TravelWebsm. In such event, TWI shall provide notice to Participant of such modification or enhancement at least 30 days prior to such modification or enhancement taking effect and will make such adjustments and modifications to TravelWeb(SM) at TWI's sole expense, as are reasonable and necessary to maintain the Interface with Participant. Participant agrees to cooperate with TWI with regard to its modification or enhancement of the Interactive Portion of TravelWeb(SM). 4.5 Modification of Participant's Reservation System. In the event Participant modifies its reservation system or modification of its reservation system is required for Participant if it continues to participate in the Interactive Portion of TravelWebsm, Participant shall pay for such modification to its reservation system. In the event Participant modifies its reservation system and such modification requires TWI to modify the Interface or the Interactive Portion of TravelWeb(SM) to maintain the Interface and to comply with its functional specifications with Participant, Participant shall pay TWI its standard consulting rate and all reasonable expenses incurred by TWI as a result of the modification. -5- 6 V. FEES AND COSTS 5.1 Creation and Publication Fees. For the creation and development of the Internet Pages, Participant shall pay to TWI the fees and costs set forth on Exhibit A attached hereto or, if otherwise agreed, as set forth on each TravelWeb(SM) Order Form and/or Change Order Form. 5.2 TravelWeb(SM) Reservation Fees. For each Net TravelWeb(SM) Reservation processed pursuant to this Agreement, Participant shall pay to TWI U.S. $2.00. The TravelWeb(SM) Reservation Fee may be increased up to 10% once each year. The TravelWeb(SM) Reservation Fee is in addition to the fees to be paid by Participant for transactions utilizing TWI's UltraSwitch system. 5.3 Communication Line Costs. Participant shall pay all costs of communication lines required for the Interface and operation of the Interactive Portion of TravelWeb(SM). 5.4 Payment of Fees and Costs. TWI shall provide to Participant an invoice itemizing all fees and costs and Participant shall pay each invoice upon receipt and each invoice shall be past due thirty (30) days thereafter. VI. TRAVELWEB (TM) REPORTS 6.1 TravelWeb(SM) Activity Reports. TWI shall provide to Participant via TravelWeb(SM) current on line TravelWeb(SM) Activity Reports. VII. TERM AND TERMINATION 7.1 Term. Unless terminated as provided herein, the term of this Agreement shall begin on the date this Agreement is executed by both parties and shall terminate on the date of its third (3rd) anniversary. This Agreement shall be automatically renewed and extended for additional one (1) year terms unless, at least sixty (60) days prior to the expiration of any one (1) year term, either party hereto shall give notice of its intent not to renew and extend this Agreement. 7.2 Termination. This Agreement may only be terminated prior to the expiration of the initial three (3) year term or any extended term (if applicable) in the -6- 7 event of a breach hereof and the failure to cure within the applicable time period as provided herein or in the event this Agreement is not performable as the result of an event of force majeure as set forth in Section 9.2 hereof. 7.3 Effect of Termination. In the event this Agreement is terminated as permitted herein or the term of this Agreement expires without being renewed and extended, the publication of all Internet Pages and access to Participant's reservation system via TravelWeb(SM) shall cease and all duties and obligations as set forth herein shall immediately cease and terminate except for the provisions set forth in Article VIII, Sections 9.7, 9.8, 10.1 and Articles 11 and 12 hereof and any payments which may be due after the date of termination and all Materials shall be returned to Participant. Notwithstanding the immediately preceding sentence, any TravelWeb Order or Change Order not complete at the date of termination shall be completed provided the properties being the subject of the order contract with TWI for completion and publication of the pages. VIII. INTELLECTUAL PROPERTY AND DATA 8.1 Ownership of Materials. Participant represents and warrants that it is the sole and exclusive owner, or has the authorized right of use in connection herewith, of all Materials and Participant's Marks to be used hereby, by virtue of common or statutory law, used in connection therewith and that the publication of same on the Internet Pages is and shall be, at all times material hereto, legal and shall not, in any manner, violate any applicable law or the rights of any third party. 8.2 Protection of Intellectual Property Rights. Participant shall be solely and exclusively responsible for the protection of any and all of its intellectual property including, but not limited to the inclusion of any and all statutory or other notices customarily used or required for purposes of providing notice of ownership or protection of Participant's Marks in connection with the Materials, the Internet Pages and the Interactive Portion of TravelWebsm. TWI shall have no responsibility for the protection or enforcement of any rights of Participant with respect to Participant's Marks or the information contained on an Internet Page. 8.3 Ownership of Internet Pages. The Internet Pages, shall, at all times material to this Agreement, be and remain the property of Participant. TWI may not use or publish the Internet Pages in any manner other than pursuant to this Agreement without the prior written consent of Participant. -7- 8 8.4 TravelWeb(SM) Reservation Information. Subject to Participant's right to receive information pursuant to Section 6.1 hereof, TWI shall own all statistical data regarding a Client Computer's access to TravelWeb(SM) and the name and address of the user of each Client Computer accessing TravelWeb(SM) provided TWI shall not use or distribute such data in any manner which is specific to Participant or reasonably determinable as related to Participant (except as required to perform this Agreement). TWI may use all aggregate data generated from the Interactive Portion of TravelWeb(SM) provided such data is not specific to Participant or reasonably determinable as related to Participant, and does not indicate that a customer is a customer of Participant. IX. DEFAULT 9.1 Events of Default. Subject to Section 9.2 below, any one of the following will be considered an Event of Default: (i) The failure of either party to pay any amount due hereunder within the time required; (ii) The failure of Participant or any of its participating affiliates (being a company controlled by Participant or under common control with another company) or franchisees to satisfy the obligations set forth in this Agreement; (iii) The refusal or failure of either party (including Participant's participating affiliates, or subsidiaries) to perform diligently and in good faith each and every material provision of this Agreement; or (iv) The commencement by either party of a voluntary case under Chapter 11 or 7 of the United States Bankruptcy Code, as from time to time in effect, the commencement against either party of an involuntary case under said Chapter 11 or 7, either party seeking relief as a debtor under any applicable law, other than said Chapter 11 or 7, of any jurisdiction relating to the liquidation or reorganization of debtors or the modification of the rights of creditors, the entry of a court order adjudging the party bankrupt or insolvent, ordering its liquidation or reorganization or assuming custody or appointing a receiver or other custodian of its property, or its making an assignment for the benefit of, or entering into a composition with, its creditors. -8- 9 9.2 Force Majeure. It will not constitute an Event of Default if such event listed in Section 9.1 is caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if any such occurrence results in any of the events described in Section 9.1, and the same continues for more than thirty (30) consecutive days, either party may terminate this Agreement by providing notice as required herein. 9.3 Notice of Default and Opportunity to Cure. Upon the occurrence of an Event of Default, the non-defaulting party shall give notice of such default to the defaulting party and, in the event of a monetary default, the defaulting party shall have ten (10) days from the date of such notice within which to cure such default or, in the event of a non-monetary default, the defaulting party shall have twenty (20) days within which to cure such default. In the event such default is not cured within the time required herein, this Agreement may then be terminated. 9.4 Effect of Default. (i) By Participant. In the event of a default of this Agreement by Participant and the failure of Participant to cure such default after notice and opportunity to cure as provided herein, TWI shall be entitled (i) to terminate this Agreement and TWI's obligations and duties set forth herein shall cease (ii) to retain Materials, the Internet Pages and any and all other Materials used by, developed, or created by TWI in the performance of this Agreement, and (iii) pursue any and all claims for fees and costs agreed to be paid pursuant to this Agreement without any offset for mitigation resulting from TWI's terminated obligation to continue to develop and create Internet Pages as required by the TravelWeb(SM) Order. It is acknowledged and agreed by Participant that the damages to TWI for a default on this Agreement by Participant would be difficult, if not impossible, to measure and that the balance unpaid on any TravelWeb(SM) Order in addition to any unpaid TravelWeb(SM) Reservation Fees or other fees is a fair and reasonable estimate of TWI's damages in the event of such default and shall be the total amount due TWI in such event. (ii) By TWI. In the event of a default of this Agreement by TWI and the failure of TWI to cure such default after notice and opportunity to cure as provided herein, Participant may terminate this Agreement and TWI shall deliver to Participant all Materials and all other materials used, developed and/or created by TWI in the development and creation of the Internet Pages and TWI shall refund to Participant all amounts paid pursuant to the TravelWeb(SM) Order less a reasonable amount (no greater than the price set forth on the applicable -9- 10 TravelWeb(SM) Order) for such portion of the development and creation of the Internet Pages accomplished by TWI as represented by the Materials delivered to Participant. 9.5 Risk of Internet Usage. Each party acknowledges and agrees that the Internet is a communication medium over which the parties have no control and that its continued utilization in its present form at current costs is uncertain. Therefore, if at any time during the term of this Agreement the cost of access to the Internet increases or there is imposed a fee or cost for use of the Internet communication lines, or there is imposed any law, governmental ruling, or regulation the result of which increases the cost of access to or usage of the Internet or otherwise makes it impractical, in either party's sole discretion, to continue to perform this Agreement, either party may, upon notice to the other party, immediately terminate the Interactive Portion of TravelWeb(SM), the Interface, and/or this Agreement without such action constituting an event of default. 9.6 Errors on Internet Pages. Notwithstanding any other provision hereof, in the event an Internet Page published pursuant to this Agreement contains an error caused by TWI, its employees, agents or subcontractors, other than an error arising from TWI's gross negligence or willful misconduct, Participant's sole and exclusive remedy for such error shall be TWI's obligation to remove such Internet Page from TravelWeb(SM) within twenty four (24) hours of becoming aware or notified of such error and shall then cure such error by correcting the information contained on the Internet Page and restoring the corrected and approved Internet Page as promptly as reasonably possible but in no event later than seven (7) days of date of notice from Participant of such error, each at TWI's sole cost and expense. 9.7 Waiver of Consequential Damages. Neither party shall be liable to the other for any consequential damages proximately caused or resulting from any default of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. 9.8 Disclaimer and Limitation of Liabilities. TWI WILL NOT BE RESPONSIBLE OR LIABLE FOR (i) ANY FALSIFICATIONS OR INACCURACIES IN THE MATERIAL OR THE INTERNET PAGES; (ii) NOR WILL IT HAVE ANY LIABILITY FOR ANY ACT OR FAILURE TO ACT WITH RESPECT TO THE INTERNET PAGES UNLESS EXPRESSLY SET FORTH HEREIN, OR (iii) ANY CLAIM, DAMAGE OR LIABILITY OF ANY NATURE ARISING OUT OF A CLIENT COMPUTER'S ACCESS TO PARTICIPANT'S RESERVATION SYSTEM AND/OR ANY TRANSACTION OR THE USE OF A CREDIT CARD OR OTHER DEBIT DEVISE IN CONNECTION THEREWITH, EXCEPT TO THE EXTENT RESULTING FROM THE FAILURE OF THE INTERACTIVE PORTION OF TRAVELWEB(TM) TO PERFORM PURSUANT TO THE SPECIFICATIONS (PROVIDED HOWEVER, TWI SHALL NOT BE LIABLE FOR ANY FAILURE OR -10- 11 DEFECT RESULTING FROM ANY THIRD PARTY SOFTWARE APPLICATION SET FORTH AS PART OF THE SPECIFICATIONS) OR FROM TWI'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE, ARE DISCLAIMED BY TWI AND WAIVED BY PARTICIPANT. X. INDEMNIFICATION 10.1 Indemnification in the Event of Certain Losses. Subject to the other provisions hereof, Participant agrees to indemnify, defend and hold harmless TWI and TWI's partners, successors, assigns, subsidiaries, affiliates, and each such entities directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("TWI's Losses") occurring on account of Participant's fault except to the extent due to the fault of TWI. Subject to the other provisions hereof, TWI agrees to indemnify, defend and hold harmless Participant, and Participant's partners, successors, assigns, subsidiaries, affiliates, and each such entities directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("Participant's Losses") occurring on account of TWI's fault except to the extent due to the fault of Participant. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 10.1, such indemnified party shall give prompt notice thereof to the indemnifying party and the indemnifying party shall be entitled to participate therein or, to the extent that it shall wish, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses, in each case subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. Whether or not an indemnifying party elects to assume the defense of any action or claim, the indemnifying party shall not compromise or settle any such action or claim without the indemnified party's written consent (which consent shall not be unreasonably withheld). The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. -11- 12 XI. CONFIDENTIALITY 11.1 Confidential Information. During the term of this Agreement, it is acknowledged by Participant and TWI that each may receive or have access to confidential and proprietary information of the other party including, but not limited to, the UltraSwitch UltraSelect HRS Interface Specifications, Participant's reservation system specification, marketing information, business plans, financial information and other proprietary information or trade secrets ("Confidential Information"). Each party acknowledges that it shall not acquire any ownership or other rights in or to Confidential Information of the other, and shall use the Confidential Information only for the purposes of the performance of this Agreement, and shall keep confidential and not disclose the Confidential Information to any other person, firm or corporation without the prior written consent of the other party. Any Confidential Information transmitted in writing or by other tangible media shall remain the property of the owner and shall be returned to the owner at its request, together with all copies made thereof, at the conclusion of this Agreement. The parties agree that the provisions of this Section 11 shall extend, without limitation, beyond the date of the expiration or other conclusion of this Agreement. Each party agrees to take all reasonably avoidable measures, at their own expense, to ensure that the other party's Confidential Information is not accessible to other persons and to upgrade such measures as often as necessary and practicable. 11.2 Use of Marks. Participant acknowledges that "TravelWeb(sm)" is a trade name and servicemark of TWI and that it shall not use such mark without the prior written approval of TWI. Except as otherwise permitted herein, TWI agrees that it shall not use any of Participant's Marks or any portion thereof or elements contained therein without Participant's prior written consent. XII. MISCELLANEOUS 12.1 Controlling Law. This Agreement will be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. Any action brought relating to or arising out of this Agreement must be brought in the state or federal courts situated in the county and state of the residence or principal place of business of the party against whom the action is brought (or any of them, if more than one). 12.2 Notice. All notices and other communications contemplated hereby must be in writing (except in the case of electronically transmitted data) and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), -12- 13 shipping prepaid, (d) sent by telecopy with confirmation of receipt of telecopy to the number indicated, or (e) transmitted directly to the recipient by electronic data transmission pursuant to arrangements made between the parties. Such notices and other communications (except in the case of electronically transmitted data) shall be addressed as follows: IF TO TWI: IF TO PARTICIPANT: 3811 Turtle Creek Blvd. Choice Hotels International, Inc. Suite 1100 10750 Columbia Pike Dallas, TX 75219 Silver Spring, MD 20901 Attention: John F. Davis, III Attention: General Counsel (if by telecopy: (if by telecopy: (301) 905-4007) (214) 528-5675) With a copy to James R. Yoakum [at same address] (if by telecopy to: (301) 905-4007) or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices will be deemed given and received when received. 12.3 Binding Effect. This Agreement will be binding upon and will inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 12.4 Assignment; Authorized Agents. This Agreement is not assignable by either party without the prior written consent of the other and such consent shall not be unreasonably withheld or delayed; provided, however, it is acknowledged and agreed that the obligations of TWI as set forth in paragraphs 3.2 and 3.3 herein may be performed by any Authorized Representative. Notwithstanding any restrictions herein on assignment or transfer, either party shall have the right at its option to assign and transfer all of its rights and interests hereunder to any entity or entities resulting from an acquisition, merger or sale of substantially all assets. 12.5 Entire Agreement. This Agreement, the Exhibits hereto, and the documents made reference to herein (and any replacements and/or amendments thereto) shall constitute the entire, sole and exclusive agreement between TWI and Participant with respect to the subject matter set forth herein and shall supersede and cause the mutual termination of any and all other agreements, oral or written with respect to TravelWeb(SM) including, but not limited to, that certain TravelWeb(SM) Participant Agreement between TWI and Participant with an effective date of ________. Each party hereto acknowledges -13- 14 that it has not relied upon any representation or promise not set forth herein. 12.6 Parties Independence. This Agreement will not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. 12.7 Franchisees. TravelWeb acknowledges that Participant consists of a system of franchised hotels and that the responsibility of Choice Hotels, Inc., with respect to property level obligations contained herein, shall be limited to best efforts to compel its franchisees to comply with their respective obligations. TRAVELWEB, INC. BY: ------------------------- John F. Davis, III President DATE: ---------------------------- PARTICIPANT: CHOICE HOTELS INTERNATIONAL, INC. BY: [ILLEGIBLE] ------------------------------- ------------------------------- ITS: SR VP INFORMATION SYSTEMS ----------------------------- DATE: 9/3/96 ---------------------------- -14-
1 EXHIBIT 10.17 TRAVELWEB PARTICIPANT AGREEMENT TravelWeb, Inc. (TWI) hereby offers to the below named Participant the right to participate in TWI's TravelWeb on the following terms and conditions: 1. Duties of TWI. (a) For publication of pages on the Internet, upon receipt and acceptance by TWI of TWI's TravelWeb Order Form and any Change Order, to payment by Participant of the fees as set forth therein and receipt from Participant of all reasonable and necessary information and materials required to process the TravelWeb Order or Change Order, TWI shall proceed to create or modify pages of information to be published on the Internet via TWI's TravelWeb and, subject to Participant's prior approval of the pages, shall publish the pages on the Internet. (b) In accordance with a mutually agreed schedule for implementation, TWI shall produce an operable interface between Participant's reservation system and the TravelWeb Internet site which will permit the user of a computer accessing TravelWeb to access Participant's reservation system with the capability to make, change and cancel a reservation. 2. Duties of Participant. (a) For the publication of pages on the Internet via TravelWeb, Participant shall complete a TravelWeb Order Form in form and substance as required by TWI for each publication. Participant shall provide to TWI all reasonable and necessary materials required by TWI to process the TravelWeb Order. TWI will submit the pages to be published to Participant for approval and Participant may make a single request for changes at no charge. In the event Participant wants to make further changes or wants to change any TravelWeb Order, Participant shall execute a Change Order on a form prescribed by TWI and shall pay the agreed charges for the changes. Participant agrees to pay all fees and costs as set forth in each TravelWeb Order Form and Change Order. Upon approval by Participant of the pages to be published, Participant hereby authorizes and directs TWI to publish the pages of information on the Internet via TWI's TravelWeb site. (b) For access to Participant's reservation system and reservation capabilities via TravelWeb, Participant agrees to provide all reasonable and necessary personnel, technical support, programming and modification of its reservation system and all other reasonable and necessary accommodations to produce a dependable and operable interface as required by TWI which will permit a user of a computer accessing the TravelWeb site on the Internet to make, change and cancel reservations and to make credit card payments in connection with a reservation. 3. Fees. For maintaining the published pages on the Internet and the management and operation of TravelWeb, Participant shall pay to TWI a monthly maintenance fee for all or any part of a month during which pages are published (the "Maintenance Fee") as follows: 1 - 50 properties = $3.00 per property; 51 - 200 properties = $2.75 per property; 201 - 400 properties = $2.50 per property; over 400 properties = $1,000 For each Net TravelWeb Reservation, Participant shall pay to TWI a fee of $2.00 (the "TravelWeb Reservation Fee"). Net TravelWeb Reservations within a particular time period equals the number of reservations made by a user of a computer accessing the TravelWeb site on the Internet within such time period less the number of reservations made by a user of a computer accessing the TravelWeb site on the Internet as to which notice of cancellation is received via TravelWeb within such time period. Participant shall make all payments as required by each TravelWeb Order Form and Change Order. TWI shall invoice Participant monthly for all Maintenance Fees and TravelWeb Reservation Fees and Participant shall pay each invoice upon receipt and each invoice shall be past due and it shall be a breach of this agreement if it is not paid within thirty (30) days after the date of the invoice. All payments to TWI shall be made in U.S. Dollars. TWI may increase the fees up to 10% of the then-existing fee once each calendar year. 4. Term. The initial term of this agreement shall be for one (1) year from the date hereof provided that the agreement shall be automatically renewed and extended for additional one (1) year terms thereafter unless, at least sixty (60) days prior to expiration of the initial one (1) year term or the expiration of any additional (1) year term, either party hereto shall give notice of its intent not to renew and extend this agreement. 5. Property rights. The published pages are acknowledged to be the sole property of Participant and TWI may not use or publish any of the information or part in any manner other than pursuant to this agreement. Participant shall be solely and exclusively responsible for the protection of any and all of its intellectual property including, but not limited to the inclusion on the pages to be published of any and all statutory or other notices customarily used or required for purposes of providing notice of ownership or protection of Participant's trademarks, trade names, service marks, or copyrights in connection with the information to be placed on the published pages. TravelWeb is the trade name and service mark of TWI and may not be used without the prior written consent of TWI. All information disclosed to Participant in connection with the creation of the interfaces provided herein is confidential and proprietary property of TWI and shall not be disclosed to any third party without the prior written consent of TWI. 6. Disclaimer, Limitation of Liabilities and Risk of Internet Usage. TWI WILL NOT BE RESPONSIBLE OR LIABLE FOR (i) ANY FALSIFICATIONS OR INACCURACIES IN ANY OF THE INFORMATION PUBLISHED PURSUANT TO THIS agreement, (ii) ANY ACT OR FAILURE TO ACT WITH RESPECT TO THE PUBLICATION OF PAGES ON THE INTERNET OR CREATION OR FUNCTIONALITY OF THE INTERFACE UNLESS EXPRESSLY SET FORTH HEREIN, (iii) ALL CLAIM, DAMAGE, OR LIABILITY OF ANY NATURE ARISING OUT OF A COMPUTER OPERATOR'S ACCESS TO PARTICIPANT'S RESERVATION SYSTEM AND/OR THE MAKING, CHANGING OR CANCELING OF A RESERVATION AND THE USE OF A CREDIT CARD OR OTHER DEBIT DEVICE IN CONNECTION THEREWITH, OR (iv) ANY CLAIM RESULTING FROM ANY INTERRUPTION, MALFUNCTION OR CHANGE IN THE USE OF THE INTERNET, EXCEPT TO THE EXTENT RESULTING FROM TWI'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE ARE DISCLAIMED BY TWI AND WAIVED BY PARTICIPANT. PARTICIPANT ACKNOWLEDGES AND AGREES THAT ALLOWING ACCESS TO ITS RESERVATION SYSTEM TO COMPUTERS ACCESSING THE INTERNET VIA TRAVELWEB IS AT PARTICIPANT'S OWN RISK. Participant acknowledges and agrees that the Internet is a communication medium over which TWI has no control and that its continued utilization in its present form current costs is uncertain. Therefore, if at any time during the term of this agreement, the cost of access to the Internet by TWI increases or there is imposed a fee or cost for access or use of the Internet communication lines, or there is imposed any law, governmental ruling, or regulation the result of which increases the cost of access to or usage of the Internet otherwise makes it impractical, in TWI's sole discretion, to continue to perform this agreement, TWI, may upon notice to Participant, immediately terminate this agreement with such action constituting an event of default. TWI shall not be liable for any breach of this agreement resulting from an act of God, accidents, power or telecommunication outages, delays, mechanical defects or other events beyond its control. TWI's only liability for its errors on the published pages shall be to correct the information on the pages within seven days of notice from Participant. 7. Breach. In the event of a breach of this agreement, the non-breaching party may terminate this agreement after providing notice to the other party of such breach and the failure of the breaching party to cure the breach within ten (10) days of receipt of the notice. Upon breach by Participant and failure to timely cure TWI to immediately cease the publication of all Participant's pages on the Internet and terminate the interface. 8. Miscellaneous. This agreement shall be interpreted in accordance with the laws of the State of Texas and any legal proceeding arising out of this agreement shall have venue in Dallas County, Texas. This agreement shall be binding upon and inure to the benefit of the legal representatives, successors and assigns of the parties hereto, agreement and the TravelWeb Order Forms and Change Orders contain all the provisions of any agreement between TWI and Participant with respect to the publication of pages the Internet and the creation of an interface as provided herein and Participant has not relied upon any promises or representations by TWI with respect to the subject matter except set forth herein. TRAVELWEB, INC. PARTICIPANT: LA QUINTA INNS, INC. By: /s/ JOHN F. DAVIS, III By: /s/ W.C. HAMMELL ----------------------- ------------------------------ John F. Davis, III President Its: Senior Vice President ----------------------------- Date: April 18, 1996 Date: February 14, 1996 --------------------- ----------------------------
1 EXHIBIT 10.18 TRAVELWEB PARTICIPANT AGREEMENT TravelWeb, Inc. (TWI) hereby offers to be below named Participant the right to participate in TWI's TravelWeb on the following terms and conditions: 1. Duties of TWI. (a) For publication of pages on the Internet, upon receipt and acceptance by TWI of TWI's TravelWeb Order Form and any Change Order, the payment by Participant of the fees as set forth therein and receipt from Participant of all reasonable and necessary information and materials required to process the TravelWeb Order or Change Order, TWI shall proceed to create or modify pages of information to be published on the Internet via TWI's TravelWeb and, subject to Participant's prior approval of the pages, shall publish the pages on the Internet. (b) In accordance with a mutually agreed schedule for implementation, TWI shall produce an operable interface between Participant's reservation system and the TravelWeb Internet site which will permit the user of a computer accessing TravelWeb to access Participant's reservation system with the capability to make, change and cancel a reservation. 2. Duties of Participant. (a) For the publication of pages on the Internet via TravelWeb, Participant shall complete a TravelWeb Order Form in form and substance as required by TWI for each publication. Participant shall provide to TWI all reasonable and necessary materials required by TWI to process the TravelWeb Order. TWI will submit the pages to be published to Participant for approval and Participant may make a single request for changes at no charge. In the event Participant wants to make further changes or wants to change any TravelWeb Order, Participant shall execute a Change Order on a form prescribed by TWI and shall pay the agreed charges for the changes. Participant agrees to pay all fees and costs as set forth in each TravelWeb Order Form and Change Order. Upon approval by Participant of the pages to be published, Participant hereby authorizes and directs TWI to publish the pages of information on the Internet via TWI's TravelWeb site. (b) For access to Participant's reservation system and reservation capabilities via TravelWeb, Participant agrees to provide all reasonable and necessary personnel, technical support, programming and modification of its reservation system and all other reasonable and necessary accommodations to produce a dependable and operable interface as required by TWI which will permit a user of a computer accessing the TravelWeb site on the Internet to make, change and cancel reservations and to make credit card payments in connection with a reservation. 3. Fees. A. Monthly Maintenance Fees. For maintaining the published pages on the Internet and the management and operation of TravelWeb, Participant shall pay to TWI a monthly maintenance fee for all or any part of a month during which pages are published (the "Maintenance Fee") as follows: <TABLE> <S> <C> <C> 1 - 50 properties = $3.00 per property; 51 - 200 properties = $2.75 per property; 201 - 400 properties = $2.50 per property; over 400 properties = $1,000 </TABLE> B. Page Building Fees. The fees for creation of pages to be published on TWI's TravelWeb are as follows: <TABLE> <S> <C> Picture Processing per Image $35.00 Data Entry per Page $15.00 Construction per Page $65.00 ------ TOTAL PER PAGE $115.00 </TABLE> These page building fees will prevail for the initial one (1) year term of this Agreement. After the initial one (1) year term, the page building fees will be subject to negotiation on an annual basis. C. Reservation Fee. For each Net TravelWeb Reservation, Participant shall pay to TWI a fee of $2.00 (the "TravelWeb Reservation Fee"). Net TravelWeb Reservations within a particular time period equals the number of reservations made by a user of a computer accessing the TravelWeb site on the Internet within such time period less the number of reservations made by a user of a computer accessing the TravelWeb site on the Internet as to which notice of cancellation is received via TravelWeb within such time period. After the initial six months of this Agreement, Participant and TWI may review the TravelWeb Reservation Fee and Participant and TWI shall diligently and in good faith attempt to agree on a new TravelWeb Reservation Fee to be applicable for the term of the contract. If the parties fail to reach such agreement, the TravelWeb Reservation fee shall remain $2.00 per reservation until the end of the initial term of this agreement. Participant shall make all payments as required by each TravelWeb Order Form and Change Order. TWI shall invoice Participant monthly for all Maintenance Fees and TravelWeb Reservation Fees and Participant shall pay each invoice upon receipt and each invoice shall be past due and it shall be a breach of this agreement if it is not paid with thirty (30) days after the date of the invoice. All payments to TWI shall be made in U.S. Dollars. TWI may increase the fees up to 10% of the then-existing fee once each calendar year. 4. Term. The initial term of this agreement shall be for (1) year from the effective date set forth below. After the initial one (1) year term this Agreement shall continue on a month to month basis, until such time as either party gives at least thirty (30) days prior written notice of intent to terminate. 2 5. Property Rights. The published pages are acknowledged to be the sole property of Participant and TWI may not use or publish any of the information or pages in any manner other than pursuant to this agreement. Participant shall be solely and exclusively responsible for the protection of any and all of its intellectual property including, but not limited to the inclusion of the pages to be published of any and all statutory or other notices customarily used or required for purposes of providing notice of ownership or protection of Participant's trademarks, trade names, service marks, or copyrights in connection with the information to be placed on the published pages. TravelWeb is the trade name and service mark of TWI and may not be used without the prior written consent of TWI. All information disclosed to Participant by TWI in connection with the creation of the interface provided herein is confidential and proprietary property of TWI and shall not be disclosed to any third party without the prior written consent of TWI. 6. Disclaimer, Limitation of Liabilities and Risk of Internet Usage. TWI WILL NOT BE RESPONSIBLE OR LIABLE FOR (i) ANY FALSIFICATIONS OR INACCURACIES IN ANY OF THE INFORMATION PUBLISHED PURSUANT TO THIS AGREEMENT, (ii) ANY ACT OF FAILURE TO ACT WITH RESPECT TO THE PUBLICATION OF PAGES ON THE INTERNET OR CREATION OR FUNCTIONALITY OF THE INTERFACE UNLESS EXPRESSLY SET FORTH HEREIN, (iii) ANY CLAIM, DAMAGE, OR LIABILITY OF ANY NATURE ARISING OUT OF A COMPUTER OPERATOR'S ACCESS TO PARTICIPANT'S RESERVATION SYSTEM AND/OR THE MAKING, CHANGING OR CANCELING OF A RESERVATION AND THE USE OF A CREDIT CARD OR OTHER DEBIT DEVICE IN CONNECTION THEREWITH, OR (iv) ANY CLAIM RESULTING FROM ANY INTERRUPTION, MALFUNCTION OR CHANGE IN THE USE OF THE INTERNET, EXCEPT TO THE EXTENT RESULTING FROM TWI'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE ARE DISCLAIMED BY TWI AND WAIVED BY PARTICIPANT. PARTICIPANT ACKNOWLEDGES AND AGREES THAT ALLOWING ACCESS TO ITS RESERVATION SYSTEM TO COMPUTERS ACCESSING THE INTERNET VIA TRAVELWEB IS AT PARTICIPANT'S OWN RISK. Participant acknowledges and agrees that the Internet is a communication medium over which TWI has no control and that its continued utilization in its present form at current costs is uncertain. Therefore, if at any time during the term of this agreement, the cost of access to the Internet by TWI increases or there is imposed a fee or cost for access to or use of the Internet communication lines, or there is imposed any law, governmental ruling, or regulation the result of which increases the cost of access to or usage of the Internet or otherwise makes it impractical, in TWI's sole discretion, to continue to perform this agreement, TWI may upon notice to Participant immediately terminate this agreement without such action constituting an event of default. TWI shall not be liable for any breach of this agreement resulting from an act of God, accidents, power or telecommunication outages or delays, mechanical defect or other events beyond its control. TWI's only liability for its errors on the published pages shall be to correct the information on the pages within seven (7) days of notice from Participant. 7. Breach. In the event of a breach of this agreement, the non-breaching party may terminate this agreement after providing notice to the other party of such breach and the failure of the breaching party to cure the breach within ten (10) days of receipt of the notice. Upon breach by Participant and failure to timely cure TWI may immediately cease the publication of all Participant's pages on the Internet and terminate the interface. 8. Miscellaneous. This agreement shall be interpreted in accordance with the laws of the State of Texas and any legal proceeding arising out of this agreement shall have venue in Dallas County, Texas. This agreement shall be binding upon and inure to the benefit of the legal representatives, successors and assigns of the parties hereto. This agreement and the TravelWeb Order Forms and Change Orders contain all the provisions of any agreement between TWI and Participant with respect to the publication of pages on the Internet and the creation of an interface as provided herein and Participant has not relied upon any promises or representations by TWI with respect to the subject matter except as set forth herein. TRAVELWEB, INC. PARTICIPANT: HFS INCORPORATED By: /s/ JOHN F. DAVIS, III By: /s/ MICHAEL H. KISTNER ---------------------- ------------------------- John F. Davis, III Michael H. Kistner President Vice President MIS Date: 5/31/96 Date: 5/28/1996 --------------------- ---------------------- Effective Date: 5/31/96 ----------- -
1 EXHIBIT 10.19 TRAVELWEB PARTICIPANT AGREEMENT TravelWeb, Inc. (TWI) hereby offers to the below named Participant the right to participate in TWI's TravelWeb on the following terms and conditions: 1. Duties of TWI. (a) For publication of pages on the Internet, upon receipt and acceptance by TWI of TWI's TravelWeb Order Form and any Change Order, the payment by Participant of the fees as set forth therein and receipt from Participant of all reasonable and necessary information and materials required to process the TravelWeb Order or Change Order, TWI shall proceed to create or modify pages of information to be published on the Internet via TWI's TravelWeb and, subject to Participant's prior approval of the pages, shall publish the pages on the Internet. (b) In accordance with a mutually agreed schedule for implementation, TWI shall produce an operable interface between Participant's reservation system and the TravelWeb Internet site which will permit the user of a computer accessing TravelWeb to access Participant's reservation system with the capability to make, change and cancel a reservation. 2. Duties of Participant. (a) For the publication of pages on the Internet via TravelWeb, Participant shall complete a TravelWeb Order Form in form and substance as required by TWI for each publication. Participant shall provide to TWI all reasonable and necessary materials required by TWI to process the TravelWeb Order. TWI will submit the pages to be published to Participant for approval and Participant may make a single request for changes at no charge. In the event Participant wants to make further changes or wants to change any TravelWeb Order, Participant shall execute a Change Order on a form prescribed by TWI and shall pay the agreed charges for the changes. Participant agrees to pay all fees and costs as set forth in each TravelWeb Order Form and Change Order. Upon approval by Participant of the pages to be published, Participant hereby authorizes and directs TWI to publish the pages of information on the Internet via TWI's TravelWeb site. (b) For access to Participant's reservation system and reservation capabilities via TravelWeb, Participant agrees to provide all reasonable and necessary personnel, technical support, programming and modification of its reservation system and all other reasonable and necessary accommodations to produce a dependable and operable interface as required by TWI which will permit a user of a computer accessing the TravelWeb site on the Internet to make, change and cancel reservations and to make credit card payments in connection with a reservation. 3. Fees. For maintaining the published pages on the Internet and the management and operation of TravelWeb, Participant shall pay to TWI a monthly maintenance fee for all or any part of a month during which pages are published (the "Maintenance Fee") as follows: 1 - 50 properties = $3.00 per property; 51 - 200 properties = $2.75 per property; 201 - 400 properties = $2.50 per property; over 400 properties = $1,000 For each Net TravelWeb Reservation, Participant shall pay to TWI a fee of $2.00 (the "TravelWeb Reservation Fee"). Net TravelWeb Reservations within a particular time period equals the number of reservations made by a user of a computer accessing the TravelWeb site on the Internet within such time period less the number of reservations made by a user of a computer accessing the TravelWeb site on the Internet as to which notice of cancellation is received via TravelWeb within such time period. Participant shall make all payments as required by each TravelWeb Order Form and Change Order. TWI shall invoice Participant monthly for all Maintenance Fees and TravelWeb Reservation Fees and Participant shall pay each invoice upon receipt and each invoice shall be past due and it shall be a breach of this agreement if it is not paid within thirty (30) days after the date of the invoice. All payments to TWI shall be made in U.S. Dollars. TWI may increase the fees up to 10% of the then-existing fee once each calendar year. 4. Term. The initial term of this agreement shall be for three (3) years from the date hereof provided that the agreement shall be automatically renewed and extended for additional one (1) year terms thereafter unless, at least sixty (60) days prior to expiration of the initial three (3) year term or the expiration of any additional (1) year term, either party hereto shall give notice of its intent not to renew and extend this agreement. 5. Property Rights. The published pages are acknowledged to be the sole property of Participant and TWI may not use or publish any of the information or pages in any manner other than pursuant to this agreement. Participant shall be solely and exclusively responsible for the protection of any and all of its intellectual property including, but not limited to the inclusion on the pages to be published of any and all statutory or other notices customarily used or required for purposes of providing notice of ownership or protection of Participant's trademarks, trade names, service marks, or copyrights in connection with the information to be placed on the published pages. TravelWeb is the trade name and service mark of TWI and may not be used without the prior written consent of TWI. All information disclosed to Participant in connection with the creation of the interface as provided herein is confidential and proprietary property of TWI and shall not be disclosed to any third party without the prior written consent of TWI. 6. Disclaimer, Limitation of Liabilities and Risk of Internet Usage. TWI WILL NOT BE RESPONSIBLE OR LIABLE FOR (i) ANY FALSIFICATIONS OR INACCURACIES IN ANY OF THE INFORMATION PUBLISHED PURSUANT TO THIS agreement, (ii) ANY ACT OR FAILURE TO ACT WITH RESPECT TO THE PUBLICATION OF PAGES ON THE INTERNET OR CREATION OR FUNCTIONALITY OF THE INTERFACE UNLESS EXPRESSLY SET FORTH HEREIN, (iii) ANY CLAIM, DAMAGE, OR LIABILITY OF ANY NATURE ARISING OUT OF A COMPUTER OPERATOR'S ACCESS TO PARTICIPANT'S RESERVATION SYSTEM AND/OR THE MAKING, CHANGING OR CANCELING OF A RESERVATION AND THE USE OF A CREDIT CARD OR OTHER DEBIT DEVICE IN CONNECTION THEREWITH, OR (iv) ANY CLAIM RESULTING FROM ANY INTERRUPTION, MALFUNCTION OR CHANGE IN THE USE OF THE INTERNET, EXCEPT TO THE EXTENT RESULTING FROM TWI'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE ARE DISCLAIMED BY TWI AND WAIVED BY PARTICIPANT. PARTICIPANT ACKNOWLEDGES AND AGREES THAT ALLOWING ACCESS TO ITS RESERVATION SYSTEM TO COMPUTERS ACCESSING THE INTERNET VIA TRAVELWEB IS AT PARTICIPANT'S OWN RISK. Participant acknowledges and agrees that the Internet is a communication medium over which TWI has no control and that its continued utilization in its present form at current costs is uncertain. Therefore, if at any time during the term of this agreement, the cost of access to the Internet by TWI increases or there is imposed a fee or cost for access to or use of the Internet communication lines, or there is imposed any law, governmental ruling, or regulation the result of which increases the cost of access to or usage of the Internet or otherwise makes it impractical, in TWI's sole discretion, to continue to perform this agreement, TWI, may upon notice to Participant, immediately terminate this agreement without such action constituting an event of default. TWI shall not be liable for any breach of this agreement resulting from an act of God, accidents, power or telecommunication outages or delays, mechanical defects or other events beyond its control. TWI's only liability for its errors on the published pages shall be to correct the information on the pages within seven (7) days of notice from Participant. 7. Breach. In the event of a breach of this agreement, the non-breaching party may terminate this agreement after providing notice to the other party of such breach and the failure of the breaching party to cure the breach within ten (10) days of receipt of the notice. Upon breach by Participant and failure to timely cure TWI may immediately cease the publication of all Participant's pages on the Internet and terminate the interface. 8. Miscellaneous. This agreement shall be interpreted in accordance with the laws of the State of Texas and any legal proceeding arising out of this agreement shall have venue in Dallas County, Texas. This agreement shall be binding upon and inure to the benefit of the legal representatives, successors and assigns of the parties hereto. This agreement and the TravelWeb Order Forms and Change Orders contain all the provisions of any agreement between TWI and Participant with respect to the publication of pages on the Internet and the creation of an interface as provided herein and Participant has not relied upon any promises or representations by TWI with respect to the subject matter except as set forth herein. TRAVELWEB, INC. PARTICIPANT: ITT SHERATON CORPORATION By: /s/ JOHN F. DAVIS, III By: /s/ BARBARA COLEMAN ---------------------------- ------------------------------------ John F. Davis, III Its: MGR. EXTERNAL CHANNEL DIST. President ----------------------------------- Date: April 18, 1996 Date: March 11, 1996 ---------------------------- ------------------------------------
1 EXHIBIT 10.20 [PEGASUS LETTERHEAD] December 20, 1995 Bruce W. Wolf Vice President - Distribution Marketing MARRIOTT INTERNATIONAL, INC. One Marriott Drive, Dept. 939.07 Washington, DC 20058 Dear Bruce, As I mentioned in our conversation today, TravelWeb(TM) is continually receiving a great amount for publicity. In fact, TravelWeb(TM) was just named one of the Top 50 Sites by Home Computing Magazine and TravelWeb(TM) is currently receiving more than 35,000 page accesses per day. I imagine after the booking capability goes live next week, the publicity will become enormous. THISCO is currently working with Marriott in the development of the UltraSelect interface. Therefore, the only necessary element to begin taking Marriott bookings via TravelWeb(TM) is page building. THISCO would like to propose the following fees for the creation of TravelWeb(TM) 'electronic brochures' for Marriott International. Fees include all picture processing, data entry, and page construction for pages to be created and published on the Internet's World Wide Web. Several brochure price options are included due to the variety of Marriott International properties. Number ------ of Properties Brochure option ------------- --------------- 750 One page brochure (Hotel Start page only) $75.00 - basic property information - general description - appropriate Marriott brand logo 125 Two page brochure $190.00 (Hotel Start page and Hotel Start Picture page) - same as one page option plus a property photo page 2 December 20, 1995 Page Two 125 Five page brochure $550.00 (Hotel Start page plus (4) additional pages) - Hotel Start Picture page - Area Information page - Rooms page - Additional picture page Page options in the five page brochure can be modified according to the property being built. Each additional page built will be involved on an individual basis according to the following: Picture Processing per Image 35.00 Data Entry per page 15.00 Construction per page 65.00 ----- $115.00 per page Pages built which can be shared by more than one property can be accessed from each applicable brochure. For example, an Area Information page can be shared by several properties within a common destination. These pages would only be invoiced for page building one time. Also, as we agreed, THISCO will link Marriott International's website with TravelWeb's booking capabilities at no additional fee. Efforts will be made to make this link transparent to the customer. All of the above fees are based on the assumption that Marriott International provides acceptable quality 35mm slide images as well as complete digital information for each property. (Digital information would be supplied via the TravelWeb(TM) page building diskettes.) All prices are preferred rates based on the volume of page building for Marriott International. The above fees assume the Marriott International brochures will be developed using TravelWeb(TM) standards. Monthly maintenance fees of $2.50 will be assessed for each Marriott International property with a maximum fee cap of $1,000.00 per month. 3 December 20, 1995 Page Three The proposal is valid until 12/31/95. All page production and maintenance fees presented in this proposal will be valid through THISCO will have each Marriott International "electronic brochures" prepared for review within 3 weeks of receipt of all automated information and images. THISCO retains the rights to the design and other intellectual property developed or utilized as part of this project except for the Marriott supplied information. Marriott assumes TravelWeb has the legal right and authority to the intellectual property described above. Fees for this project would be due and payable on the following schedule: FEE DATE --- ---- 50% of page creation Upon acceptance of this bid and prior to commencement of page production 50% of page creation Upon completion of the brochures and prior to any "live" presentation of the Internet Maintenance Monthly following display on the Internet If the fees and terms are acceptable, please indicate your acceptance below. Once again, Bruce, we are eager to begin working with Marriott International so please fell free to call me with any questions or comments. Thank you for your interest. Sincerely, AGREED TO AND ACCEPTED BY: /s/JOHN F. DAVIS, III /s/BRUCE WOLFF -------------------------- --------------------------- John F. Davis, III Bruce Wolff President Vice President - Marketing Distribution cc: Charles Zug Kendall Paine
1 EXHIBIT 10.21 AMENDMENT AND ADDENDUM TO HCC PARTICIPANT AGREEMENT This Amendment and Addendum to HCC Participant Agreement is entered into by and between THE HOTEL CLEARING CORPORATION, a Delaware corporation ("HCC"), and HYATT HOTELS CORPORATION ("Participant"), to be effective the date of the last signature of the parties to this Agreement. This Amendment and Addendum to HCC Participant Agreement is hereinafter called the "Amendment." AGREED FACTS 1. HCC and Participant have heretofore entered into an HCC Participant Agreement (the "Participant Agreement") which is in full force and effect and pursuant to which both parties are fully performing. 2. HCC and Participant have agreed to amend and supplement the Participant Agreement to provide for additional services to be performed by HCC and various other agreements ancillary thereto. 3. HCC and Participant intend for this Amendment to set forth the entirety of their agreement reached this date with respect to the matters set forth herein. AGREEMENT FOR AND IN CONSIDERATION of the above-stated agreed facts, which are hereby acknowledged and confessed by the parties hereto as true and correct, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, HCC and Participant agree as follows: 1. Subsection (iii) of 1.1 of the Participant Agreement is hereby deleted in its entirety. 2. The following new definitions are hereby added to Section 1.1 of the Participant Agreement: (viii) Non-Subscriber. A Non-Subscriber is any person or entity who has not executed an HCC Subscriber Agreement who makes reservations with a Participating Entity for a Non-Subscriber Commission. (ix) [*] are the [*] paid pursuant to this [*] by [*] *Confidential Treatment Requested -1- 2 [*] made with [*] will be based on reservation information and commission rates [*] (x) Non-Subscriber Transactions. A Non-Subscriber Transaction is a reservation, cancellation, no show, non-commissionable or partially commissionable message with respect to a transaction generated by a Non- Subscriber which is reported on a monthly billing statement. 3. Sections 2.1(ii), (iii), (iv), and (vi) are hereby deleted in their entirety and are hereby replaced with the following: (ii) provide billing statements for Subscriber and Non-Subscriber Commissions, Transaction Fees (as defined below), Non-Subscriber Transaction Fees (as defined below), and other fees, costs and expenses to Participant on a regular (normally monthly) basis as provided in Section 3 below; (iii) debit Participant's designated bank account for such Subscriber and Non-Subscriber Commissions, Transaction Fees, Non-Subscriber Transaction Fees, and other fees, costs and expenses, no sooner than forty-eight (48) hours after providing billing statements for such Subscriber and Non- Subscriber Commissions Transaction Fees, Non-Subscriber Transaction Fees, and other fees, costs and expenses as provided in Section 3 below; (iv) distribute collected Subscriber and Non-Subscriber Commissions to the appropriate Subscribers and Non-Subscribers based upon the information provided by Participant to HCC as set forth in the billing statements as provided in Section 3 below provided that for Non-Subscribers there shall be a maximum of ten (10) Non-Subscriber Transactions reported per billing statement; (vi) provide telephone customer support services from 8:00 a.m. to 5:00 p.m., Central Standard time, Monday through Friday, exclusive of legal holidays for Subscriber transactions; and 4. A new Section 2.1(vii) is hereby added to the Participant Agreement as follows: (vii) provide Participant monthly property transaction reports which shall include the name of each property, the number of transactions for each property and an average cost per transaction. *Confidential Treatment Requested -2- 3 5. Section 3.4 is hereby deleted in its entirety. 6. A new Section 3.11 is hereby added to the Participant Agreement as follows: 3.11 Fees and Costs for Processing Non-Subscriber Transactions. For each Non-Subscriber Transaction, Participant shall pay HCC monthly transaction fees ("Non-Subscriber Transaction Fees") of the greater of (i) [*] per Non-Subscriber Transaction reported on a billing statement or (ii) [*] for each billing statement issued plus all postage costs incurred by HCC to report Participant's Non- Subscriber Transactions. Participant shall pay HCC [*] for processing costs in addition to postage and the fees otherwise set forth herein. Prior to the expiration of one year from the date of the Amendment to this Participant Agreement, Participant and HCC shall diligently and in good faith attempt to agree on Non-Subscriber Transaction Fees to be applicable to the Participant Agreement beginning the thirteenth month after the date of the Amendment. In the event Participant and HCC do not agree on Non-Subscriber Transaction Fees to be applicable to the Participant Agreement beginning the thirteenth month after the date of the Amendment, the Participant Agreement will terminate with respect to the processing and reporting of Non-Subscriber Transactions and Commissions. 7. A new Section 3.12 is hereby added to the Participant Agreement as follows: 3.12 [*] Commissions in the travel agents' local currency. [*] in U.S. Dollars only. 8. Section 4.1 of the Participant Agreement is hereby deleted in its entirety and is hereby replaced with the following: 4.1 Term of Agreement. The term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall expire [*] This Agreement will be automatically renewed and extended for additional 12 month periods unless at least thirty days prior to the expiration of the initial term or at least thirty days prior to the expiration of any additional 12 month period, either party provides written notice to the other of its decision not to renew and extend. 9. This Amendment shall be and hereby is incorporated into the Participant Agreement for all intents and purposes and all terms, provisions, and definitions of the Participant Agreement shall apply. *Confidential Treatment Requested -3- 4 10. Except where inconsistent with the terms of this Amendment, the Participant Agreement is hereby ratified and affirmed in all respects. THE HOTEL CLEARING CORPORATION HYATT HOTELS CORPORATION By: By: -------------------------- ----------------------------- John F. Davis, III President Its: ---------------------------- Date: 2/14/96 Date: ------------------------ --------------------------- -4- 5 HCC PARTICIPANT AGREEMENT This Agreement (the "Agreement") is entered into by and between THE HOTEL CLEARING CORPORATION, a Delaware corporation ("HCC"), and Hyatt Hotels Corporation, a Delaware corporation ("Participant"), to be effective the _____ day of ____________, 1991. SECTION 1. DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) Commissionable Reservations. Commissionable Reservations within a particular time period equals the number of reservations (both voice and electronic) processed through the HCC System within such time period that are identified as "commissionable" or "partially commissionable" on the transaction records provided by Participant to HCC. (ii) HCC System. The HCC System is an automated clearinghouse system to provide for the coordination of reservation information, transfer of hotel reservation commissions and ancillary services to Subscribers and Participating Properties. (iii) [deleted by amendment] (iv) Participating Entity. A Participating Entity is an operator of a hotel reservation system that has executed a HCC Participant Agreement. (v) Subscriber. A Subscriber is any person or entity who has executed an HCC Subscriber Agreement and makes reservations with a Participating Entity. A list of current Subscribers will be provided by HCC to Participant by the twenty-fifth (25th) of each month. (vi) Subscriber Commissions. Subscriber Commissions are the commissions paid by Participant to Subscribers for reservations made with Participant. Subscriber Commissions will be based on commission rates provided to HCC by the Participant. -1- 6 (vii) UltraSwitch. UltraSwitch is a service of The Hotel Industry Switch Company ("THISCO"), which has certain common ownership with HCC, to provide an interface between Subscribers and hotel reservation systems with the capability to provide immediate room confirmation numbers for each hotel property participating in UltraSwitch. SECTION 2. THE HCC SYSTEM 2.1 Duties of HCC. HCC will provide and operate the HCC System for the use and benefit of Participant and other Participating Entities. HCC will provide all reasonable and necessary technical support, hardware and software, and modifications to the HCC System to provide clearinghouse services to Participant as described below. Upon compliance with the terms of this Agreement by Participant, HCC will provide the following clearinghouse services to Participant: (i) identify Participant (and designated affiliates and franchisees of Participant) to Subscribers as being a HCC System Participant through the use of UltraSwitch or other central reservation system services (and, at the discretion of HCC, by distribution of other promotional materials), subject to the provisions of Section 5.2; (ii) provide billing statements for Subscriber and Non-Subscriber Commissions, [*] (as defined below) and other fees, costs and expenses to [*] on a regular (normally monthly) basis as provided in Section 3 below; (iii) debit [*] for such [*] and [*] and other fees, costs and expense, no sooner than forty-eight (48) hours after providing [*] for such [*] and other fees, costs and expenses as provided in Section 3 below; (iv) distribute collected Subscriber and Non-Subscriber Commissions to the appropriate Subscribers and Non-Subscribers based upon the information provided by Participant to HCC as provided herein; *Confidential Treatment Requested -2- 7 (v) provide periodic (normally monthly) reports to Participant and Subscribers reflecting exceptions to Subscriber Commissions based upon the data available to HCC through UltraSwitch; and (vi) provide telephone customer support services from 8:00 a.m. to 5:00 p.m., Central Standard time, Monday through Friday, exclusive of legal holidays. A description of the currently anticipated procedures to be followed in the payment process is given on Exhibit "F" attached, although the timing and exact details of such procedures as implemented by HCC in operation of the HCC system may be different due to computer-related and other operational constraints. Such procedures are subject to change from time to time as circumstances require or as otherwise determined by HCC. 2.2 Duties of Participant. Participant will cooperate fully with HCC personnel with respect to the implementation of the HCC System between the Subscribers and Participant. Participant specifically authorizes HCC to obtain information concerning reservations made with Participant from the UltraSwitch system and to use such information (i) as provided in the procedures described in Exhibit "F" and (ii) as otherwise approved in writing by the Board of Directors of HCC. Participant agrees to provide HCC all appropriate reservation information (including all reservations made electronically or by voice, whether directly to the property or through the use of a central reservation "800" phone number) no loss often than on a weekly basis. All information provided by Participant with respect to reservations, Subscribers and Subscriber Commissions must be complete and accurate to the best of Participant's ability, and must be inclusive of all the information necessary to permit HCC to provide the clearinghouse services described in Section 2.1. The initial information that Participant must provide to HCC is indicated on Exhibit "A". Because efficient and reliable operation of the clearinghouse services offered by the HCC System is dependent on the use of data from transactions carried by UltraSwitch, Participant agrees to run all of its electronic reservation transactions through the UltraSwitch system so long as it is a party to this Agreement. 2.3 Schedule of Implementation of HCC System. HCC will proceed with the implementation of the HCC System, with a proposed HCC System activation date of April 1, 1992, but not later than September 30, 1992. For the purposes of this Agreement, the actual -3- 8 activation date (the "Activation Date") will be the date that HCC notifies Subscriber that the HCC Board of Directors has determined that the HCC System is operational and capable of processing sufficient aggregate transaction volume of the Participating Entities. HCC will provide Participants with at least thirty (30) days' prior notice of activation of the HCC System. HCC will provide Participant with appropriate specifications to assist Participant in preparing for utilization of the HCC System at least one hundred twenty (120) days prior to the Activation Date. 2.4 Modification or Enhancement of the HCC System or Participant System. HCC may in its sole discretion modify the operation or enhance the capability of the HCC System, and Participant agrees to cooperate with HCC in all modifications and enhancements of the HCC System. All significant modifications or enhancements will require the approval of the Board of Directors of HCC. If HCC determines that such modification or enhancement is likely to require Participant to make significant modifications to its central reservation system (any such modifications to be at Participant's sole expense), HCC will provide at least ninety (90) days' prior notice to Participant of such modification or enhancement. If Participant modifies its central reservation system after the Activation Date and such modification requires HCC to modify the HCC System, or to provide additional services to utilize information supplied by Participant as required by Section 2.2, Participant will pay HCC such additional amount agreed to by the parties based on HCC's standard consulting rate and all expenses incurred. SECTION 3. FEES, COSTS, AND PAYMENTS 3.1 Fees. In order to permit HCC to obtain financing to permit the development of the HCC System, Participant agrees to pay the monthly contingency fee (the "Contingency Fee") of [*] multiplied by the Monthly Base Transactions indicated on Exhibit "B". The Contingency Fee will be payable on the first day of each month for a six (6) month period beginning on the later of April 1, 1992, or the Activation Date. Provided that the Activation Date has occurred, Participant's obligation to pay the Contingency Fee is absolute and shall continue until Participant is capable of and ready to deliver to the HCC System reservation commission data from at least seventy-five percent (75%) of its properties in the United States (calculated based on total number of rooms rather than number of individual hotels) in a regular and timely manner as contemplated by this Agreement ("Participant Readiness") and *Confidential Treatment Requested -4- 9 continues and delivers to HCC the volume of reservation commissions required for Participant Readiness after the Activation Date. At such time, Participant will begin paying transaction fees ("Transaction Fees") of [*] per Commissionable Reservation, and upon payment of such Transaction Fees, will be relieved of its obligations to pay any further Contingency Fees under this section. For the remainder, if any, of the six (6) month period referred to above, the Transaction Fees payable by Participant will be subject to a minimum monthly Transaction Fee of [*] multiplied by the Monthly Base Transactions indicated on Exhibit "B". If Participant Readiness (or the Activation Date, if later) occurs other than at the beginning of a month, Participant will receive a credit against the fees otherwise payable by Participant under this Agreement, in the amount of a pro rata portion of the Contingency Fee paid to HCC for that month, based upon the number of days in the month following Participation Readiness (or the Activation Date, if later). HCC may, at its sole discretion, change the Transaction Fees charged to Participant as provided above, upon ninety (90) days notice to Participant. The Board of Directors of HCC will have the right to verify Participant Readiness (whether through HCC personnel or independent third parties) and will have the right to modify or adjust the requirements for Participant Readiness, as long as it makes such determination in a uniform manner among other Participating Entities. Participant has been informed that HCC is reliant upon, and the obtaining by HCC of certain critical financing is dependent upon, Participant's agreement to and performance of Participant's obligations under this section. Participant acknowledges that the failure of Participant to meet its payment obligations under this section would substantially and materially damage the business of HCC and waives any and all defenses that it may have to the performance of such obligations. Participant hereby irrevocably consents to having the provisions of this Section 3.1 immediately and fully enforced in a court of law or equity and waives any and all defenses thereto. Participant hereby authorizes HCC to debit all such fees from Participant's designated bank account as provided in Exhibit "B". Participant is responsible for collection and payment to HCC of all such fees that are attributable to Participant and all of Participant's affiliates and franchises that utilize the HCC System under this Agreement. *Confidential Treatment Requested -5- 10 3.2 Subscriber Commissions. Participant agrees to make available for debit by HCC all Subscriber Commissions shown on billing statements as provided in Section 3.5. Participant hereby authorizes HCC to debit such Subscriber Commissions from Participant's designated bank account as provided in Exhibit "C". Participant is responsible for collection and payment to HCC of all such Subscriber Commissions that are attributable to Participant and all of Participant's affiliates and franchisees that utilize the HCC System under this Agreement. Payments to Subscribers will be made in appropriate local currency. 3.3 Other Fees, Costs and Expenses. Participant also agrees to pay HCC at its standard consulting rate plus all expenses incurred for set up, handling, conversion and other services required for processing of information transmitted to HCC to satisfy the requirements of Section 2.2, above, unless a different fee arrangement with respect to such services is indicated on Exhibit "B". All of such fees must be approved by the Board of Directors of HCC. Participant hereby authorizes HCC to debit such fees from Participant's designated bank account as provided in Exhibit "B". HCC will give Participant prior notice of debits made under the terms of this Section 3.3. Participant is responsible for collection and payment to HCC of all such fees, costs and other expenses that are attributable to Participant and all of Participant's affiliates and franchisees that utilize the HCC System under this Agreement. 3.4 [deleted by amendment] 3.5 Billing Statements. Based upon the information provided HCC by or with respect to Participant pursuant to Section 2.2, above, HCC will provide periodic (normally monthly) billing -6- 11 statements detailing (i) Subscriber Commissions to be paid by Participant for the period covered by such billing statement; (ii) Transaction Fees to be paid by Participant, based on Commissionable Reservations for the period covered by such billing statement; (iii) other fees, costs and additional expenses to be paid by Participant for the period covered by such billing statement; and (iv) [*] to be paid to [*] for the most recent quarterly period preceding such billing statement, which [*] and included in billing statements only on a quarterly basis. Items (i) through (iv) may be included on separate billing statements. 3.6 Disputed Commissions. HCC will provide Participant and Subscribers with periodic reports indicated under Section 2.1(v) that will indicate any exceptions to Subscriber Commissions, based on discrepancies between information given HCC by Participant compared to other information available to HCC through UltraSwitch. With respect to all exceptions as to which Participant provides supporting documentation, HCC will forward such documentation to the appropriate Subscriber(s), and the Subscribers involved may pursue such dispute directly with Participant, but HCC will not have any liability to either Participant or such Subscriber with respect to the resolution of any disputed commission. No dispute concerning any Subscriber Commissions will in any way affect or reduce the obligations of Participant to (i) timely pay all other Subscriber Commissions and (ii) timely pay to HCC all Transaction Fees and other fees, costs and additional expenses owed by Participant under this Agreement. 3.7 Additional Authorizations. Participant agrees to execute and deliver to Participant's bank(s) debit authorization(s) in the form of Exhibit "E" attached hereto, and to execute and deliver to such bank(s) or other appropriate persons any and all documents, give to such bank(s) or other persons any and all directions, and to take all other actions that are necessary or appropriate to permit HCC to debit amounts to be paid hereunder by Participant directly from Participant's designated bank account(s). SECTION 4. TERM 4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall expire [*] after the date of this Agreement. This Agreement will be automatically renewed and extended for additional twelve (12) month periods unless, at least *Confidential Treatment Requested -7- 12 thirty (30) days prior to the expiration of any additional twelve (12) month period, either party provides written notice to the other of its decision not to renew and extend. SECTION 5. TERMINATION 5.1 Termination Upon Default. Upon the occurrence of an Event of Default (as defined below) by either party and the failure of such party to cure such default after notice and opportunity to cure as provided by Section 6.3 below, the nondefaulting party may terminate this Agreement at any time. 5.2 Suspension of Status. Upon the occurrence of an Event of Default by Participant and the failure of Participant to cure such default after notice and opportunity to cure as provided by Section 6.3 below, then, if HCC does not terminate this Agreement under Section 5.1, until such time as such Event of Default is cured HCC shall have the right to suspend the status of Participant as a Participating Entity and to notify and all Subscribers of such default and suspension, whether through the UltraSwitch system, central reservation systems, or otherwise. Upon notification by Participant to HCC of any default in payment by any affiliate or franchisee of Participant of payments due under this Agreement and until notification by Participant of the cure of such default, HCC shall have the right to suspend the status of such affiliate or franchise as a Participating Entity and to notify all subscribers of such default and suspension. SECTION 6. DEFAULT 6.1 Events of Default. Subject to Section 6.2 below, any one of the following will be considered an Event of Default: (i) The failure of either party to pay any amount due hereunder within the time required; (ii) The refusal or failure of either party to perform diligently and in good faith each and every material provision of this Agreement; (iii) The commencement by either party of a voluntary case under Chapter 11 or 7 of the United States Bankruptcy Code, as from time to time in effect, the commencement against either party of an involuntary case under said Chapter 11 or 7, either party seeking relief as a debtor under any applicable law, other than said -8- 13 Chapter 11 or 7, or any jurisdiction relating to the liquidation or reorganization of debtors or the modification of the rights of creditors, the entry of a court order adjudging the party bankrupt or insolvent, ordering its liquidation or reorganization or assuming custody or appointing a receiver or other custodian of its property, or its making an assignment for the benefit of, or entering into a composition with, its creditors; (iv) The deferral [*] of payment of all [*], as provided in Section 3.4, for more than two (2) consecutive calendar quarters; or (v) The failure by HCC to have obtained HCC Subscriber Agreements with respect to at least twelve thousand (12,000) travel agent/reservation provider locations within thirty-six (36) months following the Activation Date. Any such Event of Default shall not relieve the defaulting party from any of its obligations hereunder, and the non-defaulting party shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. 6.2 Force Majeure. It will not constitute an Event of Default if such event listed in Section 6.1 is caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if any such occurrence results in any of the events described in Section 6.1, and the same continues for more than thirty (30) consecutive days, either party may terminate this Agreement by providing notice as required herein. 6.3 Cure Period. Upon the occurrence of an Event of Default, the non-defaulting party will give written notice to the defaulting party specifying the alleged default. The defaulting party will then be entitled to thirty (30) days from receipt of such notice within which to cure such default; provided, that in the case of a monetary default by Participant, Participant will only be allowed to cure such default within two (2) business days after receipt of such notice, by delivering that amount owed to HCC in good funds into HCC's bank account. SECTION 7. CONFIDENTIALITY *Confidential Treatment Requested -9- 14 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by Participant and HCC that each will receive confidential and proprietary information that is the property of the other party. All such confidential and proprietary information will be marked or otherwise identified as such and will be treated as confidential and proprietary subject only to disclosure where required by law. Such designation may be removed by each party making the designation. Participant acknowledges that it will have no access to and will not use UltraSwitch software or related property by reason of this Agreement, and that use of such UltraSwitch services by Participant would be permitted only under a separate agreement with THISCO. Participant acknowledges that it will have no access to and will not use the HCC System or related property, other than as specifically provided for in this Agreement, and that such system and related property is confidential and proprietary property of HCC. HCC acknowledges that the specific information concerning Participant's reservations, whether processed through the UltraSwitch system or otherwise provided by Participant to HCC outside of the UltraSwitch system, is the property of Participant, although Participant acknowledges HCC may use such information (i) as provided in the procedures described in Exhibit "F" and (ii) as otherwise approved in writing by the Board of Directors of HCC, as long as HCC removes any information that indicates the customer is a customer of Participant. The aggregate data from the HCC System will become the property of HCC. Any use of HCC service Marks or trade names by Participant is subject to prior written approval of HCC, provided, that Participant may describe the HCC System contemplated by this Agreement in its franchise offering circular and other materials as required by state or federal law. The provisions of this Section 7.1 will remain binding and in force and effect as long as such information remains confidential (other than by breach of this Agreement), notwithstanding the expiration or termination of this Agreement at any time. SECTION 8. INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. Subject to Section 9.2, Participant agrees to indemnify and hold harmless HCC and HCC's affiliates, directors, officers, employees and stockholders (other than Participant), from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring as a result of or arising out of a material breach of this Agreement on account of Participant's fault, to the extent not caused by the fault of HCC ("HCC's -10- 15 Losses"). Subject to Section 9.2, HCC agrees to indemnify and hold harmless Participant, and Participant's affiliates, directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("Participant's Losses") occurring as a result of or arising out of a material breach of this Agreement on account of HCC's fault to the extent not caused by the fault of Participant. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indemnified party will give prompt notice thereof to the indemnifying party and the indemnifying party will be entitled to participate therein or, to the extent that it wishes, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. Whether or not the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable for any compromise or settlement of any such action or claim effected without its consent (which shall not be unreasonably withheld). SECTION 9. DISCLAIMER OF WARRANTIES 9.1 Waiver of Warranties. HCC WILL NOT BE RESPONSIBLE OR LIABLE FOR ANY INACCURACIES IN THE DATA OR THE INFORMATION PROCESSED BY OR THROUGH THE HCC SYSTEM NOR WILL IT HAVE ANY LIABILITY FOR ANY ACT OR FAILURE TO ACT UNLESS EXPRESSLY SET FORTH HEREIN, EXCEPT TO THE EXTENT RESULTING FROM HCC'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE, ARE DISCLAIMED BY HCC AND WAIVED BY PARTICIPANT. 9.2 No Consequential Damages. Neither party will be liable to the other for any consequential damages caused or resulting from -11- 16 any breach of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. SECTION 10. MISCELLANEOUS 10.1 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, will be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party will select one arbitrator with thirty (30) days of notice of the dispute, and the two (2) arbitrators selected shall select a third neutral arbitrator within thirty (30) days after the second arbitrator is chosen. All reasonable and necessary costs and fees (including attorney's fees) incurred in connection with the arbitration will be borne by the losing party or assessed in the award as otherwise deemed appropriate by the arbitrators. If the demand for arbitration is initiated by Participant, venue of the arbitration proceedings will be determined by HCC. If the demand for arbitration is initiated by HCC, venue of the arbitration proceedings will be determined by Participant. 10.2 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to reservations commissions clearinghouse services and that each party may contract with other parties providing same or similar services. 10.3 Status of Parties. This Agreement will not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. HCC will not be deemed by this Agreement to be granting a license to Participant, with respect to UltraSwitch, the HCC System or any software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. 10.4 Assignment. This Agreement is not assignable by HCC or Participant without the prior written consent of the nonassigning party, and such consent shall not be unreasonably withheld or delayed. -12- 17 10.5 Notices. All notices and other communications contemplated hereby must be in writing (except in the case of electronically transmitted data) and (a) personally delivered, (b) deposited in the United States mail, first- class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, (d) sent by telecopy with confirmation of receipt of telecopy to the number indicated, or (e) transmitted directly to the recipient by electronic data transmission pursuant to arrangements made between the parties. Such notices and other commissions (except in the case of electronically transmitted data) shall be addressed as follows: <TABLE> <CAPTION> IF TO HCC: IF TO PARTICIPANT: <S> <C> 3811 Turtle Creek Blvd. 200 West Madison Dallas, TX 75219 Chicago, Illinois 60606 Attention: John F. Davis, III Attention: General Counsel (if by telecopy to: (if by telecopy to: (214) 528-5675) (312) 750-8581) </TABLE> or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices will be deemed given and received (i) at the time of personal delivery, (ii) if sent by U.S. Mail, three (3) business days after mailing, (iii) if sent by overnight courier, one (1) business day after such sending, (iv) if sent by telecopy, upon receiving of confirmation of receipt of the telecopy at the number indicated, or (v) in the case of electronically transmitted data, when received. 10.6 Controlling Law. This Agreement will be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. Subject to the agreement to arbitrate and the jurisdiction and venue provisions set forth in section 10.1 hereof, any action brought relating to or arising out of this Agreement must be brought in the state or federal courts situated in the county and state of the residence or principal place of business of the party against whom the action is brought (or any of them, if more than one). 10.7 Entire Agreement. This Agreement and the Exhibits attached hereto constitute the entire agreement between HCC and Participant with respect to the provision of services under the HCC System, and supersedes and replaces any and all other agreements -13- 18 and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement that are not contained in this Agreement. 10.8 Successors and Assigns. This Agreement will be binding upon and will inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 10.9 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement will be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. AGREED to as of the date first written above. THE HOTEL CLEARING CORPORATION HYATT HOTELS CORPORATION By: By: ----------------------------- ---------------------------- John F. Davis, III, President Title: ------------------------- -14- 19 EXHIBIT "A" Initial Information to be Provided by Participant to HCC The fields in each commission record are the following: <TABLE> <S> <C> <C> -Record identifier required validated -Chain record number required check for duplicates -Chain/Brand code required validated -Booking source required validated -Property ID required validated -PNR Number optional no checks -Confirmation number required validated presence -Cancellation number optional no checks -Corporate ID number optional no checks -Subscriber IATA number required validated HCC User -Group/Guest last name required validated presence -Group/Guest first name optional no checks -Status code required validated -Reason code optional if present, validate -Arrival date required validated, no future -Departure date required validated, no future -Number of nights required validated presence -Number of rooms required validated presence -Commissionable revenue required validated, no neg. -Gross Commission required validated, no neg. -Adjustment amount required validated presence -Net Commission due required validate computation -Currency code required validated -Comments optional no checks </TABLE> -15- 20 EXHIBIT "B" Participant Fees 1. Contingency Fees and minimum Transaction Fees as provided in Section 3.1 of the Agreement will be based upon [*] Annual Base Transactions, or Monthly Base Transactions of [*] (Annual Base Transactions divided by 12). 2. Transaction Fees and other fees, costs and expenses payable under the Agreement are to be debited directly from Participant's bank account, described as follows: Bank Name: ------------------------------------------------- Account Number: -------------------------------------------- Other Appropriate Information: ----------------------------- ----------------------------------------------------------- ----------------------------------------------------------- 3. Transaction Fees and other fees, costs and expenses payable under the Agreement that are listed in the billing statements provided to Participant by HCC as provided in Section 3.5 of the Agreement will automatically be debited from the account designated above, not less than forty-eight (48) hours following receipt of such billing statements. The Contingency Fee will automatically be debited from the account designated above on the first business day of each month during which the Contingency Fee is payable. *Confidential Treatment Requested -16- 21 EXHIBIT "C" Subscriber Commissions 1. Subscriber Commissions are specified in the record field "Net Commission Due" as described on Exhibit "A". 2. Subscriber Commissions are to be debited directly from Participant's bank account, described as follows: [Bank Name] [Account Number] [Other Appropriate Information] 3. Subscriber Commissions listed in the billing statements provided to Participant by HCC as provided in Section 3.5 of the Agreement will automatically be debited from the account designated above, not less than forty-eight (48) hours following receipt of such billing statements. -17- 22 EXHIBIT "D" [deleted by amendment] -18- 23 EXHIBIT "E" DEBIT AUTHORIZATION TO: [Bank] RE: [Account Number and identification] DATE: The undersigned hereby authorizes The Hotel Clearing Corporation to debit the undersigned's account identified above, and to transfer sums from such account by wire transfer, debit memo, draft or check, all without further instruction or verification of such transfer instructions from the undersigned. This authorization will remain in full force and effect until written notification of cancellation is given by the undersigned to the bank or other financial institution identified above. ------------------------------ By: --------------------------- Title: ------------------------ -19- 24 EXHIBIT "F" PROPOSED PROCEDURES (attached) -20-
1 EXHIBIT 10.22 FIRST AMENDMENT TO HCC PARTICIPANT AGREEMENT This First Amendment to HCC Participant Agreement is entered into by and between the HOTEL CLEARING CORPORATION, hereinafter called "HCC", and INTER-CONTINENTAL HOTELS, hereinafter called "Participant", to be effective the 15th day of September, 1993 (the "First Amendment"). AGREED FACTS 1. HCC and Participant have heretofore entered into an HCC Participant Agreement dated effective ____________________(hereinafter called the "Participant Agreement"). 2. HCC and Participant have mutually agreed to amend the term of the Participant Agreement and the provisions of the Participant Agreement relating to the amount and payment of Participant Commissions (as defined in the Participant Agreement). 3. HCC and Participant intend for this First Amendment to set forth in its entirety their agreement to amend the term of the Participant Agreement and the provisions relating to the amount and payment of Participant Commissions. AGREEMENT FOR AND IN CONSIDERATION of the above stated facts, which are hereby acknowledged as true and correct, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, HCC and Participant hereby agree as follows: 1. Section 3.4 of the Participant Agreement is hereby deleted in its entirety and is replaced with the following: "3.4 [*] In consideration of the benefits that [*] will obtain from [*] processed by [*] through the HCC System, [*] agrees to [*] certain [*] as hereinafter provided. Such [*] will be [*] at such times and in such total amounts as [*] may determine to be appropriate provided that [*] shall be [*] the [*] (as hereinafter defined). The [*] payable [*] shall be determined by dividing the total number of [*] for all stockholder [*] for the applicable time period (as determined by [*]) into the total amount of funds available [*] (as determined by [*] and after making allowance for [*] as hereinafter defined) and *Confidential Treatment Requested -1- 2 [*] by the number of [*] transactions [*] by [*] for the applicable period. [*] are those amounts due to [*] pursuant to agreements which require payments [*] the [*] to [*] as [*] including, but not limited to, amounts due to [*] and key [*] of [*]." 2. Section 4.1 of the Participant Agreement is hereby deleted in its entirety and is replaced with the following: "4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall expire [*]. This Agreement will be automatically renewed and extended for additional twelve (12) month periods unless, at least thirty (30) days prior to the expiration of the initial term or any additional twelve (12) month period, either party provides written notice to the other of its decision not to renew and extend." 3. Exhibit D to the Participant Agreement is deleted. 4. This First Amendment shall be and hereby is incorporated into the Participant Agreement for all intents and purposes and all terms, provisions and definitions of the Participant Agreement shall apply. 5. Except for the provisions inconsistent with the terms of this First Amendment, the Participant Agreement is hereby ratified and affirmed in all respects. This First Amendment is effective as of the date stated above and executed on the dates indicated below. HOTEL CLEARING CORPORATION By:_____________________________ John F. Davis, III President Date:___________________________ INTER-CONTINENTAL HOTELS By:_____________________________ Its:_____________________________ Date:____________________________ *Confidential Treatment Requested -2- 3 HCC PARTICIPANT AGREEMENT This Agreement (the "Agreement") is entered into by and between THE HOTEL CLEARING CORPORATION, a Delaware corporation ("HCC"), and Inter-Continental Hotel Corporation ("Participant"), to be effective the _____ day of ____________, 1991. SECTION 1. DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) Commissionable Reservations. Commissionable Reservations within a particular time period equals the number of reservations (both voice and electronic) processed through the HCC System within such time period that are identified as "commissionable" or "partially commissionable" on the transaction records provided by Participant to HCC. (ii) HCC System. The HCC System is an automated clearinghouse system to provide for the coordination of reservation information, transfer of hotel reservation commissions and ancillary services to Subscribers and Participating Properties. (iii) [*]. [*] are the [*] paid by [*] for [*] processed [*]. (iv) Participating Entity. A Participating Entity is an operator of a hotel reservation system that has executed a HCC Participant Agreement. (v) Subscriber. A Subscriber is any person or entity who has executed an HCC Subscriber Agreement and makes reservations with a Participating Entity. A list of current Subscribers will be provided by HCC to Participant by the twenty-fifth (25th) of each month. (vi) Subscriber Commissions. Subscriber Commissions are the commissions paid by Participant to Subscribers for reservations made with Participant. Subscriber Commissions will be based on commission rates provided to HCC by the Participant. (vii) UltraSwitch. UltraSwitch is a service of The Hotel Industry Switch Company ("THISCO"), which has certain common *Confidential Treatment Requested -1- 4 ownership with HCC, to provide an interface between Subscribers and hotel reservation systems with the capability to provide immediate room confirmation numbers for each hotel property participating in UltraSwitch. SECTION 2. THE HCC SYSTEM 2.1 Duties of HCC. HCC will provide and operate the HCC System for the use and benefit of Participant and other Participating Entities. HCC will provide all reasonable and necessary technical support, hardware and software, and modifications to the HCC System to provide clearinghouse services to Participant as described below. Upon compliance with the terms of this Agreement by Participant, HCC will provide the following clearinghouse services to Participant: (i) identify Participant (and designated affiliates and franchisees of Participant) to Subscribers as being a HCC System Participant through the use of UltraSwitch or other central reservation system services (and, at the discretion of HCC, by distribution of other promotional materials), subject to the provisions of Section 5.2; (ii) provide billing statements for Subscriber Commissions, Transaction Fees (as defined below) and other fees, costs and expenses to Participant on a regular (normally monthly) basis as provided in Section 3 below; (iii) debit Participant's designated bank account for such Subscriber Commissions, transaction fees and other fees, costs and expense, no sooner than forty-eight (48) hours after providing billing statements for such Subscriber Commissions, Transaction Fees and other fees, costs and expenses as provided in Section 3 below; (iv) distribute collected Subscriber Commissions to the appropriate Subscribers based upon HCC Subscriber Agreements with such Subscribers; (v) provide periodic (normally monthly) reports to Participant and Subscribers reflecting exceptions to Subscriber Commissions based upon the data available to HCC through UltraSwitch; and -2- 5 (vi) provide telephone customer support services from 8:00 a.m. to 8:00 p.m., Eastern time, Monday through Friday, exclusive of legal holidays. A description of the currently anticipated procedures to be followed in the payment process is given on Exhibit "F" attached, although the timing and exact details of such procedures as implemented by HCC in operation of the HCC system may be different due to computer-related and other operational constraints. Such procedures are subject to change from time to time as circumstances require or as otherwise determined by HCC. 2.2 Duties of Participant. Participant will cooperate fully with HCC personnel with respect to the implementation of the HCC System between the Subscribers and Participant. Participant specifically authorizes HCC to obtain information concerning reservations made with Participant from the UltraSwitch system and to use such information (i) as provided in the procedures described in Exhibit "F" and (ii) as otherwise approved in writing by the Board of Directors of HCC. Participant agrees to provide HCC all appropriate reservation information (including all reservations made electronically or by voice, whether directly to the property or through the use of a central reservation "800" phone number) no loss often than on a weekly basis. All information provided by Participant with respect to reservations, Subscribers and Subscriber Commissions must be complete and accurate to the best of Participant's ability, and must be inclusive of all the information necessary to permit HCC to provide the clearinghouse services described in Section 2.1. The initial information that Participant must provide to HCC is indicated on Exhibit "A". Because efficient and reliable operation of the clearinghouse services offered by the HCC System is dependent on the use of data from transactions carried by UltraSwitch, Participant agrees to run all of its electronic reservation transactions through the UltraSwitch system so long as it is a party to this Agreement. 2.3 Schedule of Implementation of HCC System. HCC will proceed with the implementation of the HCC System, with a proposed HCC System activation date of April 1, 1992, but not later than September 30, 1992. For the purposes of this Agreement, the actual activation date (the "Activation Date") will be the date that HCC notifies Subscriber that the HCC Board of Directors has determined that the HCC System is operational and capable of processing sufficient aggregate transaction volume of the Participating Entities. HCC will provide Participants with at least thirty (30) -3- 6 days' prior notice of activation of the HCC System. HCC will provide Participant with appropriate specifications to assist Participant in preparing for utilization of the HCC System at least one hundred twenty (120) days prior to the Activation Date. 2.4 Modification or Enhancement of the HCC System or Participant System. HCC may in its sole discretion modify the operation or enhance the capability of the HCC System, and Participant agrees to cooperate with HCC in all modifications and enhancements of the HCC System. All significant modifications or enhancements will require the approval of the Board of Directors of HCC. If HCC determines that such modification or enhancement is likely to require Participant to make significant modifications to its central reservation system (any such modifications to be at Participant's sole expense), HCC will provide at least ninety (90) days' prior notice to Participant of such modification or enhancement. If Participant modifies its central reservation system after the Activation Date and such modification requires HCC to modify the HCC System, or to provide additional services to utilize information supplied by Participant as required by Section 2.2, Participant will pay HCC such additional amount agreed to by the parties based on HCC's standard consulting rate and all expenses incurred. SECTION 3. FEES, COSTS, AND PAYMENTS 3.1 Fees. In order to permit HCC to obtain financing to permit the development of the HCC System, Participant agrees to pay the monthly contingency fee (the "Contingency Fee") of [*] multiplied by the Monthly Base Transactions indicated on Exhibit "B". The Contingency Fee will be payable on the first day of each month for a six (6) month period beginning on the later of April 1, 1992, or the Activation Date. Provided that the Activation Date has occurred, Participant's obligation to pay the Contingency Fee is absolute and shall continue until Participant is capable of and ready to deliver to the HCC System reservation commission data from at least seventy-five percent (75%) of its properties in the United States (calculated based on total number of rooms rather than number of individual hotels) in a regular and timely manner as contemplated by this Agreement ("Participant Readiness") and continues and delivers to HCC the volume of reservation commissions required for Participant Readiness after the Activation Date. At such time, Participant will begin paying transaction fees ("Transaction Fees") of [*] per Commissionable Reservation, and upon payment of such Transaction Fees, will be *Confidential Treatment Requested -4- 7 relieved of its obligations to pay any further Contingency Fees under this section. For the remainder, if any, of the six (6) month period referred to above, the Transaction Fees payable by Participant will be subject to a minimum monthly Transaction Fee of [*] multiplied by the Monthly Base Transactions indicated on Exhibit "B". If Participant Readiness (or the Activation Date, if later) occurs other than at the beginning of a month, Participant will receive a credit against the fees otherwise payable by Participant under this Agreement, in the amount of a pro rata portion of the Contingency Fee paid to HCC for that month, based upon the number of days in the month following Participation Readiness (or the Activation Date, if later). HCC may, at its sole discretion, change the Transaction Fees charged to Participant as provided above, upon ninety (90) days notice to Participant. The Board of Directors of HCC will have the right to verify Participant Readiness (whether through HCC personnel or independent third parties) and will have the right to modify or adjust the requirements for Participant Readiness, as long as it makes such determination in a uniform manner among other Participating Entities. Participant has been informed that HCC is reliant upon, and the obtaining by HCC of certain critical financing is dependent upon, Participant's agreement to and performance of Participant's obligations under this section. Participant acknowledges that the failure of Participant to meet its payment obligations under this section would substantially and materially damage the business of HCC and waives any and all defenses that it may have to the performance of such obligations. Participant hereby irrevocably consents to having the provisions of this Section 3.1 immediately and fully enforced in a court of law or equity and waives any and all defenses thereto. Participant hereby authorizes HCC to debit all such fees from Participant's designated bank account as provided in Exhibit "B". Participant is responsible for collection and payment to HCC of all such fees that are attributable to Participant and all of Participant's affiliates and franchises that utilize the HCC System under this Agreement. 3.2 Subscriber Commissions. Participant agrees to make available for debit by HCC all Subscriber Commissions shown on billing statements as provided in Section 3.5. Participant hereby authorizes HCC to debit such Subscriber Commissions from Participant's designated bank account as provided in Exhibit "C". Participant is responsible for collection and payment to HCC of all *Confidential Treatment Requested -5- 8 such Subscriber Commissions that are attributable to Participant and all of Participant's affiliates and franchisees that utilize the HCC System under this Agreement. Payments to Subscribers will be made in appropriate local currency. 3.3 Other Fees, Costs and Expenses. Participant also agrees to pay HCC at its standard consulting rate plus all expenses incurred for set up, handling, conversion and other services required for processing of information transmitted to HCC to satisfy the requirements of Section 2.2, above, unless a different fee arrangement with respect to such services is indicated on Exhibit "B". All of such fees must be approved by the Board of Directors of HCC. Participant hereby authorizes HCC to debit such fees from Participant's designated bank account as provided in Exhibit "B". HCC will give Participant prior notice of debits made under the terms of this Section 3.3. Participant is responsible for collection and payment to HCC of all such fees, costs and other expenses that are attributable to Participant and all of Participant's affiliates and franchisees that utilize the HCC System under this Agreement. 3.4 [deleted by amendment] 3.5 Billing Statements. Based upon the information provided HCC by or with respect to Participant pursuant to Section 2.2, above, HCC will provide periodic (normally monthly) billing statements detailing (i) Subscriber Commissions to be paid by Participant for the period covered by such billing statement; (ii) Transaction Fees to be paid by Participant, based on Commissionable Reservations for the period covered by such billing statement; (iii) other fees, costs and additional expenses to be paid by Participant for the period covered by such billing statement; and -6- 9 (iv) [*] to be paid to [*] for the most recent quarterly period preceding such billing statement, which [*] will be [*] included in billing statements only on a quarterly basis. Items (i) through (iv) may be included on separate billing statements. 3.6 Disputed Commissions. HCC will provide Participant and Subscribers with periodic reports indicated under Section 2.1(v) that will indicate any exceptions to Subscriber Commissions, based on discrepancies between information given HCC by Participant compared to other information available to HCC through UltraSwitch. With respect to all exceptions as to which Participant provides supporting documentation, HCC will forward such documentation to the appropriate Subscriber(s), and the Subscribers involved may pursue such dispute directly with Participant, but HCC will not have any liability to either Participant or such Subscriber with respect to the resolution of any disputed commission. No dispute concerning any Subscriber Commissions will in any way affect or reduce the obligations of Participant to (i) timely pay all other Subscriber Commissions and (ii) timely pay to HCC all Transaction Fees and other fees, costs and additional expenses owed by Participant under this Agreement. 3.7 Additional Authorizations. Participant agrees to execute and deliver to Participant's bank(s) debit authorization(s) in the form of Exhibit "E" attached hereto, and to execute and deliver to such bank(s) or other appropriate persons any and all documents, give to such bank(s) or other persons any and all directions, and to take all other actions that are necessary or appropriate to permit HCC to debit amounts to be paid hereunder by Participant directly from Participant's designated bank account(s). SECTION 4. TERM 4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall expire [*] after the date of this Agreement. This Agreement will be automatically renewed and extended for additional twelve (12) month periods unless, at least thirty (30) days prior to the expiration of any additional twelve (12) month period, either party provides written notice to the other of its decision not to renew and extend. *Confidential Treatment Requested -7- 10 SECTION 5. TERMINATION 5.1 Termination Upon Default. Upon the occurrence of an Event of Default (as defined below) by either party and the failure of such party to cure such default after notice and opportunity to cure as provided by Section 6.3 below, the nondefaulting party may terminate this Agreement at any time. 5.2 Suspension of Status. Upon the occurrence of an Event of Default by Participant and the failure of Participant to cure such default after notice and opportunity to cure as provided by Section 6.3 below, then, if HCC does not terminate this Agreement under Section 5.1, until such time as such Event of Default is cured HCC shall have the right to suspend the status of Participant as a Participating Entity and to notify and all Subscribers of such default and suspension, whether through the UltraSwitch system, central reservation systems, or otherwise. Upon notification by Participant to HCC of any default in payment by any affiliate or franchisee of Participant of payments due under this Agreement and until notification by Participant of the cure of such default, HCC shall have the right to suspend the status of such affiliate or franchise as a Participating Entity and to notify all subscribers of such default and suspension. SECTION 6. DEFAULT 6.1 Events of Default. Subject to Section 6.2 below, any one of the following will be considered an Event of Default: (i) The failure of either party to pay any amount due hereunder within the time required; (ii) The refusal or failure of either party to perform diligently and in good faith each and every material provision of this Agreement; (iii) The commencement by either party of a voluntary case under Chapter 11 or 7 of the United States Bankruptcy Code, as from time to time in effect, the commencement against either party of an involuntary case under said Chapter 11 or 7, either party seeking relief as a debtor under any applicable law, other than said Chapter 11 or 7, or any jurisdiction relating to the liquidation or reorganization of debtors or the modification of the rights of creditors, the entry of a court order adjudging the party bankrupt or insolvent, ordering its liquidation or reorganization or assuming custody or appointing a receiver or other custodian of its -8- 11 property, or its making an assignment for the benefit of, or entering into a composition with, its creditors; (iv) The deferral [*] of payment of all [*] as provided in Section 3.4, for more than two (2) consecutive calendar quarters; or (v) The failure by HCC to have obtained HCC Subscriber Agreements with respect to at least twelve thousand (12,000) travel agent/reservation provider locations within thirty-six (36) months following the Activation Date. Any such Event of Default shall not relieve the defaulting party from any of its obligations hereunder, and the non-defaulting party shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. 6.2 Force Majeure. It will not constitute an Event of Default if such event listed in Section 6.1 is caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if any such occurrence results in any of the events described in Section 6.1, and the same continues for more than thirty (30) consecutive days, either party may terminate this Agreement by providing notice as required herein. 6.3 Cure Period. Upon the occurrence of an Event of Default, the non-defaulting party will give written notice to the defaulting party specifying the alleged default. The defaulting party will then be entitled to thirty (30) days from receipt of such notice within which to cure such default; provided, that in the case of a monetary default by Participant, Participant will only be allowed to cure such default within two (2) business days after receipt of such notice, by delivering that amount owed to HCC in good funds into HCC's bank account. SECTION 7. CONFIDENTIALITY 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by Participant and HCC that each will receive confidential and proprietary information that is the property of the other party. All such confidential and proprietary information will be marked or otherwise identified as such and will *Confidential Treatment Requested -9- 12 be treated as confidential and proprietary subject only to disclosure where required by law. Such designation may be removed by each party making the designation. Participant acknowledges that it will have no access to and will not use UltraSwitch software or related property by reason of this Agreement, and that use of such UltraSwitch services by Participant would be permitted only under a separate agreement with THISCO. Participant acknowledges that it will have no access to and will not use the HCC System or related property, other than as specifically provided for in this Agreement, and that such system and related property is confidential and proprietary property of HCC. HCC acknowledges that the specific information concerning Participant's reservations, whether processed through the UltraSwitch system or otherwise provided by Participant to HCC outside of the UltraSwitch system, is the property of Participant, although Participant acknowledges HCC may use such information (i) as provided in the procedures described in Exhibit "F" and (ii) as otherwise approved in writing by the Board of Directors of HCC, as long as HCC removes any information that indicates the customer is a customer of Participant. The aggregate data from the HCC System will become the property of HCC. Any use of HCC service Marks or trade names by Participant is subject to prior written approval of HCC, provided, that Participant may describe the HCC System contemplated by this Agreement in its franchise offering circular and other materials as required by state or federal law. The provisions of this Section 7.1 will remain binding and in force and effect as long as such information remains confidential (other than by breach of this Agreement), notwithstanding the expiration or termination of this Agreement at any time. SECTION 8. INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. Subject to Section 9.2, Participant agrees to indemnify and hold harmless HCC and HCC's affiliates, directors, officers, employees and stockholders (other than Participant), from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring as a result of or arising out of a material breach of this Agreement on account of Participant's fault, to the extent not caused by the fault of HCC ("HCC's Losses"). Subject to Section 9.2, HCC agrees to indemnify and hold harmless Participant, and Participant's affiliates, directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable -10- 13 attorney's fees) ("Participant's Losses") occurring as a result of or arising out of a material breach of this Agreement on account of HCC's fault to the extent not caused by the fault of Participant. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indemnified party will give prompt notice thereof to the indemnifying party and the indemnifying party will be entitled to participate therein or, to the extent that it wishes, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. Whether or not the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable for any compromise or settlement of any such action or claim effected without its consent (which shall not be unreasonably withheld). SECTION 9. DISCLAIMER OF WARRANTIES 9.1 Waiver of Warranties. HCC WILL NOT BE RESPONSIBLE OR LIABLE FOR ANY INACCURACIES IN THE DATA OR THE INFORMATION PROCESSED BY OR THROUGH THE HCC SYSTEM NOR WILL IT HAVE ANY LIABILITY FOR ANY ACT OR FAILURE TO ACT UNLESS EXPRESSLY SET FORTH HEREIN, EXCEPT TO THE EXTENT RESULTING FROM HCC'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE, ARE DISCLAIMED BY HCC AND WAIVED BY PARTICIPANT. 9.2 No Consequential Damages. Neither party will be liable to the other for any consequential damages caused or resulting from any breach of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. -11- 14 SECTION 10. MISCELLANEOUS 10.1 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, will be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party will select one arbitrator with thirty (30) days of notice of the dispute, and the two (2) arbitrators selected shall select a third neutral arbitrator within thirty (30) days after the second arbitrator is chosen. All reasonable and necessary costs and fees (including attorney's fees) incurred in connection with the arbitration will be borne by the losing party or assessed in the award as otherwise deemed appropriate by the arbitrators. If the demand for arbitration is initiated by Participant, venue of the arbitration proceedings will be determined by HCC. If the demand for arbitration is initiated by HCC, venue of the arbitration proceedings will be determined by Participant. 10.2 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to reservations commissions clearinghouse services and that each party may contract with other parties providing same or similar services. 10.3 Status of Parties. This Agreement will not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. HCC will not be deemed by this Agreement to be granting a license to Participant, with respect to UltraSwitch, the HCC System or any software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. 10.4 Assignment. This Agreement is not assignable by HCC or Participant without the prior written consent of the nonassigning party, and such consent shall not be unreasonably withheld or delayed. 10.5 Notices. All notices and other communications contemplated hereby must be in writing (except in the case of electronically transmitted data) and (a) personally delivered, (b) deposited in the United States mail, first- class, registered or certified mail, return receipt requested, with postage prepaid, (c) -12- 15 sent by overnight courier service (for next business day delivery), shipping prepaid, (d) sent by telecopy with confirmation of receipt of telecopy to the number indicated, or (e) transmitted directly to the recipient by electronic data transmission pursuant to arrangements made between the parties. Such notices and other commissions (except in the case of electronically transmitted data) shall be addressed as follows: IF TO HCC: IF TO PARTICIPANT: 3811 Turtle Creek Blvd. Dallas, TX 75219 Attention: John F. Davis, III (if by telecopy to: (214) 528-5675) or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices will be deemed given and received (i) at the time of personal delivery, (ii) if sent by U.S. Mail, three (3) business days after mailing, (iii) if sent by overnight courier, one (1) business day after such sending, (iv) if sent by telecopy, upon receiving of confirmation of receipt of the telecopy at the number indicated, or (v) in the case of electronically transmitted data, when received. 10.6 Controlling Law. This Agreement will be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. Subject to the agreement to arbitrate and the jurisdiction and venue provisions set forth in section 10.1 hereof, any action brought relating to or arising out of this Agreement must be brought in the state or federal courts situated in the county and state of the residence or principal place of business of the party against whom the action is brought (or any of them, if more than one). 10.7 Entire Agreement. This Agreement and the Exhibits attached hereto constitute the entire agreement between HCC and Participant with respect to the provision of services under the HCC System, and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement that are not contained in this Agreement. -13- 16 10.8 Successors and Assigns. This Agreement will be binding upon and will inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 10.9 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement will be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. AGREED to as of the date first written above. THE HOTEL CLEARING CORPORATION INTER-CONTINENTAL HOTELS CORP. By: By: ----------------------- -------------------------- John F. Davis, III, Title: President ----------------------- -14- 17 EXHIBIT "A" Initial Information to be Provided by Participant to HCC The fields in each commission record are the following: <TABLE> <S> <C> <C> -Record identifier required validated -Chain record number required check for duplicates -Chain/Brand code required validated -Booking source required validated -Property ID required validated -PNR Number optional no checks -Confirmation number required validated presence -Cancellation number optional no checks -Corporate ID number optional no checks -Subscriber IATA number required validated HCC User -Group/Guest last name required validated presence -Group/Guest first name optional no checks -Status code required validated -Reason code optional if present, validate -Arrival date required validated, no future -Departure date required validated, no future -Number of nights required validated presence -Number of rooms required validated presence -Commissionable revenue required validated, no neg. -Gross Commission required validated, no neg. -Adjustment amount required validated presence -Net Commission due required validate computation -Currency code required validated -Comments optional no checks </TABLE> -15- 18 EXHIBIT "B" Participant Fees 1. Contingency Fees and minimum Transaction Fees as provided in Section 3.1 of the Agreement will be based upon [*] Annual Base Transactions, or Monthly Base Transactions of [*] (Annual Base Transactions divided by 12). 2. Transaction Fees and other fees, costs and expenses payable under the Agreement are to be debited directly from Participant's bank account, described as follows: Bank Name: ------------------------------------------------- Account Number: --------------------------------------------- Other Appropriate Information: ------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ 3. Transaction Fees and other fees, costs and expenses payable under the Agreement that are listed in the billing statements provided to Participant by HCC as provided in Section 3.5 of the Agreement will automatically be debited from the account designated above, not less than forty-eight (48) hours following receipt of such billing statements. The Contingency Fee will automatically be debited from the account designated above on the first business day of each month during which the Contingency Fee is payable. *Confidential Treatment Requested -16- 19 EXHIBIT "C" Subscriber Commissions 1. Subscriber Commissions are specified in the record field "Net Commission Due" as described on Exhibit "A". 2. Subscriber Commissions are to be debited directly from Participant's bank account, described as follows: [Bank Name] [Account Number] [Other Appropriate Information] 3. Subscriber Commissions listed in the billing statements provided to Participant by HCC as provided in Section 3.5 of the Agreement will automatically be debited from the account designated above, not less than forty-eight (48) hours following receipt of such billing statements. -17- 20 EXHIBIT "D" [deleted by amendment] -18- 21 EXHIBIT "E" DEBIT AUTHORIZATION TO: [Bank] RE: [Account Number and identification] DATE: The undersigned hereby authorizes The Hotel Clearing Corporation to debit the undersigned's account identified above, and to transfer sums from such account by wire transfer, debit memo, draft or check, all without further instruction or verification of such transfer instructions from the undersigned. This authorization will remain in full force and effect until written notification of cancellation is given by the undersigned to the bank or other financial institution identified above. ---------------------------------- By: ------------------------------- Title: ---------------------------- -19- 22 EXHIBIT "F" PROPOSED PROCEDURES (attached) -20-
1 EXHIBIT 10.23 HCC PARTICIPANT AGREEMENT This Agreement (the "Agreement") is entered into by and between THE HOTEL CLEARING CORPORATION, a Delaware corporation ("HCC"), and ITT SHERATON CORPORATION ("Participant"), to be effective the 28 day of May, 1997. SECTION 1. DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) Commissionable Reservations. Commissionable Reservations within a particular time period equals the number of reservations (both voice and electronic) processed through the HCC System within such time period that are identified as "commissionable" or "partially commissionable" on the transaction records provided by Participant to HCC and for which a travel agent commission is paid pursuant to this Agreement. (ii) HCC System. The HCC System is HCC's automated clearinghouse system to provide for the coordination of reservation information, transfer of hotel reservation commissions and ancillary services to Travel Agents and Participating Entities. (iii) Participating Entity. A Participating Entity is an operator of a hotel reservation system that has executed a HCC Participant Agreement. (iv) HCC Travel Agents. An HCC Travel Agent is a travel agency who has executed an HCC Subscriber Agreement. A list of current HCC Travel Agents will be periodically provided by HCC to Participant. (v) HCC Travel Agent Commissions. HCC Travel Agent Commissions are the commissions paid by Participant to HCC Travel Agents pursuant to this Agreement. HCC Travel Agent Commissions will be based on commission rates provided by Participant to HCC. SECTION 2. THE HCC SYSTEM 2.1 Duties of HCC. HCC will provide and operate the HCC System for the use and benefit of Participant, its franchisees and affiliates, and other Participating Entities. HCC will provide all reasonable and necessary technical support, hardware and software, except as otherwise provided herein, and modifications to the HCC System to provide clearinghouse services to Participant and its franchisees and affiliates as described below. Upon compliance with the terms of this Agreement by Participant, its franchisees and affiliates, and subject to Section 5 hereof, HCC will provide the following clearinghouse services to Participant and its franchisees and affiliates: (i) identify Participant to travel agents as being a HCC System Participating Entity; -1- 2 (ii) provide billing statements for HCC Travel Agent Commissions, Transaction Fees (as defined below) and other fees, costs and expenses to Participant no later than the fifteenth (15th) business day after the end of each month as provided in Section 3 below; (iii) distribute collected HCC Travel Agent Commissions received from Participant and its affiliates and franchisees to the appropriate HCC Travel Agents as set forth in the HCC Travel Agent Commission information provided by Participant; (iv) provide no later than the fifteenth (15th) business day of each month reports to Participant and HCC Travel Agents reflecting HCC Travel Agents' reservation transactions with Participant and HCC Travel Agent Commissions owed based upon the data provided to HCC by Participant and its affiliates and franchisees who are participating in the HCC System; and (v) provide telephone customer support services from 8:00 a.m. to 5:00 p.m., U.S. Central time, Monday through Friday, exclusive of legal holidays. The procedures of the HCC System are subject to changes for enhancements from time to time as determined by HCC, provided that no such changes will have a significant adverse impact on the clearinghouse services described above. 2.2 Duties of Participant. Participant shall diligently and in good faith do the following: (i) Cooperate reasonably with HCC personnel with respect to the implementation of the HCC System between HCC Travel Agents and Participant and its affiliates and franchisees; (ii) Provide HCC with all that is reasonably required by HCC to process all reservations (including all reservations made electronically or by voice, through the use of a central reservation "800" phone number, inclusive of no-shows, cancellations and non-commissionable transactions) made by HCC Travel Agents with Participant and, subject to 2.2(iv), its affiliates and franchisees no less often than on a semi-monthly basis such data being complete and accurate to the best of Participant's knowledge and ability and inclusive of all of the information to permit HCC to provide the clearinghouse services described in Section 2.1 hereof and, without limitation, being such information as set forth on Exhibit A hereof; and permit and authorize HCC to obtain and use such data concerning such reservations made with Participant and, subject to 2.2(iv), its affiliates and franchisees except such data designated as confidential pursuant to Section 7 hereof. The foregoing shall be subject to receipt by Participant from HCC of the instructions, specifications, directions, information, assistance, and cooperation reasonably required by Participant to provide the foregoing. (iii) Pay, pursuant to this Agreement, all Travel Agent Commissions reported to HCC for processing pursuant to this Agreement within two (2) business days of receipt of the billing statement described in Section 3.5 hereof; -2- 3 (iv) Use its reasonable efforts to cause each of its franchisees and affiliates to fully and timely participate in the HCC System pursuant to this Agreement; (vi) Permit HCC to use its name as an entity participating in the HCC System. 2.3 Modification or Enhancement of the HCC System or Participant System. HCC may in its sole discretion modify the operation or enhance the capability of the HCC System, and Participant agrees to cooperate reasonably with HCC to the extent reasonably necessary to effectuate modifications and enhancements of the HCC System. If Participant determines that such modification or enhancement is likely to require Participant to make significant modifications to its central reservation system (any such modifications to be at Participant's sole expense), HCC will provide at least ninety (90) days' prior notice to Participant of such modification or enhancement and Participant may, at its option, terminate this Agreement upon sixty (60) days notice to HCC. SECTION 3. FEES, COSTS, AND PAYMENTS 3.1 Fees for Processing HCC Travel Agent Commissions. (a) For the first [*] Commissionable Reservations processed each month, Participant shall pay HCC a transaction fee ("HCC Transaction Fee") each month of U.S. [*] for each such Commissionable Reservation processed. For any month wherein the total of Commissionable Reservations is greater than [*] but less than [*] shall be due from either party for each such Commissionable Reservation over [*] but less than [*]. (b) For each Commissionable Reservation in excess of [*] processed each month, [*] a transaction fee each month (the [*]) as follows: For any month wherein the total of Commissionable Reservations processed are in excess of [*] but less than [*] a Participant Transaction Fee of [*] for each Commissionable Reservation between [*] and [*]; For any month wherein the total of Commissionable Reservations processed are in excess of [*] but less than [*] a Participant Transaction Fee of [*] for each Commissionable Reservation between [*] and [*]; For any month wherein the total of Commissionable Reservations processed are in excess of [*] and less than [*] a Participant Transaction Fee of [*] for each Commissionable Reservation between [*] and [*]; and For any month wherein the total of Commissionable Reservations processed are in excess of [*], a Participant Transaction Fee of [*] for each Commissionable Reservation in excess of [*]. *Confidential Treatment Requested -3- 4 Provided however, notwithstanding the preceding provisions of this 3.1(b), the total Participant Transaction Fee paid per month shall not exceed an amount equal to [*] per Commissionable Reservation in the aggregate. 3.2 Commission Payments. HCC shall pay HCC Travel Agent Commissions in the travel agent's local currency or the currency requested by the travel agency. HCC shall be responsible for complying with laws and regulations relating to the treatment of unclaimed property (sometimes referred to as "escheatment" laws) resulting from checks issued to travel agents under this Agreement. The parties will jointly establish mutually acceptable procedures to be implemented by HCC in order to comply with such laws and regulations. The parties will meet to establish such procedures by no later than thirty (30) days after the effective date, and will cooperate and work diligently with one another in order to finalize same as promptly as practical. 3.3 Disputed Commissions. HCC will provide Participant and HCC Travel Agents with periodic reports indicated under Section 2.1(iv) that will indicate any exceptions to HCC Travel Agent Commissions, based on discrepancies between information given HCC by Participant compared to other information available to HCC. With respect to all exceptions as to which Participant provides supporting documentation, HCC will forward such documentation to the appropriate HCC Travel Agent(s), and the HCC Travel Agents involved may pursue such dispute directly with Participant('s) franchisees, but HCC will not have any liability to either Participant or any travel agent (HCC or non-HCC) with respect to the resolution of any disputed commission. No dispute concerning any travel agent commissions will in any way affect or reduce the obligations of Participant to (i) timely pay all other HCC Travel Agent Commissions reported to HCC for processing and (ii) timely pay to HCC all Transaction Fees and other fees, costs and additional expenses owed by Participant under this Agreement; nor shall any such dispute in any way affect or reduce the obligations of HCC to timely pay Participant all Participant Transaction Fees due under this Agreement. 3.4 Billing Statements. Based upon the information provided HCC by or with respect to Participant pursuant to Section 2.2, above, HCC will provide Participant a monthly billing statement detailing (i) HCC Travel Agent Commissions to be paid by Participant for the period covered by such billing statement; (ii) HCC Transaction Fees to be paid by Participant, based on Commissionable Reservations for the period covered by such billing statement; (iii) [*] (iv) [*] and (v) all other costs and fees owed by Participant pursuant to this Agreement. All fees and costs shall be paid in U.S. dollars. SECTION 4. TERM 4.1 Term of Agreement. The initial term of this Agreement shall begin on the effective date set forth at the beginning of this Agreement and, unless earlier terminated pursuant to the provisions of this Agreement, shall expire on the last day of the [*] after the date of this Agreement. However, this Agreement will be automatically renewed and extended for additional twelve (12) month periods unless, at least sixty (60) days prior to the expiration of the initial term of this Agreement or any additional twelve (12) month period, either party provides written notice to the other of its decision not to renew and extend. *Confidential Treatment Requested -4- 5 SECTION 5. TERMINATION 5.1 Termination Upon Default. Upon the occurrence of an Event of Default (as defined below) by either party and the failure of such party to cure such default after notice and opportunity to cure as provided by Section 6.3 below, the nondefaulting party may terminate this Agreement at any time. 5.2 Suspension of Status. Upon the occurrence of an Event of Default by Participant and the failure of Participant to cure such default after notice and opportunity to cure as provided by Section 6.3 below, then, if HCC does not terminate this Agreement under Section 5.1, until such time as such Event of Default is cured HCC shall have the right to suspend the status of Participant as a Participating Entity and to notify all HCC Travel Agents of such default and suspension through central reservation systems or otherwise. SECTION 6. DEFAULT 6.1 Events of Default. Subject to Section 6.2 below, any one of the following will be considered an Event of Default: (i) The failure of either party to pay any amount due hereunder within the time required; (ii) The failure of Participant or HCC to satisfy the obligations set forth in this Agreement; (iii) The refusal or failure of either party to perform diligently and in good faith each and every material provision of this Agreement; (iv) If either HCC or Participant (the "Defaulting Party") becomes insolvent, takes any step leading to its cessation as a going concern, or ceases business operations for reasons other than a strike and other than assignment as allowed by this Agreement, then the other party (the "Insecure Party") may immediately terminate this Agreement upon written notice to the other party unless the Defaulting Party immediately gives the Insecure Party adequate assurance of the future performance of this Agreement. If bankruptcy proceedings are commenced with respect to the Defaulting Party, and if this Agreement has not otherwise terminated, then the Insecure Party may suspend all further performance of this Agreement until the Defaulting Party assumes or rejects this Agreement pursuant to Section 365 of the Bankruptcy Code or any similar or successor provision. Any such suspension of further performance by the Insecure Party pending the Defaulting Party's assumption or rejection will not be a breach of this Agreement. Any such Event of Default shall not relieve the defaulting party from any of its obligations hereunder, and the non-defaulting party shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. 6.2 Force Majeure. It will not constitute an Event of Default if such event listed in Section 6.1 is caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if any such occurrence results in any of the events described in Section 6.1, and the same continues for more than thirty (30) consecutive days, either party may terminate this Agreement by providing notice as required herein. -5- 6 6.3 Cure Period. Upon the occurrence of an Event of Default, the non-defaulting party will give written notice to the defaulting party specifying the alleged default. In the case of a monetary default by either party, the defaulting party will only be allowed to cure such default within two (2) business days after receipt of such notice, by delivering that amount owed to HCC in good funds into the non-defaulting party's bank account. In all other instances, the defaulting party will be entitled to fifteen (15) days from receipt of notice within which to cure the default. SECTION 7. CONFIDENTIALITY 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by Participant and HCC that each may receive confidential and proprietary information that is the property of the other party. All such confidential and proprietary information will be marked or otherwise identified as such and will be treated as confidential and proprietary subject only to disclosure where required by law. Such designation may be removed by each party making the designation. Participant acknowledges that it will have no access to and will not use the HCC System or related property, other than as specifically provided for in this Agreement, and that such system and related property is confidential and proprietary property of HCC. Any use of HCC service marks or trade names by Participant is subject to prior written approval of HCC, provided, that Participant may describe the HCC System contemplated by this Agreement in its franchise offering circular and other materials as required by state or federal law. Unless otherwise provided herein, any use of Participant's service marks or trade names by HCC is subject to prior written approval of Participant. The provisions of this Section 7.1 will remain binding and in force and effect as long as such information remains confidential (other than by breach of this Agreement), notwithstanding the expiration or termination of this Agreement at any time. Except as is necessary in connection with the performance of this Agreement and HCC's business, information regarding the reservations and other transactions of Participant processed by HCC shall be treated as confidential whether or not so marked or otherwise identified as confidential. SECTION 8. INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. Participant agrees to indemnify and hold harmless HCC and HCC's affiliates, directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring as a result of or arising out of a material breach of this Agreement on account of Participant's (or its franchisees) fault, to the extent not caused by the fault of HCC ("HCC's Losses"). HCC agrees to indemnify and hold harmless Participant, and Participant's affiliates, directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("Participant's Losses") occurring as a result of or arising out of a material breach of this Agreement on account of HCC's fault to the extent not caused by the fault of Participant. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indemnified party will give prompt notice thereof to the indemnifying party and the indemnifying party will be entitled to participate therein or, to the extent that it wishes, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of -6- 7 any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. Whether or not the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable for any compromise or settlement of any such action or claim effected without its consent (which shall not be unreasonably withheld). SECTION 9. DISCLAIMER OF WARRANTIES 9.1 Waiver of Warranties. HCC WILL NOT BE RESPONSIBLE OR LIABLE FOR ANY FALSIFICATIONS OR INACCURACIES IN THE DATA PROVIDED BY PARTICIPANT OR THE INFORMATION PROCESSED BY OR THROUGH THE HCC SYSTEM NOR WILL IT HAVE ANY LIABILITY FOR ANY ACT OR FAILURE TO ACT WITH RESPECT TO THE DATA OR THE PAYMENT OF COMMISSIONS UNLESS EXPRESSLY SET FORTH HEREIN. EXCEPT WITH RESPECT TO HCC'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE, ARE DISCLAIMED BY HCC AND WAIVED BY PARTICIPANT. 9.2 No Consequential Damages. Except with respect to the indemnification provisions set forth in Section 8.1 hereof, neither party will be liable to the other for any consequential damages caused or resulting from any breach of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. SECTION 10. MISCELLANEOUS 10.1 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, will be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party will select one arbitrator within thirty (30) days of notice of the dispute, and the two (2) arbitrators selected shall select a third neutral arbitrator within thirty (30) days after the second arbitrator is chosen. All reasonable and necessary costs and fees (including attorney's fees) incurred in connection with the arbitration will be borne by the losing party or assessed in the award as otherwise deemed appropriate by the arbitrators. If the demand for arbitration is initiated by Participant, venue of the arbitration proceedings will be determined by HCC. If the demand for arbitration is initiated by HCC, venue of the arbitration proceedings will be determined by Participant. 10.2 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to reservations commissions clearinghouse services and that each party may contract with other parties providing same or similar services. -7- 8 10.3 Status of Parties. This Agreement will not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. HCC will not be deemed by this Agreement to be granting a license to Participant with respect to the HCC System or any software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. 10.4 Assignment. This Agreement is not assignable by HCC or Participant without the prior written consent of the non-assigning party, and such consent shall not be unreasonably withheld or delayed provided that Participant may assign this Agreement to a wholly-owned subsidiary or in connection with the sale of its reservation system or franchise system and either party may assign this Agreement without consent in the event of a merger, consolidation, or sale of substantially all of its assets. 10.5 Notices. All notices and other communications contemplated hereby must be in writing (except in the case of electronically transmitted data) and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, (d) sent by telecopy or facsimile with confirmation of receipt to the number indicated, or (e) transmitted directly to the recipient by electronic data transmission pursuant to arrangements made between the parties. Such notices and other communications (except in the case of electronically transmitted data) shall be addressed as follows: IF TO HCC: IF TO PARTICIPANT: 3811 Turtle Creek Blvd. Suite 1100 Dallas, TX 75219 Attention: John F. Davis, III If by telecopy/facsimile to: 528-5675 or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices will be deemed given and received when received. 10.6 Controlling Law. This Agreement will be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. Subject to the agreement to arbitrate and the jurisdiction and venue provisions set forth in Section 10.1 hereof, any action brought relating to or arising out of this Agreement must be brought in the state or federal courts situated in the county and state of the residence or principal place of business of the party against whom the action is brought (or any of them, if more than one). -8- 9 10.7 Entire Agreement. This Agreement and the Exhibits attached hereto constitute the entire agreement between HCC and Participant with respect to the provision of services under the HCC System and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement that are not contained in this Agreement. 10.8 Successors and Assigns. This Agreement will be binding upon and will inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 10.9 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement will be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. AGREED to as of the date first written above. THE HOTEL CLEARING CORPORATION ITT SHERATON CORPORATION By: [ILLEGIBLE] By: [ILLEGIBLE] ------------------------------ -------------------------- Its: V.P. SALES Its: SR. V.P. ----------------------------- ------------------------- -9- 10 EXHIBIT A Initial Information to be Provided by Participant to HCC The fields in each commission record are the following: <TABLE> <S> <C> <C> -Record identifier required validated -Chain record number required check for duplicates -Chain/Brand code required validated -Booking source required validated -Property ID required validated -PNR Number optional no checks -Confirmation number required validated presence -Cancellation number optional no checks -Corporate ID number optional no checks -Subscriber IATA number required validated HCC User -Group/Guest last name required validated presence -Group/Guest first name optional no checks -Status code required validated -Reason code optional if present, validate -Arrival date required validated, no future -Departure date required validated, no future -Number of nights required validated presence -Number of rooms required validated presence -Commissionable revenue required validated, no neg. -Gross Commission required validated, no neg. -Adjustment amount required validated presence -Net Commission due required validate computation -Currency code required validated -Comments optional no checks </TABLE> -10-
1 EXHIBIT 10.24 HCC PARTICIPANT AGREEMENT This Agreement (the "Agreement") is entered into by and between THE HOTEL CLEARING CORPORATION, a Delaware corporation ("HCC"), and LA QUINTA INNS, INC. ("Participant"), to be effective the 29 day of May 1997. Section 1. DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) Commissionable Reservations. Commissionable Reservations within a particular time period equals the number of reservations (both voice and electronic) processed through the HCC System within such time period that are identified as "commissionable" or "partially commissionable" on the transaction records provided by Participant to HCC and for which a travel agent commission is paid pursuant to this Agreement. (ii) HCC System. The HCC System is HCC's automated clearinghouse system to provide for the coordination of reservation information, transfer of hotel reservation commissions and ancillary services to Travel Agents and Participating Entities. (iii) Participating Entity. A Participating Entity is an operator of a hotel reservation system that has executed a HCC Participant Agreement. (iv) HCC Travel Agents. An HCC Travel Agent is a travel agency who has executed an HCC Subscriber Agreement. A list of current HCC Travel Agents will be periodically provided by HCC to Participant. (v) HCC Travel Agent Commissions. HCC Travel Agent Commissions are the commissions paid by Participant to HCC Travel Agents pursuant to this Agreement. HCC Travel Agent Commissions will be based on commission rates provided by Participant to HCC. Section 2. THE HCC SYSTEM 2.1 Duties of HCC. HCC will provide and operate the HCC System for the use and benefit of Participant, its franchisees and affiliates, and other Participating Entities. HCC will provide all reasonable and necessary technical support, hardware and software, except as otherwise provided herein, and modifications to the HCC System to provide clearinghouse services to Participant and its franchisees and affiliates as described below. Upon compliance with the terms of this Agreement by Participant, its franchisees and affiliates, and subject to Section 5 hereof, HCC will provide the following clearinghouse services to Participant and its franchisees and affiliates: (i) identify Participant to travel agents as being a HCC System Participating Entity; -1- 2 (ii) provide billing statements for HCC Travel Agent Commissions, Transaction Fees (as defined below) and other fees, costs and expenses to Participant no later than the fifteenth (15th) business day after the end of each month as provided in Section 3 below; (iii) distribute collected HCC Travel Agent Commissions received from Participant and its affiliates and franchisees to the appropriate HCC Travel Agents as set forth in the HCC Travel Agent Commission information provided by Participant; (iv) provide no later than the fifteenth (15th) business day of each month reports to Participant and HCC Travel Agents reflecting HCC Travel Agents' reservation transactions with Participant and HCC Travel Agent Commissions owed based upon the data provided to HCC by Participant and its affiliates and franchisees who are participating in the HCC System; and (v) provide telephone customer support services from 8:00 a.m. to 5:00 p.m., U.S. Central time, Monday through Friday, exclusive of legal holidays. The procedures of the HCC System are subject to changes for enhancements from time to time as determined by HCC, provided that no such changes will have a significant adverse impact on the clearinghouse services described above. 2.2 Duties of Participant. Participant shall diligently and in good faith do the following: (i) Cooperate reasonably with HCC personnel with respect to the implementation of the HCC System between HCC Travel Agents and Participant and its affiliates and franchisees; (ii) Provide HCC with all that is reasonably required by HCC to process all reservations (including all reservations made electronically or by voice, through the use of a central reservation "800" phone number, inclusive of no-shows, cancellations and non-commissionable transactions) made by HCC Travel Agents with Participant and, subject to 2.2(iv), its affiliates and franchisees no less often than on a semi-monthly basis such data being complete and accurate to the best of Participant's knowledge and ability and inclusive of all of the information to permit HCC to provide the clearinghouse services described in Section 2.1 hereof and, without limitation, being such information as set forth on Exhibit A hereof; and permit and authorize HCC to obtain and use such data concerning such reservations made with Participant and, subject to 2.2(iv), its affiliates and franchisees except such data designated as confidential pursuant to Section 7 hereof. The foregoing shall be subject to receipt by Participant from HCC of the instructions, specifications, directions, information, assistance, and cooperation reasonably required by Participant to provide the foregoing. (iii) Pay, pursuant to this Agreement, all Travel Agent Commissions reported to HCC for processing pursuant to this Agreement within two (2) business days of receipt of the billing statement described in Section 3.5 hereof; -2- 3 (iv) Use its reasonable efforts to cause each of its franchisees and affiliates to fully and timely participate in the HCC System pursuant to this Agreement; (vi) Permit HCC to use its name as an entity participating in the HCC System. 2.3 Modification or Enhancement of the HCC System or Participant System. HCC may in its sole discretion modify the operation or enhance the capability of the HCC System, and Participant agrees to cooperate reasonably with HCC to the extent reasonably necessary to effectuate modifications and enhancements of the HCC System. If Participant determines that such modification or enhancement is likely to require Participant to make significant modifications to its central reservation system (any such modifications to be at Participant's sole expense), HCC will provide at least ninety (90) days' prior notice to Participant of such modification or enhancement and Participant may, at its option, terminate this Agreement upon sixty (60) days notice to HCC. Section 3. FEES, COSTS, AND PAYMENTS 3.1 Fees for Processing HCC Travel Agent Commissions. (a) For the first [*] Commissionable Reservations processed each month, Participant shall pay HCC a transaction fee ("HCC Transaction Fee") each month of U.S. [*] for each such Commissionable Reservation processed. For any month wherein the total of Commissionable Reservations is greater than [*] but less than [*] shall be due from either party for each such Commissionable Reservation over [*] but less than [*]. (b) For each Commissionable Reservation in excess of [*] processed each month, [*] a transaction fee each month (the [*]) as follows: For any month wherein the total of Commissionable Reservations processed are in excess of [*] but less than [*] a Participant Transaction Fee of [*] for each Commissionable Reservation between [*] and [*]; For any month wherein the total of Commissionable Reservations processed are in excess of [*] but less than [*] a Participant Transaction Fee of [*] for each Commissionable Reservation between [*] and [*]; For any month wherein the total of Commissionable Reservations processed are in excess of [*] and less than [*], a Participant Transaction Fee of [*] for each Commissionable Reservation between [*] and [*]; and For any month wherein the total of Commissionable Reservations processed are in excess of [*] a Participant Transaction Fee of [*] for each Commissionable Reservation in excess of [*]. *Confidential Treatment Requested -3- 4 Provided however, notwithstanding the preceding provisions of this 3.1(b), the total Participant Transaction Fee paid per month shall not exceed an amount equal to [*] per Commissionable Reservation in the aggregate. 3.2 Commission Payments. HCC shall pay HCC Travel Agent Commissions in the travel agent's local currency or the currency requested by the travel agency. HCC shall be responsible for complying with laws and regulations relating to the treatment of unclaimed property (sometimes referred to as "escheatment" laws) resulting from checks issued to travel agents under this Agreement. The parties will jointly establish mutually acceptable procedures to be implemented by HCC in order to comply with such laws and regulations. The parties will meet to establish such procedures by no later than thirty (30) days after the effective date, and will cooperate and work diligently with one another in order to finalize same as promptly as practical. 3.3 Disputed Commissions. HCC will provide Participant and HCC Travel Agents with periodic reports indicated under Section 2.1(iv) that will indicate any exceptions to HCC Travel Agent Commissions, based on discrepancies between information given HCC by Participant compared to other information available to HCC. With respect to all exceptions as to which Participant provides supporting documentation, HCC will forward such documentation to the appropriate HCC Travel Agent(s), and the HCC Travel Agents involved may pursue such dispute directly with Participant('s) franchisees, but HCC will not have any liability to either Participant or any travel agent (HCC or non-HCC) with respect to the resolution of any disputed commission. No dispute concerning any travel agent commissions will in any way affect or reduce the obligations of Participant to (i) timely pay all other HCC Travel Agent Commissions reported to HCC for processing and (ii) timely pay to HCC all Transaction Fees and other fees, costs and additional expenses owed by Participant under this Agreement; nor shall any such dispute in any way affect or reduce the obligations of HCC to timely pay Participant all Participant Transaction Fees due under this Agreement. 3.4 Billing Statements. Based upon the information provided HCC by or with respect to Participant pursuant to Section 2.2, above, HCC will provide Participant a monthly billing statement detailing (i) HCC Travel Agent Commissions to be paid by Participant for the period covered by such billing statement; (ii) HCC Transaction Fees to be paid by Participant, based on Commissionable Reservations for the period covered by such billing statement; (iii) [*] based on [*] for the period covered by such billing statements, (iv) any [*] of the [*] which is due and (v) all other costs and fees owed by Participant pursuant to this Agreement. All fees and costs shall be paid in U.S. dollars. Section 4. TERM 4.1 Term of Agreement. The initial term of this Agreement shall begin on the effective date set forth at the beginning of this Agreement and, unless earlier terminated pursuant to the provisions of this Agreement, shall expire on the last day of the [*] after the date of this Agreement. However, this Agreement will be automatically renewed and extended for additional twelve (12) month periods unless, at least sixty (60) days prior to the expiration of the initial term of this Agreement or any additional twelve (12) month period, either party provides written notice to the other of its decision not to renew and extend. *Confidential Treatment Requested -4- 5 Section 5. TERMINATION 5.1 Termination Upon Default. Upon the occurrence of an Event of Default (as defined below) by either party and the failure of such party to cure such default after notice and opportunity to cure as provided by Section 6.3 below, the nondefaulting party may terminate this Agreement at any time. 5.2 Suspension of Status. Upon the occurrence of an Event of Default by Participant and the failure of Participant to cure such default after notice and opportunity to cure as provided by Section 6.3 below, then, if HCC does not terminate this Agreement under Section 5.1, until such time as such Event of Default is cured HCC shall have the right to suspend the status of Participant as a Participating Entity and to notify all HCC Travel Agents of such default and suspension through central reservation systems or otherwise. Section 6. DEFAULT 6.1 Events of Default. Subject to Section 6.2 below, any one of the following will be considered an Event of Default: (i) The failure of either party to pay any amount due hereunder within the time required; (ii) The failure of Participant or HCC to satisfy the obligations set forth in this Agreement; (iii) The refusal or failure of either party to perform diligently and in good faith each and every material provision of this Agreement; (iv) If either HCC or Participant (the "Defaulting Party") becomes insolvent, takes any step leading to its cessation as a going concern, or ceases business operations for reasons other than a strike and other than assignment as allowed by this Agreement, then the other party (the "Insecure Party") may immediately terminate this Agreement upon written notice to the other party unless the Defaulting Party immediately gives the Insecure Party adequate assurance of the future performance of this Agreement. If bankruptcy proceedings are commenced with respect to the Defaulting Party, and if this Agreement has not otherwise terminated, then the Insecure Party may suspend all further performance of this Agreement until the Defaulting Party assumes or rejects this Agreement pursuant to Section 365 of the Bankruptcy Code or any similar or successor provision. Any such suspension of further performance by the Insecure Party pending the Defaulting Party's assumption or rejection will not be a breach of this Agreement. Any such Event of Default shall not relieve the defaulting party from any of its obligations hereunder, and the non-defaulting party shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. 6.2 Force Majeure. It will not constitute an Event of Default if such event listed in Section 6.1 is caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if any such occurrence results in any of the events described in Section 6.1, and the same -5- 6 continues for more than thirty (30) consecutive days, either party may terminate this Agreement by providing notice as required herein. 6.3 Cure Period. Upon the occurrence of an Event of Default, the non-defaulting party will give written notice to the defaulting party specifying the alleged default. In the case of a monetary default by either party, the defaulting party will only be allowed to cure such default within two (2) business days after receipt of such notice, by delivering that amount owed to HCC in good funds into the non-defaulting party's bank account. In all other instances, the defaulting party will be entitled to fifteen (15) days from receipt of notice within which to cure the default. SECTION 7. CONFIDENTIALITY 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by Participant and HCC that each may receive confidential and proprietary information that is the property of the other party. All such confidential and proprietary information will be marked or otherwise identified as such and will be treated as confidential and proprietary subject only to disclosure where required by law. Such designation may be removed by each party making the designation. Participant acknowledges that it will have no access to and will not use the HCC System or related property, other than as specifically provided for in this Agreement, and that such system and related property is confidential and proprietary property of HCC. Any use of HCC service marks or trade names by Participant is subject to prior written approval of HCC, provided, that Participant may describe the HCC System contemplated by this Agreement in its franchise offering circular and other materials as required by state or federal law. Unless otherwise provided herein, any use of Participant's service marks or trade names by HCC is subject to prior written approval of Participant. The provisions of this Section 7.1 will remain binding and in force and effect as long as such information remains confidential (other than by breach of this Agreement), notwithstanding the expiration or termination of this Agreement at any time. Except as is necessary in connection with the performance of this Agreement and HCC's business, information regarding the reservations and other transactions of Participant processed by HCC shall be treated as confidential whether or not so marked or otherwise identified as confidential. SECTION 8. INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. Participant agrees to indemnify and hold harmless HCC and HCC's affiliates, directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring as a result of or arising out of a material breach of this Agreement on account of Participant's (or its franchisees) fault, to the extent not caused by the fault of HCC ("HCC's Losses"). HCC agrees to indemnify and hold harmless Participant, and Participant's affiliates, directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorneys fees) ("Participant's Losses") occurring as a result of or arising out of a material breach of this Agreement on account of HCC's fault to the extent not caused by the fault of Participant. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indemnified party will give prompt notice thereof to the indemnifying party and the indemnifying party will be entitled to participate therein or, to the extent that it wishes, assume the defense -6- 7 thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. Whether or not the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable for any compromise or settlement of any such action or claim effected without its consent (which shall not be unreasonably withheld). Section 9. DISCLAIMER OF WARRANTIES 9.1 Waiver of Warranties. HCC WILL NOT BE RESPONSIBLE OR LIABLE FOR ANY FALSIFICATIONS OR INACCURACIES IN THE DATA PROVIDED BY PARTICIPANT OR THE INFORMATION PROCESSED BY OR THROUGH THE HCC SYSTEM NOR WILL IT HAVE ANY LIABILITY FOR ANY ACT OR FAILURE TO ACT WITH RESPECT TO THE DATA OR THE PAYMENT OF COMMISSIONS UNLESS EXPRESSLY SET FORTH HEREIN. EXCEPT WITH RESPECT TO HCC'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE, ARE DISCLAIMED BY HCC AND WAIVED BY PARTICIPANT. 9.2 No Conseguential Damages. Except with respect to the indemnification provisions set forth in Section 8.1 hereof, neither party will be liable to the other for any consequential damages caused or resulting from any breach of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages.. Section 10. MISCELLANEOUS 10.1 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, will be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party will select one arbitrator within thirty (30) days of notice of the dispute, and the two (2) arbitrators selected shall select a third neutral arbitrator within thirty (30) days after the second arbitrator is chosen. All reasonable and necessary costs and fees (including attorney's fees) incurred in connection with the arbitration will be borne by the losing party or assessed in the award as otherwise deemed appropriate by the arbitrators. If the demand for arbitration is initiated by Participant, venue of the arbitration proceedings will be determined by HCC. If the demand for arbitration is initiated by HCC, venue of the arbitration proceedings will be determined by Participant. 10.2 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to reservations commissions clearinghouse services and that -7- 8 each party may contract with other parties providing same or similar services. 10.3 Status of Parties. This Agreement will not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. HCC will not be deemed by this Agreement to be granting a license to Participant with respect to the HCC System or any software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. 10.4 Assignment. This Agreement is not assignable by HCC or Participant without the prior written consent of the non-assigning party, and such consent shall not be unreasonably withheld or delayed provided that Participant may assign this Agreement to a wholly-owned subsidiary or in connection with the sale of its reservation system or franchise system and either party may assign this Agreement without consent in the event of a merger, consolidation, or sale of substantially all of its assets. 10.5 Notices. All notices and other communications contemplated hereby must be in writing (except in the case of electronically transmitted data) and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, (d) sent by telecopy or facsimile with confirmation of receipt to the number indicated, or (e) transmitted directly to the recipient by electronic data transmission pursuant to arrangements made between the parties. Such notices and other communications (except in the case of electronically transmitted data) shall be addressed as follows: IF TO HCC: IF TO PARTICIPANT: 3811 Turtle Creek Blvd. 8401 Datapoint Suite 1100 Suite 200 Dallas, TX 75219 San Antonio, TX 78229 Attention: John F. Davis, III Attn: Jackie Burke If by telecopy/facsimile to: 210/616-7649 528-5675 or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices will be deemed given and received when received. 10.6 Controlling Law. This Agreement will be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. Subject to the agreement to arbitrate and the jurisdiction and venue provisions set forth in Section 10.1 hereof, any action brought relating to or arising out of this Agreement must be brought in the state or federal courts situated in the county and state of the residence or principal place of business of the party against whom the action is brought (or any of them, if more than one). -8- 9 10.7 Entire Agreement. This Agreement and the Exhibits attached hereto constitute the entire agreement between HCC and Participant with respect to the provision of services under the HCC System and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement that are not contained in this Agreement. 10.8 Successors and Assigns. This Agreement will be binding upon and will inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 10.9 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement will be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. AGREED to as of the date first written above. THE HOTEL CLEARING CORPORATION LA QUINTA INNS, INC. By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE] --------------------------- --------------------------- Its: V.P. SALES Its: SR VP & CFO -------------------------- -------------------------- -9- 10 EXHIBIT A Initial Information to be Provided by Participant to HCC The fields in each commission record are the following: -Record identifier required validated -Chain record number required check for duplicates -Chain/Brand code required validated -Booking source required validated -Property ID required validated -PNR Number optional no checks -Confirmation number required validated presence -Cancellation number optional no checks -Corporate ID number optional no checks -Subscriber IATA number required validated HCC User -Group/Guest last name required validated presence -Group/Guest first name optional no checks -Status code required validated -Reason code optional if present, validate -Arrival date required validated, no future -Departure date required validated, no future -Number of nights required validated presence -Number of rooms required validated presence -Commissionable revenue required validated, no neg. -Gross Commission required validated, no neg. -Adjustment amount required validated presence -Net Commission due required validate computation -Currency code required validated -Comments optional no checks -10-
1 EXHIBIT 10.25 HCC PARTICIPANT AGREEMENT This Agreement (the "Agreement") is entered into by and between THE HOTEL CLEARING CORPORATION, a Delaware corporation ("HCC"), and HFS INCORPORATED, formerly known as Hospitality Franchise Systems, Inc. ("Participant"), to be effective the 27th day of December, 1995. SECTION 1. DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) Commissionable Reservations. Commissionable Reservations within a particular time period equals the number of reservations (both voice and electronic) processed through the HCC System within such time period that are identified as "commissionable" or "partially commissionable" on the transaction records provided by Participant to HCC and for which a travel agent commission is paid pursuant to this Agreement. (ii) HCC System. The HCC System is an automated clearinghouse system to provide for the coordination of reservation information, transfer of hotel reservation commissions and ancillary services to Travel Agents and Participating Entities. (iii) Participating Entity. A Participating Entity is an operator of a hotel reservation system that has executed a HCC Participant Agreement. (iv) HCC Travel Agents. An HCC Travel Agent is a travel agency who has executed an HCC Subscriber Agreement. A list of current HCC Travel Agents will be periodically provided by HCC to Participant. (v) HCC Travel Agent Commissions. HCC Travel Agent Commissions are the commissions paid by Participant to HCC Travel Agents pursuant to this Agreement. HCC Travel Agent Commissions will be based on commission rates provided by Participant to HCC. SECTION 2. THE HCC SYSTEM 2.1 Duties of HCC. HCC will provide and operate the HCC System for the use and benefit of Participant, its franchisees and affiliates, and other Participating Entities. HCC will provide all reasonable and necessary technical support, hardware and software, except as otherwise provided herein, and modifications to the HCC System to provide clearinghouse services to Participant and its franchisees and affiliates as described below. Upon compliance with the terms of this Agreement by Participant, its franchisees and -1- 2 affiliates, and subject to Section 5 hereof, HCC will provide the following clearinghouse services to Participant and its franchisees and affiliates: (i) identify Participant to travel agents as being a HCC System Participating Entity; (ii) provide billing statements for HCC Travel Agent Commissions, Transaction Fees (as defined below) and other fees, costs and expenses to Participant no later than the fifteenth (15th) business day after the end of each month as provided in Section 3 below; (iii) distribute collected HCC Travel Agent Commissions received from Participant and its affiliates and franchisees to the appropriate HCC Travel Agents as set forth in the HCC Travel Agent Commission information provided by Participant; (iv) provide no later than the fifteenth (15th) business day of each month reports to Participant and HCC Travel Agents reflecting HCC Travel Agents' reservation transactions with Participant and HCC Travel Agent Commissions owed based upon the data provided to HCC by Participant and its affiliates and franchisees who are participating in the HCC System; and (v) provide telephone customer support services from 8:00 a.m. to 5:00 p.m., U.S. Central time, Monday through Friday, exclusive of legal holidays. The procedures of the HCC System are subject to changes for enhancements from time to time as determined by HCC. 2.2 Duties of Participant. Participant shall diligently and in good faith do the following: (i) Cooperate fully with HCC personnel with respect to the implementation of the HCC System between HCC Travel Agents and Participant and its affiliates and franchisees; (ii) Provide HCC with all that is required by HCC to process all reservations (including all reservations made electronically or by voice, through the use of a central reservation "800" phone number, inclusive of no-shows, cancellations and non-commissionable transactions) made by HCC Travel Agents with Participant and its affiliates and franchisees no less often than on a semi-monthly basis such data being complete and accurate to the best of Participant's knowledge and ability and inclusive of all of the information to permit HCC to provide the clearinghouse services described in Section 2.1 hereof and, without limitation, being such information as set forth on Exhibit A hereof; and permit and authorize HCC to obtain and use such data concerning such reservations made with Participant and its affiliates and franchisees except such data designated as confidential pursuant to Section 7 hereof. Because efficient and reliable operation of the clearinghouse services offered by the HCC System is dependent on the use of data from -2- 3 transactions carried by UltraSwitch, Participant agrees to process all of its electronic reservation transactions through the UltraSwitch system so long as it is a party to this Agreement; (iii) Pay, pursuant to this Agreement, all Travel Agent Commissions reported to HCC for processing pursuant to this Agreement; (iv) Continually use its best efforts to cause each of its franchisees and affiliates to fully and timely participate in the HCC System pursuant to this Agreement; (vi) Permit HCC to use its name as an entity participating in the HCC System. 2.3 Modification or Enhancement of the HCC System or Participant System. HCC may in its sole discretion modify the operation or enhance the capability of the HCC System, and Participant agrees to cooperate with HCC in all modifications and enhancements of the HCC System. If Participant determines that such modification or enhancement is likely to require Participant to make significant modifications to its central reservation system (any such modifications to be at Participant's sole expense), HCC will provide at least ninety (90) days' prior notice to Participant of such modification or enhancement and Participant may, at its option, terminate this Agreement upon sixty (60) days notice to HCC. SECTION 3. FEES, COSTS, AND PAYMENTS 3.1 Fees for Processing HCC Travel Agent Commissions. Participant shall pay HCC monthly transaction fees for processing HCC Travel Agent Commissions ("HCC Travel Agent Transaction Fees") of U.S. [*] per HCC Travel Agent Commissionable Reservation. 3.2 Commission Payments. HCC shall pay HCC Travel Agent Commissions in the travel agent's local currency or the currency requested by the travel agency. 3.3 Disputed Commissions. HCC will provide Participant and HCC Travel Agents with periodic reports indicated under Section 2.1(iv) that will indicate any exceptions to HCC Travel Agent Commissions, based on discrepancies between information given HCC by Participant compared to other information available to HCC. With respect to all exceptions as to which Participant provides supporting documentation, HCC will forward such documentation to the appropriate HCC Travel Agent(s), and the HCC Travel Agents involved may pursue such dispute directly with Participant('s) franchisees, but HCC will not have any liability to either Participant or any travel agent (HCC or non-HCC) with respect to the resolution of any disputed commission. No dispute concerning any travel agent commissions will in any way affect or reduce the obligations of Participant to (i) timely pay all other HCC Travel Agent Commissions reported to HCC for processing and (ii) timely *Confidential Treatment Requested -3- 4 pay to HCC all Transaction Fees and other fees, costs and additional expenses owed by Participant under this Agreement. 3.4 Billing Statements. Based upon the information provided HCC by or with respect to Participant pursuant to Section 2.2, above, HCC will provide monthly billing statements detailing (i) HCC Travel Agent Commissions to be paid by Participant for the period covered by such billing statement; and (ii) [*] to be [*] for the period covered by such billing statement. All fees and costs shall be paid in U.S. dollars. SECTION 4. TERM 4.1 Term of Agreement. The initial term of this Agreement shall begin on the effective date set forth at the beginning of this Agreement and, unless earlier terminated pursuant to the provisions of this Agreement, shall expire on the last day of the [*] after the date of this Agreement. However, this Agreement will be automatically renewed and extended for additional twelve (12) month periods unless, at least thirty (30) days prior to the expiration of the initial term of this Agreement or any additional twelve (12) month period, either party provides written notice to the other of its decision not to renew and extend. SECTION 5. TERMINATION 5.1 Termination Upon Default. Upon the occurrence of an Event of Default (as defined below) by either party and the failure of such party to cure such default after notice and opportunity to cure as provided by Section 6.3 below, the nondefaulting party may terminate this Agreement at any time. 5.2 Suspension of Status. Upon the occurrence of an Event of Default by Participant and the failure of Participant to cure such default after notice and opportunity to cure as provided by Section 6.3 below, then, if HCC does not terminate this Agreement under Section 5.1, until such time as such Event of Default is cured HCC shall have the right to suspend the status of Participant as a Participating Entity and to notify all HCC Travel Agents of such default and suspension through central reservation systems or otherwise. SECTION 6. DEFAULT 6.1 Events of Default. Subject to Section 6.2 below, any one of the following will be considered an Event of Default: (i) The failure of either party to pay any amount due hereunder within the time required; (ii) The failure of Participant or HCC to satisfy the obligations set forth in this Agreement; *Confidential Treatment Requested -4- 5 (iii) The refusal or failure of either party to perform diligently and in good faith each and every material provision of this Agreement; (iv) If either HCC or Participant (the "Defaulting Party") becomes insolvent, takes any step leading to its cessation as a going concern, or ceases business operations for reasons other than a strike and other than assignment as allowed by this Agreement, then the other party (the "Insecure Party") may immediately terminate this Agreement upon written notice to the other party unless the Defaulting Party immediately gives the Insecure Party adequate assurance of the future performance of this Agreement. If bankruptcy proceedings are commenced with respect to the Defaulting Party, and if this Agreement has not otherwise terminated, then the Insecure Party may suspend all further performance of this Agreement until the Defaulting Party assumes or rejects this Agreement pursuant to Section 365 of the Bankruptcy Code or any similar or successor provision. Any such suspension of further performance by the Insecure Party pending the Defaulting Party's assumption or rejection will not be a breach of this Agreement. Any such Event of Default shall not relieve the defaulting party from any of its obligations hereunder, and the non-defaulting party shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. 6.2 Force Majeure. It will not constitute an Event of Default if such event listed in Section 6.1 is caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if any such occurrence results in any of the events described in Section 6.1, and the same continues for more than thirty (30) consecutive days, either party may terminate this Agreement by providing notice as required herein. 6.3 Cure Period. Upon the occurrence of an Event of Default, the non-defaulting party will give written notice to the defaulting party specifying the alleged default. In the case of a monetary default by Participant, Participant will only be allowed to cure such default within two (2) business days after receipt of such notice, by delivering that amount owed to HCC in good funds into HCC's bank account. In all other instances, the defaulting party will be entitled to fifteen (15) days from receipt of notice within which to cure the default. SECTION 7. CONFIDENTIALITY 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by Participant and HCC that each may receive confidential and proprietary information that is the property of the other party. All such confidential and proprietary information will be marked or otherwise identified as such and will be treated as confidential and proprietary subject only to disclosure where required by law. Such designation may be removed by each party making the designation. Participant acknowledges that it will have no access to and will not use the HCC System or related -5- 6 property, other than as specifically provided for in this Agreement, and that such system and related property is confidential and proprietary property of HCC. Any use of HCC service marks or trade names by Participant is subject to prior written approval of HCC, provided, that Participant may describe the HCC System contemplated by this Agreement in its franchise offering circular and other materials as required by state or federal law. Unless otherwise provided herein, any use of Participant's service marks or trade names by HCC is subject to prior written approval of Participant. The provisions of this Section 7.1 will remain binding and in force and effect as long as such information remains confidential (other than by breach of this Agreement), notwithstanding the expiration or termination of this Agreement at any time. SECTION 8. INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. Participant agrees to indemnify and hold harmless HCC and HCC's affiliates, directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring as a result of or arising out of a material breach of this Agreement on account of Participant's (or its affiliates or franchisees) fault, to the extent not caused by the fault of HCC ("HCC's Losses"). HCC agrees to indemnify and hold harmless Participant, and Participant's affiliates, directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("Participant's Losses") occurring as a result of or arising out of a material breach of this Agreement on account of HCC's fault to the extent not caused by the fault of Participant. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indemnified party will give prompt notice thereof to the indemnifying party and the indemnifying party will be entitled to participate therein or, to the extent that it wishes, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. Whether or not the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable for any compromise or settlement of any such action or claim effected without its consent (which shall not be unreasonably withheld). SECTION 9. DISCLAIMER OF WARRANTIES -6- 7 9.1 Waiver of Warranties. HCC WILL NOT BE RESPONSIBLE OR LIABLE FOR ANY FALSIFICATIONS OR INACCURACIES IN THE DATA PROVIDED BY PARTICIPANT OR THE INFORMATION PROCESSED BY OR THROUGH THE HCC SYSTEM NOR WILL IT HAVE ANY LIABILITY FOR ANY ACT OR FAILURE TO ACT WITH RESPECT TO THE DATA OR THE PAYMENT OF COMMISSIONS UNLESS EXPRESSLY SET FORTH HEREIN. EXCEPT WITH RESPECT TO HCC'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE, ARE DISCLAIMED BY HCC AND WAIVED BY PARTICIPANT. 9.2 No Consequential Damages. Except with respect to the indemnification provisions set forth in Section 8.1 hereof, neither party will be liable to the other for any consequential damages caused or resulting from any breach of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. SECTION 10. MISCELLANEOUS 10.1 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, will be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party will select one arbitrator within thirty (30) days of notice of the dispute, and the two (2) arbitrators selected shall select a third neutral arbitrator within thirty (30) days after the second arbitrator is chosen. All reasonable and necessary costs and fees (including attorney's fees) incurred in connection with the arbitration will be borne by the losing party or assessed in the award as otherwise deemed appropriate by the arbitrators. If the demand for arbitration is initiated by Participant, venue of the arbitration proceedings will be determined by HCC. If the demand for arbitration is initiated by HCC, venue of the arbitration proceedings will be determined by Participant. 10.2 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to reservations commissions clearinghouse services and that each party may contract with other parties providing same or similar services. 10.3 Status of Parties. This Agreement will not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. HCC will not be deemed by this Agreement to be granting a license to Participant with respect to the HCC System or any software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. -7- 8 10.4 Assignment. This Agreement is not assignable by HCC or Participant without the prior written consent of the non-assigning party, and such consent shall not be unreasonably withheld or delayed provided that Participant may assign this Agreement in connection with the sale of its reservation system or franchise system and either party may assign this Agreement without consent in the event of a merger, consolidation, or sale of substantially all of its assets. 10.5 Notices. All notices and other communications contemplated hereby must be in writing (except in the case of electronically transmitted data) and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, (d) sent by telecopy or facsimile with confirmation of receipt to the number indicated, or (e) transmitted directly to the recipient by electronic data transmission pursuant to arrangements made between the parties. Such notices and other communications (except in the case of electronically transmitted data) shall be addressed as follows: IF TO HCC: IF TO PARTICIPANT: 3811 Turtle Creek Blvd. HFS Incorporated Suite 1100 3838 E. Van Buren Dallas, TX 75219 Phoenix, AZ 85008 Attention: John F. Davis, III Attention: Doug Patterson If by telecopy/facsimile to: If by telecopy/facsimile to: (214) 528-5675 (602) 389-3909 or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices will be deemed given and received when received. 10.6 Controlling Law. This Agreement will be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. Subject to the agreement to arbitrate and the jurisdiction and venue provisions set forth in Section 10.1 hereof, any action brought relating to or arising out of this Agreement must be brought in the state or federal courts situated in the county and state of the residence or principal place of business of the party against whom the action is brought (or any of them, if more than one). 10.7 Entire Agreement. This Agreement and the Exhibits attached hereto constitute the entire agreement between HCC and Participant with respect to the provision of services under the HCC System and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement that are not contained in this Agreement. -8- 9 10.8 Successors and Assigns. This Agreement will be binding upon and will inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 10.9 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement will be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. AGREED to as of the date first written above. THE HOTEL CLEARING CORPORATION HFS INCORPORATED By: By: ---------------------------- -------------------------- John F. Davis, III, President Its: ------------------------- May 1, 1997 -9- 10 EXHIBIT A Initial Information to be Provided by Participant to HCC The fields in each commission record are the following: -Record identifier required validated -Chain record number required check for duplicates -Chain/Brand code required validated -Booking source required validated -Property ID required validated -PNR Number optional no checks -Confirmation number required validated presence -Cancellation number optional no checks -Corporate ID number optional no checks -Subscriber IATA number required validated HCC User -Group/Guest last name required validated presence -Group/Guest first name optional no checks -Status code required validated -Reason code optional if present, validate -Arrival date required validated, no future -Departure date required validated, no future -Number of nights required validated presence -Number of rooms required validated presence -Commissionable revenue required validated, no neg. -Gross Commission required validated, no neg. -Adjustment amount required validated presence -Net Commission due required validate computation -Currency code required validated -Comments optional no checks
1 EXHIBIT 10.26 FIRST AMENDMENT TO HCC PARTICIPANT AGREEMENT This First Amendment to HCC Participant Agreement is entered into by and between the HOTEL CLEARING CORPORATION, hereinafter called "HCC", and WESTIN HOTELS & RESORTS, hereinafter called "Participant", to be effective the 12th day of September, 1993 (the "First Amendment"). AGREED FACTS 1. HCC and Participant have heretofore entered into an HCC Participant Agreement dated effective ____________________ (hereinafter called the "Participant Agreement"). 2. HCC and Participant have mutually agreed to amend the term of the Participant Agreement and the provisions of the Participant Agreement relating to the amount and payment of Participant Commissions (as defined in the Participant Agreement). 3. HCC and Participant intend for this First Amendment to set forth in its entirety their agreement to amend the term of the Participant Agreement and the provisions relating to the amount and payment of Participant Commissions. AGREEMENT FOR AND IN CONSIDERATION of the above stated facts, which are hereby acknowledged as true and correct, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, HCC and Participant hereby agree as follows: 1. Section 3.4 of the Participant Agreement is hereby deleted in its entirety and is replaced with the following: "3.4 [*]. In consideration of the benefits that [*] will obtain from [*] processed by [*] through the HCC System, [*] agrees to [*] certain [*] as hereinafter provided. Such [*] will be [*] at such times and in such total amounts as the [*] may determine to be appropriate provided that [*] shall be [*] the [*] (as hereinafter defined). The [*] payable to [*] shall be determined by dividing the total number of [*] for all stockholder [*] for the applicable time period (as determined by [*]) into the total amount of funds available [*] (as determined by [*] and after making allowance for [*], as hereinafter defined) and *Confidential Treatment Requested -1- 2 [*] by the number of [*] transactions [*] by [*] for the applicable period. [*] are those amounts due to [*] pursuant to agreements which require payments [*] the [*] to [*] as [*] including, but not limited to, amounts due to [*] and key [*] of [*]." 2. Section 4.1 of the Participant Agreement is hereby deleted in its entirety and is replaced with the following: "4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall expire [*]. This Agreement will be automatically renewed and extended for additional twelve (12) month periods unless, at least thirty (30) days prior to the expiration of the initial term or any additional twelve (12) month period, either party provides written notice to the other of its decision not to renew and extend." 3. Exhibit D to the Participant Agreement is deleted. 4. This First Amendment shall be and hereby is incorporated into the Participant Agreement for all intents and purposes and all terms, provisions and definitions of the Participant Agreement shall apply. 5. Except for the provisions inconsistent with the terms of this First Amendment, the Participant Agreement is hereby ratified and affirmed in all respects. This First Amendment is effective as of the date stated above and executed on the dates indicated below. HOTEL CLEARING CORPORATION By: ----------------------------- John F. Davis, III President Date: --------------------------- WESTIN HOTELS & RESORTS By: ----------------------------- Its: ----------------------------- Date: ---------------------------- *Confidential Treatment Requested -2- 3 HCC PARTICIPANT AGREEMENT This Agreement (the "Agreement") is entered into by and between THE HOTEL CLEARING CORPORATION, a Delaware corporation ("HCC"), and WESTIN HOTELS COMPANY, a Delaware corporation ("Participant"), to be effective the 18th day of December, 1991. SECTION 1. DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) Commissionable Reservations. Commissionable Reservations within a particular time period equals the number of reservations (both voice and electronic) processed through the HCC System within such time period that are identified as "commissionable" or "partially commissionable" on the transaction records provided by Participant to HCC. (ii) HCC System. The HCC System is an automated clearinghouse system to provide for the coordination of reservation information, transfer of hotel reservation commissions and ancillary services to Subscribers and Participating Properties. (iii) [*]. [*] are the [*] paid by [*] for [*] processed [*]. (iv) Participating Entity. A Participating Entity is an operator of a hotel reservation system that has executed a HCC Participant Agreement. (v) Subscriber. A Subscriber is any person or entity who has executed an HCC Subscriber Agreement and makes reservations with a Participating Entity. A list of current Subscribers will be provided by HCC to Participant by the twenty-fifth (25th) of each month. (vi) Subscriber Commissions. Subscriber Commissions are the commissions paid by Participant to Subscribers for reservations made with Participant. Subscriber Commissions will be based on commission rates provided to HCC by the Participant. (vii) UltraSwitch. UltraSwitch is a service of The Hotel Industry Switch Company ("THISCO"), which has certain common ownership with HCC, to provide an interface between Subscribers and hotel reservation systems with the capability to provide immediate room confirmation numbers for each hotel property participating in UltraSwitch. SECTION 2. THE HCC SYSTEM 2.1 Duties of HCC. HCC will provide and operate the HCC System for the use and benefit of Participant and other Participating Entities. HCC will provide all reasonable and necessary technical support, hardware and software, and modifications to the HCC System to provide clearinghouse services to Participant as described below. Upon compliance with the terms of this Agreement by Participant, HCC will provide the following clearinghouse services to Participant: *Confidential Treatment Requested -1- 4 (i) identify Participant (and designated affiliates and franchisees of Participant) to Subscribers as being a HCC System Participant through the use of UltraSwitch or other central reservation system services (and, at the discretion of HCC, by distribution of other promotional materials), subject to the provisions of Section 5.2; (ii) provide billing statements for Subscriber Commissions, Transaction Fees (as defined below) and other fees, costs and expenses to Participant on a regular (normally monthly) basis as provided in Section 3 below; (iii) debit Participant's designated bank account for such Subscriber Commissions, transaction fees and other fees, costs and expense, no sooner than forty-eight (48) hours after providing billing statements for such Subscriber Commissions, Transaction Fees and other fees, costs and expenses as provided in Section 3 below; (iv) distribute collected Subscriber Commissions to the appropriate Subscribers based upon HCC Subscriber Agreements with such Subscribers; (v) provide periodic (normally monthly) reports to Participant and Subscribers reflecting exceptions to Subscriber Commissions based upon the data available to HCC through UltraSwitch; and (vi) provide telephone customer support services from 8:00 a.m. to 8:00 p.m., Eastern time, Monday through Friday, exclusive of legal holidays. A description of the currently anticipated procedures to be followed in the payment process is given on Exhibit "F" attached, although the timing and exact details of such procedures as implemented by HCC in operation of the HCC system may be different due to computer-related and other operational constraints. Such procedures are subject to change from time to time as circumstances require or as otherwise determined by HCC. 2.2 Duties of Participant. Participant will cooperate fully with HCC personnel with respect to the implementation of the HCC System between the Subscribers and Participant. Participant specifically authorizes HCC to obtain information concerning reservations made with Participant from the UltraSwitch system and to use such information (i) as provided in the procedures described in Exhibit "F" and (ii) as otherwise approved in writing by the Board of Directors of HCC. Participant agrees to provide HCC all appropriate reservation information (including all reservations made electronically or by voice, whether directly to the property or through the use of a central reservation "800" phone number) no loss often than on a weekly basis. All information provided by Participant with respect to reservations, Subscribers and Subscriber Commissions must be complete and accurate to the best of Participant's ability, and must be inclusive of all the information necessary to permit HCC to provide the clearinghouse services described in Section 2.1. The initial information that Participant must provide to HCC is indicated on Exhibit "A". Because efficient and reliable operation of the clearinghouse services offered by the HCC System is dependent on the use of data from transactions carried by UltraSwitch, Participant agrees to run all of its electronic reservation transactions through the UltraSwitch system so long as it is a party to this Agreement. -2- 5 2.3 Schedule of Implementation of HCC System. HCC will proceed with the implementation of the HCC System, with a proposed HCC System activation date of April 1, 1992, but not later than September 30, 1992. For the purposes of this Agreement, the actual activation date (the "Activation Date") will be the date that HCC notifies Subscriber that the HCC Board of Directors has determined that the HCC System is operational and capable of processing sufficient aggregate transaction volume of the Participating Entities. HCC will provide Participants with at least thirty (30) days' prior notice of activation of the HCC System. HCC will provide Participant with appropriate specifications to assist Participant in preparing for utilization of the HCC System at least one hundred twenty (120) days prior to the Activation Date. 2.4 Modification or Enhancement of the HCC System or Participant System. HCC may in its sole discretion modify the operation or enhance the capability of the HCC System, and Participant agrees to cooperate with HCC in all modifications and enhancements of the HCC System. All significant modifications or enhancements will require the approval of the Board of Directors of HCC. If HCC determines that such modification or enhancement is likely to require Participant to make significant modifications to its central reservation system (any such modifications to be at Participant's sole expense), HCC will provide at least ninety (90) days' prior notice to Participant of such modification or enhancement. If Participant modifies its central reservation system after the Activation Date and such modification requires HCC to modify the HCC System, or to provide additional services to utilize information supplied by Participant as required by Section 2.2, Participant will pay HCC such additional amount agreed to by the parties based on HCC's standard consulting rate and all expenses incurred. SECTION 3. FEES, COSTS, AND PAYMENTS 3.1 Fees. In order to permit HCC to obtain financing to permit the development of the HCC System, Participant agrees to pay the monthly contingency fee (the "Contingency Fee") of [*] multiplied by the Monthly Base Transactions indicated on Exhibit "B". The Contingency Fee will be payable on the first day of each month for a six (6) month period beginning on the later of April 1, 1992, or the Activation Date. Provided that the Activation Date has occurred, Participant's obligation to pay the Contingency Fee is absolute and shall continue until Participant is capable of and ready to deliver to the HCC System reservation commission data from at least seventy-five percent (75%) of its properties in the United States (calculated based on total number of rooms rather than number of individual hotels) in a regular and timely manner as contemplated by this Agreement ("Participant Readiness") and continues and delivers to HCC the volume of reservation commissions required for Participant Readiness after the Activation Date. At such time, Participant will begin paying transaction fees ("Transaction Fees") of [*] per Commissionable Reservation, and upon payment of such Transaction Fees, will be relieved of its obligations to pay any further Contingency Fees under this section. For the remainder, if any, of the six (6) month period referred to above, the Transaction Fees payable by Participant will be subject to a minimum monthly Transaction Fee of [*] multiplied by the Monthly Base Transactions indicated on Exhibit "B". If Participant Readiness (or the Activation Date, if later) occurs other than at the beginning of a month, Participant will receive a credit against the fees otherwise payable by Participant under this Agreement, in the amount of a pro *Confidential Treatment Requested -3- 6 rata portion of the Contingency Fee paid to HCC for that month, based upon the number of days in the month following Participation Readiness (or the Activation Date, if later). HCC may, at its sole discretion, change the Transaction Fees charged to Participant as provided above, upon ninety (90) days notice to Participant. The Board of Directors of HCC will have the right to verify Participant Readiness (whether through HCC personnel or independent third parties) and will have the right to modify or adjust the requirements for Participant Readiness, as long as it makes such determination in a uniform manner among other Participating Entities. Participant has been informed that HCC is reliant upon, and the obtaining by HCC of certain critical financing is dependent upon, Participant's agreement to and performance of Participant's obligations under this section. Participant acknowledges that the failure of Participant to meet its payment obligations under this section would substantially and materially damage the business of HCC and waives any and all defenses that it may have to the performance of such obligations. Participant hereby irrevocably consents to having the provisions of this Section 3.1 immediately and fully enforced in a court of law or equity and waives any and all defenses thereto. Participant hereby authorizes HCC to debit all such fees from Participant's designated bank account as provided in Exhibit "B". Participant is responsible for collection and payment to HCC of all such fees that are attributable to Participant and all of Participant's affiliates and franchises that utilize the HCC System under this Agreement. 3.2 Subscriber Commissions. Participant agrees to make available for debit by HCC all Subscriber Commissions shown on billing statements as provided in Section 3.5. Participant hereby authorizes HCC to debit such Subscriber Commissions from Participant's designated bank account as provided in Exhibit"C". Participant is responsible for collection and payment to HCC of all such Subscriber Commissions that are attributable to Participant and all of Participant's affiliates and franchisees that utilize the HCC System under this Agreement. Payments to Subscribers will be made in appropriate local currency. 3.3 Other Fees, Costs and Expenses. Participant also agrees to pay HCC at its standard consulting rate plus all expenses incurred for set up, handling, conversion and other services required for processing of information transmitted to HCC to satisfy the requirements of Section 2.2, above, unless a different fee arrangement with respect to such services is indicated on Exhibit "B". All of such fees must be approved by the Board of Directors of HCC. Participant hereby authorizes HCC to debit such fees from Participant's designated bank account as provided in Exhibit "B". HCC will give Participant prior notice of debits made under the terms of this Section 3.3. Participant is responsible for collection and payment to HCC of all such fees, costs and other expenses that are attributable to Participant and all of Participant's affiliates and franchisees that utilize the HCC System under this Agreement. 3.4 [deleted by amendment] -4- 7 deferral; provided, however, that HCC may not defer payment of all Participant Commissions for more than two (2) consecutive calendar quarters. HCC will have the right to set off against any Participant Commissions the amount of any fees, costs, expenses and/or other amounts owing from Participant to HCC. 3.5 Billing Statements. Based upon the information provided HCC by or with respect to Participant pursuant to Section 2.2, above, HCC will provide periodic (normally monthly) billing statements detailing (i) Subscriber Commissions to be paid by Participant for the period covered by such billing statement; (ii) Transaction Fees to be paid by Participant, based on Commissionable Reservations for the period covered by such billing statement; (iii) other fees, costs and additional expenses to be paid by Participant for the period covered by such billing statement; and (iv) [*] to be paid to [*] for the most recent quarterly period preceding such billing statement, which [*] will be [*] included in billing statements only on a quarterly basis. Items (i) through (iv) may be included on separate billing statements. 3.6 Disputed Commissions. HCC will provide Participant and Subscribers with periodic reports indicated under Section 2.1(v) that will indicate any exceptions to Subscriber Commissions, based on discrepancies between information given HCC by Participant compared to other information available to HCC through UltraSwitch. With respect to all exceptions as to which Participant provides supporting documentation, HCC will forward such documentation to the appropriate Subscriber(s), and the Subscribers involved may pursue such dispute directly with Participant, but HCC will not have any liability to either Participant or such Subscriber with respect to the resolution of any disputed commission. No dispute concerning any Subscriber Commissions will in any way affect or reduce the obligations of Participant to (i) timely pay all other Subscriber Commissions and (ii) timely pay to HCC all Transaction Fees and other fees, costs and additional expenses owed by Participant under this Agreement. 3.7 Additional Authorizations. Participant agrees to execute and deliver to Participant's bank(s) debit authorization(s) in the form of Exhibit "E" attached hereto, and to execute and deliver to such bank(s) or other appropriate persons any and all documents, give to such bank(s) or other persons any and all directions, and to take all other actions that are necessary or appropriate to permit HCC to debit amounts to be paid hereunder by Participant directly from Participant's designated bank account(s). SECTION 4. TERM 4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall expire [*] after the date of this Agreement. This Agreement will be automatically renewed and extended for additional twelve (12) month periods unless, at least thirty (30) days prior to the expiration of any additional twelve (12) month period, either party provides written notice to the other of its decision not to renew and extend. SECTION 5. TERMINATION 5.1 Termination Upon Default. Upon the occurrence of an Event of Default (as defined below) by either party and the failure of such party to cure such default after notice and opportunity to cure as provided by Section 6.3 below, the nondefaulting party may terminate this Agreement at any time. *Confidential Treatment Requested -5- 8 5.2 Suspension of Status. Upon the occurrence of an Event of Default by Participant and the failure of Participant to cure such default after notice and opportunity to cure as provided by Section 6.3 below, then, if HCC does not terminate this Agreement under Section 5.1, until such time as such Event of Default is cured HCC shall have the right to suspend the status of Participant as a Participating Entity and to notify and all Subscribers of such default and suspension, whether through the UltraSwitch system, central reservation systems, or otherwise. Upon notification by Participant to HCC of any default in payment by any affiliate or franchisee of Participant of payments due under this Agreement and until notification by Participant of the cure of such default, HCC shall have the right to suspend the status of such affiliate or franchise as a Participating Entity and to notify all subscribers of such default and suspension. SECTION 6. DEFAULT 6.1 Events of Default. Subject to Section 6.2 below, any one of the following will be considered an Event of Default: (i) The failure of either party to pay any amount due hereunder within the time required; (ii) The refusal or failure of either party to perform diligently and in good faith each and every material provision of this Agreement; (iii) The commencement by either party of a voluntary case under Chapter 11 or 7 of the United States Bankruptcy Code, as from time to time in effect, the commencement against either party of an involuntary case under said Chapter 11 or 7, either party seeking relief as a debtor under any applicable law, other than said Chapter 11 or 7, or any jurisdiction relating to the liquidation or reorganization of debtors or the modification of the rights of creditors, the entry of a court order adjudging the party bankrupt or insolvent, ordering its liquidation or reorganization or assuming custody or appointing a receiver or other custodian of its property, or its making an assignment for the benefit of, or entering into a composition with, its creditors; (iv) The deferral [*] of payment of all [*] as provided in Section 3.4, for more than two (2) consecutive calendar quarters; or (v) The failure by HCC to have obtained HCC Subscriber Agreements with respect to at least twelve thousand (12,000) travel agent/reservation provider locations within thirty-six (36) months following the Activation Date. Any such Event of Default shall not relieve the defaulting party from any of its obligations hereunder, and the non-defaulting party shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. 6.2 Force Majeure. It will not constitute an Event of Default if such event listed in Section 6.1 is caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other *Confidential Treatment Requested -6- 9 events beyond the control of the defaulting party. However, if any such occurrence results in any of the events described in Section 6.1, and the same continues for more than thirty (30) consecutive days, either party may terminate this Agreement by providing notice as required herein. 6.3 Cure Period. Upon the occurrence of an Event of Default, the non-defaulting party will give written notice to the defaulting party specifying the alleged default. The defaulting party will then be entitled to thirty (30) days from receipt of such notice within which to cure such default; provided, that in the case of a monetary default by Participant, Participant will only be allowed to cure such default within two (2) business days after receipt of such notice, by delivering that amount owed to HCC in good funds into HCC's bank account. SECTION 7. CONFIDENTIALITY 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by Participant and HCC that each will receive confidential and proprietary information that is the property of the other party. All such confidential and proprietary information will be marked or otherwise identified as such and will be treated as confidential and proprietary subject only to disclosure where required by law. Such designation may be removed by each party making the designation. Participant acknowledges that it will have no access to and will not use UltraSwitch software or related property by reason of this Agreement, and that use of such UltraSwitch services by Participant would be permitted only under a separate agreement with THISCO. Participant acknowledges that it will have no access to and will not use the HCC System or related property, other than as specifically provided for in this Agreement, and that such system and related property is confidential and proprietary property of HCC. HCC acknowledges that the specific information concerning Participant's reservations, whether processed through the UltraSwitch system or otherwise provided by Participant to HCC outside of the UltraSwitch system, is the property of Participant, although Participant acknowledges HCC may use such information (i) as provided in the procedures described in Exhibit "F" and (ii) as otherwise approved in writing by the Board of Directors of HCC, as long as HCC removes any information that indicates the customer is a customer of Participant. Except as required in the performance of this Agreement, HCC shall not use or disseminate any information which, directly or indirectly, identifies Participant by name, address, code, or other means of identification or Participant's room configuration, occupancy rate or Participants contracts regarding rate of commission. The aggregate data from the HCC System will become the property of HCC. Any use of HCC service Marks or trade names by Participant is subject to prior written approval of HCC, provided, that Participant may describe the HCC System contemplated by this Agreement in its franchise offering circular and other materials as required by state or federal law. The provisions of this Section 7.1 will remain binding and in force and effect as long as such information remains confidential (other than by breach of this Agreement), notwithstanding the expiration or termination of this Agreement at any time. SECTION 8. INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. Subject to Section 9.2, Participant agrees to indemnify and hold harmless HCC and HCC's affiliates, directors, officers, employees and stockholders (other than Participant), from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring as a result of or arising out of a material -7- 10 breach of this Agreement on account of Participant's fault, to the extent not caused by the fault of HCC ("HCC's Losses"). Subject to Section 9.2, HCC agrees to indemnify and hold harmless Participant, and Participant's affiliates, directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("Participant's Losses") occurring as a result of or arising out of a material breach of this Agreement on account of HCC's fault to the extent not caused by the fault of Participant. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indemnified party will give prompt notice thereof to the indemnifying party and the indemnifying party will be entitled to participate therein or, to the extent that it wishes, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. Whether or not the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable for any compromise or settlement of any such action or claim effected without its consent (which shall not be unreasonably withheld). SECTION 9. DISCLAIMER OF WARRANTIES 9.1 Waiver of Warranties. HCC WILL NOT BE RESPONSIBLE OR LIABLE FOR ANY INACCURACIES IN THE DATA OR THE INFORMATION PROCESSED BY OR THROUGH THE HCC SYSTEM NOR WILL IT HAVE ANY LIABILITY FOR ANY ACT OR FAILURE TO ACT UNLESS EXPRESSLY SET FORTH HEREIN, EXCEPT TO THE EXTENT RESULTING FROM HCC'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE, ARE DISCLAIMED BY HCC AND WAIVED BY PARTICIPANT. 9.2 No Consequential Damages. Neither party will be liable to the other for any consequential damages caused or resulting from any breach of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. SECTION 10. MISCELLANEOUS 10.1 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, will be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party will select one arbitrator with thirty (30) days of notice of the dispute, and the two (2) arbitrators selected shall select a third neutral arbitrator within thirty (30) days after the second arbitrator is chosen. All reasonable and necessary costs and fees (including attorney's fees) incurred in connection with the arbitration will be borne by the losing party or assessed in the award as otherwise deemed appropriate by the arbitrators. If the -8- 11 demand for arbitration is initiated by Participant, venue of the arbitration proceedings will be determined by HCC. If the demand for arbitration is initiated by HCC, venue of the arbitration proceedings will be determined by Participant. 10.2 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to reservations commissions clearinghouse services and that each party may contract with other parties providing same or similar services. 10.3 Status of Parties. This Agreement will not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. HCC will not be deemed by this Agreement to be granting a license to Participant, with respect to UltraSwitch, the HCC System or any software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. 10.4 Assignment. This Agreement is not assignable by HCC or Participant without the prior written consent of the nonassigning party, and such consent shall not be unreasonably withheld or delayed. 10.5 Notices. All notices and other communications contemplated hereby must be in writing (except in the case of electronically transmitted data) and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, (d) sent by telecopy with confirmation of receipt of telecopy to the number indicated, or (e) transmitted directly to the recipient by electronic data transmission pursuant to arrangements made between the parties. Such notices and other commissions (except in the case of electronically transmitted data) shall be addressed as follows: IF TO HCC: IF TO PARTICIPANT: 3811 Turtle Creek Blvd. 2001 - 6th Avenue Dallas, TX 75219 Seattle, WA 98121 Attention: John F. Davis, III (if by telecopy to: (214) 528-5675) or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices will be deemed given and received (i) at the time of personal delivery, (ii) if sent by U.S. Mail, three (3) business days after mailing, (iii) if sent by overnight courier, one (1) business day after such sending, (iv) if sent by telecopy, upon receiving of confirmation of receipt of the telecopy at the number indicated, or (v) in the case of electronically transmitted data, when received. 10.6 Controlling Law. This Agreement will be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. Subject to the agreement to arbitrate and the jurisdiction and venue provisions set forth in section 10.1 hereof, any action brought relating to or arising out of this Agreement must be brought in the state or federal courts situated in the -9- 12 county and state of the residence or principal place of business of the party against whom the action is brought (or any of them, if more than one). 10.7 Entire Agreement. This Agreement and the Exhibits attached hereto constitute the entire agreement between HCC and Participant with respect to the provision of services under the HCC System, and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement that are not contained in this Agreement. 10.8 Successors and Assigns. This Agreement will be binding upon and will inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 10.9 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement will be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. AGREED to as of the date first written above. THE HOTEL CLEARING CORPORATION WESTIN HOTELS COMPANY By: _______________________ By:__________________________ John F. Davis, III, Title:_______________________ President -10- 13 EXHIBIT "A" Initial Information to be Provided by Participant to HCC The fields in each commission record are the following: <TABLE> <S> <C> <C> -Record identifier required validated -Chain record number required check for duplicates -Chain/Brand code required validated -Booking source required validated -Property ID required validated -PNR Number optional no checks -Confirmation number required validated presence -Cancellation number optional no checks -Corporate ID number optional no checks -Subscriber IATA number required validated HCC User -Group/Guest last name required validated presence -Group/Guest first name optional no checks -Status code required validated -Reason code optional if present, validate -Arrival date required validated, no future -Departure date required validated, no future -Number of nights required validated presence -Number of rooms required validated presence -Commissionable revenue required validated, no neg. -Gross Commission required validated, no neg. -Adjustment amount required validated presence -Net Commission due required validate computation -Currency code required validated -Comments optional no checks </TABLE> -11- 14 EXHIBIT "B" Participant Fees 1. Contingency Fees and minimum Transaction Fees as provided in Section 3.1 of the Agreement will be based upon [*] Annual Base Transactions, or Monthly Base Transactions of [*] (Annual Base Transactions divided by 12). 2. Transaction Fees and other fees, costs and expenses payable under the Agreement are to be debited directly from Participant's bank account, described as follows: Bank Name: _________________________________________________ Account Number:_____________________________________________ Other Appropriate Information:______________________________ ____________________________________________________________ 3. Transaction Fees and other fees, costs and expenses payable under the Agreement that are listed in the billing statements provided to Participant by HCC as provided in Section 3.5 of the Agreement will automatically be debited from the account designated above, not less than forty-eight (48) hours following receipt of such billing statements. The Contingency Fee will automatically be debited from the account designated above on the first business day of each month during which the Contingency Fee is payable. *Confidential Treatment Requested -12- 15 EXHIBIT "C" Subscriber Commissions 1. Subscriber Commissions are specified in the record field "Net Commission Due" as described on Exhibit "A". 2. Subscriber Commissions are to be debited directly from Participant's bank account, described as follows: [Bank Name] [Account Number] [Other Appropriate Information] 3. Subscriber Commissions listed in the billing statements provided to Participant by HCC as provided in Section 3.5 of the Agreement will automatically be debited from the account designated above, not less than forty-eight (48) hours following receipt of such billing statements. -13- 16 EXHIBIT "D" [deleted by amendment] -14- 17 EXHIBIT "E" DEBIT AUTHORIZATION TO: [Bank] RE: [Account Number and identification] DATE: The undersigned hereby authorizes The Hotel Clearing Corporation to debit the undersigned's account identified above, and to transfer sums from such account by wire transfer, debit memo, draft or check, all without further instruction or verification of such transfer instructions from the undersigned. This authorization will remain in full force and effect until written notification of cancellation is given by the undersigned to the bank or other financial institution identified above. __________________________________ By:_______________________________ Title:____________________________ -15- 18 EXHIBIT "F" PROPOSED PROCEDURES (attached) -16-
1 EXHIBIT 10.27 FIRST AMENDMENT TO HCC PARTICIPANT AGREEMENT This First Amendment to HCC Participant Agreement is entered into by and between the HOTEL CLEARING CORPORATION, hereinafter called "HCC", and BEST WESTERN INTERNATIONAL, hereinafter called "Participant", to be effective the 15th day of August, 1993 (the "First Amendment"). AGREED FACTS 1. HCC and Participant have heretofore entered into an HCC Participant Agreement dated effective ____________________ (hereinafter called the "Participant Agreement"). 2. HCC and Participant have mutually agreed to amend the term of the Participant Agreement and the provisions of the Participant Agreement relating to the amount and payment of Participant Commissions (as defined in the Participant Agreement). 3. HCC and Participant intend for this First Amendment to set forth in its entirety their agreement to amend the term of the Participant Agreement and the provisions relating to the amount and payment of Participant Commissions. AGREEMENT FOR AND IN CONSIDERATION of the above stated facts, which are hereby acknowledged as true and correct, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, HCC and Participant hereby agree as follows: 1. Section 3.4 of the Participant Agreement is hereby deleted in its entirety and is replaced with the following: "3.4 [*]. In consideration of the benefits that [*] will obtain from [*] processed by [*] through the HCC System, [*] agrees to [*] certain [*] as hereinafter provided. Such [*] will be [*] at such times and in such total amounts as the [*] may determine to be appropriate provided that [*] shall be [*] the [*] (as hereinafter defined). The [*] payable to [*] shall be determined by dividing the total number of [*] for all stockholder [*] for the applicable time period (as determined by [*]) into the total amount of funds available [*] (as determined by [*] and after making allowance for [*], as hereinafter defined) and *Confidential Treatment Requested -1- 2 [*] by the number of [*] transactions [*] by [*] for the applicable period. [*] are those amounts due to [*] pursuant to agreements which require payments [*] the [*] to [*] as [*] including, but not limited to, amounts due to [*] and key [*] of [*]." 2. Section 4.1 of the Participant Agreement is hereby deleted in its entirety and is replaced with the following: "4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall expire [*]. This Agreement will be automatically renewed and extended for additional twelve (12) month periods unless, at least thirty (30) days prior to the expiration of the initial term or any additional twelve (12) month period, either party provides written notice to the other of its decision not to renew and extend." 3. Exhibit D to the Participant Agreement is deleted. 4. This First Amendment shall be and hereby is incorporated into the Participant Agreement for all intents and purposes and all terms, provisions and definitions of the Participant Agreement shall apply. 5. Except for the provisions inconsistent with the terms of this First Amendment, the Participant Agreement is hereby ratified and affirmed in all respects. This First Amendment is effective as of the date stated above and executed on the dates indicated below. HOTEL CLEARING CORPORATION By: -------------------------------- John F. Davis, III President Date: ------------------------------ BEST WESTERN INTERNATIONAL By: -------------------------------- Its: ------------------------------- Date: ------------------------------ *Confidential Treatment Requested -2- 3 HCC PARTICIPANT AGREEMENT This Agreement (the "Agreement") is entered into by and between THE HOTEL CLEARING CORPORATION, a Delaware corporation ("HCC"), and BEST WESTERN INTERNATIONAL, INC., an Arizona corporation ("Participant"), to be effective the 18th day of December, 1991. SECTION 1. DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) Commissionable Reservations. Commissionable Reservations within a particular time period equals the number of reservations (both voice and electronic) processed through the HCC System within such time period that are identified as "commissionable" or "partially commissionable" on the transaction records provided by Participant to HCC. (ii) HCC System. The HCC System is an automated clearinghouse system to provide for the coordination of reservation information, transfer of hotel reservation commissions and ancillary services to Subscribers and Participating Properties. (iii) [*]. [*] are the [*] paid by [*] for [*] processed [*]. (iv) Participating Entity. A Participating Entity is an operator of a hotel reservation system that has executed a HCC Participant Agreement. (v) Subscriber. A Subscriber is any person or entity who has executed an HCC Subscriber Agreement and makes reservations with a Participating Entity. A list of current Subscribers will be provided by HCC to Participant by the twenty-fifth (25th) of each month. (vi) Subscriber Commissions. Subscriber Commissions are the commissions paid by Participant to Subscribers for reservations made with Participant. Subscriber Commissions will be based on commission rates provided to HCC by the Participant. (vii) UltraSwitch. UltraSwitch is a service of The Hotel Industry Switch Company ("THISCO"), which has certain common ownership with HCC, to provide an interface between Subscribers and hotel reservation systems with the capability to provide immediate room confirmation numbers for each hotel property participating in UltraSwitch. *Confidential Treatment Requested -1- 4 SECTION 2. THE HCC SYSTEM 2.1 Duties of HCC. HCC will provide and operate the HCC System for the use and benefit of Participant and other Participating Entities. HCC will provide all reasonable and necessary technical support, hardware and software, and modifications to the HCC System to provide clearinghouse services to Participant as described below. Upon compliance with the terms of this Agreement by Participant, HCC will provide the following clearinghouse services to Participant: (i) identify Participant (and designated affiliates and franchisees of Participant) to Subscribers as being a HCC System Participant through the use of UltraSwitch or other central reservation system services (and, at the discretion of HCC, by distribution of other promotional materials), subject to the provisions of Section 5.2; (ii) provide billing statements for Subscriber Commissions, Transaction Fees (as defined below) and other fees, costs and expenses to Participant on a regular (normally monthly) basis as provided in Section 3 below; (iii) debit Participant's designated bank account for such Subscriber Commissions, transaction fees and other fees, costs and expense, no sooner than forty-eight (48) hours after providing billing statements for such Subscriber Commissions, Transaction Fees and other fees, costs and expenses as provided in Section 3 below; (iv) distribute collected Subscriber Commissions to the appropriate Subscribers based upon HCC Subscriber Agreements with such Subscribers; (v) provide periodic (normally monthly) reports to Participant and Subscribers reflecting exceptions to Subscriber Commissions based upon the data available to HCC through UltraSwitch; and (vi) provide telephone customer support services from 8:00 a.m. to 8:00 p.m., Eastern time, Monday through Friday, exclusive of legal holidays. A description of the currently anticipated procedures to be followed in the payment process is given on Exhibit "F" attached, although the timing and exact details of such procedures as implemented by HCC in operation of the HCC system may be different due to computer-related and other operational constraints. Such procedures are subject to change from time to time as circumstances require or as otherwise determined by HCC. 2.2 Duties of Participant. Participant will cooperate fully with HCC personnel with respect to the implementation of the HCC System between the Subscribers and Participant. Participant specifically authorizes HCC to obtain information concerning reservations made with Participant from the UltraSwitch system and to use such information (i) as provided in the procedures described in Exhibit "F" and (ii) as otherwise approved in writing by the Board of Directors of HCC. Participant agrees to provide HCC all appropriate reservation information (including all reservations made electronically or by voice, through the use of a central reservation "800" phone number) no loss often than on -2- 5 a weekly basis. All information provided by Participant with respect to reservations, Subscribers and Subscriber Commissions must be complete and accurate to the best of Participant's ability, and must be inclusive of all the information necessary to permit HCC to provide the clearinghouse services described in Section 2.1. The initial information that Participant must provide to HCC is indicated on Exhibit "A". Because efficient and reliable operation of the clearinghouse services offered by the HCC System is dependent on the use of data from transactions carried by UltraSwitch, Participant agrees to run all of its electronic reservation transactions through the UltraSwitch system so long as it is a party to this Agreement. 2.3 Schedule of Implementation of HCC System. HCC will proceed with the implementation of the HCC System, with a proposed HCC System activation date of April 1, 1992, but not later than September 30, 1992. For the purposes of this Agreement, the actual activation date (the "Activation Date") will be the date that HCC notifies Subscriber that the HCC Board of Directors has determined that the HCC System is operational and capable of processing sufficient aggregate transaction volume of the Participating Entities. HCC will provide Participants with at least thirty (30) days' prior notice of activation of the HCC System. HCC will provide Participant with appropriate specifications to assist Participant in preparing for utilization of the HCC System at least one hundred twenty (120) days prior to the Activation Date. 2.4 Modification or Enhancement of the HCC System or Participant System. HCC may in its sole discretion modify the operation or enhance the capability of the HCC System, and Participant agrees to cooperate with HCC in all modifications and enhancements of the HCC System. All significant modifications or enhancements will require the approval of the Board of Directors of HCC. If HCC determines that such modification or enhancement is likely to require Participant to make significant modifications to its central reservation system (any such modifications to be at Participant's sole expense), HCC will provide at least ninety (90) days' prior notice to Participant of such modification or enhancement. If Participant modifies its central reservation system after the Activation Date and such modification requires HCC to modify the HCC System, or to provide additional services to utilize information supplied by Participant as required by Section 2.2, Participant will pay HCC such additional amount agreed to by the parties based on HCC's standard consulting rate and all expenses incurred. SECTION 3. FEES, COSTS, AND PAYMENTS 3.1 Fees. In order to permit HCC to obtain financing to permit the development of the HCC System, Participant agrees to pay the monthly contingency fee (the "Contingency Fee") of [*] multiplied by the Monthly Base Transactions indicated on Exhibit "B". The Contingency Fee will be payable on the first day of each month for a six (6) month period beginning on the later of April 1, 1992, or the Activation Date. Provided that the Activation Date has occurred, Participant's obligation to pay the Contingency Fee is absolute and shall continue until Participant is capable of and ready to deliver to the HCC System reservation commission data from at least fifty percent (50%) of its properties *Confidential Treatment Requested -3- 6 in the United States (calculated based on total number of rooms rather than number of individual hotels) in a regular and timely manner as contemplated by this Agreement ("Participant Readiness") and continues and delivers to HCC the volume of reservation commissions required for Participant Readiness after the Activation Date. At such time, Participant will begin paying transaction fees ("Transaction Fees") of [*] per Commissionable Reservation, and upon payment of such Transaction Fees, will be relieved of its obligations to pay any further Contingency Fees under this section. For the remainder, if any, of the six (6) month period referred to above, the Transaction Fees payable by Participant will be subject to a minimum monthly Transaction Fee of [*] multiplied by the Monthly Base Transactions indicated on Exhibit "B". If Participant Readiness (or the Activation Date, if later) occurs other than at the beginning of a month, Participant will receive a credit against the fees otherwise payable by Participant under this Agreement, in the amount of a pro rata portion of the Contingency Fee paid to HCC for that month, based upon the number of days in the month following Participation Readiness (or the Activation Date, if later). HCC may, at its sole discretion, change the Transaction Fees charged to Participant as provided above, upon ninety (90) days notice to Participant. The Board of Directors of HCC will have the right to verify Participant Readiness (whether through HCC personnel or independent third parties) and will have the right to modify or adjust the requirements for Participant Readiness, as long as it makes such determination in a uniform manner among other Participating Entities. Participant has been informed that HCC is reliant upon, and the obtaining by HCC of certain critical financing is dependent upon, Participant's agreement to and performance of Participant's obligations under this section. Participant acknowledges that the failure of Participant to meet its payment obligations under this section would substantially and materially damage the business of HCC and waives any and all defenses that it may have to the performance of such obligations. Participant hereby irrevocably consents to having the provisions of this Section 3.1 immediately and fully enforced in a court of law or equity and waives any and all defenses thereto. Participant hereby authorizes HCC to debit all such fees from Participant's designated bank account as provided in Exhibit "B". Participant is responsible for collection and payment to HCC of all such fees that are attributable to Participant and all of Participant's affiliates and franchises that utilize the HCC System under this Agreement. 3.2 Subscriber Commissions. Participant agrees to make available for debit by HCC all Subscriber Commissions shown on billing statements as provided in Section 3.5. Participant hereby authorizes HCC to debit such Subscriber Commissions from Participant's designated bank account as provided in Exhibit "C". Participant is responsible for collection and payment to HCC of all such Subscriber Commissions that are attributable to Participant and all of Participant's affiliates and franchisees that utilize the HCC System under this Agreement. Payments to Subscribers will be made in appropriate local currency. *Confidential Treatment Requested -4- 7 3.3 Other Fees, Costs and Expenses. Participant also agrees to pay HCC at its standard consulting rate plus all expenses incurred for set up, handling, conversion and other services required for processing of information transmitted to HCC to satisfy the requirements of Section 2.2, above, unless a different fee arrangement with respect to such services is indicated on Exhibit "B". All of such fees must be approved by the Board of Directors of HCC. Participant hereby authorizes HCC to debit such fees from Participant's designated bank account as provided in Exhibit "B". HCC will give Participant prior notice of debits made under the terms of this Section 3.3. Participant is responsible for collection and payment to HCC of all such fees, costs and other expenses that are attributable to Participant and all of Participant's affiliates and franchisees that utilize the HCC System under this Agreement. 3.4 [deleted by amendment] 3.5 Billing Statements. Based upon the information provided HCC by or with respect to Participant pursuant to Section 2.2, above, HCC will provide periodic (normally monthly) billing statements detailing (i) Subscriber Commissions to be paid by Participant for the period covered by such billing statement; (ii) Transaction Fees to be paid by Participant, based on Commissionable Reservations for the period covered by such billing statement; (iii) other fees, costs and additional expenses to be paid by Participant for the period covered by such billing statement; and (iv) [*] to be paid to [*] for the most recent quarterly period preceding such billing statement, which [*] will be [*] and included in billing statements only on a quarterly basis. Items (i) through (iv) may be included on separate billing statements. 3.6 Disputed Commissions. HCC will provide Participant and Subscribers with periodic reports indicated under Section 2.1(v) that will indicate any exceptions to Subscriber Commissions, based on discrepancies between information given HCC by Participant compared to other information available to HCC through UltraSwitch. With respect to all exceptions as to which Participant provides supporting documentation, HCC will forward such documentation to the appropriate Subscriber(s), and the Subscribers involved may pursue such dispute directly with Participant, but HCC will not have any liability to either Participant or such Subscriber with respect to the resolution of any disputed commission. No dispute concerning any Subscriber Commissions will in any way affect or reduce the obligations of Participant to (i) timely pay all other Subscriber *Confidential Treatment Requested -5- 8 Commissions and (ii) timely pay to HCC all Transaction Fees and other fees, costs and additional expenses owed by Participant under this Agreement. 3.7 Additional Authorizations. Participant agrees to execute and deliver to Participant's bank(s) debit authorization(s) in the form of Exhibit "E" attached hereto, and to execute and deliver to such bank(s) or other appropriate persons any and all documents, give to such bank(s) or other persons any and all directions, and to take all other actions that are necessary or appropriate to permit HCC to debit amounts to be paid hereunder by Participant directly from Participant's designated bank account(s). SECTION 4. TERM 4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall expire [*] after the date of this Agreement. This Agreement will be automatically renewed and extended for additional twelve (12) month periods unless, at least thirty (30) days prior to the expiration of any additional twelve (12) month period, either party provides written notice to the other of its decision not to renew and extend. SECTION 5. TERMINATION 5.1 Termination Upon Default. Upon the occurrence of an Event of Default (as defined below) by either party and the failure of such party to cure such default after notice and opportunity to cure as provided by Section 6.3 below, the nondefaulting party may terminate this Agreement at any time. 5.2 Suspension of Status. Upon the occurrence of an Event of Default by Participant and the failure of Participant to cure such default after notice and opportunity to cure as provided by Section 6.3 below, then, if HCC does not terminate this Agreement under Section 5.1, until such time as such Event of Default is cured HCC shall have the right to suspend the status of Participant as a Participating Entity and to notify and all Subscribers of such default and suspension, whether through the UltraSwitch system, central reservation systems, or otherwise. Upon notification by Participant to HCC of any default in payment by any affiliate or franchisee of Participant of payments due under this Agreement and until notification by Participant of the cure of such default, HCC shall have the right to suspend the status of such affiliate or franchise as a Participating Entity and to notify all subscribers of such default and suspension. SECTION 6. DEFAULT 6.1 Events of Default. Subject to Section 6.2 below, any one of the following will be considered an Event of Default: *Confidential Treatment Requested -6- 9 (i) The failure of either party to pay any amount due hereunder within the time required; (ii) The refusal or failure of either party to perform diligently and in good faith each and every material provision of this Agreement; (iii) The commencement by either party of a voluntary case under Chapter 11 or 7 of the United States Bankruptcy Code, as from time to time in effect, the commencement against either party of an involuntary case under said Chapter 11 or 7, either party seeking relief as a debtor under any applicable law, other than said Chapter 11 or 7, or any jurisdiction relating to the liquidation or reorganization of debtors or the modification of the rights of creditors, the entry of a court order adjudging the party bankrupt or insolvent, ordering its liquidation or reorganization or assuming custody or appointing a receiver or other custodian of its property, or its making an assignment for the benefit of, or entering into a composition with, its creditors; (iv) The deferral [*] of payment of all [*], as provided in Section 3.4, for more than two (2) consecutive calendar quarters; or (v) The failure by HCC to have obtained HCC Subscriber Agreements with respect to at least twelve thousand (12,000) travel agent/reservation provider locations within thirty-six (36) months following the Activation Date. Any such Event of Default shall not relieve the defaulting party from any of its obligations hereunder, and the non-defaulting party shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. 6.2 Force Majeure. It will not constitute an Event of Default if such event listed in Section 6.1 is caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if any such occurrence results in any of the events described in Section 6.1, and the same continues for more than thirty (30) consecutive days, either party may terminate this Agreement by providing notice as required herein. 6.3 Cure Period. Upon the occurrence of an Event of Default, the non-defaulting party will give written notice to the defaulting party specifying the alleged default. The defaulting party will then be entitled to thirty (30) days from receipt of such notice within which to cure such default; provided, that in the case of a monetary default by Participant, Participant will only be allowed to cure such default within two (2) business days after receipt of such notice, by delivering that amount owed to HCC in good funds into HCC's bank account. *Confidential Treatment Requested -7- 10 SECTION 7. CONFIDENTIALITY 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by Participant and HCC that each will receive confidential and proprietary information that is the property of the other party. All such confidential and proprietary information will be marked or otherwise identified as such and will be treated as confidential and proprietary subject only to disclosure where required by law. Such designation may be removed by each party making the designation. Participant acknowledges that it will have no access to and will not use UltraSwitch software or related property by reason of this Agreement, and that use of such UltraSwitch services by Participant would be permitted only under a separate agreement with THISCO. Participant acknowledges that it will have no access to and will not use the HCC System or related property, other than as specifically provided for in this Agreement, and that such system and related property is confidential and proprietary property of HCC. HCC acknowledges that the specific information concerning Participant's reservations, whether processed through the UltraSwitch system or otherwise provided by Participant to HCC outside of the UltraSwitch system, is the property of Participant, although Participant acknowledges HCC may use such information (i) as provided in the procedures described in Exhibit "F" and (ii) as otherwise approved in writing by the Board of Directors of HCC, as long as HCC removes any information that indicates the customer is a customer of Participant. The aggregate data from the HCC System will become the property of HCC. Any use of HCC service Marks or trade names by Participant is subject to prior written approval of HCC, provided, that Participant may describe the HCC System contemplated by this Agreement in its franchise offering circular and other materials as required by state or federal law. The provisions of this Section 7.1 will remain binding and in force and effect as long as such information remains confidential (other than by breach of this Agreement), notwithstanding the expiration or termination of this Agreement at any time. SECTION 8. INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. Subject to Section 9.2, Participant agrees to indemnify and hold harmless HCC and HCC's affiliates, directors, officers, employees and stockholders (other than Participant), from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring as a result of or arising out of a material breach of this Agreement on account of Participant's fault, to the extent not caused by the fault of HCC ("HCC's Losses"). Subject to Section 9.2, HCC agrees to indemnify and hold harmless Participant, and Participant's affiliates, directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("Participant's Losses") occurring as a result of or arising out of a material breach of this Agreement on account of HCC's fault to the extent not caused by the fault of Participant. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indemnified party will give prompt notice thereof to the indemnifying party and the indemnifying party will be entitled to participate therein or, to the extent that it wishes, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the -8- 11 indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. Whether or not the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable for any compromise or settlement of any such action or claim effected without its consent (which shall not be unreasonably withheld). SECTION 9. DISCLAIMER OF WARRANTIES 9.1 Waiver of Warranties. HCC WILL NOT BE RESPONSIBLE OR LIABLE FOR ANY INACCURACIES IN THE DATA OR THE INFORMATION PROCESSED BY OR THROUGH THE HCC SYSTEM NOR WILL IT HAVE ANY LIABILITY FOR ANY ACT OR FAILURE TO ACT UNLESS EXPRESSLY SET FORTH HEREIN, EXCEPT TO THE EXTENT RESULTING FROM HCC'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE, ARE DISCLAIMED BY HCC AND WAIVED BY PARTICIPANT. 9.2 No Consequential Damages. Neither party will be liable to the other for any consequential damages caused or resulting from any breach of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. SECTION 10. MISCELLANEOUS 10.1 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, will be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party will select one arbitrator with thirty (30) days of notice of the dispute, and the two (2) arbitrators selected shall select a third neutral arbitrator within thirty (30) days after the second arbitrator is chosen. All reasonable and necessary costs and fees (including attorney's fees) incurred in connection with the arbitration will be borne by the losing party or assessed in the award as otherwise deemed appropriate by the arbitrators. If the demand for arbitration is initiated by Participant, venue of the arbitration proceedings will be determined by HCC. If the demand for arbitration is initiated by HCC, venue of the arbitration proceedings will be determined by Participant. -9- 12 10.2 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to reservations commissions clearinghouse services and that each party may contract with other parties providing same or similar services. 10.3 Status of Parties. This Agreement will not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. HCC will not be deemed by this Agreement to be granting a license to Participant, with respect to UltraSwitch, the HCC System or any software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. 10.4 Assignment. This Agreement is not assignable by HCC or Participant without the prior written consent of the nonassigning party, and such consent shall not be unreasonably withheld or delayed. 10.5 Notices. All notices and other communications contemplated hereby must be in writing (except in the case of electronically transmitted data) and (a) personally delivered, (b) deposited in the United States mail, first- class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, (d) sent by telecopy with confirmation of receipt of telecopy to the number indicated, or (e) transmitted directly to the recipient by electronic data transmission pursuant to arrangements made between the parties. Such notices and other commissions (except in the case of electronically transmitted data) shall be addressed as follows: IF TO HCC: IF TO PARTICIPANT: 3811 Turtle Creek Blvd. 20400 N. 29th Ave Dallas, TX 75219 Phoenix, AZ 85027 Attention: John F. Davis, III Attention: Keith Barlow (if by telecopy to: (if by telecopy to: 602-750-6299) (214) 528-5675) or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices will be deemed given and received (i) at the time of personal delivery, (ii) if sent by U.S. Mail, three (3) business days after mailing, (iii) if sent by overnight courier, one (1) business day after such sending, (iv) if sent by telecopy, upon receiving of confirmation of receipt of the telecopy at the number indicated, or (v) in the case of electronically transmitted data, when received. 10.6 Controlling Law. This Agreement will be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. Subject to the agreement to arbitrate and the jurisdiction and venue provisions set forth in section 10.1 hereof, any action brought relating to or arising out of this Agreement must be brought in the state or federal courts situated in the county and state of the residence or principal -10- 13 place of business of the party against whom the action is brought (or any of them, if more than one). 10.7 Entire Agreement. This Agreement and the Exhibits attached hereto constitute the entire agreement between HCC and Participant with respect to the provision of services under the HCC System, and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement that are not contained in this Agreement. 10.8 Successors and Assigns. This Agreement will be binding upon and will inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 10.9 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement will be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. AGREED to as of the date first written above. THE HOTEL CLEARING CORPORATION BEST WESTERN INTERNATIONAL, INC. By: By: ----------------------- -------------------------- John F. Davis, III, Title: President ----------------------- -11- 14 EXHIBIT "A" Initial Information to be Provided by Participant to HCC The fields in each commission record are the following: <TABLE> <S> <C> <C> -Record identifier required validated -Chain record number required check for duplicates -Chain/Brand code required validated -Booking source required validated -Property ID required validated -PNR Number optional no checks -Confirmation number required validated presence -Cancellation number optional no checks -Corporate ID number optional no checks -Subscriber IATA number required validated HCC User -Group/Guest last name required validated presence -Group/Guest first name optional no checks -Status code required validated -Reason code optional if present, validate -Arrival date required validated, no future -Departure date required validated, no future -Number of nights required validated presence -Number of rooms required validated presence -Commissionable revenue required validated, no neg. -Gross Commission required validated, no neg. -Adjustment amount required validated presence -Net Commission due required validate computation -Currency code required validated -Comments optional no checks </TABLE> -12- 15 EXHIBIT "B" Participant Fees 1. Contingency Fees and minimum Transaction Fees as provided in Section 3.1 of the Agreement will be based upon [*] Annual Base Transactions, or Monthly Base Transactions of [*] (Annual Base Transactions divided by 12). 2. Transaction Fees and other fees, costs and expenses payable under the Agreement are to be debited directly from Participant's bank account, described as follows: Bank Name: ------------------------------------------------- Account Number: --------------------------------------------- Other Appropriate Information: ------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ 3. Transaction Fees and other fees, costs and expenses payable under the Agreement that are listed in the billing statements provided to Participant by HCC as provided in Section 3.5 of the Agreement will automatically be debited from the account designated above, not less than forty-eight (48) hours following receipt of such billing statements. The Contingency Fee will automatically be debited from the account designated above on the first business day of each month during which the Contingency Fee is payable. *Confidential Treatment Requested -13- 16 EXHIBIT "C" Subscriber Commissions 1. Subscriber Commissions are specified in the record field "Net Commission Due" as described on Exhibit "A". 2. Subscriber Commissions are to be debited directly from Participant's bank account, described as follows: [Bank Name] [Account Number] [Other Appropriate Information] 3. Subscriber Commissions listed in the billing statements provided to Participant by HCC as provided in Section 3.5 of the Agreement will automatically be debited from the account designated above, not less than forty-eight (48) hours following receipt of such billing statements. -14- 17 EXHIBIT "D" [deleted by amendment] -15- 18 EXHIBIT "E" DEBIT AUTHORIZATION TO: [Bank] RE: [Account Number and identification] DATE: The undersigned hereby authorizes The Hotel Clearing Corporation to debit the undersigned's account identified above, and to transfer sums from such account by wire transfer, debit memo, draft or check, all without further instruction or verification of such transfer instructions from the undersigned. This authorization will remain in full force and effect until written notification of cancellation is given by the undersigned to the bank or other financial institution identified above. ---------------------------------- By: ------------------------------- Title: ---------------------------- -16- 19 EXHIBIT "F" PROPOSED PROCEDURES (attached) -17-
1 EXHIBIT 10.28 FIRST AMENDMENT TO HCC PARTICIPANT AGREEMENT This First Amendment to HCC Participant Agreement is entered into by and between the HOTEL CLEARING CORPORATION, hereinafter called "HCC", and UTELL INTERNATIONAL, hereinafter called "Participant", to be effective the 28th day of June, 1994 (the "First Amendment"). AGREED FACTS 1. HCC and Participant have heretofore entered into an HCC Participant Agreement dated effective ________________ (hereinafter called the "Participant Agreement"). 2. HCC and Participant have mutually agreed to amend the term of the Participant Agreement and the provisions of the Participant Agreement relating to the amount and payment of Participant Commissions (as defined in the Participant Agreement). 3. HCC and Participant intend for this First Amendment to set forth in its entirety their agreement to amend the term of the Participant Agreement and the provisions relating to the amount and payment of Participant Commissions. AGREEMENT FOR AND IN CONSIDERATION of the above stated facts, which are hereby acknowledged as true and correct, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, HCC and Participant hereby agree as follows: 1. Section 3.4 of the Participant Agreement is hereby deleted in its entirety and is replaced with the following: "3.4 [*]. In consideration of the benefits that [*] will obtain from [*] processed by [*] through the HCC System, [*] agrees to [*] certain [*] as hereinafter provided. Such [*] will be [*] at such times and in such total amounts as [*] may determine to be appropriate provided that [*] shall be [*] the [*] (as hereinafter defined). The [*] payable to [*] shall be determined by dividing the total number of [*] for all stockholder [*] for the applicable time period (as determined by [*]) into the total amount of funds available [*] (as determined by [*] and after making allowance for [*], as hereinafter defined) and *Confidential Treatment Requested -1- 2 [*] by the number of [*] transactions [*] by [*] for the applicable period. [*] are those amounts due to [*] pursuant to agreements which require payments [*] the [*] to [*] as [*] including, but not limited to, amounts due to [*] and key [*] of [*]." 2. Section 4.1 of the Participant Agreement is hereby deleted in its entirety and is replaced with the following: "4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall expire [*]. This Agreement will be automatically renewed and extended for additional twelve (12) month periods unless, at least thirty (30) days prior to the expiration of the initial term or any additional twelve (12) month period, either party provides written notice to the other of its decision not to renew and extend." 3. Exhibit D to the Participant Agreement is deleted. 4. This First Amendment shall be and hereby is incorporated into the Participant Agreement for all intents and purposes and all terms, provisions and definitions of the Participant Agreement shall apply. 5. Except for the provisions inconsistent with the terms of this First Amendment, the Participant Agreement is hereby ratified and affirmed in all respects. This First Amendment is effective as of the date stated above and executed on the dates indicated below. HOTEL CLEARING CORPORATION By: ------------------------------- John F. Davis, III President Date: ----------------------------- UTELL INTERNATIONAL By: ------------------------------- Its: ------------------------------ Date: ----------------------------- *Confidential Treatment Requested -2- 3 HCC PARTICIPANT AGREEMENT This Agreement (the "Agreement") is entered into by and between THE HOTEL CLEARING CORPORATION, a Delaware corporation ("HCC"), and UTELL INTERNATIONAL, LTD., ("Participant"), to be effective the 20th day of December, 1991. SECTION 1. DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) Commissionable Reservations. Commissionable Reservations within a particular time period equals the number of reservations (both voice and electronic) processed through the HCC System within such time period that are identified as "commissionable" or "partially commissionable" on the transaction records provided by Participant to HCC. (ii) HCC System. The HCC System is an automated clearinghouse system to provide for the coordination of reservation information, transfer of hotel reservation commissions and ancillary services to Subscribers and Participating Properties. (iii) [*]. [*] are the [*] paid by [*] for [*] processed [*]. (iv) Participating Entity. A Participating Entity is an operator of a hotel reservation system that has executed a HCC Participant Agreement. (v) Subscriber. A Subscriber is any person or entity who has executed an HCC Subscriber Agreement and makes reservations with a Participating Entity. A list of current Subscribers will be provided by HCC to Participant by the twenty-fifth (25th) of each month. (vi) Subscriber Commissions. Subscriber Commissions are the commissions paid by Participant to Subscribers for reservations made with Participant. Subscriber Commissions will be based on commission rates provided to HCC by the Participant. (vii) UltraSwitch. UltraSwitch is a service of The *Confidential Treatment Requested -1- 4 Hotel Industry Switch Company ("THISCO"), which has certain common ownership with HCC, to provide an interface between Subscribers and hotel reservation systems with the capability to provide immediate room confirmation numbers for each hotel property participating in UltraSwitch. SECTION 2. THE HCC SYSTEM 2.1 Duties of HCC. HCC will provide and operate the HCC System for the use and benefit of Participant and other Participating Entities. HCC will provide all reasonable and necessary technical support, hardware and software, and modifications to the HCC System to provide clearinghouse services to Participant as described below. Upon compliance with the terms of this Agreement by Participant, HCC will provide the following clearinghouse services to Participant: (i) identify Participant (and designated affiliates and franchisees of Participant) to Subscribers as being a HCC System Participant through the use of UltraSwitch or other central reservation system services (and, at the discretion of HCC, by distribution of other promotional materials), subject to the provisions of Section 5.2; (ii) provide billing statements for Subscriber Commissions, Transaction Fees (as defined below) and other fees, costs and expenses to Participant on a regular (normally monthly) basis as provided in Section 3 below; (iii) distribute collected Subscriber Commissions to the appropriate Subscribers based upon HCC Subscriber Agreements with such Subscribers; (iv) provide periodic (normally monthly) reports to Participant and Subscribers reflecting exceptions to Subscriber Commissions based upon the data available to HCC through UltraSwitch; and (v) provide telephone customer support services from 8:00 a.m. to 8:00 p.m., Eastern time, Monday through Friday, exclusive of legal holidays. A description of the currently anticipated procedures to be followed in the payment process is given on Exhibit "F" attached, -2- 5 although the timing and exact details of such procedures as implemented by HCC in operation of the HCC system may be different due to computer-related and other operational constraints. Such procedures are subject to change from time to time as circumstances require or as otherwise determined by HCC. 2.2 Duties of Participant. Participant will cooperate fully with HCC personnel with respect to the implementation of the HCC System between the Subscribers and Participant. Participant specifically authorizes HCC to obtain information concerning reservations made with Participant from the UltraSwitch system and to use such information (i) as provided in the procedures described in Exhibit "F" and (ii) as otherwise approved in writing by the Board of Directors of HCC. Participant agrees to provide HCC all appropriate reservation information (including all reservations made electronically or by voice, whether directly to the property or through the use of a central reservation "800" phone number) no loss often than on a weekly basis. All information provided by Participant with respect to reservations, Subscribers and Subscriber Commissions must be complete and accurate to the best of Participant's ability, and must be inclusive of all the information necessary to permit HCC to provide the clearinghouse services described in Section 2.1. The initial information that Participant must provide to HCC is indicated on Exhibit "A". Because efficient and reliable operation of the clearinghouse services offered by the HCC System is dependent on the use of data from transactions carried by UltraSwitch, Participant agrees, with respect to all interfaces existing between UTELL and the UltraSwitch, to run all of its electronic reservation transactions through the UltraSwitch system so long as it is a party to this Agreement. 2.3 Schedule of Implementation of HCC System. HCC will proceed with the implementation of the HCC System, with a proposed HCC System activation date of April 1, 1992, but not later than September 30, 1992. For the purposes of this Agreement, the actual activation date (the "Activation Date") will be the date that HCC notifies Subscriber that the HCC Board of Directors has determined that the HCC System is operational and capable of processing sufficient aggregate transaction volume of the Participating Entities. HCC will provide Participants with at least thirty (30) days' prior notice of activation of the HCC System. HCC will provide Participant with appropriate specifications to assist Participant in preparing for utilization of the HCC System at least one hundred twenty (120) days prior to the Activation Date. -3- 6 2.4 Modification or Enhancement of the HCC System or Participant System. HCC may in its sole discretion modify the operation or enhance the capability of the HCC System, and Participant agrees to cooperate with HCC in all modifications and enhancements of the HCC System. All significant modifications or enhancements will require the approval of the Board of Directors of HCC. If HCC determines that such modification or enhancement is likely to require Participant to make significant modifications to its central reservation system (any such modifications to be at Participant's sole expense), HCC will provide at least ninety (90) days' prior notice to Participant of such modification or enhancement. If Participant modifies its central reservation system after the Activation Date and such modification requires HCC to modify the HCC System, or to provide additional services to utilize information supplied by Participant as required by Section 2.2, Participant will pay HCC such additional amount agreed to by the parties based on HCC's standard consulting rate and all expenses incurred. SECTION 3. FEES, COSTS, AND PAYMENTS 3.1 Fees. In order to permit HCC to obtain financing to permit the development of the HCC System, Participant agrees to pay the monthly contingency fee (the "Contingency Fee") of [*] multiplied by the Monthly Base Transactions indicated on Exhibit "B". The Contingency Fee will be payable on the first day of each month for a six (6) month period beginning on the later of April 1, 1992, or the Activation Date. Provided that the Activation Date has occurred and limited in duration by the immediately preceding sentence, Participant's obligation to pay the Contingency Fee is absolute and shall continue until Participant is capable of and ready to deliver to the HCC System reservation commission data from at least seventy-five percent (75%) of its properties in the United States (calculated based on total number of rooms rather than number of individual hotels) in a regular and timely manner as contemplated by this Agreement ("Participant Readiness") and continues and delivers to HCC the volume of reservation commissions required for Participant Readiness after the Activation Date. At such time, Participant will begin paying transaction fees ("Transaction Fees") of [*] per Commissionable Reservation, and upon payment of such Transaction Fees, will be relieved of its obligations to pay any further Contingency Fees under this section. For the remainder, if any, of the six (6) month period referred to above, the Transaction Fees payable by *Confidential Treatment Requested -4- 7 Participant will be subject to a minimum monthly Transaction Fee of [*] multiplied by the Monthly Base Transactions indicated on Exhibit "B". If Participant Readiness (or the Activation Date, if later) occurs other than at the beginning of a month, Participant will receive a credit against the fees otherwise payable by Participant under this Agreement, in the amount of a pro rata portion of the Contingency Fee paid to HCC for that month, based upon the number of days in the month following Participation Readiness (or the Activation Date, if later). HCC may, at its sole discretion, change the Transaction Fees charged to Participant as provided above, upon ninety (90) days notice to Participant. The Board of Directors of HCC will have the right to verify Participant Readiness (whether through HCC personnel or independent third parties) and will have the right to modify or adjust the requirements for Participant Readiness, as long as it makes such determination in a uniform manner among other Participating Entities. Participant has been informed that HCC is reliant upon, and the obtaining by HCC of certain critical financing is dependent upon, Participant's agreement to and performance of Participant's obligations under this section. Participant acknowledges that the failure of Participant to meet its payment obligations under this section would substantially and materially damage the business of HCC and waives any and all defenses that it may have to the performance of such obligations. Participant hereby irrevocably consents to having the provisions of this Section 3.1 immediately and fully enforced in a court of law or equity and waives any and all defenses thereto. Participant is responsible for collection and payment to HCC of all such fees that are attributable to Participant and all of Participant's affiliates and franchises that utilize the HCC System under this Agreement. 3.2 Subscriber Commissions. Participant agrees to make payment to HCC by wire transfer within seventy two (72) hours of receipt of a billing statement all Subscriber Commissions, Transfer Fees and other fees, costs, and expenses shown on billing statements as provided in Section 3.5. Participant is responsible for collection and payment to HCC of all such fees and Subscriber Commissions that are attributable to Participant and all of Participant's affiliates and franchisees that utilize the HCC System under this Agreement. Payments to Subscribers will be made in appropriate local currency. *Confidential Treatment Requested -5- 8 3.3 Other Fees, Costs and Expenses. Participant also agrees to pay HCC at its standard consulting rate of $75 per hour plus all expenses incurred for set up, handling, conversion and other services required for processing of information transmitted to HCC to satisfy the requirements of Section 2.2, above, unless a different fee arrangement with respect to such services is indicated on Exhibit "B". All of such fees must be approved by the Board of Directors of HCC. Participant is responsible for collection and payment to HCC of all such fees, costs and other expenses that are attributable to Participant and all of Participant's affiliates and franchisees that utilize the HCC System under this Agreement. 3.4 [deleted by amendment] 3.5 Billing Statements. Based upon the information provided HCC by or with respect to Participant pursuant to Section 2.2, above, HCC will provide periodic (normally monthly) billing statements detailing (i) Subscriber Commissions to be paid by Participant for the period covered by such billing statement; (ii) Transaction Fees to be paid by Participant, based on Commissionable Reservations for the period covered by such billing statement; (iii) other fees, costs and additional expenses to be paid by Participant for the period covered by such billing statement; and (iv) [*] to be paid to [*] for the most recent quarterly period preceding such billing statement, which [*] will be [*] included in billing statements only on a quarterly basis. Items (i) through (iv) may be included on separate billing statements. *Confidential Treatment Requested -6- 9 3.6 Disputed Commissions. HCC will provide Participant and Subscribers with periodic reports indicated under Section 2.1(v) that will indicate any exceptions to Subscriber Commissions, based on discrepancies between information given HCC by Participant compared to other information available to HCC through UltraSwitch. With respect to all exceptions as to which Participant provides supporting documentation, HCC will forward such documentation to the appropriate Subscriber(s), and the Subscribers involved may pursue such dispute directly with Participant, but HCC will not have any liability to either Participant or such Subscriber with respect to the resolution of any disputed commission. No dispute concerning any Subscriber Commissions will in any way affect or reduce the obligations of Participant to (i) timely pay all other Subscriber Commissions and (ii) timely pay to HCC all Transaction Fees and other fees, costs and additional expenses owed by Participant under this Agreement. SECTION 4. TERM 4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall expire [*] after the date of this Agreement. This Agreement will be automatically renewed and extended for additional twelve (12) month periods unless, at least thirty (30) days prior to the expiration of any additional twelve (12) month period, either party provides written notice to the other of its decision not to renew and extend. SECTION 5. TERMINATION 5.1 Termination Upon Default. Upon the occurrence of an Event of Default (as defined below) by either party and the failure of such party to cure such default after notice and opportunity to cure as provided by Section 6.3 below, the nondefaulting party may terminate this Agreement at any time. 5.2 Suspension of Status. Upon the occurrence of an Event of Default by Participant and the failure of Participant to cure such default after notice and opportunity to cure as provided by Section 6.3 below, then, if HCC does not terminate this Agreement under Section 5.1, until such time as such Event of Default is cured HCC shall have the right to suspend the status of Participant as a Participating Entity and to notify and all Subscribers of such default and suspension, whether through the UltraSwitch system, central reservation systems, or otherwise. Upon notification by *Confidential Treatment Requested -7- 10 Participant to HCC of any default in payment by any affiliate or franchisee of Participant of payments due under this Agreement and until notification by Participant of the cure of such default, HCC shall have the right to suspend the status of such affiliate or franchise as a Participating Entity and to notify all subscribers of such default and suspension. SECTION 6. DEFAULT 6.1 Events of Default. Subject to Section 6.2 below, any one of the following will be considered an Event of Default: (i) The failure of either party to pay any amount due hereunder within the time required; (ii) The refusal or failure of either party to perform diligently and in good faith each and every material provision of this Agreement; (iii) The failure to maintain the system in operable condition; (iv) The commencement by either party of a voluntary case under Chapter 11 or 7 of the United States Bankruptcy Code, as from time to time in effect, the commencement against either party of an involuntary case under said Chapter 11 or 7, either party seeking relief as a debtor under any applicable law, other than said Chapter 11 or 7, or any jurisdiction relating to the liquidation or reorganization of debtors or the modification of the rights of creditors, the entry of a court order adjudging the party bankrupt or insolvent, ordering its liquidation or reorganization or assuming custody or appointing a receiver or other custodian of its property, or its making an assignment for the benefit of, or entering into a composition with, its creditors; (v) The deferral [*] of payment of all [*] as provided in Section 3.4, for more than two (2) consecutive calendar quarters; (vi) The failure by HCC to have obtained HCC Subscriber Agreements with respect to at least twelve thousand (12,000) travel agent/reservation provider locations within thirty-six (36) months following the Activation Date; *Confidential Treatment Requested -8- 11 (vii) The failure by HCC to activate the system by September 30, 1992. Any such Event of Default shall not relieve the defaulting party from any of its obligations hereunder, and the non-defaulting party shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. 6.2 Force Majeure. It will not constitute an Event of Default if such event listed in Section 6.1 is caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if any such occurrence results in any of the events described in Section 6.1, and the same continues for more than thirty (30) consecutive days, either party may terminate this Agreement by providing notice as required herein. 6.3 Cure Period. Upon the occurrence of an Event of Default, the non-defaulting party will give written notice to the defaulting party specifying the alleged default. The defaulting party will then be entitled to thirty (30) days from receipt of such notice within which to cure such default; provided, that in the case of a monetary default by Participant, Participant will only be allowed to cure such default within two (2) business days after receipt of such notice, by delivering that amount owed to HCC in good funds into HCC's bank account. SECTION 7. CONFIDENTIALITY 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by Participant and HCC that each will receive confidential and proprietary information that is the property of the other party. All such confidential and proprietary information will be marked or otherwise identified as such and will be treated as confidential and proprietary subject only to disclosure where required by law. Such designation may be removed by each party making the designation. Participant acknowledges that it will have no access to and will not use UltraSwitch software or related property by reason of this Agreement, and that use of such UltraSwitch services by Participant would be permitted only under a separate agreement with THISCO. Participant acknowledges that it will have no access to and will not use the -9- 12 HCC System or related property, other than as specifically provided for in this Agreement, and that such system and related property is confidential and proprietary property of HCC. HCC acknowledges that the specific information concerning Participant's reservations, whether processed through the UltraSwitch system or otherwise provided by Participant to HCC outside of the UltraSwitch system, is the property of Participant, although Participant acknowledges HCC may use such information (i) as provided in the procedures described in Exhibit "F" and (ii) as otherwise approved in writing by the Board of Directors of HCC, as long as HCC removes any information that indicates the customer is a customer of Participant. The aggregate data from the HCC System will become the property of HCC. Any use of HCC service Marks or trade names by Participant is subject to prior written approval of HCC, provided, that Participant may describe the HCC System contemplated by this Agreement in its franchise offering circular and other materials as required by state or federal law. The provisions of this Section 7.1 will remain binding and in force and effect as long as such information remains confidential (other than by breach of this Agreement), notwithstanding the expiration or termination of this Agreement at any time. SECTION 8. INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. Subject to Section 9.2, Participant agrees to indemnify and hold harmless HCC and HCC's affiliates, directors, officers, employees and stockholders (other than Participant), from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring as a result of or arising out of a material breach of this Agreement on account of Participant's fault, to the extent not caused by the fault of HCC ("HCC's Losses"). Subject to Section 9.2, HCC agrees to indemnify and hold harmless Participant, and Participant's affiliates, directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("Participant's Losses") occurring as a result of or arising out of a material breach of this Agreement on account of HCC's fault to the extent not caused by the fault of Participant. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indemnified party will give prompt notice thereof to the indemnifying party and the -10- 13 indemnifying party will be entitled to participate therein or, to the extent that it wishes, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. Whether or not the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable for any compromise or settlement of any such action or claim effected without its consent (which shall not be unreasonably withheld). SECTION 9. DISCLAIMER OF WARRANTIES 9.1 Waiver of Warranties. HCC WILL NOT BE RESPONSIBLE OR LIABLE FOR ANY INACCURACIES IN THE DATA OR THE INFORMATION PROCESSED BY OR THROUGH THE HCC SYSTEM NOR WILL IT HAVE ANY LIABILITY FOR ANY ACT OR FAILURE TO ACT UNLESS EXPRESSLY SET FORTH HEREIN, EXCEPT TO THE EXTENT RESULTING FROM HCC'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE, ARE DISCLAIMED BY HCC AND WAIVED BY PARTICIPANT. 9.2 No Consequential Damages. Neither party will be liable to the other for any consequential damages caused or resulting from any breach of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. SECTION 10. MISCELLANEOUS 10.1 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, will be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and -11- 14 judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party will select one arbitrator with thirty (30) days of notice of the dispute, and the two (2) arbitrators selected shall select a third neutral arbitrator within thirty (30) days after the second arbitrator is chosen. All reasonable and necessary costs and fees (including attorney's fees) incurred in connection with the arbitration will be borne by the losing party or assessed in the award as otherwise deemed appropriate by the arbitrators. If the demand for arbitration is initiated by Participant, venue of the arbitration proceedings will be determined by HCC. If the demand for arbitration is initiated by HCC, venue of the arbitration proceedings will be determined by Participant. 10.2 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to reservations commissions clearinghouse services and that each party may contract with other parties providing same or similar services. 10.3 Status of Parties. This Agreement will not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. HCC will not be deemed by this Agreement to be granting a license to Participant, with respect to UltraSwitch, the HCC System or any software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. 10.4 Assignment. This Agreement is not assignable by HCC or Participant without the prior written consent of the nonassigning party, and such consent shall not be unreasonably withheld or delayed. 10.5 Notices. All notices and other communications contemplated hereby must be in writing (except in the case of electronically transmitted data) and (a) personally delivered, (b) deposited in the United States mail, first- class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, (d) sent by telecopy with confirmation of receipt of telecopy to the number indicated, or (e) transmitted directly to the recipient by electronic data transmission pursuant to arrangements made between the parties. Such notices and other -12- 15 commissions (except in the case of electronically transmitted data) shall be addressed as follows: IF TO HCC: IF TO PARTICIPANT: 3811 Turtle Creek Blvd. 500 Plaza Drive, 2nd Floor Dallas, TX 75219 Secaucus, NJ 07096 Attention: John F. Davis, III (if by telecopy to: (214) 528-5675) or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices will be deemed given and received (i) at the time of personal delivery, (ii) if sent by U.S. Mail, three (3) business days after mailing, (iii) if sent by overnight courier, one (1) business day after such sending, (iv) if sent by telecopy, upon receiving of confirmation of receipt of the telecopy at the number indicated, or (v) in the case of electronically transmitted data, when received. 10.6 Controlling Law. This Agreement will be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. Subject to the agreement to arbitrate and the jurisdiction and venue provisions set forth in section 10.1 hereof, any action brought relating to or arising out of this Agreement must be brought in the state or federal courts situated in the county and state of the residence or principal place of business of the party against whom the action is brought (or any of them, if more than one). 10.7 Entire Agreement. This Agreement and the Exhibits attached hereto constitute the entire agreement between HCC and Participant with respect to the provision of services under the HCC System, and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement that are not contained in this Agreement. 10.8 Successors and Assigns. This Agreement will be binding upon and will inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether -13- 16 resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 10.9 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement will be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. AGREED to as of the date first written above. THE HOTEL CLEARING CORPORATION UTELL INTERNATIONAL, LTD. By: By: ----------------------- -------------------------- John F. Davis, III, Title: President ----------------------- -14- 17 EXHIBIT "A" Initial Information to be Provided by Participant to HCC The fields in each commission record are the following: <TABLE> <S> <C> <C> -Record identifier required validated -Chain record number required check for duplicates -Chain/Brand code required validated -Booking source required validated -Property ID required validated -PNR Number optional no checks -Confirmation number required validated presence -Cancellation number optional no checks -Corporate ID number optional no checks -Subscriber IATA number required validated HCC User -Group/Guest last name required validated presence -Group/Guest first name optional no checks -Status code required validated -Reason code optional if present, validate -Arrival date required validated, no future -Departure date required validated, no future -Number of nights required validated presence -Number of rooms required validated presence -Commissionable revenue required validated, no neg. -Gross Commission required validated, no neg. -Adjustment amount required validated presence -Net Commission due required validate computation -Currency code required validated -Comments optional no checks </TABLE> -15- 18 EXHIBIT "B" Participant Fees 1. Contingency Fees and minimum Transaction Fees as provided in Section 3.1 of the Agreement will be based upon [*] Annual Base Transactions, or Monthly Base Transactions of [*] Base Transactions divided by 12). 2. Transaction Fees and other fees, costs and expenses payable under the Agreement will be paid by Participant by wire transfer from Participant's bank listed below: Bank Name: ------------------------------------------------- Officer Contact: -------------------------------------------- Other Appropriate Information: ------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ 3. Transaction Fees and other fees, costs and expenses payable under the Agreement that are listed in the billing statements provided to Participant by HCC as provided in Section 3.5 of the Agreement will be paid by Participant to HCC by wire transfer not later than seventy two (72) hours following receipt of such billing statements. The Contingency Fee will be paid by Participant to HCC by wire transfer not later than the first business day of each month during which the Contingency Fee is payable. *Confidential Treatment Requested -16- 19 EXHIBIT "C" Subscriber Commissions 1. Subscriber Commissions are specified in the record field "Net Commission Due" as described on Exhibit "A". 2. Subscriber Commissions are to be paid by Participant to HCC by wire transfer from Participant's bank listed below: [Bank Name] [Bank Officer] [Other Appropriate Information] 3. Subscriber Commissions listed in the billing statements provided to Participant by HCC as provided in Section 3.5 of the Agreement will be paid by Participant to HCC by wire transfer not less than seventy-two (72) hours following receipt of such billing statements. -17- 20 EXHIBIT "D" [deleted by amendment] -18- 21 EXHIBIT "E" DELETED INTENTIONALLY -19- 22 EXHIBIT "F" PROPOSED PROCEDURES (attached) -20-
1 EXHIBIT 10.29 HCC PARTICIPANT AGREEMENT This Agreement (the "Agreement") is entered into by and between THE HOTEL CLEARING CORPORATION, a Delaware corporation ("HCC"), and ANASAZI SERVICE CORPORATION, ("Participant"), to be effective the 31st day of December, 1992. SECTION 1. DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) Commissionable Reservations. Commissionable Reservations within a particular time period equals the number of reservations (both voice and electronic) processed through the HCC System within such time period that are identified as "commissionable" or "partially commissionable" on the transaction records provided by Participant to HCC. (ii) HCC System. The HCC System is an automated clearinghouse system to provide for the coordination of reservation information, transfer of hotel reservation commissions and ancillary services to Subscribers and Participating Entities. (iii) [*] are the [*] paid by [*] for [*] from Participant processed [*]. (iv) Participating Entity. A Participating Entity is an operator of a hotel reservation system that has executed a HCC Participant Agreement. (v) Subscriber. A Subscriber is any person or entity who has executed an HCC Subscriber Agreement and makes reservations with a Participating Entity. A list of current Subscribers will be periodically provided by HCC to Participant. (vi) Subscriber Commissions. Subscriber Commissions are the commissions paid by or through Participant to Subscribers for reservations made with Participant or hotel properties utilizing Participant's reservation system. Subscriber Commissions will be based on commission rates provided to HCC by the Participant. (vii) UltraSwitch. UltraSwitch is a service of The Hotel Industry Switch Company ("THISCO"), which has certain common ownership with HCC, to provide an interface between Subscribers and hotel reservation systems with the capability to provide immediate room confirmation numbers for each hotel property participating in UltraSwitch. * Confidential Treatment Requested -1- 2 SECTION 2. THE HCC SYSTEM 2.1 Duties of HCC. HCC will provide and operate the HCC System for the use and benefit of Participant and other Participating Entities. HCC will provide all reasonable and necessary technical support, hardware and software, and modifications to the HCC System to provide clearinghouse services to Participant as described below. Upon compliance with the terms of this Agreement by Participant, HCC will provide the following clearinghouse services to Participant: (i) identify Participant and/or hotel properties utilizing Participant's reservation system (at Participant's option) to Subscribers as being a HCC System Participant through the use of UltraSwitch or other central reservation system services (and, at the discretion of HCC, by distribution of other promotional materials), subject to the provisions of Section 5.2; (ii) provide billing statements for Subscriber Commissions, Transaction Fees (as defined below) and other fees, costs and expenses to Participant on a regular (normally monthly) basis as provided in Section 3 below; (iii) distribute collected Subscriber Commissions to the appropriate Subscribers based upon HCC Subscriber Agreements with such Subscribers; (iv) provide periodic (normally monthly) reports to Participant and Subscribers reflecting Commissionable Reservations and exceptions to Subscriber Commissions based upon the data provided to HCC by Participant; (v) provide telephone customer support services from 8:00 a.m. to 5:00 p.m., Central time, Monday through Friday, exclusive of legal holidays; (vi) except with respect to the Transaction Fee and Participant Commission as as set forth herein, provide the services set forth herein to Participant on the same basis as the services are provided to HCC Shareholder Participating Entities with similar volumes; and (vii) list Participant and/or its participating hotel properties utilizing the HCC System through Participant (at Participant's option) in its marketing materials as "members" or "participating" hotels. A description of the currently anticipated procedures to be followed in the payment process is given on Exhibit "E" attached, although the timing and exact details of such procedures as implemented by HCC in operation of the HCC system may be different due to computer-related and other operational constraints. Such procedures are subject to change from time to time as circumstances require or as otherwise determined by HCC. 2.2 Duties of Participant. Participant will cooperate fully with HCC personnel with respect to the implementation of the HCC System between the Subscribers and -2- 3 Participant. Participant specifically authorizes HCC to obtain information concerning reservations made through Participant's reservation system from the UltraSwitch system and any other central reservation system service and to use such information (i) as provided in the procedures described in Exhibit "E" and (ii) as otherwise approved in writing by the Board of Directors of HCC for the purpose of performing the services provided herein or as otherwise approved in writing by Participant. Participant agrees to use its best efforts to provide HCC all appropriate reservation information it receives from participating hotel properties (including all reservations made electronically or by voice, whether directly to the property or through the use of a central reservation "800" phone number) on a timely basis. All information provided by Participant with respect to reservations, Subscribers and Subscriber Commissions must be complete and accurate to the best of Participant's ability, and must be inclusive of all the information necessary to permit HCC to provide the clearinghouse services described in Section 2.1. The initial information that Participant must provide to HCC is indicated on Exhibit "A". Participant is under no obligation to obtain or provide the transaction data from any particular source. 2.3 Modification or Enhancement of the HCC System or Participant System. HCC may in its sole discretion modify the operation or enhance the capability of the HCC System, and Participant agrees to cooperate with HCC in all modifications and enhancements of the HCC System. All significant modifications or enhancements will require the approval of the Board of Directors of HCC and will be applicable to all Participants who elect to accept such enhancements or modifications. If HCC determines that such modification or enhancement is likely to require Participant to make significant modifications to its central reservation system (any such modifications to be at Participant's sole expense), HCC will provide at least ninety (90) days' prior notice to Participant of such modification or enhancement. In the event Participant elects to not accept and pay for such modifications or enhancements, Participant may terminate this Agreement or elect to not receive the modification or enhancement (if permitted by HCC) by giving notice of such termination or election within 60 days of receipt of notice. If Participant modifies its central reservation system after making a connection with HCC and such modification requires HCC to modify the HCC System, or to provide additional services to utilize information supplied by Participant as required by Section 2.2, Participant will pay HCC such additional amount agreed to by the parties based on HCC's standard consulting rate and all expenses incurred. SECTION 3. FEES, COSTS, AND PAYMENTS 3.1 Fees. Participant shall pay monthly a Transaction Fee of U.S. [*] for each Commissionable Reservation processed prior to the date that certain Convertible Note from HCC to Participant dated December 31, 1992 is paid. Thereafter, HCC may, at its sole discretion, change the Transaction Fees charged to Participant as provided above, upon ninety (90) days notice to Participant. However under no circumstances shall the Transaction Fee exceed U.S. [*] over the highest Transaction Fee paid by an HCC Shareholder with comparable volume. Solely for verification purposes and not to be used or dissiminated otherwise, HCC will provide, upon request, a list of the Transaction Fee per Commissionable Reservation paid by each HCC Shareholder. No participant, other than an HCC Shareholder, with comparable volumes * Confidential Treatment Requested -3- 4 shall pay a lower Transaction Fee or, in such event, Participant's Transaction Fee shall be reducted to an amount equal to such lower fee. Participant hereby agrees to wire transfer all such fees into HCC's bank account as provided in Exhibit "B" or permit a debit from Participant's account as provided in Exhibits "B" and "F" . Participant shall elect prior to the first month's commissions being processed (and such election shall have effect for the term of this Agreement) to have funds wired or debited as provided herein. Participant shall use its best efforts to collect and pay to HCC all such fees that are attributable to Participant and all of Participant's affiliates, franchises, or hotel properties utilizing Participant's reservation system who utilize the HCC System through Participant. 3.2 Subscriber Commissions. Participant agrees to wire transfer to HCC or permit a debit by HCC as provided herein of all Subscriber Commissions shown on billing statements as provided in Section 3.5. and as provided in Exhibit "C" attached. Participant is responsible for collection and payment to HCC of all such Subscriber Commissions received by Participant that are attributable to Participant and all of Participant's affiliates, franchisees and hotel properties utilizing Participant's reservation system that utilize the HCC System under this Agreement. Payments to Subscribers will be made in appropriate local currency. 3.3 [*]. In consideration of [*] from [*] processed [*] agrees to [*] during the term of this Agreement or any extension hereof [*] for each [*] (as hereinafter defined). A [*] is AN INDIVIDUAL [*] OR AFFILIATED WITH [*] OR [*] utilizing [*] who has [*] of its properties [*] of its commissions to [*] through the [*] at any time prior to the date that certain [*] to [*] dated [*]. The [*] paid to [*] for those transactions will be [*] on the same basis, [*], and at the [*] as [*] paid to [*] as, if and when such [*] are paid. Subject to the immediately preceding sentence, such [*] will be paid by [*] on a quarterly basis in arrears, [*] of all or part of any calendar quarter's [*] to the [*] determines that projected [*] requires such deferral. HCC will have the [*] against any [*] the amount of any fees, costs, expenses and/or other amounts owing [*]. In the event of a breach of this Agreement [*] to timely cure and the resultant termination of [*] by [*] to the extent [*] has processed transactions for which [*] may be [*] Section [*] shall survive such termination. 3.4 Billing Statements. Based upon the information provided HCC by Participant pursuant to Section 2.2, above, HCC will provide periodic (normally monthly) billing *Confidential Treatment Requested -4- 5 statements detailing (i) Subscriber Commissions to be paid by Participant or hotel properties utilizing Participant's reservation system who utilize the HCC System through Participant for the period covered by such billing statement; (ii) Transaction Fees to be paid by or through Participant, based on Commissionable Reservations for the period covered by such billing statement; (iii) other fees, costs and additional expenses to be paid by Participant for the period covered by such billing statement; and (iv) [*] to be paid to [*] for the most recent quarterly period preceding such billing statement, which [*] will be [*] included in billing statements only on a quarterly basis. Items (i) through (iv) may be included on separate billing statements. 3.5 Disputed Commissions. HCC will provide Participant and Subscribers with periodic reports indicated under Section 2.1(v) that will indicate any exceptions to Subscriber Commissions, based on discrepancies between information given HCC by Participant compared to other information available to HCC through UltraSwitch or any other central reservation system service. With respect to all exceptions as to which Participant provides supporting documentation, HCC will forward such documentation to the appropriate Subscriber(s), and the Subscribers involved may pursue such dispute directly with Participant or Participant's participating hotels, but HCC will not have any liability to either Participant, its participating hotels or such Subscriber with respect to the resolution of any disputed commission. No dispute concerning any Subscriber Commissions it receives or has control of will in any way affect or reduce the obligations of Participant to (i) timely pay all other Subscriber Commissions and (ii) timely pay to HCC all Transaction Fees and other fees, costs and additional expenses it receives or has control of owed by Participant or its participating hotels under this Agreement. 3.6 Additional Authorizations. Participant agrees to execute and deliver to HCC or such bank(s) or other appropriate persons any and all documents, give to such bank(s) or other persons any and all directions, and to take all other actions that are necessary or appropriate to wire transfer or debit the funds to be paid hereunder by Participant. SECTION 4. TERM 4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall expire [*] after the date of this Agreement. This Agreement will be automatically renewed and extended for additional twelve (12) month periods unless, at least thirty (30) days prior to the expiration of any additional twelve (12) month period, either party provides written notice to the other of its decision not to renew and extend. 4.2 Option to Terminate. Participant may terminate this Agreement effective on the first anniversary date hereof by giving notice of such termination to HCC at least thirty (30) days prior to the first anniversary date. *Confidential Treatment Requested -5- 6 SECTION 5. TERMINATION 5.1 Termination Upon Default. Upon the occurrence of an Event of Default (as defined below) by either party and the failure of such party to cure such default after notice and opportunity to cure as provided by Section 6.3 below, the nondefaulting party may terminate this Agreement at any time. 5.2 Suspension of Status. Upon the occurrence of an Event of Default by Participant and the failure of Participant to cure such default after notice and opportunity to cure as provided by Section 6.3 below, then, if HCC does not terminate this Agreement under Section 5.1, until such time as such Event of Default is cured HCC shall have the right to suspend the status of the defaulting hotel property or Participant, if the default is caused by Participant and not one or more of Participant's hotel properties, as a Participating Entity and to notify and all Subscribers of such default and suspension, whether through the UltraSwitch system, other central reservation systems, or otherwise. Upon notification by Participant to HCC of any default in payment by any affiliate, franchisee or participating hotel of Participant of payments due under this Agreement and until notification by Participant of the cure of such default, HCC shall have the right to suspend the status of such affiliate, or franchise, or hotel property as a Participating Entity and to notify all subscribers of such default and suspension by each defaulting affiliate, franchise, or hotel property. SECTION 6. DEFAULT 6.1 Events of Default. Subject to Section 6.2 below, any one of the following will be considered an Event of Default: (i) The failure of either party to pay any amount due hereunder within the time required; (ii) The refusal or failure of either party to perform diligently and in good faith each and every material provision of this Agreement; (iii) The commencement by either party of a voluntary case under Chapter 11 or 7 of the United States Bankruptcy Code, as from time to time in effect, the commencement against either party of an involuntary case under said Chapter 11 or 7 that has not been dismissed within 60 days of its existence, either party seeking relief as a debtor under any applicable law, other than said Chapter 11 or 7, or any jurisdiction relating to the liquidation or reorganization of debtors or the modification of the rights of creditors, the entry of a court order adjudging the party bankrupt or insolvent, ordering its liquidation or reorganization or assuming custody or appointing a receiver or other custodian of its property, or its making an assignment for the benefit of, or entering into a composition with, its creditors; Any such Event of Default shall not relieve the defaulting party from any of its obligations hereunder, and the non-defaulting party shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. -6- 7 6.2 Force Majeure. It will not constitute an Event of Default if such event listed in Section 6.1 is caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if any such occurrence results in any of the events described in Section 6.1, and the same continues for more than thirty (30) consecutive days, either party may terminate this Agreement by providing notice as required herein. 6.3 Cure Period. Upon the occurrence of an Event of Default, the non-defaulting party will give written notice to the defaulting party specifying the alleged default. The defaulting party will then be entitled to thirty (30) days from receipt of such notice within which to cure such default; provided, that in the case of a monetary default by Participant, Participant will only be allowed to cure such default within two (2) business days after receipt of such notice, by delivering that amount owed to HCC in good funds into HCC's bank account. SECTION 7. CONFIDENTIALITY 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by Participant and HCC that each will receive confidential and proprietary information that is the property of the other party. All such confidential and proprietary information will be marked or otherwise identified as such and will be treated as confidential and proprietary subject only to disclosure where required by law. Such designation may be removed by each party making the designation. Participant acknowledges that it will have no access to and will not use UltraSwitch software or related property by reason of this Agreement, and that use of such UltraSwitch services by Participant would be permitted only under a separate agreement with THISCO. Participant acknowledges that it will have no access to and will not use the HCC System or related property, other than as specifically provided for in this Agreement, and that such system and related property is confidential and proprietary of HCC. HCC acknowledges that the specific information concerning Participant's reservations, whether processed through the UltraSwitch system or otherwise provided by Participant to HCC outside of the UltraSwitch system, is the property of Participant, although Participant acknowledges HCC may use such information (i) as provided in the procedures described in Exhibit "E" and (ii) as otherwise approved in writing by the Board of Directors of HCC for purposes of providing the services set forth in this Agreement or with the prior written consent of Participant, as long as HCC removes any information that indicates the customer is a customer of Participant. The aggregate data from the HCC System will become the property of HCC. Any use of HCC service Marks or trade names by Participant is subject to prior written approval of HCC, provided, that Participant may describe the HCC System contemplated by this Agreement in its franchise offering circular and other materials as required by state or federal law. The provisions of this Section 7.1 will remain binding and in force and effect as long as such information remains confidential (other than by breach of this Agreement), notwithstanding the expiration or termination of this Agreement at any time. -7- 8 SECTION 8. INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. Subject to Section 9.2, Participant agrees to indemnify and hold harmless HCC and HCC's affiliates, directors, officers, employees and stockholders (other than Participant), from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring as a result of or arising out of a material breach of this Agreement on account of Participant's fault, to the extent not caused by the fault of HCC ("HCC's Losses"). Subject to Section 9.2, HCC agrees to indemnify and hold harmless Participant, and Participant's affiliates, directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("Participant's Losses") occurring as a result of or arising out of a material breach of this Agreement on account of HCC's fault to the extent not caused by the fault of Participant. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indemnified party will give prompt notice thereof to the indemnifying party and the indemnifying party will be entitled to participate therein or, to the extent that it wishes, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. Whether or not the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable for any compromise or settlement of any such action or claim effected without its consent (which shall not be unreasonably withheld). SECTION 9. DISCLAIMER OF WARRANTIES 9.1 Waiver of Warranties. HCC WILL NOT BE RESPONSIBLE OR LIABLE FOR ANY INACCURACIES IN THE DATA OR THE INFORMATION PROCESSED BY OR THROUGH THE HCC SYSTEM NOR WILL IT HAVE ANY LIABILITY FOR ANY ACT OR FAILURE TO ACT UNLESS EXPRESSLY SET FORTH HEREIN, EXCEPT TO THE EXTENT RESULTING FROM HCC'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE, ARE DISCLAIMED BY HCC AND WAIVED BY PARTICIPANT. 9.2 No Consequential Damages. Neither party will be liable to the other for any consequential damages caused or resulting from any breach of this Agreement or arising -8- 9 out of the performance of this Agreement, and each party hereby expressly waives such damages. SECTION 10. MISCELLANEOUS 10.1 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, will be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party will select one arbitrator with thirty (30) days of notice of the dispute, and the two (2) arbitrators selected shall select a third neutral arbitrator within thirty (30) days after the second arbitrator is chosen. All reasonable and necessary costs and fees (including attorney's fees) incurred in connection with the arbitration will be borne by the losing party or assessed in the award as otherwise deemed appropriate by the arbitrators. If the demand for arbitration is initiated by Participant, venue of the arbitration proceedings will be determined by HCC. If the demand for arbitration is initiated by HCC, venue of the arbitration proceedings will be determined by Participant. 10.2 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to reservations commissions clearinghouse services and that each party may contract with other parties providing same or similar services. 10.3 Status of Parties. This Agreement will not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. HCC will not be deemed by this Agreement to be granting a license to Participant, with respect to UltraSwitch, the HCC System or any software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. 10.4 Assignment. This Agreement is not assignable by HCC or Participant without the prior written consent of the nonassigning party, and such consent shall not be unreasonably withheld or delayed. For purposes of this Agreement, it shall not constitute an assignment for Participant to enter into contracts with hotel properties to participate in the HCC System through Participant's reservation system pursuant to this Agreement nor shall it constitute an assignment in the event Participant is wholly acquired by a third party. 10.5 Notices. All notices and other communications contemplated hereby must be in writing (except in the case of electronically transmitted data) and (a) personally delivered, (b) deposited in the United States mail, first- class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, (d) sent by telecopy with confirmation of receipt of telecopy to the number indicated, or (e) transmitted directly to the recipient by electronic data transmission pursuant to arrangements made between the parties. Such notices and other commissions (except in the case of electronically transmitted data) shall be addressed as follows: -9- 10 IF TO HCC: IF TO PARTICIPANT: 3811 Turtle Creek Blvd. 7500 N. Dreamy Draw Drive Suite 1100 Suite 120 Dallas, TX 75219 Phoenix, Arizona 85020 Attention: John F. Davis, III Attention: John H. Holdsworth (if by telecopy to: (if by telecopy to: (214) 528-5675) (602) 861-7687) or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices will be deemed given and received (i) at the time of personal delivery, (ii) if sent by U.S. Mail, three (3) business days after mailing, (iii) if sent by overnight courier, one (1) business day after such sending, (iv) if sent by telecopy, upon receiving of confirmation of receipt of the telecopy at the number indicated, or (v) in the case of electronically transmitted data, when received. 10.6 Controlling Law. This Agreement will be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. Subject to the agreement to arbitrate and the jurisdiction and venue provisions set forth in section 10.1 hereof, any action brought relating to or arising out of this Agreement must be brought in the state or federal courts situated in the county and state of the residence or principal place of business of the party against whom the action is brought (or any of them, if more than one). 10.7 Entire Agreement. This Agreement and the Exhibits attached hereto constitute the entire agreement between HCC and Participant with respect to the provision of services under the HCC System, and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement that are not contained in this Agreement. 10.8 Successors and Assigns. This Agreement will be binding upon and will inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 10.9 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement will be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. 10.10 Other Participant Agreements. HCC hereby agrees that in the event HCC enters into a HCC Participant Agreement with comparable volumes from and after the date hereof and prior to the expiration or other termination of this Agreement with any other party who is not a shareholder of HCC or who is not under contract to acquire one or more -10- 11 shares of HCC stock which contains more favorable terms and conditions than those provided herein, HCC shall notify Participant of such occurrence and shall permit the amendment of this Agreement to incorporate said terms and conditions. AGREED to as of the date first written above. THE HOTEL CLEARING CORPORATION ANASAZI SERVICE CORPORATION By: By: --------------------------- -------------------------- John F. Davis, III, President Title: ----------------------- -11- 12 EXHIBIT "A" Initial Information to be Provided by Participant to HCC The fields in each commission record are the following: <TABLE> <S> <C> <C> -Record identifier required validated -Chain record number required check for duplicates -Chain/Brand code required validated -Booking source required validated -Property ID required validated -PNR Number optional no checks -Confirmation number required validated presence -Cancellation number optional no checks -Corporate ID number optional no checks -Subscriber IATA number required validated HCC User -Group/Guest last name required validated presence -Group/Guest first name optional no checks -Status code required validated -Reason code optional if present, validate -Arrival date required validated, no future -Departure date required validated, no future -Number of nights required validated presence -Number of rooms required validated presence -Commissionable revenue required validated, no neg. -Gross Commission required validated, no neg. -Adjustment amount required validated presence -Net Commission due required validate computation -Currency code required validated -Comments optional no checks </TABLE> -12- 13 EXHIBIT "B" Participant Fees 1. Transaction Fees and other fees, costs and expenses payable under the Agreement are to be wire transferred by Participant directly into HCC's bank account, described as follows: Bank Name: ----------------------------------------------- Account Number: ------------------------------------------ Other Appropriate Information: --------------------------- ---------------------------------------------------------- ---------------------------------------------------------- or debited as otherwise provided in the Agreement. 2. Transaction Fees and other fees, costs and expenses payable under the Agreement that are listed in the billing statements provided to Participant by HCC as provided in Section 3.5 of the Agreement and which are received by or under the control of Participant shall be wire transferred from Participant to HCC's account designated above or debited as provided herein, not less than forty-eight (48) hours following receipt of such billing statements. -13- 14 EXHIBIT "C" Subscriber Commissions 1. Subscriber Commissions are specified in the record field "Net Commission Due" as described on Exhibit "A". 2. Subscriber Commissions are to be wire transferred or debited directly from Participant's bank account, described as follows: [Bank Name] [Account Number] [Other Appropriate Information] 3. Subscriber Commissions listed in the billing statements provided to Participant by HCC as provided in Section 3.5 of the Agreement and received or under the control of Participant shall be wire transferred or debited from the account designated above, not less than forty-eight (48) hours following receipt of such billing statements. -14- 15 EXHIBIT "D" [*] *Confidential Treatment Requested -15- 16 EXHIBIT "E" PROPOSED PROCEDURES (attached) -16- 17 EXHIBIT "F" DEBIT AUTHORIZATION TO: [Bank] RE: [Account Number and identification] DATE: The undersigned hereby authorizes The Hotel Clearing Corporation to debit the undersigned's account identified above, and to transfer sums from such account by wire transfer, debit memo, draft or check, all without further instruction or verification of such transfer instructions from the undersigned. This authorization will remain in full force and effect until written notification of cancellation is given by the undersigned to the bank or other financial institution identified above. ---------------------------------- By: ------------------------------- Title: ---------------------------- -17-
1 EXHIBIT 10.30 HCC PARTICIPANT AGREEMENT This Agreement (the "Agreement") is entered into by and between THE HOTEL CLEARING CORPORATION, a Delaware corporation ("HCC"), and MARRIOTT INTERNATIONAL, INC. ("Participant"), to be effective the 18th day of March, 1997. SECTION 1. DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) Commissionable Reservations. Commissionable Reservations within a particular time period equals the number of reservations (both voice and electronic) processed through the HCC System within such time period that are identified as "commissionable" or "partially commissionable" on the transaction records provided by Participant to HCC and for which a travel agent commission is paid pursuant to this Agreement. (ii) HCC System. The HCC System is HCC's automated clearinghouse system to provide for the coordination of reservation information, transfer of hotel reservation commissions and ancillary services to Travel Agents and Participating Entities. (iii) Participating Entity. A Participating Entity is an operator of a hotel reservation system that has executed a HCC Participant Agreement. (iv) HCC Travel Agents. An HCC Travel Agent is a travel agency who has executed an HCC Subscriber Agreement. A list of current HCC Travel Agents will be periodically provided by HCC to Participant. (v) HCC Travel Agent Commissions. HCC Travel Agent Commissions are the commissions paid by Participant to HCC Travel Agents pursuant to this Agreement. HCC Travel Agent Commissions will be based on commission rates provided by Participant to HCC. SECTION 2. THE HCC SYSTEM 2.1 Duties of HCC. HCC will provide and operate the HCC System for the use and benefit of Participant, its franchisees and affiliates, and other Participating Entities. HCC will provide all reasonable and necessary technical support, hardware and software, except as otherwise provided herein, and modifications to the HCC System to provide clearinghouse services to Participant and its franchisees and affiliates as described below. Upon compliance with the terms of this Agreement by Participant, its franchisees and affiliates, and subject to Section 5 hereof, HCC will provide the following clearinghouse services to Participant and its franchisees and affiliates: (i) identify Participant to travel agents as being a HCC System Participating Entity; 2 (ii) provide billing statements for HCC Travel Agent Commissions, Transaction Fees (as defined below) and other fees, costs and expenses to Participant no later than the fifteenth (15th) business day after the end of each month as provided in Section 3 below; (iii) distribute collected HCC Travel Agent Commissions received from Participant and its affiliates and franchisees to the appropriate HCC Travel Agents as set forth in the HCC Travel Agent Commission information provided by Participant; (iv) provide no later than the fifteenth (15th) business day of each month reports to Participant and HCC Travel Agents reflecting HCC Travel Agents' reservation transactions with Participant and HCC Travel Agent Commissions owed based upon the data provided to HCC by Participant and its affiliates and franchisees who are participating in the HCC System; and (v) provide telephone customer support services from 8:00 a.m. to 5:00 p.m., U.S. Central time, Monday through Friday, exclusive of legal holidays. The procedures of the HCC System are subject to changes for enhancements from time to time as determined by HCC, provided that no such changes will have a significant adverse impact on the clearinghouse services described above. 2.2 Duties of Participant. Participant shall diligently and in good faith do the following: (i) Cooperate reasonably with HCC personnel with respect to the implementation of the HCC System between HCC Travel Agents and Participant and its affiliates and franchisees; (ii) Provide HCC with all that is reasonably required by HCC to process all reservations (including all reservations made electronically or by voice, through the use of a central reservation "800" phone number, inclusive of no-shows, cancellations and non-commissionable transactions) made by HCC Travel Agents with Participant and, subject to 2.2(iv), its affiliates and franchisees no less often than on a semi-monthly basis such data being complete and accurate to the best of Participant's knowledge and ability and inclusive of all of the information to permit HCC to provide the clearinghouse services described in Section 2.1 hereof and, without limitation, being such information as set forth on Exhibit A hereof; and permit and authorize HCC to obtain and use such data concerning such reservations made with Participant and, subject to 2.2(iv), its affiliates and franchisees except such data designated as confidential pursuant to Section 7 hereof. The foregoing shall be subject to receipt by Participant from HCC of the instructions, specifications, directions, information, assistance, and cooperation reasonably required by Participant to provide the foregoing. (iii) Pay, pursuant to this Agreement, all Travel Agent Commissions reported to HCC for processing pursuant to this Agreement within two (2) business days of receipt of the billing statement described in Section 3.5 hereof; -2- 3 (iv) Use its reasonable efforts to cause each of its franchisees and affiliates to fully and timely participate in the HCC System pursuant to this Agreement; (vi) Permit HCC to use its name as an entity participating in the HCC System. 2.3 Modification or Enhancement of the HCC System or Participant System. HCC may in its sole discretion modify the operation or enhance the capability of the HCC System, and Participant agrees to cooperate reasonably with HCC to the extent reasonably necessary to effectuate modifications and enhancements of the HCC System. If Participant determines that such modification or enhancement is likely to require Participant to make significant modifications to its central reservation system (any such modifications to be at Participant's sole expense), HCC will provide at least ninety (90) days' prior notice to Participant of such modification or enhancement and Participant may, at its option, terminate this Agreement upon sixty (60) days notice to HCC. SECTION 3. FEES, COSTS, AND PAYMENTS 3.1 [*] an [*] of [*] (the [*]) on or before [*] provided [*] has provided to [*] all of the information necessary for [*] for all of its [*] for [*] as required by Section [*] of this Agreement and provided further, in the event [*] shall [*] the following [*] of [*] pursuant to this [*] shall [*] the amount indicated. <TABLE> <CAPTION> Average [*] [*] if [*] Time Period During the Time Period Not Met ---- ------ ------------ ------ --- ---- ------ ------------ --- --- <S> <C> <C> [*] -- [*] [*] [*] [*] -- [*] [*] [*] [*] -- [*] [*] [*] [*] -- [*] [*] [*] [*] -- [*] [*] [*] </TABLE> The [*] may be [*] from any payment due [*] to [*] to [*] payable upon receipt, at [*] option. In the event the total [*] below [*] the foregoing [*] shall be void and of no effect with respect to [*] to be made after the [*] the [*] of [*] 3.2 Fees for Processing HCC Travel Agent Commissions. (a) For the [*] Commissionable Reservations processed each month, Participant shall pay HCC a transaction fee ("HCC Transaction Fee") each month of *Confidential Treatment Requested -3- 4 U.S. [*] for each such Commissionable Reservation processed. For any month wherein the total of Commissionable Reservations is greater than [*] but less than [*] shall be due from either party for each such Commissionable Reservation over [*] but less than [*] (b) For each Commissionable Reservation in excess of [*] processed each month, [*] (the "Participant Transaction Fee") as follows: For any month wherein the total of Commissionable Reservations processed are in excess of [*] but less than [*] a Participant Transaction Fee of [*] for each Commissionable Reservation between [*] and [*] For any month wherein the total of Commissionable Reservations processed are in excess of [*] but less than [*] a Participant Transaction Fee of [*] for each Commissionable Reservation between [*] and [*] For any month wherein the total of Commissionable Reservations processed are in excess of [*] and less than [*] a Participant Transaction Fee of [*] for each Commissionable Reservation between [*] and [*] and For any month wherein the total of Commissionable Reservations processed are in excess of [*] a Participant Transaction Fee of [*] for each Commissionable Reservation in excess of [*] Provided however, notwithstanding the preceding provisions of this 3.2(b), the total Participant Transaction Fee paid per month shall not exceed an amount equal to [*] per Commissionable Reservation in the aggregate. 3.3 Commission Payments. HCC shall pay HCC Travel Agent Commissions in the travel agent's local currency or the currency requested by the travel agency. HCC shall be responsible for complying with laws and regulations relating to the treatment of unclaimed property (sometimes referred to as "escheatment" laws) resulting from checks issued to travel agents under this Agreement. The parties will jointly establish mutually acceptable procedures to be implemented by HCC in order to comply with such laws and regulations. The parties will meet to establish such procedures by no later than thirty (30) days after the effective date, and will cooperate and work diligently with one another in order to finalize same as promptly as practical. 3.4 Disputed Commissions. HCC will provide Participant and HCC Travel Agents with periodic reports indicated under Section 2.1(iv) that will indicate any exceptions to HCC Travel Agent Commissions, based on discrepancies between information given HCC by Participant compared to other information available to HCC. With respect to all exceptions as to which Participant provides supporting documentation, HCC will forward such documentation to the appropriate HCC Travel Agent(s), and the HCC Travel Agents involved may pursue such dispute directly with Participant('s) franchisees, but HCC will not have any liability to either *Confidential Treatment Requested -4- 5 Participant or any travel agent (HCC or non-HCC) with respect to the resolution of any disputed commission. No dispute concerning any travel agent commissions will in any way affect or reduce the obligations of Participant to (i) timely pay all other HCC Travel Agent Commissions reported to HCC for processing and (ii) timely pay to HCC all Transaction Fees and other fees, costs and additional expenses owed by Participant under this Agreement; nor shall any such dispute in any way affect or reduce the obligations of HCC to timely pay Participant all Participant Transaction Fees due under this Agreement. 3.5 Billing Statements. Based upon the information provided HCC by or with respect to Participant pursuant to Section 2.2, above, HCC will provide Participant a monthly billing statement detailing (i) HCC Travel Agent Commissions to be paid by Participant for the period covered by such billing statement; (ii) HCC Transaction Fees to be paid by Participant, based on Commissionable Reservations for the period covered by such billing statement; (iii) [*] to be paid [*] based on [*] for the period covered by such billing statements, (iv) any [*] of the [*] which is due and (v) all other costs and fees owed by Participant pursuant to this Agreement. All fees and costs shall be paid in U.S. dollars. SECTION 4. TERM 4.1 Term of Agreement. The initial term of this Agreement shall begin on the effective date set forth at the beginning of this Agreement and, unless earlier terminated pursuant to the provisions of this Agreement, shall expire on the last day of the [*] after the date of this Agreement. However, this Agreement will be automatically renewed and extended for additional twelve (12) month periods unless, at least sixty (60) days prior to the expiration of the initial term of this Agreement or any additional twelve (12) month period, either party provides written notice to the other of its decision not to renew and extend. SECTION 5. TERMINATION 5.1 Termination Upon Default. Upon the occurrence of an Event of Default (as defined below) by either party and the failure of such party to cure such default after notice and opportunity to cure as provided by Section 6.3 below, the nondefaulting party may terminate this Agreement at any time. 5.2 Suspension of Status. Upon the occurrence of an Event of Default by Participant and the failure of Participant to cure such default after notice and opportunity to cure as provided by Section 6.3 below, then, if HCC does not terminate this Agreement under Section 5.1, until such time as such Event of Default is cured HCC shall have the right to suspend the status of Participant as a Participating Entity and to notify all HCC Travel Agents of such default and suspension through central reservation systems or otherwise. SECTION 6. DEFAULT 6.1 Events of Default. Subject to Section 6.2 below, any one of the following will be considered an Event of Default: (i) The failure of either party to pay any amount due hereunder within the time required; *Confidential Treatment Requested -5- 6 (ii) The failure of Participant or HCC to satisfy the obligations set forth in this Agreement; (iii) The refusal or failure of either party to perform diligently and in good faith each and every material provision of this Agreement; (iv) If either HCC or Participant (the "Defaulting Party") becomes insolvent, takes any step leading to its cessation as a going concern, or ceases business operations for reasons other than a strike and other than assignment as allowed by this Agreement, then the other party (the "Insecure Party") may immediately terminate this Agreement upon written notice to the other party unless the Defaulting Party immediately gives the Insecure Party adequate assurance of the future performance of this Agreement. If bankruptcy proceedings are commenced with respect to the Defaulting Party, and if this Agreement has not otherwise terminated, then the Insecure Party may suspend all further performance of this Agreement until the Defaulting Party assumes or rejects this Agreement pursuant to Section 365 of the Bankruptcy Code or any similar or successor provision. Any such suspension of further performance by the Insecure Party pending the Defaulting Party's assumption or rejection will not be a breach of this Agreement. Any such Event of Default shall not relieve the defaulting party from any of its obligations hereunder, and the non-defaulting party shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. 6.2 Force Majeure. It will not constitute an Event of Default if such event listed in Section 6.1 is caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if any such occurrence results in any of the events described in Section 6.1, and the same continues for more than thirty (30) consecutive days, either party may terminate this Agreement by providing notice as required herein. 6.3 Cure Period. Upon the occurrence of an Event of Default, the non-defaulting party will give written notice to the defaulting party specifying the alleged default. In the case of a monetary default by either party, the defaulting party will only be allowed to cure such default within two (2) business days after receipt of such notice, by delivering that amount owed to HCC in good funds into the non- defaulting party's bank account. In all other instances, the defaulting party will be entitled to fifteen (15) days from receipt of notice within which to cure the default. SECTION 7. CONFIDENTIALITY 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by Participant and HCC that each may receive confidential and proprietary information that is the property of the other party. All such confidential and proprietary information will be marked or otherwise identified as such and will be treated as confidential and proprietary subject only to disclosure where required by law. Such designation may be removed by each party making the designation. Participant acknowledges that it will have no access to and will not use the HCC System or related property, other than as specifically provided for in this Agreement, and that such system and related property is confidential and proprietary property of HCC. Any use of HCC service marks or trade names by Participant is subject to -6- 7 prior written approval of HCC, provided, that Participant may describe the HCC System contemplated by this Agreement in its franchise offering circular and other materials as required by state or federal law. Unless otherwise provided herein, any use of Participant's service marks or trade names by HCC is subject to prior written approval of Participant. The provisions of this Section 7.1 will remain binding and in force and effect as long as such information remains confidential (other than by breach of this Agreement), notwithstanding the expiration or termination of this Agreement at any time. Except as is necessary in connection with the performance of this Agreement and HCC's business, information regarding the reservations and other transactions of Participant processed by HCC shall be treated as confidential whether or not so marked or otherwise identified as confidential. SECTION 8. INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. Participant agrees to indemnify and hold harmless HCC and HCC's affiliates, directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring as a result of or arising out of a material breach of this Agreement on account of Participant's (or its affiliates) fault, to the extent not caused by the fault of HCC ("HCC's Losses"). HCC agrees to indemnify and hold harmless Participant, and Participant's affiliates, directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("Participant's Losses") occurring as a result of or arising out of a material breach of this Agreement on account of HCC's fault to the extent not caused by the fault of Participant. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indemnified party will give prompt notice thereof to the indemnifying party and the indemnifying party will be entitled to participate therein or, to the extent that it wishes, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. Whether or not the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable for any compromise or settlement of any such action or claim effected without its consent (which shall not be unreasonably withheld). SECTION 9. DISCLAIMER OF WARRANTIES 9.1 Waiver of Warranties. HCC WILL NOT BE RESPONSIBLE OR LIABLE FOR ANY FALSIFICATIONS OR INACCURACIES IN THE DATA PROVIDED BY PARTICIPANT OR THE INFORMATION PROCESSED BY OR THROUGH THE HCC SYSTEM NOR WILL IT HAVE ANY LIABILITY FOR ANY ACT OR FAILURE TO ACT WITH RESPECT TO THE DATA OR THE PAYMENT OF COMMISSIONS UNLESS EXPRESSLY SET FORTH HEREIN. EXCEPT WITH RESPECT TO HCC'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR -7- 8 A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE, ARE DISCLAIMED BY HCC AND WAIVED BY PARTICIPANT. 9.2 No Consequential Damages. Except with respect to the indemnification provisions set forth in Section 8.1 hereof, neither party will be liable to the other for any consequential damages caused or resulting from any breach of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. SECTION 10. MISCELLANEOUS 10.1 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, will be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party will select one arbitrator within thirty (30) days of notice of the dispute, and the two (2) arbitrators selected shall select a third neutral arbitrator within thirty (30) days after the second arbitrator is chosen. All reasonable and necessary costs and fees (including attorney's fees) incurred in connection with the arbitration will be borne by the losing party or assessed in the award as otherwise deemed appropriate by the arbitrators. If the demand for arbitration is initiated by Participant, venue of the arbitration proceedings will be determined by HCC. If the demand for arbitration is initiated by HCC, venue of the arbitration proceedings will be determined by Participant. 10.2 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to reservations commissions clearinghouse services and that each party may contract with other parties providing same or similar services. 10.3 Status of Parties. This Agreement will not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. HCC will not be deemed by this Agreement to be granting a license to Participant with respect to the HCC System or any software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. 10.4 Assignment. This Agreement is not assignable by HCC or Participant without the prior written consent of the non-assigning party, and such consent shall not be unreasonably withheld or delayed provided that Participant may assign this Agreement to a wholly-owned subsidiary or in connection with the sale of its reservation system or franchise system and either party may assign this Agreement without consent in the event of a merger, consolidation, or sale of substantially all of its assets. 10.5 Notices. All notices and other communications contemplated hereby must be in writing (except in the case of electronically transmitted data) and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, (d) sent by telecopy or facsimile with confirmation of receipt to the number indicated, or (e) transmitted directly to the recipient by electronic data transmission pursuant to arrangements made between the parties. Such notices and other communications (except in the case of electronically transmitted data) shall be addressed as -8- 9 follows: IF TO HCC: IF TO PARTICIPANT: 3811 Turtle Creek Blvd. Marriott International Suite 1100 10400 Fernwood Road Dallas, TX 75219 Bethesda, MD 20817 Attention: John F. Davis, III Attention: VP, Distribution Sales If by telecopy/facsimile to: If by telecopy/facsimile to: 528-5675 w/c to: Attn: Law Department 52/1923 (Information Technology Mktg.) or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices will be deemed given and received when received. 10.6 Controlling Law. This Agreement will be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. Subject to the agreement to arbitrate and the jurisdiction and venue provisions set forth in Section 10.1 hereof, any action brought relating to or arising out of this Agreement must be brought in the state or federal courts situated in the county and state of the residence or principal place of business of the party against whom the action is brought (or any of them, if more than one). 10.7 Entire Agreement. This Agreement and the Exhibits attached hereto constitute the entire agreement between HCC and Participant with respect to the provision of services under the HCC System and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement that are not contained in this Agreement. 10.8 Successors and Assigns. This Agreement will be binding upon and will inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 10.9 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement will be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. 10.10 Intellectual Property. Each of the parties hereto represents and warrants to the other that, with respect to all software and other intellectual property in connection with the operation of the HCC System furnished or required to be furnished pursuant to this Agreement (collectively, the "Intellectual Property"), each either owns the Intellectual Property furnished by it or is fully authorized to deliver the Intellectual Property and to allow the Intellectual Property to be used in connection with the HCC System, as contemplated by this Agreement. Should any claim be raised by any third party that the use of any of the Intellectual Property or the delivery of any of the Intellectual Property in connection with this Agreement constitutes infringement of any patent, copyright, license or other property right (a "Claim"), -9- 10 the party furnishing such Intellectual Property shall, at its expense, defend any such Claim in accordance with the provisions of Section 8.1 of this Agreement. Should either party be temporarily or permanently enjoined from using any of the Intellectual Property as a result of any Claim, the other party, at its option and own expense, shall either procure the right to continue to use the Intellectual Property free from any Claim or replace or modify the offending Intellectual Property so that its use becomes non-infringing, within fifteen (15) days of the date on which it receives notices of the claim (either such corrective action being referred to herein as a "Correction"). If a Correction is not accomplished, the party who furnished the Intellectual Proeprty resulting in the Claim shall be deemed to be in default of this Agreement, and in such event Sections 5 and 6 of this Agreement shall control; provided, however, that the fifteen (15) day period specified above shall be deemed to be the applicable cure period under Section 6.3, and once that fifteen (15) day period has expired without a Correction having occurred, the applicable cure period under Section 6.3 shall be deemed to have expired. Without limiting Article 8 of this Agreement, the party who furnished the Intellectual Property resulting in the Claim shall also be obligated to indemnify the other party for any of its losses (such losses being HCC's Losses or Participant's Losses, as the case may be, as defined in Seciton 8.1 hereof) in connection with any Claim for which a Correction is not made within such fifteen (15) day period, in accordance with Article 8. 10.11 Favored Nation Status. In the event any other HCC participating hotel with annual HCC transaction volumes equal to or less than those of Participant is paid more for transaction fees than Participant, HCC shall notify Participant and Participant shall have the right to amend this Agreement to provide for like payments to Participant. For the purpose of determining the amount of transaction fees paid to Participant or any other HCC participating hotel, the Incentive Fee paid pursuant to this Agreement or any other incentive fee or similar payment made to any other HCC participating hotel shall be considered a part of the transaction fees paid. AGREED to as of the date first written above. THE HOTEL CLEARING CORPORATION MARRIOTT INTERNATIONAL, INC. By: By: ------------------------- ---------------------------- Its: Its: ------------------------ --------------------------- -10- 11 EXHIBIT A Initial Information to be Provided by Participant to HCC The fields in each commission record are the following: <TABLE> <S> <C> <C> -Record identifier required validated -Chain record number required check for duplicates -Chain/Brand code required validated -Booking source required validated -Property ID required validated -PNR Number optional no checks -Confirmation number required validated presence -Cancellation number optional no checks -Corporate ID number optional no checks -Subscriber IATA number required validated HCC User -Group/Guest last name required validated presence -Group/Guest first name optional no checks -Status code required validated -Reason code optional if present, validate -Arrival date required validated, no future -Departure date required validated, no future -Number of nights required validated presence -Number of rooms required validated presence -Commissionable revenue required validated, no neg. -Gross Commission required validated, no neg. -Adjustment amount required validated presence -Net Commission due required validate computation -Currency code required validated -Comments optional no checks </TABLE> -11-
1 EXHIBIT 10.31 FIRST AMENDMENT TO HCC PARTICIPANT AGREEMENT This First Amendment to HCC Participant Agreement is entered into by and between The Hotel Clearing Corporation, hereinafter called "HCC", and CHOICE HOTELS INTERNATIONAL, INC., hereinafter called "Participant", to be effective the 11th day August, 1995 (the "First Amendment"). AGREED FACTS 1. HCC and Participant have heretofore entered into an HCC Participant Agreement dated effective March 31, 1995 (hereinafter called the "Participant Agreement"). 2. HCC and Participant have mutually agreed to amend certain provisions of the Participant Agreement as more specifically set forth herein. 3. HCC and Participant intend for this First Amendment to set forth in its entirety their agreement made this date with respect to the amendments to the Participant Agreement as set forth herein. AGREEMENT FOR AND IN CONSIDERATION of the above stated facts, which are hereby acknowledged as true and correct, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, HCC and Participant hereby agree as follows: 1. Section 3.1 of the Participant Agreement is hereby deleted in its entirety and is hereby replaced with the following: "3.1 Fees for Processing HCC Travel Agent Commissions. (a) For each of the [*] Commissionable Reservations processed each calendar year pursuant to this Agreement, Participant shall pay to HCC each month a transaction fee of [*] per Commissionable Reservation ("HCC Travel Agent Transaction Fees"). Participant shall pay no HCC Travel Agent Transaction Fees for any Commissionable Reservation transactions in excess of [*] in each calendar year. *Confidential Treatment Requested -1- 2 (b) For Commissionable Reservations between [*] and [*] processed each calendar year pursuant to this Agreement, neither HCC nor Participant shall pay any fee. (c) For each Commissionable Reservation in excess of [*] but less than [*] processed in each calendar year pursuant to this Agreement, HCC shall pay to Participant each month a fee (a "Participant Fee") as follows: (i) For the first [*] Commissionable Reservations in excess of [*] Commissionable Reservations [*] per Commissionable Reservation. (ii) For each Commissionable Reservation in excess of [*] Commissionable Reservations - [*] per Commissionable Reservation." [*] The fees set forth in Section 3.1(a)-(c) shall apply until such time as the fees per Commissionable Reservation are either (i) determined as standard fees for Pegasus stockholders or (ii) such fees are generally applicable to Pegasus stockholders. At such time, HCC shall make such pricing available to Participant and Participant shall have the right to amend this Agreement accordingly. In the event such standard or generally applicable fees are not established by August 15, 1996, HCC shall promptly provide notice to Participant of any more favorable fees or pricing offered to any other Pegasus stockholders for HCC Participant Agreements beginning after August 15, 1995 and Participant shall have the right to amend this Agreement accordingly. 2. Section 3.4 of the Participant Agreement is hereby deleted in its entirety and is hereby replaced with the following: "3.4 Billing Statements. Based upon the information provided HCC by or with respect to Participant pursuant to Section 2.2 above, HCC will provide monthly billing statements detailing (i) HCC Travel Agent Commissions to be paid by Participant for the period covered by such billing statement; (ii) HCC Travel Agent Transaction Fees to be paid by Participant and (iii) [*] , based on [*] *Confidential Treatment Requested -2- 3 [*] processed during the period covered by such billing statement. All fees and costs shall be paid in U.S. dollars." 3. Section 3.5 of the Participant Agreement is hereby deleted in its entirety. 4. Section 4.1 of the Participant Agreement is hereby deleted in its entirety and is replaced with the following: "4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall expire [*]. This Agreement will be automatically renewed and extended for additional twelve (12) month periods unless, at least thirty (30) days prior to the expiration of the initial term or any additional twelve (12) month period, either party provides written notice to the other of its decision not to renew and extend." 5. Section 5.2 of the Participant Agreement is hereby deleted in its entirety. 6. This First Amendment shall be and hereby is incorporated into the Participant Agreement for all intents and purposes and all terms, provisions and definitions of the Participant Agreement shall apply. 7. Except for the provisions inconsistent with the terms of this First Amendment, the Participant Agreement is hereby ratified and affirmed in all respects. This First Amendment is effective as of the date stated above and executed on the dates indicated below. THE HOTEL CLEARING CORPORATION By: ------------------------- John F. Davis, III President Date: ------------------------- CHOICE HOTELS INTERNATIONAL, INC. By: ------------------------- Its: ------------------------- Date: ------------------------- *Confidential Treatment Requested -3- 4 HCC PARTICIPANT AGREEMENT This Agreement (the "Agreement") is entered into by and between THE HOTEL CLEARING CORPORATION, a Delaware corporation ("HCC"), and CHOICE HOTELS INTERNATIONAL, INC. ("Participant"), to be effective the 31st day of March, 1995. SECTION 1. DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) Commissionable Reservations. Commissionable Reservations within a particular time period equals the number of reservations (both voice and electronic) processed through the HCC System within such time period that are identified as "commissionable" or "partially commissionable" on the transaction records provided by Participant to HCC and for which a travel agent commission is paid pursuant to this Agreement. (ii) HCC System. The HCC System is an automated clearinghouse system to provide for the coordination of reservation information, transfer of hotel reservation commissions and ancillary services to Travel Agents and Participating Entities. (iii) Participating Entity. A Participating Entity is an operator of a hotel reservation system that has executed a HCC Participant Agreement. (iv) HCC Travel Agents. An HCC Travel Agent is a travel agency who has executed an HCC Subscriber Agreement. A list of current HCC Travel Agents will be periodically provided by HCC to Participant. (v) HCC Travel Agent Commissions. HCC Travel Agent Commissions are the commissions paid by Participant to HCC Travel Agents pursuant to this Agreement. HCC Travel Agent Commissions will be based on commission rates provided by Participant to HCC. SECTION 2. THE HCC SYSTEM 2.1 Duties of HCC. HCC will provide and operate the HCC System for the use and benefit of Participant, its franchisees and affiliates, and other Participating Entities. HCC will provide all reasonable and necessary technical support, hardware and software, except as otherwise provided herein, and modifications to the HCC System to provide clearinghouse services to Participant and its franchisees and affiliates as described below. Upon compliance with the terms of this Agreement by Participant, its franchisees and affiliates, and subject to Section 5 hereof, HCC will provide the following clearinghouse services to Participant and its franchisees and affiliates: -1- 5 (i) unless earlier authorized by Participant, no earlier than January 1, 1996, identify Participant to travel agents as being a HCC System Participating Entity; (ii) provide billing statements for HCC Travel Agent Commissions, Transaction Fees (as defined below) and other fees, costs and expenses to Participant no later than the fifteenth (15th) business day after the end of each month as provided in Section 3 below; (iii) distribute collected HCC Travel Agent Commissions received from Participant and its affiliates and franchisees to the appropriate HCC Travel Agents as set forth in the HCC Travel Agent Commission information provided by Participant; (iv) provide no later than the fifteenth (15th) business day of each month reports to Participant and HCC Travel Agents reflecting HCC Travel Agents' reservation transactions with Participant and HCC Travel Agent Commissions owed based upon the data provided to HCC by Participant and its affiliates and franchisees who are participating in the HCC System; and (v) provide telephone customer support services from 8:00 a.m. to 6:00 p.m., U.S. Central time, Monday through Friday, exclusive of legal holidays. The procedures of the HCC System are subject to changes for enhancements from time to time as determined by HCC. 2.2 Duties of Participant. Participant shall diligently and in good faith do the following: (i) Cooperate fully with HCC personnel with respect to the implementation of the HCC System between HCC Travel Agents and Participant and its affiliates and franchisees; (ii) Provide HCC with all that is required by HCC to process all reservations (including all reservations made electronically or by voice, through the use of a central reservation "800" phone number, inclusive of no-shows, cancellations and non-commissionable transactions) made by HCC Travel Agents with Participant and its affiliates and franchisees no less often than on a semi-monthly basis such data being complete and accurate to the best of Participant's knowledge and ability and inclusive of all of the information to permit HCC to provide the clearinghouse services described in Section 2.1 hereof and, without limitation, being such information as set forth on Exhibit A hereof; and permit and authorize HCC to obtain and use such data concerning such reservations made with Participant and its affiliates and franchisees except such data designated as confidential pursuant to Section 7 hereof; (iii) Pay, pursuant to this Agreement, all Travel Agent Commissions reported to HCC for processing pursuant to this Agreement; -2- 6 (iv) Continually use its best efforts to cause each of its franchisees and affiliates to fully and timely participate in the HCC System pursuant to this Agreement; (vi) Permit HCC to use its name as an entity participating in the HCC System. 2.3 Implementation of The HCC System. HCC will proceed with the implementation of the HCC System between HCC Travel Agents and Participant pursuant to a mutually agreed upon schedule. However, Participant shall not be obligated to process transactions pursuant to this Agreement until January 1, 1996. 2.4 Modification or Enhancement of the HCC System or Participant System. HCC may in its sole discretion modify the operation or enhance the capability of the HCC System, and Participant agrees to cooperate with HCC in all modifications and enhancements of the HCC System. If Participant determines that such modification or enhancement is likely to require Participant to make significant modifications to its central reservation system (any such modifications to be at Participant's sole expense), HCC will provide at least ninety (90) days' prior notice to Participant of such modification or enhancement and Participant may, at its option, terminate this Agreement upon sixty (60) days notice to HCC. SECTION 3. FEES, COSTS, AND PAYMENTS 3.1 Fees for Processing HCC Travel Agent Commissions. Participant shall pay HCC monthly transaction fees for processing HCC Travel Agent Commissions ("HCC Travel Agent Transaction Fees") of U.S. Ten Cents ($.10) per HCC Travel Agent Commissionable Reservation. 3.2 Commission Payments. HCC shall pay HCC Travel Agent Commissions in the travel agent's local currency. 3.3 Disputed Commissions. HCC will provide Participant and HCC Travel Agents with periodic reports indicated under Section 2.1(iv) that will indicate any exceptions to HCC Travel Agent Commissions, based on discrepancies between information given HCC by Participant compared to other information available to HCC. With respect to all exceptions as to which Participant provides supporting documentation, HCC will forward such documentation to the appropriate HCC Travel Agent(s), and the HCC Travel Agents involved may pursue such dispute directly with Participant('s) franchisees, but HCC will not have any liability to either Participant or any travel agent (HCC or non- HCC) with respect to the resolution of any disputed commission. No dispute concerning any travel agent commissions will in any way affect or reduce the obligations of Participant to (i) timely pay all other HCC Travel Agent Commissions reported to HCC for processing and (ii) timely pay to HCC all Transaction Fees and other fees, costs and additional expenses owed by Participant under this Agreement. -3- 7 3.4 [deleted by amendment] 3.5 [deleted by amendment] SECTION 4. TERM 4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall expire [*] after the date of this Agreement. However, this Agreement will be automatically renewed and extended for additional twelve (12) month periods unless, at least thirty (30) days prior to the expiration of the initial term of this Agreement or any additional twelve (12) month period, either party provides written notice to the other of its decision not to renew and extend. SECTION 5. TERMINATION 5.1 Termination Upon Default. Upon the occurrence of an Event of Default (as defined below) by either party and the failure of such party to cure such default after notice and opportunity to cure as provided by Section 6.3 below, the nondefaulting party may terminate this Agreement at any time. 5.2 Termination Upon Participant Ceasing to be a Shareholder of HCC. In the event Participant shall cease to be a shareholder of HCC, this Agreement shall terminate effective that date. -4- 8 5.3 Suspension of Status. Upon the occurrence of an Event of Default by Participant and the failure of Participant to cure such default after notice and opportunity to cure as provided by Section 6.3 below, then, if HCC does not terminate this Agreement under Section 5.1, until such time as such Event of Default is cured HCC shall have the right to suspend the status of Participant as a Participating Entity and to notify all HCC Travel Agents of such default and suspension through central reservation systems or otherwise. SECTION 6. DEFAULT 6.1 Events of Default. Subject to Section 6.2 below, any one of the following will be considered an Event of Default: (i) The failure of either party to pay any amount due hereunder within the time required; (ii) The failure of Participant or HCC to satisfy the obligations set forth in this Agreement; (iii) The refusal or failure of either party to perform diligently and in good faith each and every material provision of this Agreement; (iv) The commencement by either party of a voluntary case under Chapter 11 or 7 of the United States Bankruptcy Code, as from time to time in effect, the commencement against either party of an involuntary case under said Chapter 11 or 7, either party seeking relief as a debtor under any applicable law, other than said Chapter 11 or 7, of any jurisdiction relating to the liquidation or reorganization of debtors or the modification of the rights of creditors, the entry of a court order adjudging the party bankrupt or insolvent, ordering its liquidation or reorganization or assuming custody or appointing a receiver or other custodian of its property, or its making an assignment for the benefit of, or entering into a composition with, its creditors. Any such Event of Default shall not relieve the defaulting party from any of its obligations hereunder, and the non-defaulting party shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. 6.2 Force Majeure. It will not constitute an Event of Default if such event listed in Section 6.1 is caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if any such occurrence results in any of the events described in Section 6.1, and the same continues for more than thirty (30) consecutive days, either party may terminate this Agreement by providing notice as required herein. 6.3 Cure Period. Upon the occurrence of an Event of Default, the non-defaulting -5- 9 party will give written notice to the defaulting party specifying the alleged default. In the case of a monetary default by Participant, Participant will only be allowed to cure such default within two (2) business days after receipt of such notice, by delivering that amount owed to HCC in good funds into HCC's bank account. In all other instances, the defaulting party will be entitled to fifteen (15) days from receipt of notice within which to cure the default. SECTION 7. CONFIDENTIALITY 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by Participant and HCC that each may receive confidential and proprietary information that is the property of the other party. All such confidential and proprietary information will be marked or otherwise identified as such and will be treated as confidential and proprietary subject only to disclosure where required by law. Such designation may be removed by each party making the designation. Participant acknowledges that it will have no access to and will not use the HCC System or related property, other than as specifically provided for in this Agreement, and that such system and related property is confidential and proprietary property of HCC. Any use of HCC service marks or trade names by Participant is subject to prior written approval of HCC, provided, that Participant may describe the HCC System contemplated by this Agreement in its franchise offering circular and other materials as required by state or federal law. Unless otherwise provided herein, any use of Participant's service marks or trade names by HCC is subject to prior written approval of Participant. The provisions of this Section 7.1 will remain binding and in force and effect as long as such information remains confidential (other than by breach of this Agreement), notwithstanding the expiration or termination of this Agreement at any time. SECTION 8. INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. Participant agrees to indemnify and hold harmless HCC and HCC's affiliates, directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring as a result of or arising out of a material breach of this Agreement on account of Participant's (or its affiliates or franchisees) fault, to the extent not caused by the fault of HCC ("HCC's Losses"). HCC agrees to indemnify and hold harmless Participant, and Participant's affiliates, directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("Participant's Losses") occurring as a result of or arising out of a material breach of this Agreement on account of HCC's fault to the extent not caused by the fault of Participant. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indemnified party will give prompt notice thereof to the indemnifying party and the indemnifying party will be entitled to participate therein or, to the extent that it wishes, assume the defense thereof with its own counsel. If the indemnifying party elects to -6- 10 assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. Whether or not the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable for any compromise or settlement of any such action or claim effected without its consent (which shall not be unreasonably withheld). SECTION 9. DISCLAIMER OF WARRANTIES 9.1 Waiver of Warranties. HCC WILL NOT BE RESPONSIBLE OR LIABLE FOR ANY FALSIFICATIONS OR INACCURACIES IN THE DATA PROVIDED BY PARTICIPANT OR THE INFORMATION PROCESSED BY OR THROUGH THE HCC SYSTEM NOR WILL IT HAVE ANY LIABILITY FOR ANY ACT OR FAILURE TO ACT WITH RESPECT TO THE DATA OR THE PAYMENT OF COMMISSIONS UNLESS EXPRESSLY SET FORTH HEREIN. EXCEPT WITH RESPECT TO ANY MISHANDLING OR IMPROPER PAYMENT OF FUNDS PAID TO HCC BY PARTICIPANT AND EXCEPT TO THE EXTENT RESULTING FROM HCC'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE, ARE DISCLAIMED BY HCC AND WAIVED BY PARTICIPANT. 9.2 No Consequential Damages. Except with respect to the indemnification provisions set forth in Section 8.1 hereof, neither party will be liable to the other for any consequential damages caused or resulting from any breach of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. SECTION 10. MISCELLANEOUS 10.1 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, will be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party will select one arbitrator within thirty (30) days of notice of the dispute, and the two (2) arbitrators selected shall select a third neutral arbitrator within thirty (30) days after the second arbitrator is chosen. All reasonable and necessary costs and fees (including attorney's fees) incurred in connection with the arbitration will be borne by the losing party or assessed in the award -7- 11 as otherwise deemed appropriate by the arbitrators. If the demand for arbitration is initiated by Participant, venue of the arbitration proceedings will be determined by HCC. If the demand for arbitration is initiated by HCC, venue of the arbitration proceedings will be determined by Participant. 10.2 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to reservations commissions clearinghouse services and that each party may contract with other parties providing same or similar services. 10.3 Status of Parties. This Agreement will not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. HCC will not be deemed by this Agreement to be granting a license to Participant with respect to the HCC System or any software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. 10.4 Assignment. This Agreement is not assignable by HCC or Participant without the prior written consent of the non-assigning party, and such consent shall not be unreasonably withheld or delayed provided that Participant may assign this Agreement in connection with the sale of its reservation system or franchise system and either party may assign this Agreement without consent in the event of a merger, consolidation, or sale of substantially all of its assets. 10.5 Notices. All notices and other communications contemplated hereby must be in writing (except in the case of electronically transmitted data) and (a) personally delivered, (b) deposited in the United States mail, first- class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, (d) sent by telecopy with confirmation of receipt of telecopy to the number indicated, or (e) transmitted directly to the recipient by electronic data transmission pursuant to arrangements made between the parties. Such notices and other communications (except in the case of electronically transmitted data) shall be addressed as follows: IF TO HCC: IF TO PARTICIPANT: 3811 Turtle Creek Blvd. 10750 Columbia Pike Suite 1100 Silver Spring, MD 20901 Dallas, TX 75219 Attention: John F. Davis, III Attention: General Counsel (if by telecopy to: (if by telecopy to: (301) 905-4007) (214) 528-5675) cc: James R. Yoakum 10750 Columbia Pike Silver Spring, MD 20901 or such persons or addresses as any party may request by notice duly given hereunder. -8- 12 Except as otherwise specified herein, notices will be deemed given and received when received. 10.6 Controlling Law. This Agreement will be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. Subject to the agreement to arbitrate and the jurisdiction and venue provisions set forth in Section 10.1 hereof, any action brought relating to or arising out of this Agreement must be brought in the state or federal courts situated in the county and state of the residence or principal place of business of the party against whom the action is brought (or any of them, if more than one). 10.7 Entire Agreement. This Agreement and the Exhibits attached hereto constitute the entire agreement between HCC and Participant with respect to the provision of services under the HCC System and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement that are not contained in this Agreement. 10.8 Successors and Assigns. This Agreement will be binding upon and will inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 10.9 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement will be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. AGREED to as of the date first written above. THE HOTEL CLEARING CORPORATION CHOICE HOTELS INTERNATIONAL, INC. By: By: --------------------------- ------------------------------- John F. Davis, III, President Its: -9- 13 EXHIBIT "A" Initial Information to be Provided by Participant to HCC The fields in each commission record are the following: <TABLE> <S> <C> <C> -Record identifier required validated -Chain record number required check for duplicates -Chain/Brand code required validated -Booking source required validated -Property ID required validated -PNR Number optional no checks -Confirmation number required validated presence -Cancellation number optional no checks -Corporate ID number optional no checks -Subscriber IATA number required validated HCC User -Group/Guest last name required validated presence -Group/Guest first name optional no checks -Status code required validated -Reason code optional if present, validate -Arrival date required validated, no future -Departure date required validated, no future -Number of nights required validated presence -Number of rooms required validated presence -Commissionable revenue required validated, no neg. -Gross Commission required validated, no neg. -Adjustment amount required validated presence -Net Commission due required validate computation -Currency code required validated -Comments optional no checks </TABLE> -10-
1 EXHIBIT 10.32 HCC PARTICIPANT AGREEMENT This Agreement (the "Agreement") is entered into by and between THE HOTEL CLEARING CORPORATION, a Delaware corporation ("HCC"), and Forte Hotels, Inc., ("Participant"), to be effective the 30 day of July, 1991. SECTION 1. DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) Commissionable Reservations. Commissionable Reservations within a particular time period equals the number of reservations (both voice and electronic) processed through the HCC System within such time period that are identified as "commissionable" or "partially commissionable" on the transaction records provided by Participant to HCC. (ii) HCC System. The HCC System is an automated clearinghouse system to provide for the coordination of reservation information, transfer of hotel reservation commissions and ancillary services to Subscribers and Participating Properties. (iii) [*] (iv) Participating Entity. A Participating Entity is an operator of a hotel reservation system that has executed a HCC Participant Agreement. (v) Subscriber. A Subscriber is any person or entity who has executed an HCC Subscriber Agreement and makes reservations with a Participating Entity. A list of current Subscribers will be provided by HCC to Participant by the twenty-fifth (25th) of each month. (vi) Subscriber Commissions. Subscriber Commissions are the commissions paid by Participant to Subscribers for reservations made with Participant. Subscriber Commissions will be based on commission rates provided to HCC by the Participant. (vii) UltraSwitch. UltraSwitch is a service of The Hotel Industry Switch Company ("THISCO"), which has certain common * Confidential Treatment Requested -1- 2 ownership with HCC, to provide an interface between Subscribers and hotel reservation systems with the capability to provide immediate room confirmation numbers for each hotel property participating in UltraSwitch. SECTION 2. THE HCC SYSTEM 2.1 Duties of HCC. HCC will provide and operate the HCC System for the use and benefit of Participant and other Participating Entities. HCC will provide all reasonable and necessary technical support, hardware and software, and modifications to the HCC System to provide clearinghouse services to Participant as described below. Upon compliance with the terms of this Agreement by Participant, HCC will provide the following clearinghouse services to Participant: (i) identify Participant (and designated affiliates and franchisees of Participant) to Subscribers as being a HCC System Participant through the use of UltraSwitch or other central reservation system services (and, at the discretion of HCC, by distribution of other promotional materials), subject to the provisions of Section 5.2; (ii) provide billing statements for Subscriber Commissions, Transaction Fees (as defined below) and other fees, costs and expenses to Participant on a regular (normally monthly) basis as provided in Section 3 below; (iii) debit Participant's designated bank account for such Subscriber Commissions, transaction fees and other fees, costs and expense, no sooner than forty-eight (48) hours after providing billing statements for such Subscriber Commissions, Transaction Fees and other fees, costs and expenses as provided in Section 3 below; (iv) distribute collected Subscriber Commissions to the appropriate Subscribers based upon HCC Subscriber Agreements with such Subscribers; (v) provide periodic (normally monthly) reports to Participant and Subscribers reflecting exceptions to Subscriber Commissions based upon the data available to HCC through UltraSwitch; and -2- 3 (vi) provide telephone customer support services from 8:00 a.m. to 8:00 p.m., Eastern time, Monday through Friday, exclusive of legal holidays. A description of the currently anticipated procedures to be followed in the payment process is given on Exhibit "F" attached, although the timing and exact details of such procedures as implemented by HCC in operation of the HCC system may be different due to computer-related and other operational constraints. Such procedures are subject to change from time to time as circumstances require or as otherwise determined by HCC. 2.2 Duties of Participant. Participant will cooperate fully with HCC personnel with respect to the implementation of the HCC System between the Subscribers and Participant. Participant specifically authorizes HCC to obtain information concerning reservations made with Participant from the UltraSwitch system and to use such information (i) as provided in the procedures described in Exhibit "F" and (ii) as otherwise approved in writing by the Board of Directors of HCC. Participant agrees to provide HCC all appropriate reservation information (including all reservations made electronically or by voice, whether directly to the property or through the use of a central reservation "800" phone number) no loss often than on a weekly basis. All information provided by Participant with respect to reservations, Subscribers and Subscriber Commissions must be complete and accurate to the best of Participant's ability, and must be inclusive of all the information necessary to permit HCC to provide the clearinghouse services described in Section 2.1. The initial information that Participant must provide to HCC is indicated on Exhibit "A". Because efficient and reliable operation of the clearinghouse services offered by the HCC System is dependent on the use of data from transactions carried by UltraSwitch, Participant agrees to run all of its electronic reservation transactions through the UltraSwitch system so long as it is a party to this Agreement. 2.3 Schedule of Implementation of HCC System. HCC will proceed with the implementation of the HCC System, with a proposed HCC System activation date of April 1, 1992, but not later than September 30, 1992. For the purposes of this Agreement, the actual activation date (the "Activation Date") will be the date that HCC notifies Subscriber that the HCC Board of Directors has determined that the HCC System is operational and capable of processing sufficient aggregate transaction volume of the Participating Entities. HCC will provide Participants with at least thirty (30) -3- 4 days' prior notice of activation of the HCC System. HCC will provide Participant with appropriate specifications to assist Participant in preparing for utilization of the HCC System at least one hundred twenty (120) days prior to the Activation Date. 2.4 Modification or Enhancement of the HCC System or Participant System. HCC may in its sole discretion modify the operation or enhance the capability of the HCC System, and Participant agrees to cooperate with HCC in all modifications and enhancements of the HCC System. All significant modifications or enhancements will require the approval of the Board of Directors of HCC. If HCC determines that such modification or enhancement is likely to require Participant to make significant modifications to its central reservation system (any such modifications to be at Participant's sole expense), HCC will provide at least ninety (90) days' prior notice to Participant of such modification or enhancement. If Participant modifies its central reservation system after the Activation Date and such modification requires HCC to modify the HCC System, or to provide additional services to utilize information supplied by Participant as required by Section 2.2, Participant will pay HCC such additional amount agreed to by the parties based on HCC's standard consulting rate and all expenses incurred. SECTION 3. FEES, COSTS, AND PAYMENTS 3.1 Fees. In order to permit HCC to obtain financing to permit the development of the HCC System, Participant agrees to pay the monthly contingency fee (the "Contingency Fee") of [*] multiplied by the Monthly Base Transactions indicated on Exhibit "B". The Contingency Fee will be payable on the first day of each month for a six (6) month period beginning on the later of April 1, 1992, or the Activation Date. Provided that the Activation Date has occurred, Participant's obligation to pay the Contingency Fee is absolute and shall continue until Participant is capable of and ready to deliver to the HCC System reservation commission data from at least seventy-five percent (75%) of its properties in the United States (calculated based on total number of rooms rather than number of individual hotels) in a regular and timely manner as contemplated by this Agreement ("Participant Readiness") and continues and delivers to HCC the volume of reservation commissions required for Participant Readiness after the Activation Date. At such time, Participant will begin paying transaction fees ("Transaction Fees") of [*] per Commissionable Reservation, and upon payment of such Transaction Fees, will be * Confidential Treatment Requested -4- 5 relieved of its obligations to pay any further Contingency Fees under this section. For the remainder, if any, of the six (6) month period referred to above, the Transaction Fees payable by Participant will be subject to a minimum monthly Transaction Fee of [*] multiplied by the Monthly Base Transactions indicated on Exhibit "B". If Participant Readiness (or the Activation Date, if later) occurs other than at the beginning of a month, Participant will receive a credit against the fees otherwise payable by Participant under this Agreement, in the amount of a pro rata portion of the Contingency Fee paid to HCC for that month, based upon the number of days in the month following Participation Readiness (or the Activation Date, if later). HCC may, at its sole discretion, change the Transaction Fees charged to Participant as provided above, upon ninety (90) days notice to Participant. The Board of Directors of HCC will have the right to verify Participant Readiness (whether through HCC personnel or independent third parties) and will have the right to modify or adjust the requirements for Participant Readiness, as long as it makes such determination in a uniform manner among other Participating Entities. Participant has been informed that HCC is reliant upon, and the obtaining by HCC of certain critical financing is dependent upon, Participant's agreement to and performance of Participant's obligations under this section. Participant acknowledges that the failure of Participant to meet its payment obligations under this section would substantially and materially damage the business of HCC and waives any and all defenses that it may have to the performance of such obligations. Participant hereby irrevocably consents to having the provisions of this Section 3.1 immediately and fully enforced in a court of law or equity and waives any and all defenses thereto. Participant hereby authorizes HCC to debit all such fees from Participant's designated bank account as provided in Exhibit "B". Participant is responsible for collection and payment to HCC of all such fees that are attributable to Participant and all of Participant's affiliates and franchises that utilize the HCC System under this Agreement. 3.2 Subscriber Commissions. Participant agrees to make available for debit by HCC all Subscriber Commissions shown on billing statements as provided in Section 3.5. Participant hereby authorizes HCC to debit such Subscriber Commissions from Participant's designated bank account as provided in Exhibit "C". Participant is responsible for collection and payment to HCC of all * Confidential Treatment Requested -5- 6 such Subscriber Commissions that are attributable to Participant and all of Participant's affiliates and franchisees that utilize the HCC System under this Agreement. Payments to Subscribers will be made in appropriate local currency. 3.3 Other Fees, Costs and Expenses. Participant also agrees to pay HCC at its standard consulting rate plus all expenses incurred for set up, handling, conversion and other services required for processing of information transmitted to HCC to satisfy the requirements of Section 2.2, above, unless a different fee arrangement with respect to such services is indicated on Exhibit "B". All of such fees must be approved by the Board of Directors of HCC. Participant hereby authorizes HCC to debit such fees from Participant's designated bank account as provided in Exhibit "B". HCC will give Participant prior notice of debits made under the terms of this Section 3.3. Participant is responsible for collection and payment to HCC of all such fees, costs and other expenses that are attributable to Participant and all of Participant's affiliates and franchisees that utilize the HCC System under this Agreement. 3.4 [*] In consideration of the benefits that [*] from [*] by the [*] agrees to pay to Participant certain Participant Commissions as described on [*]. Such [*] will be paid by [*] quarterly basis in arrears, although [*] payment of all or part of any calendar quarter's [*] to the following calendar quarter if [*] that projected [*] flow requires such deferral; provided, however, that [*] defer payment of all [*] for more than [*]. [*] have the right to set off against any [*] the amount of any fees, costs, expenses and/or other amounts owing [*]. 3.5 Billing Statements. Based upon the information provided HCC by or with respect to Participant pursuant to Section 2.2, above, HCC will provide periodic (normally monthly) billing statements detailing (i) Subscriber Commissions to be paid by Participant for the period covered by such billing statement; (ii) Transaction Fees to be paid by Participant, based on Commissionable Reservations for the period covered by such billing statement; (iii) other fees, costs and additional expenses to be paid by Participant for the period covered by such billing statement; and * Confidential Treatment Requested -6- 7 (iv) [*] to be paid to [*] for the most recent quarterly period preceding such billing statement, which [*] will be [*] only on a quarterly basis. Items (i) through (iv) may be included on separate billing statements. 3.6 Disputed Commissions. HCC will provide Participant and Subscribers with periodic reports indicated under Section 2.1(v) that will indicate any exceptions to Subscriber Commissions, based on discrepancies between information given HCC by Participant compared to other information available to HCC through UltraSwitch. With respect to all exceptions as to which Participant provides supporting documentation, HCC will forward such documentation to the appropriate Subscriber(s), and the Subscribers involved may pursue such dispute directly with Participant, but HCC will not have any liability to either Participant or such Subscriber with respect to the resolution of any disputed commission. No dispute concerning any Subscriber Commissions will in any way affect or reduce the obligations of Participant to (i) timely pay all other Subscriber Commissions and (ii) timely pay to HCC all Transaction Fees and other fees, costs and additional expenses owed by Participant under this Agreement. 3.7 Additional Authorizations. Participant agrees to execute and deliver to Participant's bank(s) debit authorization(s) in the form of Exhibit "E" attached hereto, and to execute and deliver to such bank(s) or other appropriate persons any and all documents, give to such bank(s) or other persons any and all directions, and to take all other actions that are necessary or appropriate to permit HCC to debit amounts to be paid hereunder by Participant directly from Participant's designated bank account(s). SECTION 4. TERM 4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall expire [*] after the date of this Agreement. This Agreement will be automatically renewed and extended for additional twelve (12) month periods unless, at least thirty (30) days prior to the expiration of any additional twelve (12) month period, either party provides written notice to the other of its decision not to renew and extend. SECTION 5. TERMINATION * Confidential Treatment Requested -7- 8 5.1 Termination Upon Default. Upon the occurrence of an Event of Default (as defined below) by either party and the failure of such party to cure such default after notice and opportunity to cure as provided by Section 6.3 below, the nondefaulting party may terminate this Agreement at any time. 5.2 Suspension of Status. Upon the occurrence of an Event of Default by Participant and the failure of Participant to cure such default after notice and opportunity to cure as provided by Section 6.3 below, then, if HCC does not terminate this Agreement under Section 5.1, until such time as such Event of Default is cured HCC shall have the right to suspend the status of Participant as a Participating Entity and to notify and all Subscribers of such default and suspension, whether through the UltraSwitch system, central reservation systems, or otherwise. Upon notification by Participant to HCC of any default in payment by any affiliate or franchisee of Participant of payments due under this Agreement and until notification by Participant of the cure of such default, HCC shall have the right to suspend the status of such affiliate or franchise as a Participating Entity and to notify all subscribers of such default and suspension. SECTION 6. DEFAULT 6.1 Events of Default. Subject to Section 6.2 below, any one of the following will be considered an Event of Default: (i) The failure of either party to pay any amount due hereunder within the time required; (ii) The refusal or failure of either party to perform diligently and in good faith each and every material provision of this Agreement; (iii) The commencement by either party of a voluntary case under Chapter 11 or 7 of the United States Bankruptcy Code, as from time to time in effect, the commencement against either party of an involuntary case under said Chapter 11 or 7, either party seeking relief as a debtor under any applicable law, other than said Chapter 11 or 7, or any jurisdiction relating to the liquidation or reorganization of debtors or the modification of the rights of creditors, the entry of a court order adjudging the party bankrupt or insolvent, ordering its liquidation or reorganization or assuming custody or appointing a receiver or other custodian of its -8- 9 property, or its making an assignment for the benefit of, or entering into a composition with, its creditors; (iv) The deferral [*] of payment of all [*], as provided in Section 3.4, for more than two (2) consecutive calendar quarters; or (v) The failure by HCC to have obtained HCC Subscriber Agreements with respect to at least twelve thousand (12,000) travel agent/reservation provider locations within thirty-six (36) months following the Activation Date. Any such Event of Default shall not relieve the defaulting party from any of its obligations hereunder, and the non-defaulting party shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. 6.2 Force Majeure. It will not constitute an Event of Default if such event listed in Section 6.1 is caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if any such occurrence results in any of the events described in Section 6.1, and the same continues for more than thirty (30) consecutive days, either party may terminate this Agreement by providing notice as required herein. 6.3 Cure Period. Upon the occurrence of an Event of Default, the non-defaulting party will give written notice to the defaulting party specifying the alleged default. The defaulting party will then be entitled to thirty (30) days from receipt of such notice within which to cure such default; provided, that in the case of a monetary default by Participant, Participant will only be allowed to cure such default within two (2) business days after receipt of such notice, by delivering that amount owed to HCC in good funds into HCC's bank account. SECTION 7. CONFIDENTIALITY 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by Participant and HCC that each will receive confidential and proprietary information that is the property of the other party. All such confidential and proprietary information will be marked or otherwise identified as such and will *Confidential Treatment Requested -9- 10 be treated as confidential and proprietary subject only to disclosure where required by law. Such designation may be removed by each party making the designation. Participant acknowledges that it will have no access to and will not use UltraSwitch software or related property by reason of this Agreement, and that use of such UltraSwitch services by Participant would be permitted only under a separate agreement with THISCO. Participant acknowledges that it will have no access to and will not use the HCC System or related property, other than as specifically provided for in this Agreement, and that such system and related property is confidential and proprietary property of HCC. HCC acknowledges that the specific information concerning Participant's reservations, whether processed through the UltraSwitch system or otherwise provided by Participant to HCC outside of the UltraSwitch system, is the property of Participant, although Participant acknowledges HCC may use such information (i) as provided in the procedures described in Exhibit "F" and (ii) as otherwise approved in writing by the Board of Directors of HCC, as long as HCC removes any information that indicates the customer is a customer of Participant. The aggregate data from the HCC System will become the property of HCC. Any use of HCC service Marks or trade names by Participant is subject to prior written approval of HCC, provided, that Participant may describe the HCC System contemplated by this Agreement in its franchise offering circular and other materials as required by state or federal law. The provisions of this Section 7.1 will remain binding and in force and effect as long as such information remains confidential (other than by breach of this Agreement), notwithstanding the expiration or termination of this Agreement at any time. SECTION 8. INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. Subject to Section 9.2, Participant agrees to indemnify and hold harmless HCC and HCC's affiliates, directors, officers, employees and stockholders (other than Participant), from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring as a result of or arising out of a material breach of this Agreement on account of Participant's fault, to the extent not caused by the fault of HCC ("HCC's Losses"). Subject to Section 9.2, HCC agrees to indemnify and hold harmless Participant, and Participant's affiliates, directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable -10- 11 attorney's fees) ("Participant's Losses") occurring as a result of or arising out of a material breach of this Agreement on account of HCC's fault to the extent not caused by the fault of Participant. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indemnified party will give prompt notice thereof to the indemnifying party and the indemnifying party will be entitled to participate therein or, to the extent that it wishes, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. Whether or not the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable for any compromise or settlement of any such action or claim effected without its consent (which shall not be unreasonably withheld). SECTION 9. DISCLAIMER OF WARRANTIES 9.1 Waiver of Warranties. HCC WILL NOT BE RESPONSIBLE OR LIABLE FOR ANY INACCURACIES IN THE DATA OR THE INFORMATION PROCESSED BY OR THROUGH THE HCC SYSTEM NOR WILL IT HAVE ANY LIABILITY FOR ANY ACT OR FAILURE TO ACT UNLESS EXPRESSLY SET FORTH HEREIN, EXCEPT TO THE EXTENT RESULTING FROM HCC'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE, ARE DISCLAIMED BY HCC AND WAIVED BY PARTICIPANT. 9.2 No Consequential Damages. Neither party will be liable to the other for any consequential damages caused or resulting from any breach of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. -11- 12 SECTION 10. MISCELLANEOUS 10.1 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, will be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party will select one arbitrator with thirty (30) days of notice of the dispute, and the two (2) arbitrators selected shall select a third neutral arbitrator within thirty (30) days after the second arbitrator is chosen. All reasonable and necessary costs and fees (including attorney's fees) incurred in connection with the arbitration will be borne by the losing party or assessed in the award as otherwise deemed appropriate by the arbitrators. If the demand for arbitration is initiated by Participant, venue of the arbitration proceedings will be determined by HCC. If the demand for arbitration is initiated by HCC, venue of the arbitration proceedings will be determined by Participant. 10.2 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to reservations commissions clearinghouse services and that each party may contract with other parties providing same or similar services. 10.3 Status of Parties. This Agreement will not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. HCC will not be deemed by this Agreement to be granting a license to Participant, with respect to UltraSwitch, the HCC System or any software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. 10.4 Assignment. This Agreement is not assignable by HCC or Participant without the prior written consent of the nonassigning party, and such consent shall not be unreasonably withheld or delayed. 10.5 Notices. All notices and other communications contemplated hereby must be in writing (except in the case of electronically transmitted data) and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) -12- 13 sent by overnight courier service (for next business day delivery), shipping prepaid, (d) sent by telecopy with confirmation of receipt of telecopy to the number indicated, or (e) transmitted directly to the recipient by electronic data transmission pursuant to arrangements made between the parties. Such notices and other commissions (except in the case of electronically transmitted data) shall be addressed as follows: IF TO HCC: IF TO PARTICIPANT: 3811 Turtle Creek Blvd. Dallas, TX 75219 Attention: John F. Davis, III (if by telecopy to: (214) 528-5675) or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices will be deemed given and received (i) at the time of personal delivery, (ii) if sent by U.S. Mail, three (3) business days after mailing, (iii) if sent by overnight courier, one (1) business day after such sending, (iv) if sent by telecopy, upon receiving of confirmation of receipt of the telecopy at the number indicated, or (v) in the case of electronically transmitted data, when received. 10.6 Controlling Law. This Agreement will be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. Subject to the agreement to arbitrate and the jurisdiction and venue provisions set forth in section 10.1 hereof, any action brought relating to or arising out of this Agreement must be brought in the state or federal courts situated in the county and state of the residence or principal place of business of the party against whom the action is brought (or any of them, if more than one). 10.7 Entire Agreement. This Agreement and the Exhibits attached hereto constitute the entire agreement between HCC and Participant with respect to the provision of services under the HCC System, and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement that are not contained in this Agreement. -13- 14 10.8 Successors and Assigns. This Agreement will be binding upon and will inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 10.9 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement will be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. AGREED to as of the date first written above. THE HOTEL CLEARING CORPORATION FORTE HOTELS, INC. By: By: ------------------------------ ------------------------------ John F. Davis, III, Title: President --------------------------- -14- 15 EXHIBIT "A" Initial Information to be Provided by Participant to HCC The fields in each commission record are the following: -Record identifier required validated -Chain record number required check for duplicates -Chain/Brand code required validated -Booking source required validated -Property ID required validated -PNR Number optional no checks -Confirmation number required validated presence -Cancellation number optional no checks -Corporate ID number optional no checks -Subscriber IATA number required validated HCC User -Group/Guest last name required validated presence -Group/Guest first name optional no checks -Status code required validated -Reason code optional if present, validate -Arrival date required validated, no future -Departure date required validated, no future -Number of nights required validated presence -Number of rooms required validated presence -Commissionable revenue required validated, no neg. -Gross Commission required validated, no neg. -Adjustment amount required validated presence -Net Commission due required validate computation -Currency code required validated -Comments optional no checks -15- 16 EXHIBIT "B" Participant Fees 1. Contingency Fees and minimum Transaction Fees as provided in Section 3.1 of the Agreement will be based upon [*] Annual Base Transactions, or Monthly Base Transactions of [*] (Annual Base Transactions divided by 12). 2. Transaction Fees and other fees, costs and expenses payable under the Agreement are to be debited directly from Participant's bank account, described as follows: Bank Name: ------------------------------------------------- Account Number: --------------------------------------------- Other Appropriate Information: ------------------------------ ------------------------------------------------------------ 3. Transaction Fees and other fees, costs and expenses payable under the Agreement that are listed in the billing statements provided to Participant by HCC as provided in Section 3.5 of the Agreement will automatically be debited from the account designated above, not less than forty-eight (48) hours following receipt of such billing statements. The Contingency Fee will automatically be debited from the account designated above on the first business day of each month during which the Contingency Fee is payable. * Confidential Treatment Requested -16- 17 EXHIBIT "C" Subscriber Commissions 1. Subscriber Commissions are specified in the record field "Net Commission Due" as described on Exhibit "A". 2. Subscriber Commissions are to be debited directly from Participant's bank account, described as follows: [Bank Name] [Account Number] [Other Appropriate Information] 3. Subscriber Commissions listed in the billing statements provided to Participant by HCC as provided in Section 3.5 of the Agreement will automatically be debited from the account designated above, not less than forty-eight (48) hours following receipt of such billing statements. -17- 18 EXHIBIT "D" [*] 1. [*] are to be paid on [*] for each period, calculated according to the following table based upon the percentage of [*] volume of transactions [*]: <TABLE> <CAPTION> Percentage of Base ------------------ Transactions for Quarter [*] ------------------------ ---------------- <S> <C> [*] [*] to [*] per [*] [*] [*] to [*] per [*] [*] [*] to [*] per [*] [*] [*] to [*] per [*] [*] or more [*] to [*] per [*] </TABLE> The initial [*] for [*] will be that indicated under [*], and thereafter will be adjusted annually based upon [*]. The calculation of quarterly commissions will be based upon [*] for such period. [*] listed above will apply during the first year of the term of this Agreement; [*] for subsequent years will be determined [*], but in no event will drop below the [*] listed above. [*] within the indicated [*] will be determined annually in advance by [*]. * Confidential Treatment Requested -18- 19 EXHIBIT "E" DEBIT AUTHORIZATION TO: [Bank] RE: [Account Number and identification] DATE: The undersigned hereby authorizes The Hotel Clearing Corporation to debit the undersigned's account identified above, and to transfer sums from such account by wire transfer, debit memo, draft or check, all without further instruction or verification of such transfer instructions from the undersigned. This authorization will remain in full force and effect until written notification of cancellation is given by the undersigned to the bank or other financial institution identified above. ----------------------------------- By: -------------------------------- Title: ----------------------------- -19- 20 EXHIBIT "F" PROPOSED PROCEDURES (attached) -20-
1 EXHIBIT 10.33 FIRST AMENDMENT TO HCC PARTICIPANT AGREEMENT This First Amendment to HCC Participant Agreement is entered into by and between the HOTEL CLEARING CORPORATION, hereinafter called "HCC", and PROMUS HOTELS, INC., hereinafter called "Participant", to be effective the 27th day of August, 1993 (the "First Amendment"). AGREED FACTS 1. HCC and Participant have heretofore entered into an HCC Participant Agreement dated effective ____________________ (hereinafter called the "Participant Agreement"). 2. HCC and Participant have mutually agreed to amend the term of the Participant Agreement and the provisions of the Participant Agreement relating to the amount and payment of Participant Commissions (as defined in the Participant Agreement). 3. HCC and Participant intend for this First Amendment to set forth in its entirety their agreement to amend the term of the Participant Agreement and the provisions relating to the amount and payment of Participant Commissions. AGREEMENT FOR AND IN CONSIDERATION of the above stated facts, which are hereby acknowledged as true and correct, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, HCC and Participant hereby agree as follows: 1. Section 3.4 of the Participant Agreement is hereby deleted in its entirety and is replaced with the following: "3.4 [*] . In consideration of the benefits that [*] will obtain from [*] processed by [*] through the HCC System, [*] agrees to [*] certain [*] as hereinafter provided. Such Participant [*] will be [*] at such times and in such total amounts as [*] may determine to be appropriate provided that [*] shall be [*] the Participant Commission Amount (as hereinafter defined). The [*] payable to [*] shall be determined by dividing the total number of [*] for all stockholder [*] for the applicable time period (as determined by [*]) into the total amount of funds available [*] (as determined by [*] and after making allowance for [*], as hereinafter defined) and *Confidential Treatment Requested -1- 2 [*] by the number of [*] transactions [*] by [*] for the applicable period. [*] are those amounts due to [*] pursuant to agreements which require payments [*] the [*] as [*] including, but not limited to, amounts due to [*] and key [*] of [*]." 2. Section 4.1 of the Participant Agreement is hereby deleted in its entirety and is replaced with the following: "4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall expire [*]. This Agreement will be automatically renewed and extended for additional twelve (12) month periods unless, at least thirty (30) days prior to the expiration of the initial term or any additional twelve (12) month period, either party provides written notice to the other of its decision not to renew and extend." 3. Exhibit D to the Participant Agreement is deleted. 4. This First Amendment shall be and hereby is incorporated into the Participant Agreement for all intents and purposes and all terms, provisions and definitions of the Participant Agreement shall apply. 5. Except for the provisions inconsistent with the terms of this First Amendment, the Participant Agreement is hereby ratified and affirmed in all respects. This First Amendment is effective as of the date stated above and executed on the dates indicated below. HOTEL CLEARING CORPORATION By: ----------------------------- John F. Davis, III President Date: --------------------------- PROMUS HOTELS, INC. By: ----------------------------- Its: ----------------------------- Date: ---------------------------- *Confidential Treatment Requested -2- 3 EXHIBIT 10.33 HCC PARTICIPANT AGREEMENT This Agreement (the "Agreement") is entered into by and between THE HOTEL CLEARING CORPORATION, a Delaware corporation ("HCC"), and Embassy Suites, Inc., ____________corporation ("Participant"), to be effective the 27th day of October, 1991. SECTION 1. DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) Business Day. Business days shall be any day other than Saturday, Sunday or other days that national banking associations in Dallas, Texas are required or permitted to be closed. (ii) Commissionable Reservations. Commissionable Reservations within a particular time period equals the number of reservations (both voice and electronic) processed through the HCC System within such time period that are identified as "commissionable" or partially "commissionable" on the transaction records provided by Participant to HCC. (iii) HCC System. The HCC System is an automated clearinghouse system to provide for the coordination of reservation information, transfer of hotel reservation commissions and ancillary services to Subscribers and Participating Properties. (iv) [*]. [*] are the [*] paid by [*] for [*] processed [*]. (v) Participating Entity. A Participating Entity is an operator of a hotel reservation system that has executed a HCC Participant Agreement. (vi) Subscriber. A Subscriber is any person or entity who has executed an HCC Subscriber Agreement and makes reservations with a Participating Entity. A list of current Subscribers will be provided by HCC to Participant by the twenty-fifth (25th) of each month. (vii) Subscriber Commissions. Subscriber Commissions are the commissions paid by Participant to Subscribers for reservations made with Participant. Subscriber Commissions will be based on commission rates provided to HCC by the Participant. (viii) UltraSwitch. UltraSwitch is a service of The Hotel Industry Switch Company ("THISCO"), which has certain common ownership with HCC, to provide an interface between Subscribers and hotel reservation systems with the capability to provide immediate room confirmation numbers for each hotel property participating in UltraSwitch. *Confidential Treatment Requested 4 SECTION 2. THE HCC SYSTEM 2.1 Duties of HCC. HCC will provide and operate the HCC System for the use and benefit of Participant and other Participating Entities. HCC will provide all reasonable and necessary technical support, hardware and software, and modifications to the HCC System to provide clearinghouse services to Participant as described below. Upon compliance with the terms of this Agreement by Participant, HCC will provide the following clearinghouse services to Participant: (i) identify Participant (and designated affiliates and franchisees of Participant) to Subscribers as being a HCC System Participant through the use of UltraSwitch or other central reservation system services (and, at the discretion of HCC, by distribution of other promotional materials), subject to the provisions of Section 5.2; (ii) provide billing statements for Subscriber Commissions, [*] (as defined below) and other fees, costs and expenses to [*] on a regular (normally monthly) basis as provided in Section 3 below; (iii) distribute collected Subscriber Commissions to the appropriate Subscribers based upon HCC Subscriber Agreements with such Subscribers; (iv) provide periodic (normally monthly) reports to Participant and Subscribers reflecting exceptions to Subscriber Commissions based upon the data available to HCC through UltraSwitch; and (v) provide telephone customer support services from 8:00 a.m. to 8:00 p.m., Eastern time, Monday through Friday, exclusive of legal holidays. A description of the currently anticipated procedures to be followed in the payment process is given on Exhibit "F" attached, although the timing and exact details of such procedures as implemented by HCC in operation of the HCC system may be different due to computer-related and other operational constraints. Such procedures are subject to change from time to time as circumstances require or as otherwise determined by HCC. 2.2. Duties of Participant. Participant will cooperate fully with HCC personnel with respect to the implementation of the HCC System between the Subscribers and Participant. Participant specifically authorizes HCC to obtain information concerning reservations made with Participant from the UltraSwitch system and to use such information (i) as provided in the procedures described in Exhibit "F" and (ii) as otherwise approved in writing by the Board of Directors of HCC. Participant agrees to provide HCC all appropriate reservation information (including all reservations made electronically or by voice, whether directly to the property or through the use of a central reservation "800" phone number) no less often than on a weekly basis. All information provided by Participant with respect to reservations, Subscribers and Subscriber Commissions must be complete and accurate to the best of Participant's ability, and must be inclusive of all the information necessary to permit HCC to provide the clearinghouse services described in Section 2.1. The initial information that Participant must provide to HCC is indicated on Exhibit "A". Because efficient and reliable operation of the clearinghouse *Confidential Treatment Requested -2- 5 services offered by the HCC System is dependent on the use of data from transactions carried by UltraSwitch, Participant agrees to run all of its electronic reservation transactions through the UltraSwitch system so long as it is a party to this Agreement, unless marketing or operational reasons cause Participant to use additional distribution channels. 2.3 Schedule of Implementation of HCC System. HCC will proceed with the implementation of the HCC System, with a proposed HCC System activation date of April 1, 1992, but not later than September 30, 1992. For the purposes of this Agreement, the actual activation date (the "Activation Date") will be the date that HCC notifies Subscriber that the HCC Board of Directors has determined that the HCC System is operational and capable of processing sufficient aggregate transaction volume of the Participating Entities. HCC will provide Participants with at least thirty (30) days' prior notice of activation of the HCC System. HCC will provide Participant with appropriate specifications to assist Participant in preparing for utilization of the HCC System at least one hundred twenty (120) days prior to the Activation Date. 2.4 Modification or Enhancement of the HCC System or Participant System. HCC may in it sole discretion modify the operation or enhance the capability of the HCC System, and Participant agrees to cooperate with HCC in all modifications and enhancements of the HCC System. All significant modifications or enhancements will require the approval of the Board of Directors of HCC. If HCC determines that such modification or enhancement is likely to require Participant to make significant modifications to its central reservation system (any such modifications to be at Participant's sole expense), HCC will provide at least ninety (90) days' prior notice to Participant of such modification or enhancement. If Participant modifies its central reservation system after the Activation Date and such modification requires HCC to modify the HCC System, or to provide additional services to utilize information supplied by Participant as required by Section 2.2, Participant will pay HCC such additional amount agreed to by the parties based on HCC's standard consulting rate and all expenses incurred. 2.5 Audit by Participant. Participant shall have the right, upon ten (10) days' written notice to HCC, to audit the subscriber participation process. SECTION 3. FEES, COSTS, AND PAYMENTS 3.1 Fees. In order to permit HCC to obtain financing, to permit the development of the HCC System, Participant agrees to pay the monthly contingency fee (the "Contingency Fee") of [*] multiplied by the Monthly Base Transactions indicated on Exhibit "B". The Contingency Fee will be payable on the first business day of each month for a six (6) month period beginning on the later of April 1, 1992, or the Activation Date, and will be paid by wire transfer of good funds to HCC's account on such dates, without invoice or notice from HCC to Participant. Provided that the Activation Date has occurred, Participant's obligation to pay the Contingency Fee is absolute and shall continue until Participant is capable of and ready to deliver to the HCC System reservation commission data from at least seventy-five percent (75%) of its properties in the United States (calculated based on total number of rooms rather than number of individual hotels) in a regular and timely manner as contemplated by this Agreement ("Participant Readiness") and continues and delivers to HCC the volume of reservation commissions required for Participant Readiness after the Activation Date. At such time, *Confidential Treatment Requested -3- 6 Participant will begin paying transaction fees ("Transaction Fees") of [*] per Commissionable Reservation, and upon payment of such Transaction Fees, will be relieved of its obligations to pay any further Contingency Fees under this section. For the remainder, if any, of the six (6) month period referred to above, the Transaction Fees payable by Participant will be subject to a minimum monthly Transaction Fee of [*] multiplied by the Monthly Base Transactions indicated on Exhibit "B". If Participant Readiness (or the Activation Date, if later) occurs other than at the beginning of a month, Participant will receive a credit against the fees otherwise payable by Participant under this Agreement, in the amount of a pro rata portion of the Contingency Fee paid to HCC for that month, based upon the number of days in the month following Participation Readiness (or the Activation Date, if later). HCC may, at its sole discretion, change the Transaction Fees charged to Participant as provided above, upon ninety (90) days notice to Participant. The Board of Directors of HCC will have the right to verify Participant Readiness (whether through HCC personnel or independent third parties) and will have the right to modify or adjust the requirements for Participant Readiness, as long as it makes such determination in a uniform manner among, other Participating Entities. Participant has been informed that HCC is reliant upon, and the obtaining by HCC of certain critical financing is dependent upon, Participant's agreement to and performance of Participant's obligations under this section. Participant acknowledges that the failure of Participant to meet its payment obligations under this section would substantially and materially damage the business of HCC and waives any and all defenses that it may have to the performance of such obligations. Participant hereby irrevocably consents to having the provisions of this Section 3.1 immediately and fully enforced in a court of law or equity and waives any and all defenses thereto. Participant agrees to pay all such fees by wire transfer of good funds to HCC's account within two (2) business days after receipt by Participant of the billing statements described in Section 3.5, below. Participant is responsible for collection and payment to HCC of all such fees that are attributable to Participant and all of Participant's affiliates and franchisees that utilize the HCC System under this Agreement. 3.2 Subscriber Commissions. Participant agrees to pay to HCC all Subscriber Commissions (as provided in Exhibit "C") shown on the billing statements described in Section 3.5, by wire transfer of good funds to HCC's account within two (2) business days after receipt by Participant of such billing statements. Participant is responsible for collection and payment to HCC of all such Subscriber Commissions that are attributable to Participant and all of Participant's affiliates and franchisees that utilize the HCC System under this Agreement. Payments to Subscribers will be made in appropriate local currency. 3.3 Other Fees, Costs and Expenses. Participant also agrees to pay HCC at its standard consulting rate plus all expenses incurred for set up, handling, conversion and other services required for processing of information transmitted to HCC to satisfy the requirements of Section 2.2, above, unless a different fee arrangement with respect to such services is indicated on Exhibit "B". All of such fees must be approved in writing, in advance by Participant. Participant agrees to pay all such fees by wire transfer of good funds to HCC's account within two (2) business days after receipt by Participant of the billing statements described in Section 3.5, below. Participant is responsible for collection and payment to HCC *Confidential Treatment Requested -4- 7 of all such fees, costs and other expenses that are attributable to Participant and all of Participant's affiliates and franchisees that utilize the HCC System under this Agreement. 3.4 [deleted by amendment] 3.5 Billing Statements. Based upon the information provided HCC by or with respect to Participant pursuant to Section 2.2, above, HCC will provide periodic (normally monthly) billing statements detailing (i) Subscriber Commissions to be paid by Participant for the period covered by such billing statement; (ii) Transaction Fees to be paid by Participant, based on Commissionable Reservations for the period covered by such billing statement; (iii) other fees, costs and additional expenses to be paid by Participant for the period covered by such billing statement; and (iv) [*] to be paid to [*] for the most recent quarterly period preceding such billing statement, which [*] will be calculated and included in billing statements only on a quarterly basis. Items (i) through (iv) may be included on separate billing statements. 3.6 Disputed Commissions. HCC will provide Participant and Subscribers with periodic reports indicated under Section 2.l(v) that will indicate any exceptions to Subscriber Commissions, based on discrepancies between information given HCC by Participant compared to other information available to HCC through UltraSwitch. With respect to all exceptions as to which Participant provides supporting documentation, HCC will forward such documentation to the appropriate Subscriber(s), and the Subscribers involved may pursue such dispute directly with Participant, but HCC will not have any liability to either Participant or such Subscriber with respect to the resolution of any disputed commission. No dispute concerning any Subscriber Commissions will in any way affect or reduce the obligations of Participant to (i) timely pay all other Subscriber Commissions and (ii) timely pay to HCC all Transaction Fees and other fees, costs and additional expenses owed by Participant under this Agreement. SECTION 4. TERM 4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall expire [*] after the date of this Agreement. This Agreement will be automatically renewed and extended for additional twelve (12) month periods unless, at least thirty (30) days prior to the expiration of the initial term or at least thirty (30) days prior to the expiration of any additional twelve (12) month period, either party provides written notice to the other of its decision not to renew and extend. *Confidential Treatment Requested -5- 8 SECTION 5. TERMINATION 5.1 Termination Upon Default. Upon the occurrence of an Event of Default (as defined below) by either party and the failure of such party to cure such default after notice and opportunity to cure as provided by Section 6.3 below, the nondefaulting party may terminate this Agreement at any time. 5.2 Suspension of Status. Upon the occurrence of an Event of Default by Participant and the failure of Participant to cure such default after notice and opportunity to cure as provided by Section 6.3 below, then, if HCC does not terminate this Agreement under Section 5.1, until such time as such Event of Default is cured HCC shall have the right to suspend the status of Participant as a Participating Entity and to notify any and all Subscribers of such default and suspension, whether through the UltraSwitch system, central reservation systems, or otherwise. Upon notification by Participant to HCC of any default in payment by any affiliate or franchisee of Participant of payments due under this Agreement and until notification by Participant of the cure of such default, HCC shall have the right to suspend the status of such affiliate or franchisee as a Participating Entity and to notify all Subscribers of such default and suspension. Section 6. DEFAULT 6.1 Events of Default. Subject to Section 6.2 below, any one of the following will be considered an Event of Default: (i) The failure of either party to pay any amount due hereunder within the time required; (ii) The refusal or failure of either party to perform diligently and in good faith each and every material provision of this Agreement; (iii) The commencement by either party of a voluntary case under Chapter 11 or 7 of the United States Bankruptcy Code, as from time to time in effect, the commencement against either party of an involuntary case under said Chapter 11 or 7, either party seeking relief as a debtor under any applicable law, other than said Chapter 11 or 7, of any jurisdiction relating to the liquidation or reorganization of debtors or the modification of the rights of creditors, the entry of a court order adjudging the party bankrupt or insolvent, ordering its liquidation or reorganization or assuming custody or appointing a receiver or other custodian of its property, or its making an assignment for the benefit of, or entering into a composition with, its creditors; (iv) The deferral [*] of payment of all [*] provided in Section 3.4, for more than two (2) consecutive calendar quarters; or (v) The failure by HCC to have obtained HCC Subscriber Agreements with respect to at least twelve thousand (12,000) travel agent/reservation provider locations within thirty-six (36) months following the Activation Date. *Confidential Treatment Requested -6- 9 Any such Event of Default shall not relieve the defaulting party from any of its obligations hereunder, and the non-defaulting party shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. 6.2 Force Majeure. It will not constitute an Event of Default if such event listed in Section 6.1 is caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if any such occurrence results in any of the events described in Section 6.1, and the same continues for more than thirty (30) consecutive days, either party may terminate this Agreement by providing notice as required herein. 6.3 Cure Period. Upon the occurrence of an Event of Default, the non-defaulting party will give written notice to the defaulting party specifying the alleged default. The defaulting party will then be entitled to thirty (30) days from receipt of such notice within which to cure such default; provided, that in the case of a monetary default by Participant, Participant will only be allowed to cure such default within two (2) business days after receipt of such notice, by delivering that amount owed to HCC in good funds into HCC's bank account. SECTION 7. CONFIDENTIALITY 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by Participant and HCC that each will receive confidential and proprietary information that is the property of the other party. All such confidential and proprietary information will be marked or otherwise identified as such and will be treated as confidential and proprietary subject only to disclosure where required by law. Such designation may be removed by each party making the designation. Participant acknowledges that it will have no access to and will not use UltraSwitch software or related property by reason of this Agreement, and that use of such UltraSwitch services by Participant would be permitted only under a separate agreement with THISCO. Participant acknowledges that it will have no access to and will not use the HCC System or related property, other than as specifically provided for in this Agreement, and that such system and related property is confidential and proprietary property of HCC. HCC acknowledges that the specific information concerning Participant's reservations, whether processed through the UltraSwitch system or otherwise provided by Participant to HCC outside of the UltraSwitch system, is the property of Participant, although Participant acknowledges HCC may use such information (1) as provided in the procedures described in Exhibit "F" and (ii) as otherwise approved in writing by the Board of Directors of HCC, as long as HCC removes any information that indicates the customer is a customer of Participant. The aggregate data from the HCC System will become the property of HCC. Any use of HCC service marks or tradenames by Participant is subject to prior written approval of HCC, provided, that Participant may describe the HCC System contemplated by this Agreement in its franchise offering circular and other materials as required by state or federal law. The provisions of this Section 7.1 will remain binding and in force and effect as long as such information remains confidential (other than by breach of this Agreement), notwithstanding the expiration or termination of this Agreement at any time. -7- 10 SECTION 8. INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. Subject to Section 9.2, Participant agrees to indemnify and hold harmless HCC and HCC's affiliates, directors, officers, employees and stockholders (other than Participant), from and against any losses, claims, liabilities, damages or expenses (including reasonable attorneys' fees) occurring as a result of or arising out of a material breach of this Agreement on account of Participant's fault, to the extent not caused by the fault of HCC ("HCC's Losses"). Subject to Section 9.2, HCC agrees to indemnify and hold harmless Participant, and Participant's affiliates, directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("Participant's Losses") occurring as a result of or arising out of a material breach of this Agreement on account of HCC's fault, to the extent not caused by the fault of Participant. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indemnified party will give prompt notice thereof to the indemnifying party and the indemnifying party will be entitled to participate therein or, to the extent that it wishes, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. Whether or not the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable for any compromise or settlement of any such action or claim effected without its consent (which shall not be unreasonably withheld). SECTION 9. DISCLAIMER OF WARRANTIES 9.1 Waiver of Warranties. HCC WILL NOT BE RESPONSIBLE OR LIABLE FOR ANY INACCURACIES IN THE DATA OR THE INFORMATION PROCESSED BY OR THROUGH THE HCC SYSTEM NOR WILL IT HAVE ANY LIABILITY FOR ANY ACT OR FAILURE TO ACT UNLESS EXPRESSLY SET FORTH HEREIN, EXCEPT TO THE EXTENT RESULTING FROM HCC'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE, ARE DISCLAIMED BY HCC AND WAIVED BY PARTICIPANT. 9.2 No Consequential Damages. Neither party will be liable to the other for any consequential damages caused or resulting from any breach of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. - 8 - 11 SECTION 10. MISCELLANEOUS 10.1 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, will be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party will select one arbitrator within thirty (30) days of notice of the dispute, and the two (2) arbitrators selected shall select a third neutral arbitrator within thirty (30) days after the second arbitrator is chosen. All reasonable and necessary costs and fees (including attorneys' fees) incurred in connection with the arbitration will be borne by the losing party or assessed in the award as otherwise deemed appropriate by the arbitrators. If the demand for arbitration is initiated by Participant, venue of the arbitration proceedings will be determined by HCC. If the demand for arbitration is initiated by HCC, venue of the arbitration proceedings will be determined by Participant. 10.2 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to reservations commissions clearinghouse services and that each party may contract with other parties providing same or similar services. 10.3 Status of Parties. This Agreement will not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. HCC will not be deemed by this Agreement to be granting a license to Participant, with respect to UltraSwitch, the HCC System or any software or service mark related thereto, or otherwise, this being, a contract for the use and rendering of services only. 10.4 Assignment. This Agreement is not assignable by HCC or Participant without the prior written consent of the nonassigning party, and such consent shall not be unreasonably withheld or delayed. 10.5 Notices. All notices and other communications contemplated hereby must be in writing (except in the case of electronically transmitted data) and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, (d) sent by telecopy with confirmation of receipt of telecopy to the number indicated, or (e) transmitted directly to the recipient by electronic data transmission pursuant to arrangements made between the parties. Such notices and other commissions (except in the case of electronically transmitted data) shall be addressed as follows: IF TO HCC: IF TO PARTICIPANT: 3811 Turtle Creek Blvd. Embassy Suites, Inc. Suite 1910 1023 Cherry Rd. Dallas, TX 75219 Attention: Chris Gibbons Attention: John F. Davis, III (if by telecopy to: (901) 762-8637) (if by telecopy to: (214) 528-5675) - 9 - 12 or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices will be deemed given and received (i) at the time of personal delivery, (ii) if sent by U.S. mail, three (3) business days after mailing, (iii) if sent by overnight courier, one (1) business day after such sending, (iv) if sent by telecopy, upon receiving of confirmation of receipt of the telecopy at the number indicated, or (v) in the case of electronically transmitted data, when received. 10.6 Controlling Law. This Agreement will be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. Subject to the agreement to arbitrate and the jurisdiction and venue provisions set forth in section 10.1 hereof, any action brought relating to or arising out of this Agreement must be brought in the state or federal courts situated in the county and state of the residence or principal place of business of the party against whom the action is brought (or any of them, if more than one). 10.7 Entire Agreement. This Agreement and the Exhibits attached hereto constitute the entire agreement between HCC and Participant with respect to the provision of services under the HCC System, and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement that are not contained in this Agreement. 10.8 Successors and Assigns. This Agreement will be binding upon and will inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 10.9 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement will be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. AGREED to as of the date first written above. THE HOTEL CLEARING CORPORATION EMBASSY SUITES, INC. By: /s/ JOHN F. DAVIS, III By: /s/ [ILLEGIBLE] ----------------------------- ------------------------------- John F. Davis, III, President Title: V.P. Information Technology ---------------------------- - 10 - 13 EXHIBIT "A" Initial Information to be Provided by Participant to HCC The fields in each commission record are the following: <TABLE> <S> <C> <C> - Record identifier required validated - Chain record number required check for duplicates - Chain/Brand code required validated - Booking source required validated - Property ID required validated - PNR Number optional no checks - Confirmation number required validated presence - Cancellation number optional no checks - Corporate ID number optional no checks - Subscriber IATA number required validated HCC user - Group/Guest last name required validated presence - Group/Guest first name optional no checks - Status code required validated - Reason code optional if present, validate - Arrival date required validated, no future - Departure date required validated, no future - Number of nights required validated presence - Number of rooms required validated presence - Commissionable revenue required validated, no neg. - Gross Commission required validated, no neg. - Adjustment amount required validated presence - Net Commission due required validate computation - Currency code required validated - Comments optional no checks </TABLE> 14 EXHIBIT "B" Participant Fees 1. Contingency Fees and minimum Transaction Fees as provided in Section 3.1 of the Agreement will be based upon [*] Annual Base Transactions, or Monthly Base Transactions of [*] (Annual Base Transactions divided by 12). *Confidential Treatment Requested 15 EXHIBIT "C" Subscriber Commissions 1. Subscriber Commissions are specified in the record field "Net Commission Due" as described on Exhibit "A". 16 EXHIBIT "D" [deleted by amendment] 17 EXHIBIT "E" [INTENTIONALLY DELETED] 18 EXHIBIT "F" PROPOSED PROCEDURES (attached)
1 EXHIBIT 10.34 ULTRASWITCH USER AGREEMENT This Agreement is entered into by and between THE HOTEL INDUSTRY SWITCH COMPANY, a Delaware corporation (hereinafter "THISCO"), and WESTIN HOTELS & RESORTS (hereinafter "HOTEL"), to be effective the 17th day of November, 1995 (the "Agreement"). 1.0 DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) UltraSwitch. The UltraSwitch is a service of THISCO to provide an Interface (as hereinafter defined) between Reservation Providers (as hereinafter defined) and hotel reservation systems with the capability to provide immediate room confirmation numbers for each hotel property partici- pating in UltraSwitch. (ii) Interface. Interface is the hardware and software and attendant technical support required to produce computer to computer communications between a Reservation Provider (as hereinafter defined) and an UltraSwitch User (as hereinafter defined). (iii) UltraSwitch User. An UltraSwitch User is an operator of a hotel reservation system that has executed an UltraSwitch User agreement. (iv) Reservation Provider. A Reservation Provider is any person or entity with the present or future capability to connect with the UltraSwitch for the purpose of making reservations with an UltraSwitch User. (v) Net Reservations. Net Reservations within a particular time period equals the number of reservations processed through the UltraSwitch system within such time period, less -1- 2 the number of reservations as to which notice of cancellation in the UltraSwitch system is received by the UltraSwitch system within such time period. (vi) Status Change. A Status Change is a message indicating that either the availability or the rate of a room type has changed for a single date in a single property. 2.0 THE ULTRASWITCH SYSTEM 2.1 Duties of THISCO. THISCO shall operate and maintain the UltraSwitch Interface for the use and benefit of HOTEL and other UltraSwitch Users meeting or exceeding the UltraSwitch Specifications. Subject to the duties of HOTEL set forth in Section 2.2 below, THISCO will provide all reasonable and necessary technical support, hardware and software, and modifications to the UltraSwitch system to maintain an Interface between Reservation Providers and HOTEL. Subject to Section 6.2 hereof, delays caused by Reservation Providers, UltraSwitch Users or other third parties, the UltraSwitch Interface will provide room confirmation numbers for each booking at an UltraSwitch User's property made through a Reservation Provider within an average determined over each calendar month of: a. [*] seconds for UltraSwitch Users located within the contiguous 48 United States and District of Columbia; and b. [*] seconds for UltraSwitch Users located elsewhere. THISCO shall not be responsible for but will use its best efforts to require UltraSwitch Users to return response messages within the Response Time Requirements set forth in subpart (a) and (b) above. Subject to Section 6.2 hereof, the UltraSwitch will be available, operational and fully functional to process HOTEL's customer reservations 99% of the time each calendar month. Subject to Section 6.2 hereof, THISCO agrees to correct all failures or interruptions of the UltraSwitch and repair or replace all UltraSwitch parts causing or contributing to failure or interruption within 72 hours of the failure or interruption at THISCO's sole cost and expense. *Confidential Treatment Requested -2- 3 THISCO will not discriminate among UltraSwitch Users in processing reservations through the UltraSwitch. 2.2. Duties of HOTEL. Through the UltraSwitch Interface, HOTEL will permit access to all Reservation Providers utilizing the UltraSwitch and will permit all such Reservation Providers the full and complete right, subject to any agreement between HOTEL and the Reservation Providers, to reserve and cancel rooms authorized for sale by HOTEL and receive a confirmation acknowledgment of any such transaction. All information provided by HOTEL with respect to rooms and facilities shall be complete and accurate and shall be consistent with and inclusive of all the information provided and rates available to a direct caller of HOTEL reservation system to the fullest extent each Reservation Provider data base will permit. 2.3 Enhancement or Modification of the UltraSwitch System. THISCO may undertake to modify the operation or enhance the capability of the UltraSwitch. In such event, THISCO will provide notice to HOTEL of such enhancement at least 60 days prior to such modification or enhancement and will make such adjustments and modifications to THISCO's system, at THISCO's sole expense, as are reasonable and necessary to maintain the Interface with HOTEL. HOTEL agrees to cooperate with THISCO in modify ing and enhancing the UltraSwitch. 2.4 Modification of UltraSwitch User System. In the event HOTEL modifies its central reservation system, or modification of its central reservation system is required for the implementation, operation, modification or enhancement of the UltraSwitch, HOTEL shall pay all necessary costs associated with such modification to its system. In the event HOTEL modifies its central reservation system and such modification requires THISCO to modify the Interface, HOTEL shall pay THISCO its standard consulting rate and all expenses incurred as a result of the modification. In the event THISCO modifies or enhances the UltraSwitch and, as a result, it becomes necessary for HOTEL to modify its reservation system, HOTEL shall have the option to terminate this Agreement by notice to THISCO within thirty (30) days after receipt of the notice provided in Section 2.3 if the resulting cost to HOTEL for the particular modification exceeds $10,000.00. 3.0 FEES AND COSTS 3.1 Reservation and Status Change Fees. For the use of the UltraSwitch Interface, HOTEL shall pay THISCO as follows: -3- 4 For the first [*] Net Reservations during each calendar year [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For all Net Reservations in excess of [*] Net Reservations during each calendar year, [*] per Net Reservation; For the first [*] Status Changes during each calendar year, [*] for each Status Change; For the next [*] Status Changes during each calendar year, [*] for each Status Change; For all Status Changes in excess of [*] during each calendar year, [*] for each Status Change. Notwithstanding the above-stated provisions, in the event the ratio of Status Changes to Net Reservations exceeds [*] during a billing period, there shall be no charge for Status Changes provided, however, in the event the ratio of Status Changes to Net Reservations exceeds [*] during a billing period, all Status Changes in excess of the [*] ratio shall be [*] THISCO may increase the Reservation and Status Change Fees by an amount equal to the annual increase in the U.S. Consumer Price Index to offset cost increases of THISCO's operations provided that such increase shall not take effect until the expiration of 60 days after notice of the increase. 3.2 Guaranteed Annual Minimum Reservation Fee. During each calendar year of this Agreement, HOTEL shall pay THISCO a reservation fee for at least [*] Net Reservations, whether or not such Net Reservations actually occur. *Confidential Treatment Requested -4- 5 3.3 Payment of Fees and Costs. THISCO will invoice HOTEL monthly for all fees, costs, and additional costs incurred by THISCO that are to be paid by HOTEL pursuant to this Agreement. HOTEL shall pay each invoice upon receipt and, in any event, within 30 days of each invoice date. In the event an invoice (all or a portion of which has not been materially disputed) is not paid within 30 days of mailing, HOTEL agrees to pay interest on all undisputed amounts over 30 days old at an annual rate of 15% or 1 1/4% per month. 3.4 Additional Costs. HOTEL shall pay its pro rata share of communication costs (based upon the number of UltraSwitch Users for that month for all lease lines, back up and dial up lines between the UltraSwitch User and the UltraSwitch) for all UltraSwitch Users who are operational and, with respect to those UltraSwitch Users who are not yet operational, for a 60 day period prior to becoming operational. HOTEL shall provide all necessary modems to specifications established by THISCO for connection with the UltraSwitch. 4.0 TERM 4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall be effective on the date first stated above and shall expire on the last day of the [*] after the effective date. This Agreement shall be automatically renewed and extended for addition al 12 month periods unless, at least 30 days prior to the expiration of the initial term or at least 30 days prior to the expiration of any additional 12 month period, either party provides written notice to the other of its decision not to renew and extend. 5.0 TERMINATION 5.1 Termination by HOTEL. Upon the occurrence of an Event of Default (as hereinafter defined) by THISCO and the failure of THISCO to cure such default after notice and opportunity to cure as provided by Section 6.3 hereof, HOTEL may terminate this Agreement at any time within 30 days after the expiration of the cure period provided in Section 6.3. 5.2 Termination by THISCO. Upon the occurrence of an Event of Default (as hereinafter defined) by HOTEL and the failure of HOTEL to cure such default after notice and opportunity to cure as provided by Section 6.3 hereof, THISCO may terminate this *Confidential Treatment Requested -5- 6 Agreement at any time within 30 days after the expiration of the cure period provided in Section 6.3. 6.0 DEFAULT 6.1 Events of Default. Subject to Section 6.2 hereof, any one of the following listed occurrences shall be considered an Event of Default: (i) The failure to pay any amount due hereunder within the time required; (ii) The refusal or failure to diligently and in good faith perform each and every material provision of this Agreement; (iii) The failure of the UltraSwitch to perform materially in accordance with its technical requirements; (iv) If either THISCO or HOTEL (the "Defaulting Party") becomes insolvent, takes any step leading to its cessation as a going concern, or ceases business operations for reasons other than a strike and other than assignment as allowed by this Agreement, then the other party (the "Insecure Party") may immediately terminate this Agreement upon written notice to the other party unless the Defaulting Party immediately gives the Insecure Party adequate assurance of the future performance of this Agreement. If bankruptcy proceedings are commenced with respect to the Defaulting Party, and if this Agreement has not otherwise terminated, then the Insecure Party may suspend all further performance of this Agreement until the Defaulting Party assumes or rejects this Agreement pursuant to Section 365 of the Bankruptcy Code or any similar or successor provision. Any such suspension of further performance by the Insecure Party pending the Defaulting Party's assumption or rejection will not be a breach of this Agreement. 6.2 Force Majeure. It shall not constitute a default if an Event of Default is -6- 7 caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if an Event of Default results from any such occurrence and continues for more than 30 consecutive days, either party may terminate this Agreement by providing notice as required herein. 6.3 Occurrence of Default. Upon the occurrence of an Event of Default, the non-defaulting party shall give written notice to the defaulting party specifying the alleged default. The defaulting party shall then be entitled to 10 days after receipt of such notice within which to cure any monetary default and 30 days within which to cure any non-monetary default. If the party entitled to cure the Event of Default does not cure the Event of Default within the cure period specified above, then such party shall be deemed to be in default of this Agreement. Any such default shall not relieve the defaulting party from any of its obligations hereunder, and in the event of a default, the non-defaulting party hereunder shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. 7.0 CONFIDENTIALITY 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by HOTEL and THISCO that each will receive confidential and proprietary information which is the sole and exclusive property of the other party. All such confiden tial and proprietary information shall be marked or otherwise identified as such and shall be treated as confidential and proprietary subject only to disclosure where required by law. Such designation may be removed by each party making the designation. HOTEL acknowledges that it shall have no access to and shall not use the UltraSwitch software or related property, other than as specifically provided for in this Agreement, and that such information is confidential and proprietary property of THISCO. Any use of the UltraSwitch name by HOTEL is subject to prior written approval of THISCO provided HOTEL may describe the Interface contemplated by this Agreement in its franchise offering circular and other materials as required by state or federal law. The provisions hereof shall remain binding and in force and effect forever, notwithstanding the expiration or termination of this Agreement at any time. 8.0 INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. HOTEL agrees to indemnify -7- 8 and hold harmless THISCO and THISCO's affiliates and their directors, officers, employees and other stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring on account of HOTEL's fault and through no fault of THISCO ("THISCO's Losses"). THISCO agrees to indemnify and hold harmless HOTEL, and HOTEL's affiliates and their directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("HOTEL's Losses") occurring on account of THISCO's fault and through no fault of HOTEL. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indemnified party shall give prompt notice thereof to the indemnifying party and the indemnifying party shall be entitled to participate therein or, to the extent that it shall wish, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses, in each case sub sequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. 9.0 DISCLAIMER OF WARRANTIES 9.1 Waiver of Warranties. THISCO shall not be responsible or liable for any inaccuracies in the data base or the information processed by or through the UltraSwitch nor shall it have any liability for any act or failure to act except as expressly set forth herein, except gross negligence or willful misconduct. All warranties express or implied, including without limitation, any warranty of fitness for a particular purpose, merchantability, good and workmanlike product or service or otherwise, are disclaimed and waived. 9.2 No Consequential Damages. Neither party shall be liable to the other for any consequential damages proximately caused or resulting from any breach of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. -8- 9 9.3 Right to Repair. Notwithstanding any other provision of this Agreement, the only obligation of THISCO in the event of a material failure in the operation or performance of the UltraSwitch shall be to repair the system within 24 hours of notice from HOTEL requesting such repair. 10. MISCELLANEOUS 10.01 Other UltraSwitch User Agreements. In the event any other UltraSwitch User Agreement shall contain provisions regarding Fees and Costs (Article 3 hereof), Term (Article 4 hereof), Termination (Article 5 hereof), Indemnification (Article 8 hereof), or Disclaimer of Warranties (Article 9 hereof) more favorable than those referenced provisions contained herein, THISCO shall promptly provide notice to HOTEL of such provision(s) and HOTEL shall have the right to amend this Agreement to include the effected provisions. 10.02 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party shall select one arbitrator and the two arbitrators selected shall select a third neutral arbitrator. All reasonable and necessary costs and fees (including attorney's fees) incurred in connection with the arbitration shall be borne by the losing party or assessed in the award as otherwise deemed appropriate except travel, food and lodging expenses shall be borne by the party incurring the same. If the demand for arbitration is initiated by HOTEL, venue of the arbitration proceedings shall be determined by THISCO. If the demand for arbitration is initiated by THISCO, venue of the arbitration proceedings shall be determined by HOTEL. 10.03 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to a direct link interface and that each party may contract with other parties providing same or similar services. 10.04 Status of Parties. This Agreement shall not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. THISCO shall not be deemed by this Agreement to be granting a license to HOTEL, with respect to UltraSwitch or any -9- 10 software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. 10.05 Assignment. This Agreement is not assignable by THISCO or HOTEL without the prior written consent of the non-assigning party, and such consent shall not be unreasonably withheld or delayed provided that HOTEL may assign this Agreement in connection with the sale of its reservation system or franchise system and either party may assign this Agreement without consent in the event of a merger, consolidation, or sale of substantially all of its assets. 10.06 Notices. All notices, requests, consents, payments and other communications contemplated hereby shall be in writing and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, or (d) transmitted by facsimile/telecopy in combination with any other permitted form of notice as follows: If to If to THISCO: HOTEL: The Hotel Industry Switch Company Westin Hotels & Resorts 3811 Turtle Creek Blvd., Suite 1100 2001 6th Avenue, 13th Floor Dallas, Texas 75219 Seattle, Washington 98121 Attention: John F. Davis, III If by facsimile/telecopy to: If by facsimile/telecopy to: (214) 528-5675) (206) 443-8997 or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices shall be deemed given and received at the time of personal delivery or, if sent by U.S. mail, three (3) business days after mailing, or, if sent by overnight courier, one (1) business day after such sending or, if sent by facsimile or telecopy, upon verified receipt of same. 10.07 Controlling Law. This Agreement shall be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. -10- 11 10.08 Entire Agreement. This Agreement and the exhibits attached hereto constitute the entire agreement between THISCO and HOTEL with respect to the implementation and operation of the UltraSwitch system and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement which are not contained in this Agreement. 10.09 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 10.10 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement shall be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. 10.11 Software and Intellectual Property. Each of the parties hereto represents and warrants to the other that, with respect to all software and other intellectual property in connection with the operation of the Interface furnished or required to be furnished pursuant to this Agreement (collectively, the "Intellectual Property"), each either owns the Intellectual Property furnished by it or is fully authorized to deliver the Intellectual Property and to allow the Intellectual Property to be used in connection with the Interface, as con templated by this Agreement. Should any claim be raised by any third party that the use of any of the Intellectual Property or the delivery of any of the Intellectual Property in connection with this agreement constitutes infringement of any patent, copyright, license or other property right (a "Claim"), the party furnishing such Intellectual Property shall, at its expense, defend any such Claim in accordance with the provisions of Section 8.1 of this Agreement. Should either party be temporarily or permanently enjoined from using any of the Intellectual Property as a result of any Claim, the other party, at its option and own expense, shall either procure the right to continue to use the Intellectual Property free from any Claim or replace or modify the offending Intellectual Property so that its use becomes non-infringing, within 15 days of the date on which it receives notice of the claim (either such corrective action being referred to herein as a "Correction"). If a Correction is not accomplished, the party who furnished the Intellectual Property resulting in the Claim shall be deemed to be in default of this Agreement, and in such event, Sections 5.2 and 6.3 of -11- 12 this Agreement shall control; provided, however, that the 15 day period specified above shall be deemed to be the applicable cure period under Section 6.3, and once that 15 day period has expired without a Correction having occurred, the applicable cure period under Section 6.3 shall be deemed to have expired. Without limiting Article 8 of this Agreement, the party who furnished the Intellectual Property resulting in the Claim shall also be obligated to indemnify the other party for any of its losses (such losses being THISCO's Losses or HOTEL's Losses, as the case may be, as defined in section 8.1 hereof) in connection with any Claim for which a Correction is not made within such 15 day period, in accordance with Article 8. AGREED to this 17th day of November, 1995. THE HOTEL INDUSTRY SWITCH WESTIN HOTELS & RESORTS COMPANY By: /s/ JOHN F. DAVIS, III By: /s/ TIMOTHY M. COLEMAN ------------------------------ ----------------------------------- John F. Davis, III (name) Timothy M. Coleman President -------------------------------- (title) Vice President Distribution ------------------------------- -12-
1 EXHIBIT 10.35 ULTRASWITCH USER AGREEMENT This Agreement is entered into by and between THE HOTEL INDUSTRY SWITCH COMPANY, a Delaware corporation (hereinafter "THISCO"), and BEST WESTERN INTERNATIONAL (hereinafter "HOTEL"), to be effective the 23rd day of February, 1996 (the "Agreement"). 1.0 DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) UltraSwitch. The UltraSwitch is a service of THISCO to provide an Interface (as hereinafter defined) between Reservation Providers (as hereinafter defined) and hotel reservation systems with the capability to provide immediate room confirmation numbers for each hotel property partici pating in UltraSwitch. (ii) Interface. Interface is the hardware and software and attendant technical support required to produce computer to computer communications between a Reservation Provider (as hereinafter defined) and an UltraSwitch User (as hereinafter defined). (iii) UltraSwitch User. An UltraSwitch User is an operator of a hotel reservation system that has executed an UltraSwitch User agreement. (iv) Reservation Provider. A Reservation Provider is any person or entity with the present or future capability to connect with the UltraSwitch for the purpose of making reservations with an UltraSwitch User. (v) Net Reservations. Net Reservations within a particular time period equals the number of reservations processed through the UltraSwitch system within such time period, less -1- 2 the number of reservations as to which notice of cancellation in the UltraSwitch system is received by the UltraSwitch system within such time period. (vi) Status Change. A Status Change is a message indicating that either the availability or the rate of a room type has changed for a single date in a single property. 2.0 THE ULTRASWITCH SYSTEM 2.1 Duties of THISCO. THISCO shall operate and maintain the UltraSwitch Interface for the use and benefit of HOTEL and other UltraSwitch Users meeting or exceeding the UltraSwitch Specifications. Subject to the duties of HOTEL set forth in Section 2.2 below, THISCO will provide all reasonable and necessary technical support, hardware and software, and modifications to the UltraSwitch system to maintain an Interface between Reservation Providers and HOTEL. Subject to Section 6.2 hereof, delays caused by Reservation Providers, UltraSwitch Users or other third parties, the UltraSwitch Interface will provide room confirmation numbers for each booking at an UltraSwitch User's property made through a Reservation Provider within an average determined over each calendar month of: a. [*] seconds for UltraSwitch Users located within the contiguous 48 United States and District of Columbia; and b. [*] seconds for UltraSwitch Users located elsewhere. THISCO shall not be responsible for but will use its best efforts to require UltraSwitch Users to return response messages within the Response Time Requirements set forth in subpart (a) and (b) above. Subject to Section 6.2 hereof, the UltraSwitch will be available, operational and fully functional to process HOTEL's customer reservations 99% of the time each calendar month. Subject to Section 6.2 hereof, THISCO agrees to correct all failures or interruptions of the UltraSwitch and repair or replace all UltraSwitch parts causing or contributing to failure or interruption within 72 hours of the failure or interruption at THISCO's sole cost and expense. *Confidential Treatment Requested -2- 3 THISCO will not discriminate among UltraSwitch Users in processing reservations through the UltraSwitch. 2.2. Duties of HOTEL. Through the UltraSwitch Interface, HOTEL will permit access to all Reservation Providers utilizing the UltraSwitch and will permit all such Reservation Providers the full and complete right, subject to any agreement between HOTEL and the Reservation Providers, to reserve and cancel rooms authorized for sale by HOTEL and receive a confirmation acknowledgment of any such transaction. All information provided by HOTEL with respect to rooms and facilities shall be complete and accurate and shall be consistent with and inclusive of all the information provided and rates available to a direct caller of HOTEL reservation system to the fullest extent each Reservation Provider data base will permit. 2.3 Enhancement or Modification of the UltraSwitch System. THISCO may undertake to modify the operation or enhance the capability of the UltraSwitch. In such event, THISCO will provide notice to HOTEL of such enhancement at least 60 days prior to such modification or enhancement and will make such adjustments and modifications to THISCO's system, at THISCO's sole expense, as are reasonable and necessary to maintain the Interface with HOTEL. HOTEL agrees to cooperate with THISCO in modify ing and enhancing the UltraSwitch. 2.4 Modification of UltraSwitch User System. In the event HOTEL modifies its central reservation system, or modification of its central reservation system is required for the implementation, operation, modification or enhancement of the UltraSwitch, HOTEL shall pay all necessary costs associated with such modification to its system. In the event HOTEL modifies its central reservation system and such modification requires THISCO to modify the Interface, HOTEL shall pay THISCO its standard consulting rate and all expenses incurred as a result of the modification. In the event THISCO modifies or enhances the UltraSwitch and, as a result, it becomes necessary for HOTEL to modify its reservation system, HOTEL shall have the option to terminate this Agreement by notice to THISCO within thirty (30) days after receipt of the notice provided in Section 2.3 if the resulting cost to HOTEL for the particular modification exceeds $10,000.00. 3.0 FEES AND COSTS 3.1 Reservation and Status Change Fees. For the use of the UltraSwitch Interface, HOTEL shall pay THISCO as follows: -3- 4 For the first [*] Net Reservations during each calendar year [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For all Net Reservations in excess of [*] Net Reservations during each calendar year, [*] per Net Reservation; For the first [*] Status Changes during each calendar year, [*] for each Status Change; For the next [*] Status Changes during each calendar year, [*] for each Status Change; For all Status Changes in excess of [*] during each calendar year, [*] for each Status Change. Notwithstanding the above-stated provisions, in the event the ratio of Status Changes to Net Reservations exceeds [*] during a billing period, there shall be no charge for Status Changes provided, however, in the event the ratio of Status Changes to Net Reservations exceeds [*] during a billing period, all Status Changes in excess of the [*] ratio shall be [*]. THISCO may increase the Reservation and Status Change Fees by an amount equal to the annual increase in the U.S. Consumer Price Index to offset cost increases of THISCO's operations provided that such increase shall not take effect until the expiration of 60 days after notice of the increase. 3.2 Guaranteed Annual Minimum Reservation Fee. During each calendar year of this Agreement, HOTEL shall pay THISCO a reservation fee for at least [*] Net Reservations, whether or not such Net Reservations actually occur. *Confidential Treatment Requested -4- 5 3.3 Payment of Fees and Costs. THISCO will invoice HOTEL monthly for all fees, costs, and additional costs incurred by THISCO that are to be paid by HOTEL pursuant to this Agreement. HOTEL shall pay each invoice upon receipt and, in any event, within 30 days of each invoice date. In the event an invoice (all or a portion of which has not been materially disputed) is not paid within 30 days of mailing, HOTEL agrees to pay interest on all undisputed amounts over 30 days old at an annual rate of 15% or 1 1/4% per month. 3.4 Additional Costs. HOTEL shall pay its pro rata share of communication costs (based upon the number of UltraSwitch Users for that month for all lease lines, back up and dial up lines between the UltraSwitch User and the UltraSwitch) for all UltraSwitch Users who are operational and, with respect to those UltraSwitch Users who are not yet operational, for a 60 day period prior to becoming operational. HOTEL shall provide all necessary modems to specifications established by THISCO for connection with the UltraSwitch. 4.0 TERM 4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall be effective on the date first stated above and shall expire on the last day of the [*] after the effective date. This Agreement shall be automatically renewed and extended for addition al 12 month periods unless, at least 30 days prior to the expiration of the initial term or at least 30 days prior to the expiration of any additional 12 month period, either party provides written notice to the other of its decision not to renew and extend. 5.0 TERMINATION 5.1 Termination by HOTEL. Upon the occurrence of an Event of Default (as hereinafter defined) by THISCO and the failure of THISCO to cure such default after notice and opportunity to cure as provided by Section 6.3 hereof, HOTEL may terminate this Agreement at any time within 30 days after the expiration of the cure period provided in Section 6.3. 5.2 Termination by THISCO. Upon the occurrence of an Event of Default (as hereinafter defined) by HOTEL and the failure of HOTEL to cure such default after notice and opportunity to cure as provided by Section 6.3 hereof, THISCO may terminate this *Confidential Treatment Requested -5- 6 Agreement at any time within 30 days after the expiration of the cure period provided in Section 6.3. 6.0 DEFAULT 6.1 Events of Default. Subject to Section 6.2 hereof, any one of the following listed occurrences shall be considered an Event of Default: (i) The failure to pay any amount due hereunder within the time required; (ii) The refusal or failure to diligently and in good faith perform each and every material provision of this Agreement; (iii) The failure of the UltraSwitch to perform materially in accordance with its technical requirements; (iv) If either THISCO or HOTEL (the "Defaulting Party") becomes insolvent, takes any step leading to its cessation as a going concern, or ceases business operations for reasons other than a strike and other than assignment as allowed by this Agreement, then the other party (the "Insecure Party") may immediately terminate this Agreement upon written notice to the other party unless the Defaulting Party immediately gives the Insecure Party adequate assurance of the future performance of this Agreement. If bankruptcy proceedings are commenced with respect to the Defaulting Party, and if this Agreement has not otherwise terminated, then the Insecure Party may suspend all further performance of this Agreement until the Defaulting Party assumes or rejects this Agreement pursuant to Section 365 of the Bankruptcy Code or any similar or successor provision. Any such suspension of further performance by the Insecure Party pending the Defaulting Party's assumption or rejection will not be a breach of this Agreement. 6.2 Force Majeure. It shall not constitute a default if an Event of Default is -6- 7 caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if an Event of Default results from any such occurrence and continues for more than 30 consecutive days, either party may terminate this Agreement by providing notice as required herein. 6.3 Occurrence of Default. Upon the occurrence of an Event of Default, the non-defaulting party shall give written notice to the defaulting party specifying the alleged default. The defaulting party shall then be entitled to 10 days after receipt of such notice within which to cure any monetary default and 30 days within which to cure any non-monetary default. If the party entitled to cure the Event of Default does not cure the Event of Default within the cure period specified above, then such party shall be deemed to be in default of this Agreement. Any such default shall not relieve the defaulting party from any of its obligations hereunder, and in the event of a default, the non-defaulting party hereunder shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. 7.0 CONFIDENTIALITY 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by HOTEL and THISCO that each will receive confidential and proprietary information which is the sole and exclusive property of the other party. All such confiden tial and proprietary information shall be marked or otherwise identified as such and shall be treated as confidential and proprietary subject only to disclosure where required by law. Such designation may be removed by each party making the designation. HOTEL acknowledges that it shall have no access to and shall not use the UltraSwitch software or related property, other than as specifically provided for in this Agreement, and that such information is confidential and proprietary property of THISCO. Any use of the UltraSwitch name by HOTEL is subject to prior written approval of THISCO provided HOTEL may describe the Interface contemplated by this Agreement in its franchise offering circular and other materials as required by state or federal law. The provisions hereof shall remain binding and in force and effect forever, notwithstanding the expiration or termination of this Agreement at any time. 8.0 INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. HOTEL agrees to indemnify -7- 8 and hold harmless THISCO and THISCO's affiliates and their directors, officers, employees and other stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring on account of HOTEL's fault and through no fault of THISCO ("THISCO's Losses"). THISCO agrees to indemnify and hold harmless HOTEL, and HOTEL's affiliates and their directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("HOTEL's Losses") occurring on account of THISCO's fault and through no fault of HOTEL. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indemnified party shall give prompt notice thereof to the indemnifying party and the indemnifying party shall be entitled to participate therein or, to the extent that it shall wish, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses, in each case sub sequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. 9.0 DISCLAIMER OF WARRANTIES 9.1 Waiver of Warranties. THISCO shall not be responsible or liable for any inaccuracies in the data base or the information processed by or through the UltraSwitch nor shall it have any liability for any act or failure to act except as expressly set forth herein, except gross negligence or willful misconduct. All warranties express or implied, including without limitation, any warranty of fitness for a particular purpose, merchantability, good and workmanlike product or service or otherwise, are disclaimed and waived. 9.2 No Consequential Damages. Neither party shall be liable to the other for any consequential damages proximately caused or resulting from any breach of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. -8- 9 9.3 Right to Repair. Notwithstanding any other provision of this Agreement, the only obligation of THISCO in the event of a material failure in the operation or performance of the UltraSwitch shall be to repair the system within 24 hours of notice from HOTEL requesting such repair. 10. MISCELLANEOUS 10.01 Other UltraSwitch User Agreements. In the event any other UltraSwitch User Agreement shall contain provisions regarding Fees and Costs (Article 3 hereof), Term (Article 4 hereof), Termination (Article 5 hereof), Indemnification (Article 8 hereof), or Disclaimer of Warranties (Article 9 hereof) more favorable than those referenced provisions contained herein, THISCO shall promptly provide notice to HOTEL of such provision(s) and HOTEL shall have the right to amend this Agreement to include the effected provisions. 10.02 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party shall select one arbitrator and the two arbitrators selected shall select a third neutral arbitrator. All reasonable and necessary costs and fees (including attorney's fees) incurred in connection with the arbitration shall be borne by the losing party or assessed in the award as otherwise deemed appropriate except travel, food and lodging expenses shall be borne by the party incurring the same. If the demand for arbitration is initiated by HOTEL, venue of the arbitration proceedings shall be determined by THISCO. If the demand for arbitration is initiated by THISCO, venue of the arbitration proceedings shall be determined by HOTEL. 10.03 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to a direct link interface and that each party may contract with other parties providing same or similar services. 10.04 Status of Parties. This Agreement shall not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. THISCO shall not be deemed by this Agreement to be granting a license to HOTEL, with respect to UltraSwitch or any -9- 10 software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. 10.05 Assignment. This Agreement is not assignable by THISCO or HOTEL without the prior written consent of the non-assigning party, and such consent shall not be unreasonably withheld or delayed provided that HOTEL may assign this Agreement in connection with the sale of its reservation system or franchise system and either party may assign this Agreement without consent in the event of a merger, consolidation, or sale of substantially all of its assets. 10.06 Notices. All notices, requests, consents, payments and other communications contemplated hereby shall be in writing and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, or (d) transmitted by facsimile/telecopy in combination with any other permitted form of notice as follows: If to If to THISCO: HOTEL: The Hotel Industry Switch Company BEST WESTERN INTERNATIONAL 3811 Turtle Creek Blvd., Suite 1100 6201 N. 24th Parkway Dallas, Texas 75219 Phoenix, Arizona 85016 Attention: John F. Davis, III If by facsimile/telecopy to: If by facsimile/telecopy to: (214) 528-5675) (602) 957-59662 or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices shall be deemed given and received at the time of personal delivery or, if sent by U.S. mail, three (3) business days after mailing, or, if sent by overnight courier, one (1) business day after such sending or, if sent by facsimile or telecopy, upon verified receipt of same. 10.07 Controlling Law. This Agreement shall be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. -10- 11 10.08 Entire Agreement. This Agreement and the exhibits attached hereto constitute the entire agreement between THISCO and HOTEL with respect to the implementation and operation of the UltraSwitch system and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement which are not contained in this Agreement. 10.09 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 10.10 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement shall be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. 10.11 Software and Intellectual Property. Each of the parties hereto represents and warrants to the other that, with respect to all software and other intellectual property in connection with the operation of the Interface furnished or required to be furnished pursuant to this Agreement (collectively, the "Intellectual Property"), each either owns the Intellectual Property furnished by it or is fully authorized to deliver the Intellectual Property and to allow the Intellectual Property to be used in connection with the Interface, as con templated by this Agreement. Should any claim be raised by any third party that the use of any of the Intellectual Property or the delivery of any of the Intellectual Property in connection with this agreement constitutes infringement of any patent, copyright, license or other property right (a "Claim"), the party furnishing such Intellectual Property shall, at its expense, defend any such Claim in accordance with the provisions of Section 8.1 of this Agreement. Should either party be temporarily or permanently enjoined from using any of the Intellectual Property as a result of any Claim, the other party, at its option and own expense, shall either procure the right to continue to use the Intellectual Property free from any Claim or replace or modify the offending Intellectual Property so that its use becomes non-infringing, within 15 days of the date on which it receives notice of the claim (either such corrective action being referred to herein as a "Correction"). If a Correction is not accomplished, the party who furnished the Intellectual Property resulting in the Claim shall be deemed to be in default of this Agreement, and in such event, Sections 5.2 and 6.3 of -11- 12 this Agreement shall control; provided, however, that the 15 day period specified above shall be deemed to be the applicable cure period under Section 6.3, and once that 15 day period has expired without a Correction having occurred, the applicable cure period under Section 6.3 shall be deemed to have expired. Without limiting Article 8 of this Agreement, the party who furnished the Intellectual Property resulting in the Claim shall also be obligated to indemnify the other party for any of its losses (such losses being THISCO's Losses or HOTEL's Losses, as the case may be, as defined in section 8.1 hereof) in connection with any Claim for which a Correction is not made within such 15 day period, in accordance with Article 8. AGREED to this 23rd day of February, 1996. THE HOTEL INDUSTRY SWITCH BEST WESTERN INTERNATIONAL COMPANY By: /s/ JOHN F. DAVIS, III By: /s/ WILLIAM S. WATSON ----------------------------- --------------------------------- John F. Davis, III (name) William S. Watson President ------------------------------ (title) Executive Vice President ----------------------------- -12-
1 EXHIBIT 10.36 ULTRASWITCH USER AGREEMENT This Agreement is entered into by and between THE HOTEL INDUSTRY SWITCH COMPANY, a Delaware corporation (hereinafter "THISCO"), and INTER-CONTINENTAL HOTELS CORPORATION, a Delaware corporation, (hereinafter "HOTEL"), to be effective the 13th day of February, 1996 (the "Agreement"). 1.0 DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) UltraSwitch. The UltraSwitch is a service of THISCO to provide an Interface (as hereinafter defined) between Reservation Providers (as hereinafter defined) and hotel reservation systems with the capability to provide immediate reservation confirmation numbers for each hotel property participating in UltraSwitch. (ii) Interface. Interface is the hardware and software and attendant technical support required to produce computer to computer communications between a Reservation Provider (as hereinafter defined) and an UltraSwitch User (as hereinafter defined). (iii) UltraSwitch User. An UltraSwitch User is an operator of a hotel reservation system that has executed an UltraSwitch User agreement. (iv) Reservation Provider. A Reservation Provider is any person or entity with the present or future capability to connect with the UltraSwitch for the purpose of making reservations with an UltraSwitch User. (v) Net Reservations. Net Reservations within a particular time period equals the number of reservations processed -1- 2 through the UltraSwitch system within such time period, less the number of reservations as to which notice of cancellation in the UltraSwitch system is received by the UltraSwitch system within such time period. (vi) Status Change. A Status Change is a message indicating that either the availability or, if bulk data transfer is done via UltraSwitch, the rate of a room type has changed for a single date in a single property. 2.0 THE ULTRASWITCH SYSTEM 2.1 Duties of THISCO. THISCO shall operate and maintain the UltraSwitch Interface for the use and benefit of HOTEL and other UltraSwitch Users meeting or exceeding the UltraSwitch Specifications. Subject to the duties of HOTEL set forth in Section 2.2 below, THISCO will provide all reasonable and necessary technical support, hardware and software, and modifications to the UltraSwitch system to maintain an Interface between Reservation Providers and HOTEL. Subject to Section 6.2 hereof, delays caused by Reservation Providers, UltraSwitch Users or other third parties, the UltraSwitch Interface will provide reservation confirmation numbers for each booking at an UltraSwitch User's property made through a Reservation Provider within an average determined over each calendar month of: a. [*] seconds for UltraSwitch Users located within the contiguous 48 United States and District of Columbia; and b. [*] seconds for UltraSwitch Users located elsewhere. THISCO shall not be responsible for but will use its best efforts to require UltraSwitch Users to return response messages within the Response Time Requirements set forth in subparts (a) and (b) above. Subject to Section 6.2 hereof, the UltraSwitch will be available, operational and fully functional to process HOTEL's customer reservations at least 99% of the time each calendar month. Subject to Section 6.2 hereof, THISCO agrees to correct all failures or interruptions of the UltraSwitch and repair or replace all UltraSwitch parts causing or *Confidential Treatment Requested -2- 3 contributing to failure or interruption within 72 hours of the failure or interruption at THISCO's sole cost and expense. THISCO will not discriminate among UltraSwitch Users in processing reservations through the UltraSwitch. 2.2. Duties of HOTEL. Through the UltraSwitch Interface, HOTEL will permit access to all Reservation Providers utilizing the UltraSwitch and will permit all such Reservation Providers the full and complete right, subject to any agreement between HOTEL and the Reservation Providers, to reserve and cancel rooms authorized for sale by HOTEL and receive a confirmation acknowledgment of any such transaction. All information provided by HOTEL with respect to rooms and facilities shall be complete and accurate and shall be consistent with and inclusive of all the information provided and rates available to a direct caller of HOTEL reservation system to the fullest extent each Reservation Provider data base will permit. 2.3 Enhancement or Modification of the UltraSwitch System. THISCO may undertake to modify the operation or enhance the capability of the UltraSwitch. In such event, THISCO will provide notice to HOTEL of such enhancement at least 60 days prior to such modification or enhancement and will make such adjustments and modifications to THISCO's system, at THISCO's sole expense, as are reasonable and necessary to maintain the Interface with HOTEL. HOTEL agrees to cooperate with THISCO in modify ing and enhancing the UltraSwitch. 2.4 Modification of UltraSwitch User System. In the event HOTEL modifies its central reservation system, or modification of its central reservation system is required for the implementation, operation, modification or enhancement of the UltraSwitch, HOTEL shall pay all necessary costs associated with such modification to its system. In the event HOTEL modifies its central reservation system and such modification requires THISCO to modify the Interface, HOTEL shall pay THISCO its standard consulting rate and all expenses incurred as a result of the modification. THISCO shall provide to HOTEL prior to accomplishing any such modification a good faith estimate of the expenses likely to be incurred in connection therewith. In the event THISCO modifies or enhances the UltraSwitch and, as a result, it becomes necessary for HOTEL to modify its reservation system, HOTEL shall have the option to terminate this Agreement by notice to THISCO within thirty (30) days after receipt of the notice provided in Section 2.3 if the resulting cost -3- 4 to HOTEL for the particular modification exceeds $10,000.00. 3.0 FEES AND COSTS 3.1 Reservation and Status Change Fees. For the use of the UltraSwitch Interface, HOTEL shall pay THISCO as follows: For the first [*] Net Reservations during each calendar year [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For all Net Reservations in excess of [*] Net Reservations during each calendar year, [*] per Net Reservation; For the first [*] Status Changes during each calendar year, [*] for each Status Change; For the next [*] Status Changes during each calendar year, [*] for each Status Change; For all Status Changes in excess of [*] during each calendar year, [*] for each Status Change. Notwithstanding the above-stated provisions, in the event the ratio of Status Changes to Net Reservations exceeds [*] during a billing period, there shall be no charge for Status Changes provided, however, in the event the ratio of Status Changes to Net Reservations exceeds [*] during a billing period, all Status Changes in excess of the [*] ratio shall be [*] THISCO may increase as of the first day of January of each calendar year the Reservation and Status Change Fees by an amount equal to the annual increase during the *Confidential Treatment Requested -4- 5 immediately preceding calendar year in the U.S. Consumer Price Index to offset cost increases of THISCO's operations provided that such increase shall not take effect until the expiration of 60 days after notice of the increase. 3.2 Guaranteed Annual Minimum Reservation Fee. During each calendar year of this Agreement, HOTEL shall pay THISCO a reservation fee for at least [*] Net Reservations, whether or not such Net Reservations actually occur. HOTEL shall receive a credit for all Reservation Fees paid pursuant to Section 3.1 above. 3.3 Payment of Fees and Costs. THISCO will invoice HOTEL monthly for all fees, costs, and additional costs incurred by THISCO that are to be paid by HOTEL pursuant to this Agreement. HOTEL shall pay each invoice upon receipt and, in any event, within 30 days of each invoice date. In the event an invoice (all or a portion of which has not been materially disputed) is not paid within 30 days of receipt, HOTEL agrees to pay interest on all undisputed amounts over 30 days old at an annual rate of 15% or 1 1/4% per month. 3.4 Additional Costs. HOTEL shall pay its pro rata share of communication costs (based upon the number of UltraSwitch Users for that month for all lease lines, back up and dial up lines between the UltraSwitch User and the UltraSwitch) for all UltraSwitch Users who are operational and, with respect to those UltraSwitch Users who are not yet operational, for a 60 day period prior to becoming operational. HOTEL shall provide all necessary modems to specifications established by THISCO for connection with the UltraSwitch. 4.0 TERM 4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall be effective on the date first stated above and shall expire on the last day of the [*] after the effective date. This Agreement shall be automatically renewed and extended for addition al 12 month periods unless, at least 30 days prior to the expiration of the initial term or at least 30 days prior to the expiration of any additional 12 month period, either party provides written notice to the other of its decision not to renew and extend. *Confidential Treatment Requested -5- 6 5.0 TERMINATION 5.1 Termination by HOTEL. Upon the occurrence of an Event of Default (as hereinafter defined) by THISCO and the failure of THISCO to cure such default after notice and opportunity to cure as provided by Section 6.3 hereof, HOTEL may terminate this Agreement at any time within 30 days after the expiration of the cure period provided in Section 6.3. 5.2 Termination by THISCO. Upon the occurrence of an Event of Default (as hereinafter defined) by HOTEL and the failure of HOTEL to cure such default after notice and opportunity to cure as provided by Section 6.3 hereof, THISCO may terminate this Agreement at any time within 30 days after the expiration of the cure period provided in Section 6.3. 6.0 DEFAULT 6.1 Events of Default. Subject to Section 6.2 hereof, any one of the following listed occurrences shall be considered an Event of Default: (i) The failure to pay any amount due hereunder within the time required; (ii) The refusal or failure to diligently and in good faith perform each and every material provision of this Agreement; (iii) The failure of the UltraSwitch to perform materially in accordance with its technical requirements; (iv) If either THISCO or HOTEL (the "Defaulting Party") becomes insolvent, takes any step leading to its cessation as a going concern, or ceases business operations for reasons other than a strike and other than assignment as allowed by this Agreement, then the other party (the "Insecure Party") may immediately terminate this Agreement upon written notice to the other party unless the Defaulting Party immediately gives the Insecure Party adequate assurance of the future -6- 7 performance of this Agreement. If bankruptcy proceedings are commenced with respect to the Defaulting Party, and if this Agreement has not otherwise terminated, then the Insecure Party may suspend all further performance of this Agreement until the Defaulting Party assumes or rejects this Agreement pursuant to Section 365 of the Bankruptcy Code or any similar or successor provision. Any such suspension of further performance by the Insecure Party pending the Defaulting Party's assumption or rejection will not be a breach of this Agreement. 6.2 Force Majeure. It shall not constitute a default if an Event of Default is caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if an Event of Default results from any such occurrence and continues for more than 30 consecutive days, either party may terminate this Agreement by providing notice as required herein. 6.3 Occurrence of Default. Upon the occurrence of an Event of Default, the non-defaulting party shall give written notice to the defaulting party specifying the alleged default. The defaulting party shall then be entitled to 10 days after receipt of such notice within which to cure any monetary default and 30 days within which to cure any non-monetary default. If the party entitled to cure the Event of Default does not cure the Event of Default within the cure period specified above, then such party shall be deemed to be in default of this Agreement. Any such default shall not relieve the defaulting party from any of its obligations hereunder, and in the event of a default, the non-defaulting party hereunder shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. 7.0 CONFIDENTIALITY 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by HOTEL and THISCO that each will receive confidential and proprietary information which is the sole and exclusive property of the other party. All such confiden tial and proprietary information shall be marked or otherwise identified as such and shall be treated as confidential and proprietary subject only to disclosure where required by law. -7- 8 Such designation may be removed by each party making the designation. HOTEL acknowledges that it shall have no access to and shall not use the UltraSwitch software or related property, other than as specifically provided for in this Agreement, and that such information is confidential and proprietary property of THISCO. Any use of the UltraSwitch name by HOTEL is subject to prior written approval of THISCO provided HOTEL may describe the Interface contemplated by this Agreement in its franchise offering circular and other materials as required by state or federal law. The provisions hereof shall remain binding and in force and effect forever, notwithstanding the expiration or termination of this Agreement at any time. 8.0 INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. HOTEL agrees to indemnify and hold harmless THISCO and THISCO's affiliates and their directors, officers, employees and other stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring on account of HOTEL's fault and through no fault of THISCO ("THISCO's Losses"). THISCO agrees to indemnify and hold harmless HOTEL, and HOTEL's affiliates and their directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("HOTEL's Losses") occurring on account of THISCO's fault and through no fault of HOTEL. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indemnified party shall give prompt notice thereof to the indemnifying party and the indemnifying party shall be entitled to participate therein or, to the extent that it shall wish, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses, in each case sub sequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. -8- 9 9.0 DISCLAIMER OF WARRANTIES 9.1 Waiver of Warranties. THISCO shall not be responsible or liable for any inaccuracies in the data base or the information processed by or through the UltraSwitch nor shall it have any liability for any act or failure to act except as expressly set forth herein, except gross negligence or willful misconduct. All warranties express or implied, including without limitation, any warranty of fitness for a particular purpose, merchantability, good and workmanlike product or service or otherwise, are disclaimed and waived. 9.2 No Consequential Damages. Neither party shall be liable to the other for any consequential damages proximately caused or resulting from any breach of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. 9.3 Right to Repair. Notwithstanding any other provision of this Agreement, the only obligation of THISCO in the event of a material failure in the operation or performance of the UltraSwitch shall be to repair the system within 24 hours of notice from HOTEL requesting such repair. 10. MISCELLANEOUS 10.01 Other UltraSwitch User Agreements. In the event any other UltraSwitch User Agreement shall contain provisions regarding Fees and Costs (Article 3 hereof), Term (Article 4 hereof), Termination (Article 5 hereof), Indemnification (Article 8 hereof), or Disclaimer of Warranties (Article 9 hereof) more favorable than those referenced provisions contained herein, THISCO shall promptly provide notice to HOTEL of such provision(s) and HOTEL shall have the right to amend this Agreement to include the effected provisions. 10.02 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party shall select one arbitrator and the two arbitrators selected shall select a third neutral arbitrator. All reasonable and necessary costs and fees (including attorney's fees) incurred in connection with the -9- 10 arbitration shall be borne by the losing party or assessed in the award as otherwise deemed appropriate except travel, food and lodging expenses shall be borne by the party incurring the same. If the demand for arbitration is initiated by HOTEL, venue of the arbitration proceedings shall be determined by THISCO. If the demand for arbitration is initiated by THISCO, venue of the arbitration proceedings shall be determined by HOTEL. 10.03 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to a direct link interface and that each party may contract with other parties providing same or similar services. 10.04 Status of Parties. This Agreement shall not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. THISCO shall not be deemed by this Agreement to be granting a license to HOTEL, with respect to UltraSwitch or any software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. 10.05 Assignment. This Agreement is not assignable by THISCO or HOTEL without the prior written consent of the non-assigning party, and such consent shall not be unreasonably withheld or delayed provided that HOTEL may assign this Agreement in connection with the sale of its reservation system or franchise system and either party may assign this Agreement without consent in the event of a merger, consolidation, or sale of substantially all of its assets. 10.06 Notices. All notices, requests, consents, payments and other communications contemplated hereby shall be in writing and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, or (d) transmitted by facsimile/telecopy in combination with any other permitted form of notice as follows: -10- 11 If to If to THISCO: HOTEL: The Hotel Industry Switch Company Inter-Continental Hotels Corporation 3811 Turtle Creek Blvd., Suite 1100 1120 Avenue of the Americas Dallas, Texas 75219 New York, NY 10036 ATTN: John F. Davis, III ATTN: General Counsel If by facsimile/telecopy to: If by facsimile/telecopy to: (214) 528-5675) ------------------------------------ or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices shall be deemed given and received at the time of personal delivery or, if sent by U.S. mail, three (3) business days after mailing, or, if sent by overnight courier, one (1) business day after such sending or, if sent by facsimile or telecopy, upon verified receipt of same. 10.07 Controlling Law. This Agreement shall be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. 10.08 Entire Agreement. This Agreement and the exhibits attached hereto constitute the entire agreement between THISCO and HOTEL with respect to the implementation and operation of the UltraSwitch system and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement which are not contained in this Agreement. 10.09 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 10.10 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement shall be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. -11- 12 10.11 Software and Intellectual Property. Each of the parties hereto represents and warrants to the other that, with respect to all software and other intellectual property in connection with the operation of the Interface furnished or required to be furnished pursuant to this Agreement (collectively, the "Intellectual Property"), each either owns the Intellectual Property furnished by it or is fully authorized to deliver the Intellectual Property and to allow the Intellectual Property to be used in connection with the Interface, as con templated by this Agreement. Should any claim be raised by any third party that the use of any of the Intellectual Property or the delivery of any of the Intellectual Property in connection with this agreement constitutes infringement of any patent, copyright, license or other property right (a "Claim"), the party furnishing such Intellectual Property shall, at its expense, defend any such Claim in accordance with the provisions of Section 8.1 of this Agreement. Should either party be temporarily or permanently enjoined from using any of the Intellectual Property as a result of any Claim, the other party, at its option and own expense, shall either procure the right to continue to use the Intellectual Property free from any Claim or replace or modify the offending Intellectual Property so that its use becomes non-infringing, within 15 days of the date on which it receives notice of the claim (either such corrective action being referred to herein as a "Correction"). If a Correction is not accomplished, the party who furnished the Intellectual Property resulting in the Claim shall be deemed to be in default of this Agreement, and in such event, Sections 5.2 and 6.3 of this Agreement shall control; provided, however, that the 15 day period specified above shall be deemed to be the applicable cure period under Section 6.3, and once that 15 day period has expired without a Correction having occurred, the applicable cure period under Section 6.3 shall be deemed to have expired. Without limiting Article 8 of this Agreement, the party who furnished the Intellectual Property resulting in the Claim shall also be obligated to indemnify the other party for any of its losses (such losses being THISCO's Losses or HOTEL's Losses, as the case may be, as defined in section 8.1 hereof) in connection with any Claim for which a Correction is not made within such 15 day period, in accordance with Article 8. AGREED to this 13th day of February, 1996. THE HOTEL INDUSTRY SWITCH INTER-CONTINENTAL HOTELS CORPORATION COMPANY By: /s/ JOHN F. DAVIS, III By: /s/ PAUL J. TRAVIS ----------------------------- ---------------------------------- John F. Davis, III Paul J. Travis (printed name) President -------------------- Its: Senior Vice President (title) Property Management --------------------------- -12-
1 EXHIBIT 10.37 ULTRASWITCH USER AGREEMENT This Agreement is entered into by and between THE HOTEL INDUSTRY SWITCH COMPANY, a Delaware corporation (hereinafter "THISCO"), and HFS INCORPORATED, formerly known as Hospitality Franchise Systems, Inc. (hereinafter "HFS"), to be effective the 4th day of January, 1996 (the "Agreement"). 1.0 DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) UltraSwitch. The UltraSwitch is a service of THISCO to provide an Interface (as hereinafter defined) between Reservation Providers (as hereinafter defined) and hotel reservation systems with the capability to provide immediate room confirmation numbers for each hotel property partici pating in UltraSwitch. (ii) Interface. Interface is the hardware and software and attendant technical support required to produce computer to computer communications between a Reservation Provider (as hereinafter defined) and an UltraSwitch User (as hereinafter defined). (iii) UltraSwitch User. An UltraSwitch User is an operator of a hotel reservation system that has executed an UltraSwitch User agreement. (iv) Reservation Provider. A Reservation Provider is any person or entity with the present or future capability to connect with the UltraSwitch for the purpose of making reservations with an UltraSwitch User. -1- 2 (v) Net Reservations. Net Reservations within a particular time period equals the number of reservations processed through the UltraSwitch system within such time period, less the number of reservations as to which notice of cancellation in the UltraSwitch system is received by the UltraSwitch system within such time period. (vi) Status Change. A Status Change is a message indicating that either the availability or the rate of a room type has changed for a single date in a single property. 2.0 THE ULTRASWITCH SYSTEM 2.1 Duties of THISCO. THISCO shall operate and maintain the UltraSwitch Interface for the use and benefit of HFS and other UltraSwitch Users meeting or exceeding the UltraSwitch Specifications. Subject to the duties of HFS set forth in Section 2.2 below, THISCO will provide all reasonable and necessary technical support, hardware and software, and modifications to the UltraSwitch system to maintain an Interface between Reservation Providers and HFS. Subject to Section 6.2 hereof, delays caused by Reservation Providers, UltraSwitch Users or other third parties, the UltraSwitch Interface will provide room confirmation numbers for each booking at an UltraSwitch User's property made through a Reservation Provider within an average determined over each calendar month of: a. [*] seconds for UltraSwitch Users located within the contiguous 48 United States and District of Columbia; and b. [*] seconds for UltraSwitch Users located elsewhere. THISCO shall not be responsible for but will use its best efforts to require UltraSwitch Users to return response messages within the Response Time Requirements set forth in subpart (a) and (b) above. Subject to Section 6.2 hereof, the UltraSwitch will be available, operational and fully functional to process HFS's customer reservations 99% of the time each calendar month. Subject to Section 6.2 hereof, THISCO agrees to correct all failures or interruptions of the *Confidential Treatment Requested -2- 3 UltraSwitch and repair or replace all UltraSwitch parts causing or contributing to failure or interruption within 72 hours of the failure or interruption at THISCO's sole cost and expense. THISCO will not discriminate among UltraSwitch Users in processing reservations through the UltraSwitch. 2.2. Duties of HFS. Through the UltraSwitch Interface, HFS will permit access to all Reservation Providers utilizing the UltraSwitch and will permit all such Reservation Providers the full and complete right, subject to any agreement between HFS and the Reservation Providers, to reserve and cancel rooms authorized for sale by HFS and receive a confirmation acknowledgment of any such transaction. All information provided by HFS with respect to rooms and facilities shall be complete and accurate and shall be consistent with and inclusive of all the information provided and rates available to a direct caller of HFS reservation system to the fullest extent each Reservation Provider data base will permit. 2.3 Enhancement or Modification of the UltraSwitch System. THISCO may undertake to modify the operation or enhance the capability of the UltraSwitch. In such event, THISCO will provide notice to HFS of such enhancement at least 60 days prior to such modification or enhancement and will make such adjustments and modifications to THISCO's system, at THISCO's sole expense, as are reasonable and necessary to maintain the Interface with HFS. HFS agrees to cooperate with THISCO in modifying and enhancing the UltraSwitch. 2.4 Modification of UltraSwitch User System. In the event HFS modifies its central reservation system, or modification of its central reservation system is required for the implementation, operation, modification or enhancement of the UltraSwitch, HFS shall pay all necessary costs associated with such modification to its system. In the event HFS modifies its central reservation system and such modification requires THISCO to modify the Interface, HFS shall pay THISCO its standard consulting rate and all expenses incurred as a result of the modification. In the event THISCO modifies or enhances the UltraSwitch and, as a result, it becomes necessary for HFS to modify its reservation system, HFS shall have the option to terminate this Agreement by notice to THISCO within thirty (30) days after receipt of the notice provided in Section 2.3 if the resulting cost to HFS for the particular modification exceeds $10,000.00. -3- 4 3.0 FEES AND COSTS 3.1 Reservation and Status Change Fees. For the use of the UltraSwitch Interface, HFS shall pay THISCO as follows: For the first [*] Net Reservations during each calendar year [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For all Net Reservations in excess of [*] Net Reservations during each calendar year, [*] per Net Reservation; For the first [*] Status Changes during each calendar year, [*] for each Status Change; For the next [*] Status Changes during each calendar year, [*] for each Status Change; For all Status Changes in excess of [*] during each calendar year, [*] for each Status Change. Notwithstanding the above-stated provisions, in the event the ratio of Status Changes to Net Reservations exceeds [*] during a billing period, there shall be no charge for Status Changes provided, however, in the event the ratio of Status Changes to Net Reservations exceeds [*] during a billing period, all Status Changes in excess of the [*] ratio shall be [*] THISCO may increase the Reservation and Status Change Fees by an amount equal to the annual increase in the U.S. Consumer Price Index to offset cost increases of THISCO's operations provided that such increase shall not take effect until the expiration of 60 days after notice of the increase. *Confidential Treatment Requested -4- 5 3.2 Guaranteed Annual Minimum Reservation Fee. During each calendar year of this Agreement, HFS shall pay THISCO a reservation fee for at least [*] Net Reservations, whether or not such Net Reservations actually occur. 3.3 Payment of Fees and Costs. THISCO will invoice HFS monthly for all fees, costs, and additional costs incurred by THISCO that are to be paid by HFS pursuant to this Agreement. HFS shall pay each invoice upon receipt and, in any event, within 30 days of each invoice date. In the event an invoice (all or a portion of which has not been materially disputed) is not paid within 30 days of mailing, HFS agrees to pay interest on all undisputed amounts over 30 days old at an annual rate of 15% or 1 1/4% per month. 3.4 Additional Costs. HFS shall pay its pro rata share of communication costs (based upon the number of UltraSwitch Users for that month for all lease lines, back up and dial up lines between the UltraSwitch User and the UltraSwitch) for all UltraSwitch Users who are operational and, with respect to those UltraSwitch Users who are not yet operational, for a 60 day period prior to becoming operational. HFS shall provide all necessary modems to specifications established by THISCO for connection with the UltraSwitch. 4.0 TERM 4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall be effective on the date first stated above and shall expire on the last day of the [*] after the effective date. This Agreement shall be automatically renewed and extended for addition al 12 month periods unless, at least 30 days prior to the expiration of the initial term or at least 30 days prior to the expiration of any additional 12 month period, either party provides written notice to the other of its decision not to renew and extend. 5.0 TERMINATION 5.1 Termination by HFS. Upon the occurrence of an Event of Default (as hereinafter defined) by THISCO and the failure of THISCO to cure such default after notice and opportunity to cure as provided by Section 6.3 hereof, HFS may terminate this Agreement at any time within 30 days after the expiration of the cure period provided in Section 6.3. *Confidential Treatment Requested -5- 6 5.2 Termination by THISCO. Upon the occurrence of an Event of Default (as hereinafter defined) by HFS and the failure of HFS to cure such default after notice and opportunity to cure as provided by Section 6.3 hereof, THISCO may terminate this Agreement at any time within 30 days after the expiration of the cure period provided in Section 6.3. 6.0 DEFAULT 6.1 Events of Default. Subject to Section 6.2 hereof, any one of the following listed occurrences shall be considered an Event of Default: (i) The failure to pay any amount due hereunder within the time required; (ii) The refusal or failure to diligently and in good faith perform each and every material provision of this Agreement; (iii) The failure of the UltraSwitch to perform materially in accordance with its technical requirements; (iv) If either THISCO or HFS (the "Defaulting Party") becomes insolvent, takes any step leading to its cessation as a going concern, or ceases business operations for reasons other than a strike and other than assignment as allowed by this Agreement, then the other party (the "Insecure Party") may immediately terminate this Agreement upon written notice to the other party unless the Defaulting Party immediately gives the Insecure Party adequate assurance of the future performance of this Agreement. If bankruptcy proceedings are commenced with respect to the Defaulting Party, and if this Agreement has not otherwise terminated, then the Insecure Party may suspend all further performance of this Agreement until the Defaulting Party assumes or rejects this Agreement pursuant to Section 365 of the Bankruptcy Code or any similar or successor provision. Any such suspension of further performance by the Insecure Party pending the Defaulting -6- 7 Party's assumption or rejection will not be a breach of this Agreement. 6.2 Force Majeure. It shall not constitute a default if an Event of Default is caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if an Event of Default results from any such occurrence and continues for more than 30 consecutive days, either party may terminate this Agreement by providing notice as required herein. 6.3 Occurrence of Default. Upon the occurrence of an Event of Default, the non-defaulting party shall give written notice to the defaulting party specifying the alleged default. The defaulting party shall then be entitled to 10 days after receipt of such notice within which to cure any monetary default and 30 days within which to cure any non-monetary default. If the party entitled to cure the Event of Default does not cure the Event of Default within the cure period specified above, then such party shall be deemed to be in default of this Agreement. Any such default shall not relieve the defaulting party from any of its obligations hereunder, and in the event of a default, the non-defaulting party hereunder shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. 7.0 CONFIDENTIALITY 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by HFS and THISCO that each will receive confidential and proprietary information which is the sole and exclusive property of the other party. All such confiden tial and proprietary information shall be marked or otherwise identified as such and shall be treated as confidential and proprietary subject only to disclosure where required by law. Such designation may be removed by each party making the designation. HFS acknowledges that it shall have no access to and shall not use the UltraSwitch software or related property, other than as specifically provided for in this Agreement, and that such information is confidential and proprietary property of THISCO. Any use of the UltraSwitch name by HFS is subject to prior written approval of THISCO provided HFS may describe the Interface contemplated by this Agreement in its franchise offering circular and other materials as required by state or federal law. The provisions hereof shall remain binding -7- 8 and in force and effect forever, notwithstanding the expiration or termination of this Agreement at any time. 8.0 INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. HFS agrees to indemnify and hold harmless THISCO and THISCO's affiliates and their directors, officers, employees and other stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring on account of HFS's fault and through no fault of THISCO ("THISCO's Losses"). THISCO agrees to indemnify and hold harmless HFS, and HFS's affiliates and their directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("HFS's Losses") occurring on account of THISCO's fault and through no fault of HFS. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indem nified party shall give prompt notice thereof to the indemnifying party and the indemnifying party shall be entitled to participate therein or, to the extent that it shall wish, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses, in each case sub sequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. 9.0 DISCLAIMER OF WARRANTIES 9.1 Waiver of Warranties. THISCO shall not be responsible or liable for any inaccuracies in the data base or the information processed by or through the UltraSwitch nor shall it have any liability for any act or failure to act except as expressly set forth herein, except gross negligence or willful misconduct. All warranties express or implied, including without limitation, any warranty of fitness for a particular purpose, merchantability, good and workmanlike product or service or otherwise, are disclaimed and waived. -8- 9 9.2 No Consequential Damages. Neither party shall be liable to the other for any consequential damages proximately caused or resulting from any breach of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. 9.3 Right to Repair. Notwithstanding any other provision of this Agreement, the only obligation of THISCO in the event of a material failure in the operation or performance of the UltraSwitch shall be to repair the system within 24 hours of notice from HFS requesting such repair. 10. MISCELLANEOUS 10.01 Other UltraSwitch User Agreements. In the event any other UltraSwitch User Agreement shall contain provisions regarding Fees and Costs (Article 3 hereof), Term (Article 4 hereof), Termination (Article 5 hereof), Indemnification (Article 8 hereof), or Disclaimer of Warranties (Article 9 hereof) more favorable than those referenced provisions contained herein, THISCO shall promptly provide notice to HFS of such provision(s) and HFS shall have the right to amend this Agreement to include the effected provisions. 10.02 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party shall select one arbitrator and the two arbitrators selected shall select a third neutral arbitrator. All reasonable and necessary costs and fees (including attorney's fees) incurred in connection with the arbitration shall be borne by the losing party or assessed in the award as otherwise deemed appropriate except travel, food and lodging expenses shall be borne by the party incurring the same. If the demand for arbitration is initiated by HFS, venue of the arbitration proceedings shall be determined by THISCO. If the demand for arbitration is initiated by THISCO, venue of the arbitration proceedings shall be determined by HFS. 10.03 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to a direct link interface and that each party may contract with other parties providing same or similar services. -9- 10 10.04 Status of Parties. This Agreement shall not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. THISCO shall not be deemed by this Agreement to be granting a license to HFS, with respect to UltraSwitch or any software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. 10.05 Assignment. This Agreement is not assignable by THISCO or HFS without the prior written consent of the non-assigning party, and such consent shall not be unreasonably withheld or delayed provided that HFS may assign this Agreement in connection with the sale of its reservation system or franchise system and either party may assign this Agreement without consent in the event of a merger, consolidation, or sale of substantially all of its assets. 10.06 Notices. All notices, requests, consents, payments and other communications contemplated hereby shall be in writing and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, or (d) transmitted by facsimile/telecopy in combination with any other permitted form of notice as follows: If to If to THISCO: The Hotel Industry Switch Company HFS Incorporated 3811 Turtle Creek Blvd., Suite 1100 3838 E. Van Buren Dallas, Texas 75219 Phoenix, Arizona 85008 Attention: John F. Davis, III Attention: Doug Patterson If by facsimile/telecopy to: If by facsimile/telecopy to: (214) 528-5675) (602) 389-3909 or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices shall be deemed given and received at the time of personal delivery or, if sent by U.S. mail, three (3) business days after mailing, or, if sent by overnight courier, one (1) business day after such sending or, if sent by facsimile or telecopy, upon verified receipt of same. -10- 11 10.07 Controlling Law. This Agreement shall be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. 10.08 Entire Agreement. This Agreement and the exhibits attached hereto constitute the entire agreement between THISCO and HFS with respect to the implementation and operation of the UltraSwitch system and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement which are not contained in this Agreement. 10.09 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 10.10 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement shall be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. 10.11 Software and Intellectual Property. Each of the parties hereto represents and warrants to the other that, with respect to all software and other intellectual property in connection with the operation of the Interface furnished or required to be furnished pursuant to this Agreement (collectively, the "Intellectual Property"), each either owns the Intellectual Property furnished by it or is fully authorized to deliver the Intellectual Property and to allow the Intellectual Property to be used in connection with the Interface, as con templated by this Agreement. Should any claim be raised by any third party that the use of any of the Intellectual Property or the delivery of any of the Intellectual Property in connection with this agreement constitutes infringement of any patent, copyright, license or other property right (a "Claim"), the party furnishing such Intellectual Property shall, at its expense, defend any such Claim in accordance with the provisions of Section 8.1 of this Agreement. Should either party be temporarily or permanently enjoined from using any of the Intellectual Property as a result of any Claim, the other party, at its option and own expense, shall either procure the right to continue to use the Intellectual Property free from any Claim or replace or modify the offending Intellectual Property so that its use becomes -11- 12 non-infringing, within 15 days of the date on which it receives notice of the claim (either such corrective action being referred to herein as a "Correction"). If a Correction is not accomplished, the party who furnished the Intellectual Property resulting in the Claim shall be deemed to be in default of this Agreement, and in such event, Sections 5.2 and 6.3 of this Agreement shall control; provided, however, that the 15 day period specified above shall be deemed to be the applicable cure period under Section 6.3, and once that 15 day period has expired without a Correction having occurred, the applicable cure period under Section 6.3 shall be deemed to have expired. Without limiting Article 8 of this Agreement, the party who furnished the Intellectual Property resulting in the Claim shall also be obligated to indemnify the other party for any of its losses (such losses being THISCO's Losses or HFS's Losses, as the case may be, as defined in section 8.1 hereof) in connection with any Claim for which a Correction is not made within such 15 day period, in accordance with Article 8. AGREED to this 4th day of January, 1996. THE HOTEL INDUSTRY SWITCH HFS INCORPORATED COMPANY By: /s/ JOHN F. DAVIS, III By: /s/ MICHAEL H. KISTNER ------------------------------ ---------------------------------- John F. Davis, III (name) Michael H. Kistner President ------------------------------- (title) Vice President MIS ------------------------------- -12-
1 EXHIBIT 10.38 ULTRASWITCH USER AGREEMENT This Agreement is entered into by and between THE HOTEL INDUSTRY SWITCH COMPANY, a Delaware corporation (hereinafter "THISCO"), and HYATT HOTELS CORPORATION (hereinafter "HOTEL"), to be effective the 1st day of February, 1996 (the "Agreement"). 1.0 DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) UltraSwitch. The UltraSwitch is a service of THISCO to provide an Interface (as hereinafter defined) between Reservation Providers (as hereinafter defined) and hotel reservation systems with the capability to provide immediate room confirmation numbers for each hotel property partici pating in UltraSwitch. (ii) Interface. Interface is the hardware and software and attendant technical support required to produce computer to computer communications between a Reservation Provider (as hereinafter defined) and an UltraSwitch User (as hereinafter defined). (iii) UltraSwitch User. An UltraSwitch User is an operator of a hotel reservation system that has executed an UltraSwitch User agreement. (iv) Reservation Provider. A Reservation Provider is any person or entity with the present or future capability to connect with the UltraSwitch for the purpose of making reservations with an UltraSwitch User. (v) Net Reservations. Net Reservations within a particular time period equals the number of reservations processed through the UltraSwitch system within such time period, less -1- 2 the number of reservations as to which notice of cancellation in the UltraSwitch system is received by the UltraSwitch system within such time period. (vi) Status Change. A Status Change is a message indicating that either the availability or the rate of a room type has changed for a single date in a single property. 2.0 THE ULTRASWITCH SYSTEM 2.1 Duties of THISCO. THISCO shall operate and maintain the UltraSwitch Interface for the use and benefit of HOTEL and other UltraSwitch Users meeting or exceeding the UltraSwitch Specifications. Subject to the duties of HOTEL set forth in Section 2.2 below, THISCO will provide all reasonable and necessary technical support, hardware and software, and modifications to the UltraSwitch system to maintain an Interface between Reservation Providers and HOTEL. Subject to Section 6.2 hereof, delays caused by Reservation Providers, UltraSwitch Users or other third parties, the UltraSwitch Interface will provide room confirmation numbers for each booking at an UltraSwitch User's property made through a Reservation Provider within an average determined over each calendar month of: a. [*] seconds for UltraSwitch Users located within the contiguous 48 United States and District of Columbia; and b. [*] seconds for UltraSwitch Users located elsewhere. THISCO shall not be responsible for but will use its best efforts to require UltraSwitch Users to return response messages within the Response Time Requirements set forth in subpart (a) and (b) above. Subject to Section 6.2 hereof, the UltraSwitch will be available, operational and fully functional to process HOTEL's customer reservations 99% of the time each calendar month. Subject to Section 6.2 hereof, THISCO agrees to correct all failures or interruptions of the UltraSwitch and repair or replace all UltraSwitch parts causing or contributing to failure or interruption within 72 hours of the failure or interruption at THISCO's sole cost and expense. *Confidential Treatment Requested -2- 3 THISCO will not discriminate among UltraSwitch Users in processing reservations through the UltraSwitch. 2.2. Duties of HOTEL. Through the UltraSwitch Interface, HOTEL will permit access to all Reservation Providers utilizing the UltraSwitch and will permit all such Reservation Providers the full and complete right, subject to any agreement between HOTEL and the Reservation Providers, to reserve and cancel rooms authorized for sale by HOTEL and receive a confirmation acknowledgment of any such transaction. All information provided by HOTEL with respect to rooms and facilities shall be complete and accurate and shall be consistent with and inclusive of all the information provided and rates available to a direct caller of HOTEL reservation system to the fullest extent each Reservation Provider data base will permit. 2.3 Enhancement or Modification of the UltraSwitch System. THISCO may undertake to modify the operation or enhance the capability of the UltraSwitch. In such event, THISCO will provide notice to HOTEL of such enhancement at least 60 days prior to such modification or enhancement and will make such adjustments and modifications to THISCO's system, at THISCO's sole expense, as are reasonable and necessary to maintain the Interface with HOTEL. HOTEL agrees to cooperate with THISCO in modify ing and enhancing the UltraSwitch. 2.4 Modification of UltraSwitch User System. In the event HOTEL modifies its central reservation system, or modification of its central reservation system is required for the implementation, operation, modification or enhancement of the UltraSwitch, HOTEL shall pay all necessary costs associated with such modification to its system. In the event HOTEL modifies its central reservation system and such modification requires THISCO to modify the Interface, HOTEL shall pay THISCO its standard consulting rate and all expenses incurred as a result of the modification. In the event THISCO modifies or enhances the UltraSwitch and, as a result, it becomes necessary for HOTEL to modify its reservation system, HOTEL shall have the option to terminate this Agreement by notice to THISCO within thirty (30) days after receipt of the notice provided in Section 2.3 if the resulting cost to HOTEL for the particular modification exceeds $10,000.00. 3.0 FEES AND COSTS 3.1 Reservation and Status Change Fees. For the use of the UltraSwitch Interface, HOTEL shall pay THISCO as follows: -3- 4 For the first [*] Net Reservations during each calendar year [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For all Net Reservations in excess of [*] Net Reservations during each calendar year, [*] per Net Reservation; For the first [*] Status Changes during each calendar year, [*] for each Status Change; For the next [*] Status Changes during each calendar year, [*] for each Status Change; For all Status Changes in excess of [*] during each calendar year, [*] for each Status Change. Notwithstanding the above-stated provisions, in the event the ratio of Status Changes to Net Reservations exceeds [*] during a billing period, there shall be no charge for Status Changes provided, however, in the event the ratio of Status Changes to Net Reservations exceeds [*] during a billing period, all Status Changes in excess of the [*] ratio shall be [*] THISCO may increase the Reservation and Status Change Fees by an amount equal to the annual increase in the U.S. Consumer Price Index to offset cost increases of THISCO's operations provided that such increase shall not take effect until the expiration of 60 days after notice of the increase. 3.2 Guaranteed Annual Minimum Reservation Fee. During each calendar year of this Agreement, HOTEL shall pay THISCO a reservation fee for at least [*] Net Reservations, whether or not such Net Reservations actually occur. *Confidential Treatment Requested -4- 5 3.3 Payment of Fees and Costs. THISCO will invoice HOTEL monthly for all fees, costs, and additional costs incurred by THISCO that are to be paid by HOTEL pursuant to this Agreement. HOTEL shall pay each invoice upon receipt and, in any event, within 30 days of each invoice date. In the event an invoice (all or a portion of which has not been materially disputed) is not paid within 30 days of mailing, HOTEL agrees to pay interest on all undisputed amounts over 30 days old at an annual rate of 15% or 1 1/4% per month. 3.4 Additional Costs. HOTEL shall pay its pro rata share of communication costs (based upon the number of UltraSwitch Users for that month for all lease lines, back up and dial up lines between the UltraSwitch User and the UltraSwitch) for all UltraSwitch Users who are operational and, with respect to those UltraSwitch Users who are not yet operational, for a 60 day period prior to becoming operational. HOTEL shall provide all necessary modems to specifications established by THISCO for connection with the UltraSwitch. 4.0 TERM 4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall be effective on the date first stated above and shall expire on the last day of the [*] after the effective date. This Agreement shall be automatically renewed and extended for addition al 12 month periods unless, at least 30 days prior to the expiration of the initial term or at least 30 days prior to the expiration of any additional 12 month period, either party provides written notice to the other of its decision not to renew and extend. 5.0 TERMINATION 5.1 Termination by HOTEL. Upon the occurrence of an Event of Default (as hereinafter defined) by THISCO and the failure of THISCO to cure such default after notice and opportunity to cure as provided by Section 6.3 hereof, HOTEL may terminate this Agreement at any time within 30 days after the expiration of the cure period provided in Section 6.3. 5.2 Termination by THISCO. Upon the occurrence of an Event of Default (as hereinafter defined) by HOTEL and the failure of HOTEL to cure such default after notice and opportunity to cure as provided by Section 6.3 hereof, THISCO may terminate this *Confidential Treatment Requested -5- 6 Agreement at any time within 30 days after the expiration of the cure period provided in Section 6.3. 6.0 DEFAULT 6.1 Events of Default. Subject to Section 6.2 hereof, any one of the following listed occurrences shall be considered an Event of Default: (i) The failure to pay any amount due hereunder within the time required; (ii) The refusal or failure to diligently and in good faith perform each and every material provision of this Agreement; (iii) The failure of the UltraSwitch to perform materially in accordance with its technical requirements; (iv) If either THISCO or HOTEL (the "Defaulting Party") becomes insolvent, takes any step leading to its cessation as a going concern, or ceases business operations for reasons other than a strike and other than assignment as allowed by this Agreement, then the other party (the "Insecure Party") may immediately terminate this Agreement upon written notice to the other party unless the Defaulting Party immediately gives the Insecure Party adequate assurance of the future performance of this Agreement. If bankruptcy proceedings are commenced with respect to the Defaulting Party, and if this Agreement has not otherwise terminated, then the Insecure Party may suspend all further performance of this Agreement until the Defaulting Party assumes or rejects this Agreement pursuant to Section 365 of the Bankruptcy Code or any similar or successor provision. Any such suspension of further performance by the Insecure Party pending the Defaulting Party's assumption or rejection will not be a breach of this Agreement. 6.2 Force Majeure. It shall not constitute a default if an Event of Default is -6- 7 caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if an Event of Default results from any such occurrence and continues for more than 30 consecutive days, either party may terminate this Agreement by providing notice as required herein. 6.3 Occurrence of Default. Upon the occurrence of an Event of Default, the non-defaulting party shall give written notice to the defaulting party specifying the alleged default. The defaulting party shall then be entitled to 10 days after receipt of such notice within which to cure any monetary default and 30 days within which to cure any non-monetary default. If the party entitled to cure the Event of Default does not cure the Event of Default within the cure period specified above, then such party shall be deemed to be in default of this Agreement. Any such default shall not relieve the defaulting party from any of its obligations hereunder, and in the event of a default, the non-defaulting party hereunder shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. 7.0 CONFIDENTIALITY 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by HOTEL and THISCO that each will receive confidential and proprietary information which is the sole and exclusive property of the other party. All such confiden tial and proprietary information shall be marked or otherwise identified as such and shall be treated as confidential and proprietary subject only to disclosure where required by law. Such designation may be removed by each party making the designation. HOTEL acknowledges that it shall have no access to and shall not use the UltraSwitch software or related property, other than as specifically provided for in this Agreement, and that such information is confidential and proprietary property of THISCO. Any use of the UltraSwitch name by HOTEL is subject to prior written approval of THISCO provided HOTEL may describe the Interface contemplated by this Agreement in its franchise offering circular and other materials as required by state or federal law. The provisions hereof shall remain binding and in force and effect forever, notwithstanding the expiration or termination of this Agreement at any time. 8.0 INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. HOTEL agrees to indemnify -7- 8 and hold harmless THISCO and THISCO's affiliates and their directors, officers, employees and other stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring on account of HOTEL's fault and through no fault of THISCO ("THISCO's Losses"). THISCO agrees to indemnify and hold harmless HOTEL, and HOTEL's affiliates and their directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("HOTEL's Losses") occurring on account of THISCO's fault and through no fault of HOTEL. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indemnified party shall give prompt notice thereof to the indemnifying party and the indemnifying party shall be entitled to participate therein or, to the extent that it shall wish, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses, in each case sub sequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. 9.0 DISCLAIMER OF WARRANTIES 9.1 Waiver of Warranties. THISCO shall not be responsible or liable for any inaccuracies in the data base or the information processed by or through the UltraSwitch nor shall it have any liability for any act or failure to act except as expressly set forth herein, except gross negligence or willful misconduct. All warranties express or implied, including without limitation, any warranty of fitness for a particular purpose, merchantability, good and workmanlike product or service or otherwise, are disclaimed and waived. 9.2 No Consequential Damages. Neither party shall be liable to the other for any consequential damages proximately caused or resulting from any breach of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. -8- 9 9.3 Right to Repair. Notwithstanding any other provision of this Agreement, the only obligation of THISCO in the event of a material failure in the operation or performance of the UltraSwitch shall be to repair the system within 24 hours of notice from HOTEL requesting such repair. 10. MISCELLANEOUS 10.01 Other UltraSwitch User Agreements. In the event any other UltraSwitch User Agreement shall contain provisions regarding Fees and Costs (Article 3 hereof), Term (Article 4 hereof), Termination (Article 5 hereof), Indemnification (Article 8 hereof), or Disclaimer of Warranties (Article 9 hereof) more favorable than those referenced provisions contained herein, THISCO shall promptly provide notice to HOTEL of such provision(s) and HOTEL shall have the right to amend this Agreement to include the effected provisions. 10.02 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party shall select one arbitrator and the two arbitrators selected shall select a third neutral arbitrator. All reasonable and necessary costs and fees (including attorney's fees) incurred in connection with the arbitration shall be borne by the losing party or assessed in the award as otherwise deemed appropriate except travel, food and lodging expenses shall be borne by the party incurring the same. If the demand for arbitration is initiated by HOTEL, venue of the arbitration proceedings shall be determined by THISCO. If the demand for arbitration is initiated by THISCO, venue of the arbitration proceedings shall be determined by HOTEL. 10.03 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to a direct link interface and that each party may contract with other parties providing same or similar services. 10.04 Status of Parties. This Agreement shall not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. THISCO shall not be deemed by this Agreement to be granting a license to HOTEL, with respect to UltraSwitch or any -9- 10 software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. 10.05 Assignment. This Agreement is not assignable by THISCO or HOTEL without the prior written consent of the non-assigning party, and such consent shall not be unreasonably withheld or delayed provided that HOTEL may assign this Agreement in connection with the sale of its reservation system or franchise system and either party may assign this Agreement without consent in the event of a merger, consolidation, or sale of substantially all of its assets. 10.06 Notices. All notices, requests, consents, payments and other communications contemplated hereby shall be in writing and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, or (d) transmitted by facsimile/telecopy in combination with any other permitted form of notice as follows: If to If to THISCO: HOTEL: The Hotel Industry Switch Company HYATT HOTELS CORPORATION 3811 Turtle Creek Blvd., Suite 1100 200 W. Madison Avenue, Suite 39 Dallas, Texas 75219 Chicago, Illinois 60606 Attention: John F. Davis, III If by facsimile/telecopy to: If by facsimile/telecopy to: (214) 528-5675) (708) 990-6357 or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices shall be deemed given and received at the time of personal delivery or, if sent by U.S. mail, three (3) business days after mailing, or, if sent by overnight courier, one (1) business day after such sending or, if sent by facsimile or telecopy, upon verified receipt of same. 10.07 Controlling Law. This Agreement shall be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. -10- 11 10.08 Entire Agreement. This Agreement and the exhibits attached hereto constitute the entire agreement between THISCO and HOTEL with respect to the implementation and operation of the UltraSwitch system and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement which are not contained in this Agreement. 10.09 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 10.10 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement shall be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. 10.11 Software and Intellectual Property. Each of the parties hereto represents and warrants to the other that, with respect to all software and other intellectual property in connection with the operation of the Interface furnished or required to be furnished pursuant to this Agreement (collectively, the "Intellectual Property"), each either owns the Intellectual Property furnished by it or is fully authorized to deliver the Intellectual Property and to allow the Intellectual Property to be used in connection with the Interface, as con templated by this Agreement. Should any claim be raised by any third party that the use of any of the Intellectual Property or the delivery of any of the Intellectual Property in connection with this agreement constitutes infringement of any patent, copyright, license or other property right (a "Claim"), the party furnishing such Intellectual Property shall, at its expense, defend any such Claim in accordance with the provisions of Section 8.1 of this Agreement. Should either party be temporarily or permanently enjoined from using any of the Intellectual Property as a result of any Claim, the other party, at its option and own expense, shall either procure the right to continue to use the Intellectual Property free from any Claim or replace or modify the offending Intellectual Property so that its use becomes non-infringing, within 15 days of the date on which it receives notice of the claim (either such corrective action being referred to herein as a "Correction"). If a Correction is not accomplished, the party who furnished the Intellectual Property resulting in the Claim shall be deemed to be in default of this Agreement, and in such event, Sections 5.2 and 6.3 of -11- 12 this Agreement shall control; provided, however, that the 15 day period specified above shall be deemed to be the applicable cure period under Section 6.3, and once that 15 day period has expired without a Correction having occurred, the applicable cure period under Section 6.3 shall be deemed to have expired. Without limiting Article 8 of this Agreement, the party who furnished the Intellectual Property resulting in the Claim shall also be obligated to indemnify the other party for any of its losses (such losses being THISCO's Losses or HOTEL's Losses, as the case may be, as defined in section 8.1 hereof) in connection with any Claim for which a Correction is not made within such 15 day period, in accordance with Article 8. AGREED to this 1st day of February, 1996. THE HOTEL INDUSTRY SWITCH HYATT CORPORATION COMPANY By: /s/ JOHN F. DAVIS, III By: [ILLEGIBLE] ------------------------------ --------------------------------- John F. Davis, III (name) President ------------------------------- (title) ------------------------------ -12-
1 EXHIBIT 10.39 ULTRASWITCH USER AGREEMENT This Agreement is entered into by and between THE HOTEL INDUSTRY SWITCH COMPANY, a Delaware corporation (hereinafter "THISCO"), and PROMUS HOTELS, INC. (hereinafter "HOTEL"), to be effective the 15th day of December, 1995 (the "Agreement"). 1.0 DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) UltraSwitch. The UltraSwitch is a service of THISCO to provide an Interface (as hereinafter defined) between Reservation Providers (as hereinafter defined) and hotel reservation systems with the capability to provide immediate room confirmation numbers for each hotel property partici pating in UltraSwitch. (ii) Interface. Interface is the hardware and software and attendant technical support required to produce computer to computer communications between a Reservation Provider (as hereinafter defined) and an UltraSwitch User (as hereinafter defined). (iii) UltraSwitch User. An UltraSwitch User is an operator of a hotel reservation system that has executed an UltraSwitch User agreement. (iv) Reservation Provider. A Reservation Provider is any person or entity with the present or future capability to connect with the UltraSwitch for the purpose of making reservations with an UltraSwitch User. (v) Net Reservations. Net Reservations within a particular time period equals the number of reservations processed through the UltraSwitch system within such time period, less the number of reservations as to which notice of cancellation -1- 2 in the UltraSwitch system is received by the UltraSwitch system within such time period. (vi) Status Change. A Status Change is a message indicating that either the availability or the rate of a room type has changed for a single date in a single property. 2.0 THE ULTRASWITCH SYSTEM 2.1 Duties of THISCO. THISCO shall operate and maintain the UltraSwitch Interface for the use and benefit of HOTEL and other UltraSwitch Users meeting or exceeding the UltraSwitch Specifications. Subject to the duties of HOTEL set forth in Section 2.2 below, THISCO will provide all reasonable and necessary technical support, hardware and software, and modifications to the UltraSwitch system to maintain an Interface between Reservation Providers and HOTEL. Subject to Section 6.2 hereof, delays caused by Reservation Providers, UltraSwitch Users or other third parties, the UltraSwitch Interface will provide room confirmation numbers for each booking at an UltraSwitch User's property made through a Reservation Provider within an average determined over each calendar month of: a. [*] seconds for UltraSwitch Users located within the contiguous 48 United States and District of Columbia; and b. [*] seconds for UltraSwitch Users located elsewhere. THISCO shall not be responsible for but will use its best efforts to require UltraSwitch Users to return response messages within the Response Time Requirements set forth in subpart (a) and (b) above. Subject to Section 6.2 hereof, the UltraSwitch will be available, operational and fully functional to process HOTEL's customer reservations 99% of the time each calendar month. Subject to Section 6.2 hereof, THISCO agrees to correct all failures or interruptions of the UltraSwitch and repair or replace all UltraSwitch parts causing or contributing to failure or interruption within 72 hours of the failure or interruption at THISCO's sole cost and expense. *Confidential Treatment Requested -2- 3 THISCO will not discriminate among UltraSwitch Users in processing reservations through the UltraSwitch. 2.2. Duties of HOTEL. Through the UltraSwitch Interface, HOTEL will permit access to all Reservation Providers utilizing the UltraSwitch and will permit all such Reservation Providers the full and complete right, subject to any agreement between HOTEL and the Reservation Providers, to reserve and cancel rooms authorized for sale by HOTEL and receive a confirmation acknowledgment of any such transaction. All information provided by HOTEL with respect to rooms and facilities shall be complete and accurate and shall be consistent with and inclusive of all the information provided and rates available to a direct caller of HOTEL reservation system to the fullest extent each Reservation Provider data base will permit. 2.3 Enhancement or Modification of the UltraSwitch System. THISCO may undertake to modify the operation or enhance the capability of the UltraSwitch. In such event, THISCO will provide notice to HOTEL of such enhancement at least 60 days prior to such modification or enhancement and will make such adjustments and modifications to THISCO's system, at THISCO's sole expense, as are reasonable and necessary to maintain the Interface with HOTEL. HOTEL agrees to cooperate with THISCO in modify ing and enhancing the UltraSwitch. 2.4 Modification of UltraSwitch User System. In the event HOTEL modifies its central reservation system, or modification of its central reservation system is required for the implementation, operation, modification or enhancement of the UltraSwitch, HOTEL shall pay all necessary costs associated with such modification to its system. In the event HOTEL modifies its central reservation system and such modification requires THISCO to modify the Interface, HOTEL shall pay THISCO its standard consulting rate and all expenses incurred as a result of the modification. In the event THISCO modifies or enhances the UltraSwitch and, as a result, it becomes necessary for HOTEL to modify its reservation system, HOTEL shall have the option to terminate this Agreement by notice to THISCO within thirty (30) days after receipt of the notice provided in Section 2.3 if the resulting cost to HOTEL for the particular modification exceeds $10,000.00. 3.0 FEES AND COSTS 3.1 Reservation and Status Change Fees. For the use of the UltraSwitch Interface, HOTEL shall pay THISCO as follows: -3- 4 For the first [*] Net Reservations during each calendar year [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For all Net Reservations in excess of [*] Net Reservations during each calendar year, [*] per Net Reservation; For the first [*] Status Changes during each calendar year, [*] for each Status Change; For the next [*] Status Changes during each calendar year, [*] for each Status Change; For all Status Changes in excess of [*] during each calendar year, [*] for each Status Change. Notwithstanding the above-stated provisions, in the event the ratio of Status Changes to Net Reservations exceeds [*] during a billing period, there shall be no charge for Status Changes provided, however, in the event the ratio of Status Changes to Net Reservations exceeds [*] during a billing period, all Status Changes in excess of the [*] ratio shall be [*]. THISCO may increase the Reservation and Status Change Fees by an amount equal to the annual increase in the U.S. Consumer Price Index to offset cost increases of THISCO's operations provided that such increase shall not take effect until the expiration of 60 days after notice of the increase. 3.2 Guaranteed Annual Minimum Reservation Fee. During each calendar year of this Agreement, HOTEL shall pay THISCO a reservation fee for at least [*] Net Reservations, whether or not such Net Reservations actually occur. *Confidential Treatment Requested -4- 5 3.3 Payment of Fees and Costs. THISCO will invoice HOTEL monthly for all fees, costs, and additional costs incurred by THISCO that are to be paid by HOTEL pursuant to this Agreement. HOTEL shall pay each invoice upon receipt and, in any event, within 30 days of each invoice date. In the event an invoice (all or a portion of which has not been materially disputed) is not paid within 30 days of mailing, HOTEL agrees to pay interest on all undisputed amounts over 30 days old at an annual rate of 15% or 1 1/4% per month. 3.4 Additional Costs. HOTEL shall pay its pro rata share of communication costs (based upon the number of UltraSwitch Users for that month for all lease lines, back up and dial up lines between the UltraSwitch User and the UltraSwitch) for all UltraSwitch Users who are operational and, with respect to those UltraSwitch Users who are not yet operational, for a 60 day period prior to becoming operational. HOTEL shall provide all necessary modems to specifications established by THISCO for connection with the UltraSwitch. 4.0 TERM 4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall be effective on the date first stated above and shall expire on the last day of the [*] after the effective date. This Agreement shall be automatically renewed and extended for addition al 12 month periods unless, at least 30 days prior to the expiration of the initial term or at least 30 days prior to the expiration of any additional 12 month period, either party provides written notice to the other of its decision not to renew and extend. 5.0 TERMINATION 5.1 Termination by HOTEL. Upon the occurrence of an Event of Default (as hereinafter defined) by THISCO and the failure of THISCO to cure such default after notice and opportunity to cure as provided by Section 6.3 hereof, HOTEL may terminate this Agreement at any time within 30 days after the expiration of the cure period provided in Section 6.3. 5.2 Termination by THISCO. Upon the occurrence of an Event of Default (as hereinafter defined) by HOTEL and the failure of HOTEL to cure such default after notice and opportunity to cure as provided by Section 6.3 hereof, THISCO may terminate this *Confidential Treatment Requested -5- 6 Agreement at any time within 30 days after the expiration of the cure period provided in Section 6.3. 6.0 DEFAULT 6.1 Events of Default. Subject to Section 6.2 hereof, any one of the following listed occurrences shall be considered an Event of Default: (i) The failure to pay any amount due hereunder within the time required; (ii) The refusal or failure to diligently and in good faith perform each and every material provision of this Agreement; (iii) The failure of the UltraSwitch to perform materially in accordance with its technical requirements; (iv) If either THISCO or HOTEL (the "Defaulting Party") becomes insolvent, takes any step leading to its cessation as a going concern, or ceases business operations for reasons other than a strike and other than assignment as allowed by this Agreement, then the other party (the "Insecure Party") may immediately terminate this Agreement upon written notice to the other party unless the Defaulting Party immediately gives the Insecure Party adequate assurance of the future performance of this Agreement. If bankruptcy proceedings are commenced with respect to the Defaulting Party, and if this Agreement has not otherwise terminated, then the Insecure Party may suspend all further performance of this Agreement until the Defaulting Party assumes or rejects this Agreement pursuant to Section 365 of the Bankruptcy Code or any similar or successor provision. Any such suspension of further performance by the Insecure Party pending the Defaulting Party's assumption or rejection will not be a breach of this Agreement. 6.2 Force Majeure. It shall not constitute a default if an Event of Default is -6- 7 caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if an Event of Default results from any such occurrence and continues for more than 30 consecutive days, either party may terminate this Agreement by providing notice as required herein. 6.3 Occurrence of Default. Upon the occurrence of an Event of Default, the non-defaulting party shall give written notice to the defaulting party specifying the alleged default. The defaulting party shall then be entitled to 10 days after receipt of such notice within which to cure any monetary default and 30 days within which to cure any non-monetary default. If the party entitled to cure the Event of Default does not cure the Event of Default within the cure period specified above, then such party shall be deemed to be in default of this Agreement. Any such default shall not relieve the defaulting party from any of its obligations hereunder, and in the event of a default, the non-defaulting party hereunder shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. 7.0 CONFIDENTIALITY 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by HOTEL and THISCO that each will receive confidential and proprietary information which is the sole and exclusive property of the other party. All such confiden tial and proprietary information shall be marked or otherwise identified as such and shall be treated as confidential and proprietary subject only to disclosure where required by law. Such designation may be removed by each party making the designation. HOTEL acknowledges that it shall have no access to and shall not use the UltraSwitch software or related property, other than as specifically provided for in this Agreement, and that such information is confidential and proprietary property of THISCO. Any use of the UltraSwitch name by HOTEL is subject to prior written approval of THISCO provided HOTEL may describe the Interface contemplated by this Agreement in its franchise offering circular and other materials as required by state or federal law. The provisions hereof shall remain binding and in force and effect forever, notwithstanding the expiration or termination of this Agreement at any time. 8.0 INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. HOTEL agrees to indemnify -7- 8 and hold harmless THISCO and THISCO's affiliates and their directors, officers, employees and other stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring on account of HOTEL's fault and through no fault of THISCO ("THISCO's Losses"). THISCO agrees to indemnify and hold harmless HOTEL, and HOTEL's affiliates and their directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("HOTEL's Losses") occurring on account of THISCO's fault and through no fault of HOTEL. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indemnified party shall give prompt notice thereof to the indemnifying party and the indemnifying party shall be entitled to participate therein or, to the extent that it shall wish, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses, in each case sub sequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. 9.0 DISCLAIMER OF WARRANTIES 9.1 Waiver of Warranties. THISCO shall not be responsible or liable for any inaccuracies in the data base or the information processed by or through the UltraSwitch nor shall it have any liability for any act or failure to act except as expressly set forth herein, except gross negligence or willful misconduct. All warranties express or implied, including without limitation, any warranty of fitness for a particular purpose, merchantability, good and workmanlike product or service or otherwise, are disclaimed and waived. 9.2 No Consequential Damages. Neither party shall be liable to the other for any consequential damages proximately caused or resulting from any breach of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. -8- 9 9.3 Right to Repair. Notwithstanding any other provision of this Agreement, the only obligation of THISCO in the event of a material failure in the operation or performance of the UltraSwitch shall be to repair the system within 24 hours of notice from HOTEL requesting such repair. 10. MISCELLANEOUS 10.01 Other UltraSwitch User Agreements. In the event any other UltraSwitch User Agreement shall contain provisions regarding Fees and Costs (Article 3 hereof), Term (Article 4 hereof), Termination (Article 5 hereof), Indemnification (Article 8 hereof), or Disclaimer of Warranties (Article 9 hereof) more favorable than those referenced provisions contained herein, THISCO shall promptly provide notice to HOTEL of such provision(s) and HOTEL shall have the right to amend this Agreement to include the effected provisions. 10.02 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party shall select one arbitrator and the two arbitrators selected shall select a third neutral arbitrator. All reasonable and necessary costs and fees (including attorney's fees) incurred in connection with the arbitration shall be borne by the losing party or assessed in the award as otherwise deemed appropriate except travel, food and lodging expenses shall be borne by the party incurring the same. If the demand for arbitration is initiated by HOTEL, venue of the arbitration proceedings shall be determined by THISCO. If the demand for arbitration is initiated by THISCO, venue of the arbitration proceedings shall be determined by HOTEL. 10.03 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to a direct link interface and that each party may contract with other parties providing same or similar services. 10.04 Status of Parties. This Agreement shall not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. THISCO shall not be deemed by this Agreement to be granting a license to HOTEL, with respect to UltraSwitch or any -9- 10 software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. 10.05 Assignment. This Agreement is not assignable by THISCO or HOTEL without the prior written consent of the non-assigning party, and such consent shall not be unreasonably withheld or delayed provided that HOTEL may assign this Agreement in connection with the sale of its reservation system or franchise system and either party may assign this Agreement without consent in the event of a merger, consolidation, or sale of substantially all of its assets. 10.06 Notices. All notices, requests, consents, payments and other communications contemplated hereby shall be in writing and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, or (d) transmitted by facsimile/telecopy in combination with any other permitted form of notice as follows: If to If to THISCO: HOTEL: The Hotel Industry Switch Company PROMUS HOTELS, INC. 3811 Turtle Creek Blvd., Suite 1100 3239 Players Club Parkway Dallas, Texas 75219 Memphis, Tennessee 38125 Attention: John F. Davis, III If by facsimile/telecopy to: If by facsimile/telecopy to: (214) 528-5675) (901) 748-8102 or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices shall be deemed given and received at the time of personal delivery or, if sent by U.S. mail, three (3) business days after mailing, or, if sent by overnight courier, one (1) business day after such sending or, if sent by facsimile or telecopy, upon verified receipt of same. 10.07 Controlling Law. This Agreement shall be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. -10- 11 10.08 Entire Agreement. This Agreement and the exhibits attached hereto constitute the entire agreement between THISCO and HOTEL with respect to the implementation and operation of the UltraSwitch system and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement which are not contained in this Agreement. 10.09 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 10.10 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement shall be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. 10.11 Software and Intellectual Property. Each of the parties hereto represents and warrants to the other that, with respect to all software and other intellectual property in connection with the operation of the Interface furnished or required to be furnished pursuant to this Agreement (collectively, the "Intellectual Property"), each either owns the Intellectual Property furnished by it or is fully authorized to deliver the Intellectual Property and to allow the Intellectual Property to be used in connection with the Interface, as con templated by this Agreement. Should any claim be raised by any third party that the use of any of the Intellectual Property or the delivery of any of the Intellectual Property in connection with this agreement constitutes infringement of any patent, copyright, license or other property right (a "Claim"), the party furnishing such Intellectual Property shall, at its expense, defend any such Claim in accordance with the provisions of Section 8.1 of this Agreement. Should either party be temporarily or permanently enjoined from using any of the Intellectual Property as a result of any Claim, the other party, at its option and own expense, shall either procure the right to continue to use the Intellectual Property free from any Claim or replace or modify the offending Intellectual Property so that its use becomes non-infringing, within 15 days of the date on which it receives notice of the claim (either such corrective action being referred to herein as a "Correction"). If a Correction is not accomplished, the party who furnished the Intellectual Property resulting in the Claim shall be deemed to be in default of this Agreement, and in such event, Sections 5.2 and 6.3 of -11- 12 this Agreement shall control; provided, however, that the 15 day period specified above shall be deemed to be the applicable cure period under Section 6.3, and once that 15 day period has expired without a Correction having occurred, the applicable cure period under Section 6.3 shall be deemed to have expired. Without limiting Article 8 of this Agreement, the party who furnished the Intellectual Property resulting in the Claim shall also be obligated to indemnify the other party for any of its losses (such losses being THISCO's Losses or HOTEL's Losses, as the case may be, as defined in section 8.1 hereof) in connection with any Claim for which a Correction is not made within such 15 day period, in accordance with Article 8. AGREED to this 15th day of December, 1995. THE HOTEL INDUSTRY SWITCH PROMUS HOTELS, INC. COMPANY By: /s/ JOHN F. DAVIS, III By: /s/ DONALD M. KOLODX ---------------------------- --------------------------------- John F. Davis, III (name) Donald M. Kolodx President ------------------------------ (title) Vice President - Reservations ----------------------------- -12-
1 EXHIBIT 10.40 ULTRASWITCH USER AGREEMENT This Agreement is entered into by and between THE HOTEL INDUSTRY SWITCH COMPANY, a Delaware corporation (hereinafter "THISCO"), and LA QUINTA INNS, INC. (hereinafter "HOTEL"), to be effective the 23rd day of February, 1996 (the "Agreement"). 1.0 DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) UltraSwitch. The UltraSwitch is a service of THISCO to provide an Interface (as hereinafter defined) between Reservation Providers (as hereinafter defined) and hotel reservation systems with the capability to provide immediate room confirmation numbers for each hotel property partici pating in UltraSwitch. (ii) Interface. Interface is the hardware and software and attendant technical support required to produce computer to computer communications between a Reservation Provider (as hereinafter defined) and an UltraSwitch User (as hereinafter defined). (iii) UltraSwitch User. An UltraSwitch User is an operator of a hotel reservation system that has executed an UltraSwitch User agreement. (iv) Reservation Provider. A Reservation Provider is any person or entity with the present or future capability to connect with the UltraSwitch for the purpose of making reservations with an UltraSwitch User. (v) Net Reservations. Net Reservations within a particular time period equals the number of reservations processed through the UltraSwitch system within such time period, less -1- 2 the number of reservations as to which notice of cancellation in the UltraSwitch system is received by the UltraSwitch system within such time period. (vi) Status Change. A Status Change is a message indicating that either the availability or the rate of a room type has changed for a single date in a single property. 2.0 THE ULTRASWITCH SYSTEM 2.1 Duties of THISCO. THISCO shall operate and maintain the UltraSwitch Interface for the use and benefit of HOTEL and other UltraSwitch Users meeting or exceeding the UltraSwitch Specifications. Subject to the duties of HOTEL set forth in Section 2.2 below, THISCO will provide all reasonable and necessary technical support, hardware and software, and modifications to the UltraSwitch system to maintain an Interface between Reservation Providers and HOTEL. Subject to Section 6.2 hereof, delays caused by Reservation Providers, UltraSwitch Users or other third parties, the UltraSwitch Interface will provide room confirmation numbers for each booking at an UltraSwitch User's property made through a Reservation Provider within an average determined over each calendar month of: a. [*] seconds for UltraSwitch Users located within the contiguous 48 United States and District of Columbia; and b. [*] seconds for UltraSwitch Users located elsewhere. THISCO shall not be responsible for but will use its best efforts to require UltraSwitch Users to return response messages within the Response Time Requirements set forth in subpart (a) and (b) above. Subject to Section 6.2 hereof, the UltraSwitch will be available, operational and fully functional to process HOTEL's customer reservations 99% of the time each calendar month. Subject to Section 6.2 hereof, THISCO agrees to correct all failures or interruptions of the UltraSwitch and repair or replace all UltraSwitch parts causing or contributing to failure or interruption within 72 hours of the failure or interruption at THISCO's sole cost and expense. *Confidential Treatment Requested -2- 3 THISCO will not discriminate among UltraSwitch Users in processing reservations through the UltraSwitch. 2.2. Duties of HOTEL. Through the UltraSwitch Interface, HOTEL will permit access to all Reservation Providers utilizing the UltraSwitch and will permit all such Reservation Providers the full and complete right, subject to any agreement between HOTEL and the Reservation Providers, to reserve and cancel rooms authorized for sale by HOTEL and receive a confirmation acknowledgment of any such transaction. All information provided by HOTEL with respect to rooms and facilities shall be complete and accurate and shall be consistent with and inclusive of all the information provided and rates available to a direct caller of HOTEL reservation system to the fullest extent each Reservation Provider data base will permit. 2.3 Enhancement or Modification of the UltraSwitch System. THISCO may undertake to modify the operation or enhance the capability of the UltraSwitch. In such event, THISCO will provide notice to HOTEL of such enhancement at least 60 days prior to such modification or enhancement and will make such adjustments and modifications to THISCO's system, at THISCO's sole expense, as are reasonable and necessary to maintain the Interface with HOTEL. HOTEL agrees to cooperate with THISCO in modify ing and enhancing the UltraSwitch. 2.4 Modification of UltraSwitch User System. In the event HOTEL modifies its central reservation system, or modification of its central reservation system is required for the implementation, operation, modification or enhancement of the UltraSwitch, HOTEL shall pay all necessary costs associated with such modification to its system. In the event HOTEL modifies its central reservation system and such modification requires THISCO to modify the Interface, HOTEL shall pay THISCO its standard consulting rate and all expenses incurred as a result of the modification. In the event THISCO modifies or enhances the UltraSwitch and, as a result, it becomes necessary for HOTEL to modify its reservation system, HOTEL shall have the option to terminate this Agreement by notice to THISCO within thirty (30) days after receipt of the notice provided in Section 2.3 if the resulting cost to HOTEL for the particular modification exceeds $10,000.00. 3.0 FEES AND COSTS 3.1 Reservation and Status Change Fees. For the use of the UltraSwitch Interface, HOTEL shall pay THISCO as follows: -3- 4 For the first [*] Net Reservations during each calendar year [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For all Net Reservations in excess of [*] Net Reservations during each calendar year, [*] per Net Reservation; For the first [*] Status Changes during each calendar year, [*] for each Status Change; For the next [*] Status Changes during each calendar year, [*] for each Status Change; For all Status Changes in excess of [*] during each calendar year, [*] for each Status Change. Notwithstanding the above-stated provisions, in the event the ratio of Status Changes to Net Reservations exceeds [*] during a billing period, there shall be no charge for Status Changes provided, however, in the event the ratio of Status Changes to Net Reservations exceeds [*] during a billing period, all Status Changes in excess of the [*] ratio shall be [*]. THISCO may increase the Reservation and Status Change Fees by an amount equal to the annual increase in the U.S. Consumer Price Index to offset cost increases of THISCO's operations provided that such increase shall not take effect until the expiration of 60 days after notice of the increase. 3.2 Guaranteed Annual Minimum Reservation Fee. During each calendar year of this Agreement, HOTEL shall pay THISCO a reservation fee for at least [*] Net Reservations, whether or not such Net Reservations actually occur. *Confidential Treatment Requested -4- 5 3.3 Payment of Fees and Costs. THISCO will invoice HOTEL monthly for all fees, costs, and additional costs incurred by THISCO that are to be paid by HOTEL pursuant to this Agreement. HOTEL shall pay each invoice upon receipt and, in any event, within 30 days of each invoice date. In the event an invoice (all or a portion of which has not been materially disputed) is not paid within 30 days of mailing, HOTEL agrees to pay interest on all undisputed amounts over 30 days old at an annual rate of 15% or 1 1/4% per month. 3.4 Additional Costs. HOTEL shall pay its pro rata share of communication costs (based upon the number of UltraSwitch Users for that month for all lease lines, back up and dial up lines between the UltraSwitch User and the UltraSwitch) for all UltraSwitch Users who are operational and, with respect to those UltraSwitch Users who are not yet operational, for a 60 day period prior to becoming operational. HOTEL shall provide all necessary modems to specifications established by THISCO for connection with the UltraSwitch. 4.0 TERM 4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall be effective on the date first stated above and shall expire on the last day of the [*] after the effective date. This Agreement shall be automatically renewed and extended for addition al 12 month periods unless, at least 30 days prior to the expiration of the initial term or at least 30 days prior to the expiration of any additional 12 month period, either party provides written notice to the other of its decision not to renew and extend. 5.0 TERMINATION 5.1 Termination by HOTEL. Upon the occurrence of an Event of Default (as hereinafter defined) by THISCO and the failure of THISCO to cure such default after notice and opportunity to cure as provided by Section 6.3 hereof, HOTEL may terminate this Agreement at any time within 30 days after the expiration of the cure period provided in Section 6.3. 5.2 Termination by THISCO. Upon the occurrence of an Event of Default (as hereinafter defined) by HOTEL and the failure of HOTEL to cure such default after notice and opportunity to cure as provided by Section 6.3 hereof, THISCO may terminate this *Confidential Treatment Requested -5- 6 Agreement at any time within 30 days after the expiration of the cure period provided in Section 6.3. 6.0 DEFAULT 6.1 Events of Default. Subject to Section 6.2 hereof, any one of the following listed occurrences shall be considered an Event of Default: (i) The failure to pay any amount due hereunder within the time required; (ii) The refusal or failure to diligently and in good faith perform each and every material provision of this Agreement; (iii) The failure of the UltraSwitch to perform materially in accordance with its technical requirements; (iv) If either THISCO or HOTEL (the "Defaulting Party") becomes insolvent, takes any step leading to its cessation as a going concern, or ceases business operations for reasons other than a strike and other than assignment as allowed by this Agreement, then the other party (the "Insecure Party") may immediately terminate this Agreement upon written notice to the other party unless the Defaulting Party immediately gives the Insecure Party adequate assurance of the future performance of this Agreement. If bankruptcy proceedings are commenced with respect to the Defaulting Party, and if this Agreement has not otherwise terminated, then the Insecure Party may suspend all further performance of this Agreement until the Defaulting Party assumes or rejects this Agreement pursuant to Section 365 of the Bankruptcy Code or any similar or successor provision. Any such suspension of further performance by the Insecure Party pending the Defaulting Party's assumption or rejection will not be a breach of this Agreement. 6.2 Force Majeure. It shall not constitute a default if an Event of Default is -6- 7 caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if an Event of Default results from any such occurrence and continues for more than 30 consecutive days, either party may terminate this Agreement by providing notice as required herein. 6.3 Occurrence of Default. Upon the occurrence of an Event of Default, the non-defaulting party shall give written notice to the defaulting party specifying the alleged default. The defaulting party shall then be entitled to 10 days after receipt of such notice within which to cure any monetary default and 30 days within which to cure any non-monetary default. If the party entitled to cure the Event of Default does not cure the Event of Default within the cure period specified above, then such party shall be deemed to be in default of this Agreement. Any such default shall not relieve the defaulting party from any of its obligations hereunder, and in the event of a default, the non-defaulting party hereunder shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. 7.0 CONFIDENTIALITY 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by HOTEL and THISCO that each will receive confidential and proprietary information which is the sole and exclusive property of the other party. All such confiden tial and proprietary information shall be marked or otherwise identified as such and shall be treated as confidential and proprietary subject only to disclosure where required by law. Such designation may be removed by each party making the designation. HOTEL acknowledges that it shall have no access to and shall not use the UltraSwitch software or related property, other than as specifically provided for in this Agreement, and that such information is confidential and proprietary property of THISCO. Any use of the UltraSwitch name by HOTEL is subject to prior written approval of THISCO provided HOTEL may describe the Interface contemplated by this Agreement in its franchise offering circular and other materials as required by state or federal law. The provisions hereof shall remain binding and in force and effect forever, notwithstanding the expiration or termination of this Agreement at any time. 8.0 INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. HOTEL agrees to indemnify -7- 8 and hold harmless THISCO and THISCO's affiliates and their directors, officers, employees and other stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring on account of HOTEL's fault and through no fault of THISCO ("THISCO's Losses"). THISCO agrees to indemnify and hold harmless HOTEL, and HOTEL's affiliates and their directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("HOTEL's Losses") occurring on account of THISCO's fault and through no fault of HOTEL. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indemnified party shall give prompt notice thereof to the indemnifying party and the indemnifying party shall be entitled to participate therein or, to the extent that it shall wish, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses, in each case sub sequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. 9.0 DISCLAIMER OF WARRANTIES 9.1 Waiver of Warranties. THISCO shall not be responsible or liable for any inaccuracies in the data base or the information processed by or through the UltraSwitch nor shall it have any liability for any act or failure to act except as expressly set forth herein, except gross negligence or willful misconduct. All warranties express or implied, including without limitation, any warranty of fitness for a particular purpose, merchantability, good and workmanlike product or service or otherwise, are disclaimed and waived. 9.2 No Consequential Damages. Neither party shall be liable to the other for any consequential damages proximately caused or resulting from any breach of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. -8- 9 9.3 Right to Repair. Notwithstanding any other provision of this Agreement, the only obligation of THISCO in the event of a material failure in the operation or performance of the UltraSwitch shall be to repair the system within 24 hours of notice from HOTEL requesting such repair. 10. MISCELLANEOUS 10.01 Other UltraSwitch User Agreements. In the event any other UltraSwitch User Agreement shall contain provisions regarding Fees and Costs (Article 3 hereof), Term (Article 4 hereof), Termination (Article 5 hereof), Indemnification (Article 8 hereof), or Disclaimer of Warranties (Article 9 hereof) more favorable than those referenced provisions contained herein, THISCO shall promptly provide notice to HOTEL of such provision(s) and HOTEL shall have the right to amend this Agreement to include the effected provisions. 10.02 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party shall select one arbitrator and the two arbitrators selected shall select a third neutral arbitrator. All reasonable and necessary costs and fees (including attorney's fees) incurred in connection with the arbitration shall be borne by the losing party or assessed in the award as otherwise deemed appropriate except travel, food and lodging expenses shall be borne by the party incurring the same. If the demand for arbitration is initiated by HOTEL, venue of the arbitration proceedings shall be determined by THISCO. If the demand for arbitration is initiated by THISCO, venue of the arbitration proceedings shall be determined by HOTEL. 10.03 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to a direct link interface and that each party may contract with other parties providing same or similar services. 10.04 Status of Parties. This Agreement shall not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. THISCO shall not be deemed by this Agreement to be granting a license to HOTEL, with respect to UltraSwitch or any -9- 10 software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. 10.05 Assignment. This Agreement is not assignable by THISCO or HOTEL without the prior written consent of the non-assigning party, and such consent shall not be unreasonably withheld or delayed provided that HOTEL may assign this Agreement in connection with the sale of its reservation system or franchise system and either party may assign this Agreement without consent in the event of a merger, consolidation, or sale of substantially all of its assets. 10.06 Notices. All notices, requests, consents, payments and other communications contemplated hereby shall be in writing and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, or (d) transmitted by facsimile/telecopy in combination with any other permitted form of notice as follows: If to If to THISCO: HOTEL: The Hotel Industry Switch Company LA QUINTA INNS, INC. 3811 Turtle Creek Blvd., Suite 1100 112 E. Pecan Street Dallas, Texas 75219 Post Office Box 2636 Attention: John F. Davis, III San Antonio, Texas 78299 If by facsimile/telecopy to: If by facsimile/telecopy to: (214) 528-5675) (210) 302-6016 or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices shall be deemed given and received at the time of personal delivery or, if sent by U.S. mail, three (3) business days after mailing, or, if sent by overnight courier, one (1) business day after such sending or, if sent by facsimile or telecopy, upon verified receipt of same. 10.07 Controlling Law. This Agreement shall be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. -10- 11 10.08 Entire Agreement. This Agreement and the exhibits attached hereto constitute the entire agreement between THISCO and HOTEL with respect to the implementation and operation of the UltraSwitch system and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement which are not contained in this Agreement. 10.09 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 10.10 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement shall be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. 10.11 Software and Intellectual Property. Each of the parties hereto represents and warrants to the other that, with respect to all software and other intellectual property in connection with the operation of the Interface furnished or required to be furnished pursuant to this Agreement (collectively, the "Intellectual Property"), each either owns the Intellectual Property furnished by it or is fully authorized to deliver the Intellectual Property and to allow the Intellectual Property to be used in connection with the Interface, as con templated by this Agreement. Should any claim be raised by any third party that the use of any of the Intellectual Property or the delivery of any of the Intellectual Property in connection with this agreement constitutes infringement of any patent, copyright, license or other property right (a "Claim"), the party furnishing such Intellectual Property shall, at its expense, defend any such Claim in accordance with the provisions of Section 8.1 of this Agreement. Should either party be temporarily or permanently enjoined from using any of the Intellectual Property as a result of any Claim, the other party, at its option and own expense, shall either procure the right to continue to use the Intellectual Property free from any Claim or replace or modify the offending Intellectual Property so that its use becomes non-infringing, within 15 days of the date on which it receives notice of the claim (either such corrective action being referred to herein as a "Correction"). If a Correction is not accomplished, the party who furnished the Intellectual Property resulting in the Claim shall be deemed to be in default of this Agreement, and in such event, Sections 5.2 and 6.3 of -11- 12 this Agreement shall control; provided, however, that the 15 day period specified above shall be deemed to be the applicable cure period under Section 6.3, and once that 15 day period has expired without a Correction having occurred, the applicable cure period under Section 6.3 shall be deemed to have expired. Without limiting Article 8 of this Agreement, the party who furnished the Intellectual Property resulting in the Claim shall also be obligated to indemnify the other party for any of its losses (such losses being THISCO's Losses or HOTEL's Losses, as the case may be, as defined in section 8.1 hereof) in connection with any Claim for which a Correction is not made within such 15 day period, in accordance with Article 8. AGREED to this 23rd day of February, 1996. THE HOTEL INDUSTRY SWITCH LA QUINTA INNS, INC. COMPANY By: /s/ JOHN F. DAVIS, III By: /s/ W.C. HAMMETT, JR. ------------------------------ ---------------------------------- John F. Davis, III (name) W.C. Hammett, Jr. President ------------------------------- (title) SR VP Accounting & Admin ------------------------------ -12-
1 EXHIBIT 10.41 ULTRASWITCH USER AGREEMENT This Agreement is entered into by and between THE HOTEL INDUSTRY SWITCH COMPANY, a Delaware corporation (hereinafter "THISCO"), and ITT SHERATON CORPORATION (hereinafter "HOTEL"), to be effective the 8th day of January, 1997 (the "Agreement"). 1.0 DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) UltraSwitch. The UltraSwitch is a service of THISCO to provide an Interface (as hereinafter defined) between Reservation Providers (as hereinafter defined) and hotel reservation systems with the capability to provide immediate room confirmation numbers for each hotel property partici pating in UltraSwitch. (ii) Interface. Interface is the hardware and software and attendant technical support required to produce computer to computer communications between a Reservation Provider (as hereinafter defined) and an UltraSwitch User (as hereinafter defined). (iii) UltraSwitch User. An UltraSwitch User is an operator of a hotel reservation system that has executed an UltraSwitch User agreement. (iv) Reservation Provider. A Reservation Provider is any person or entity with the present or future capability to connect with the UltraSwitch for the purpose of making reservations with an UltraSwitch User. -1- 2 (v) Net Reservations. Net Reservations within a particular time period equals the number of reservations processed through the UltraSwitch system within such time period, less the number of reservations as to which notice of cancellation in the UltraSwitch system is received by the UltraSwitch system within such time period. (vi) Status Change. A Status Change is a message indicating that either the availability or the rate of a room type has changed for a single date in a single property. 2.0 THE ULTRASWITCH SYSTEM 2.1 Duties of THISCO. THISCO shall operate and maintain the UltraSwitch Interface for the use and benefit of HOTEL and other UltraSwitch Users meeting or exceeding the UltraSwitch Specifications. Subject to the duties of HOTEL set forth in Section 2.2 below, THISCO will provide all reasonable and necessary technical support, hardware and software, and modifications to the UltraSwitch system to maintain an Interface between Reservation Providers and HOTEL. Subject to Section 6.2 hereof, delays caused by Reservation Providers, UltraSwitch Users or other third parties, the UltraSwitch Interface will provide room confirmation numbers for each booking at an UltraSwitch User's property made through a Reservation Provider within an average determined over each calendar month of: a. [*] seconds for UltraSwitch Users located within the contiguous 48 United States and District of Columbia; and b. [*] seconds for UltraSwitch Users located elsewhere. THISCO shall not be responsible for but will use its best efforts to require UltraSwitch Users to return response messages within the Response Time Requirements set forth in subpart (a) and (b) above. Subject to Section 6.2 hereof, the UltraSwitch will be available, operational and fully functional to process HOTEL's customer reservations 99% of the time each calendar month. Subject to Section 6.2 hereof, THISCO agrees to correct all failures or interruptions *Confidential Treatment Requested -2- 3 of the UltraSwitch and repair or replace all UltraSwitch parts causing or contributing to failure or interruption within 72 hours of the failure or interruption at THISCO's sole cost and expense. THISCO will not discriminate among UltraSwitch Users in processing reservations through the UltraSwitch. 2.2. Duties of HOTEL. Through the UltraSwitch Interface, HOTEL will permit access to all Reservation Providers utilizing the UltraSwitch and will permit all such Reservation Providers the full and complete right, subject to any agreement between HOTEL and the Reservation Providers, to reserve and cancel rooms authorized for sale by HOTEL and receive a confirmation acknowledgment of any such transaction. All information provided by HOTEL with respect to rooms and facilities shall be complete and accurate and shall be consistent with and inclusive of all the information provided and rates available to a direct caller of HOTEL reservation system to the fullest extent each Reservation Provider data base will permit. 2.3 Enhancement or Modification of the UltraSwitch System. THISCO may undertake to modify the operation or enhance the capability of the UltraSwitch. In such event, THISCO will provide notice to HOTEL of such enhancement at least 60 days prior to such modification or enhancement and will make such adjustments and modifications to THISCO's system, at THISCO's sole expense, as are reasonable and necessary to maintain the Interface with HOTEL. HOTEL agrees to cooperate with THISCO in modify ing and enhancing the UltraSwitch. 2.4 Modification of UltraSwitch User System. In the event HOTEL modifies its central reservation system, or modification of its central reservation system is required for the implementation, operation, modification or enhancement of the UltraSwitch, HOTEL shall pay all necessary costs associated with such modification to its system. In the event HOTEL modifies its central reservation system and such modification requires THISCO to modify the Interface, HOTEL shall pay THISCO its standard consulting rate and all expenses incurred as a result of the modification. In the event THISCO modifies or enhances the UltraSwitch and, as a result, it becomes necessary for HOTEL to modify its reservation system, HOTEL shall have the option to terminate this Agreement by notice to THISCO within thirty (30) days after receipt of the notice provided in Section 2.3 if the resulting cost to HOTEL for the particular modification exceeds $10,000.00. -3- 4 3.0 FEES AND COSTS 3.1 Reservation and Status Change Fees. For the use of the UltraSwitch Interface, HOTEL shall pay THISCO as follows: For the first [*] Net Reservations during each calendar year [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For all Net Reservations in excess of [*] Net Reservations during each calendar year, [*] per Net Reservation; For the first [*] Status Changes during each calendar year, [*] for each Status Change; For the next [*] Status Changes during each calendar year, [*] for each Status Change; For all Status Changes in excess of [*] during each calendar year, [*] for each Status Change. Notwithstanding the above-stated provisions, in the event the ratio of Status Changes to Net Reservations exceeds [*] during a billing period, there shall be no charge for Status Changes provided, however, in the event the ratio of Status Changes to Net Reservations exceeds [*] during a billing period, all Status Changes in excess of the [*] ratio shall be [*]. THISCO may increase the Reservation and Status Change Fees by an amount equal to the annual increase in the U.S. Consumer Price Index to offset cost increases of THISCO's operations provided that such increase shall not take effect until the expiration of 60 days after notice of the increase. *Confidential Treatment Requested -4- 5 3.2 Guaranteed Annual Minimum Reservation Fee. During each calendar year of this Agreement, HOTEL shall pay THISCO a reservation fee for at least [*] Net Reservations, whether or not such Net Reservations actually occur. 3.3 Payment of Fees and Costs. THISCO will invoice HOTEL monthly for all fees, costs, and additional costs incurred by THISCO that are to be paid by HOTEL pursuant to this Agreement. HOTEL shall pay each invoice upon receipt and, in any event, within 30 days of each invoice date. In the event an invoice (all or a portion of which has not been materially disputed) is not paid within 30 days of mailing, HOTEL agrees to pay interest on all undisputed amounts over 30 days old at an annual rate of 15% or 1 1/4% per month. 3.4 Additional Costs. HOTEL shall pay its pro rata share of communication costs (based upon the number of UltraSwitch Users for that month for all lease lines, back up and dial up lines between the UltraSwitch User and the UltraSwitch) for all UltraSwitch Users who are operational and, with respect to those UltraSwitch Users who are not yet operational, for a 60 day period prior to becoming operational. HOTEL shall provide all necessary modems to specifications established by THISCO for connection with the UltraSwitch. 4.0 TERM 4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall be effective on the date first stated above and shall expire on the last day of the [*] after the effective date. This Agreement shall be automatically renewed and extended for addition al 12 month periods unless, at least 30 days prior to the expiration of the initial term or at least 30 days prior to the expiration of any additional 12 month period, either party provides written notice to the other of its decision not to renew and extend. 5.0 TERMINATION 5.1 Termination by HOTEL. Upon the occurrence of an Event of Default (as hereinafter defined) by THISCO and the failure of THISCO to cure such default after notice and opportunity to cure as provided by Section 6.3 hereof, HOTEL may terminate this *Confidential Treatment Requested -5- 6 Agreement at any time within 30 days after the expiration of the cure period provided in Section 6.3. 5.2 Termination by THISCO. Upon the occurrence of an Event of Default (as hereinafter defined) by HOTEL and the failure of HOTEL to cure such default after notice and opportunity to cure as provided by Section 6.3 hereof, THISCO may terminate this Agreement at any time within 30 days after the expiration of the cure period provided in Section 6.3. 6.0 DEFAULT 6.1 Events of Default. Subject to Section 6.2 hereof, any one of the following listed occurrences shall be considered an Event of Default: (i) The failure to pay any amount due hereunder within the time required; (ii) The refusal or failure to diligently and in good faith perform each and every material provision of this Agreement; (iii) The failure of the UltraSwitch to perform materially in accordance with its technical requirements; (iv) If either THISCO or HOTEL (the "Defaulting Party") becomes insolvent, takes any step leading to its cessation as a going concern, or ceases business operations for reasons other than a strike and other than assignment as allowed by this Agreement, then the other party (the "Insecure Party") may immediately terminate this Agreement upon written notice to the other party unless the Defaulting Party immediately gives the Insecure Party adequate assurance of the future performance of this Agreement. If bankruptcy proceedings are commenced with respect to the Defaulting Party, and if this Agreement has not otherwise terminated, then the Insecure Party may suspend all further performance of this Agreement until the Defaulting Party assumes or rejects this Agreement -6- 7 pursuant to Section 365 of the Bankruptcy Code or any similar or successor provision. Any such suspension of further performance by the Insecure Party pending the Defaulting Party's assumption or rejection will not be a breach of this Agreement. 6.2 Force Majeure. It shall not constitute a default if an Event of Default is caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if an Event of Default results from any such occurrence and continues for more than 30 consecutive days, either party may terminate this Agreement by providing notice as required herein. 6.3 Occurrence of Default. Upon the occurrence of an Event of Default, the non-defaulting party shall give written notice to the defaulting party specifying the alleged default. The defaulting party shall then be entitled to 10 days after receipt of such notice within which to cure any monetary default and 30 days within which to cure any non-monetary default. If the party entitled to cure the Event of Default does not cure the Event of Default within the cure period specified above, then such party shall be deemed to be in default of this Agreement. Any such default shall not relieve the defaulting party from any of its obligations hereunder, and in the event of a default, the non-defaulting party hereunder shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. 7.0 CONFIDENTIALITY 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by HOTEL and THISCO that each will receive confidential and proprietary information which is the sole and exclusive property of the other party. All such confiden tial and proprietary information shall be marked or otherwise identified as such and shall be treated as confidential and proprietary subject only to disclosure where required by law. Such designation may be removed by each party making the designation. HOTEL acknowledges that it shall have no access to and shall not use the UltraSwitch software or related property, other than as specifically provided for in this Agreement, and that such information is confidential and proprietary property of THISCO. Any use of the UltraSwitch name by HOTEL is subject to prior written approval of THISCO provided HOTEL may -7- 8 describe the Interface contemplated by this Agreement in its franchise offering circular and other materials as required by state or federal law. The provisions hereof shall remain binding and in force and effect forever, notwithstanding the expiration or termination of this Agreement at any time. 8.0 INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. HOTEL agrees to indemnify and hold harmless THISCO and THISCO's affiliates and their directors, officers, employees and other stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring on account of HOTEL's fault and through no fault of THISCO ("THISCO's Losses"). THISCO agrees to indemnify and hold harmless HOTEL, and HOTEL's affiliates and their directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("HOTEL's Losses") occurring on account of THISCO's fault and through no fault of HOTEL. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indemnified party shall give prompt notice thereof to the indemnifying party and the indemnifying party shall be entitled to participate therein or, to the extent that it shall wish, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses, in each case subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. 9.0 DISCLAIMER OF WARRANTIES 9.1 Waiver of Warranties. THISCO shall not be responsible or liable for any inaccuracies in the data base or the information processed by or through the UltraSwitch nor shall it have any liability for any act or failure to act except as expressly set forth herein, except gross negligence or willful misconduct. All warranties express or implied, including -8- 9 without limitation, any warranty of fitness for a particular purpose, merchantability, good and workmanlike product or service or otherwise, are disclaimed and waived. 9.2 No Consequential Damages. Neither party shall be liable to the other for any consequential damages proximately caused or resulting from any breach of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. 9.3 Right to Repair. Notwithstanding any other provision of this Agreement, the only obligation of THISCO in the event of a material failure in the operation or performance of the UltraSwitch shall be to repair the system within 24 hours of notice from HOTEL requesting such repair. 10. MISCELLANEOUS 10.01 Other UltraSwitch User Agreements. In the event any other UltraSwitch User Agreement shall contain provisions regarding Fees and Costs (Article 3 hereof), Term (Article 4 hereof), Termination (Article 5 hereof), Indemnification (Article 8 hereof), or Disclaimer of Warranties (Article 9 hereof) more favorable than those referenced provisions contained herein, THISCO shall promptly provide notice to HOTEL of such provision(s) and HOTEL shall have the right to amend this Agreement to include the effected provisions. 10.02 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party shall select one arbitrator and the two arbitrators selected shall select a third neutral arbitrator. All reasonable and necessary costs and fees (including attorney's fees) incurred in connection with the arbitration shall be borne by the losing party or assessed in the award as otherwise deemed appropriate except travel, food and lodging expenses shall be borne by the party incurring the same. If the demand for arbitration is initiated by HOTEL, venue of the arbitration proceedings shall be determined by THISCO. If the demand for arbitration is initiated by THISCO, venue of the arbitration proceedings shall be determined by HOTEL. -9- 10 10.03 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to a direct link interface and that each party may contract with other parties providing same or similar services. 10.04 Status of Parties. This Agreement shall not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. THISCO shall not be deemed by this Agreement to be granting a license to HOTEL, with respect to UltraSwitch or any software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. 10.05 Assignment. This Agreement is not assignable by THISCO or HOTEL without the prior written consent of the non-assigning party, and such consent shall not be unreasonably withheld or delayed provided that HOTEL may assign this Agreement in connection with the sale of its reservation system or franchise system and either party may assign this Agreement without consent in the event of a merger, consolidation, or sale of substantially all of its assets. 10.06 Notices. All notices, requests, consents, payments and other communications contemplated hereby shall be in writing and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, or (d) transmitted by facsimile/telecopy in combination with any other permitted form of notice as follows: If to If to THISCO: HOTEL: The Hotel Industry Switch Company ITT Sheraton Corporation 3811 Turtle Creek Blvd., Suite 1100 Sixty State Street Dallas, Texas 75219 World Headquarters Attention: Joseph W. Nicholson Boston, Massachusetts 02109 If by facsimile/telecopy to: If by facsimile/telecopy to: (214) 528-5675) (617) 367-5182 -10- 11 or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices shall be deemed given and received at the time of personal delivery or, if sent by U.S. mail, three (3) business days after mailing, or, if sent by overnight courier, one (1) business day after such sending or, if sent by facsimile or telecopy, upon verified receipt of same. 10.07 Controlling Law. This Agreement shall be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. 10.08 Entire Agreement. This Agreement and the exhibits attached hereto constitute the entire agreement between THISCO and HOTEL with respect to the implementation and operation of the UltraSwitch system and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement which are not contained in this Agreement. 10.09 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 10.10 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement shall be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. 10.11 Software and Intellectual Property. Each of the parties hereto represents and warrants to the other that, with respect to all software and other intellectual property in connection with the operation of the Interface furnished or required to be furnished pursuant to this Agreement (collectively, the "Intellectual Property"), each either owns the Intellectual Property furnished by it or is fully authorized to deliver the Intellectual Property and to allow the Intellectual Property to be used in connection with the Interface, as con templated by this Agreement. Should any claim be raised by any third party that the use of any of the Intellectual Property or the delivery of any of the Intellectual Property in connection with this agreement constitutes infringement of any patent, copyright, license -11- 12 or other property right (a "Claim"), the party furnishing such Intellectual Property shall, at its expense, defend any such Claim in accordance with the provisions of Section 8.1 of this Agreement. Should either party be temporarily or permanently enjoined from using any of the Intellectual Property as a result of any Claim, the other party, at its option and own expense, shall either procure the right to continue to use the Intellectual Property free from any Claim or replace or modify the offending Intellectual Property so that its use becomes non-infringing, within 15 days of the date on which it receives notice of the claim (either such corrective action being referred to herein as a "Correction"). If a Correction is not accomplished, the party who furnished the Intellectual Property resulting in the Claim shall be deemed to be in default of this Agreement, and in such event, Sections 5.2 and 6.3 of this Agreement shall control; provided, however, that the 15 day period specified above shall be deemed to be the applicable cure period under Section 6.3, and once that 15 day period has expired without a Correction having occurred, the applicable cure period under Section 6.3 shall be deemed to have expired. Without limiting Article 8 of this Agreement, the party who furnished the Intellectual Property resulting in the Claim shall also be obligated to indemnify the other party for any of its losses (such losses being THISCO's Losses or HOTEL's Losses, as the case may be, as defined in section 8.1 hereof) in connection with any Claim for which a Correction is not made within such 15 day period, in accordance with Article 8. AGREED to this 8th day of January, 1997. THE HOTEL INDUSTRY SWITCH ITT SHERATON CORPORATION COMPANY By: /s/ JOHN F. DAVIS, III By: [ILLEGIBLE] ------------------------------- ----------------------------------- John F. Davis, III (name) President --------------------------------- (title) -------------------------------- -12-
1 EXHIBIT 10.42 ULTRASWITCH(R) USER AGREEMENT This Agreement is entered into by and between THE HOTEL INDUSTRY SWITCH COMPANY, a Delaware corporation (hereinafter "THISCO"), and HILTON HOTELS CORPORATION (hereinafter "HOTEL"), to be effective the 25th day of April, 1996 (the "Agreement"). 1.0 DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) UltraSwitch(R). The UltraSwitch is a service of THISCO to provide an Interface (as hereinafter defined) between Reservation Providers (as hereinafter defined) and hotel reservation systems with the capability to provide immediate room confirmation numbers for each hotel property partici pating in UltraSwitch. UltraSwitch(R) is a registered trademark of THISCO. (ii) Interface. Interface is the hardware and software and attendant technical support required to produce computer to computer communications between a Reservation Provider (as hereinafter defined) and an UltraSwitch User (as hereinafter defined). (iii) UltraSwitch User. An UltraSwitch User is an operator of a hotel reservation system that has executed an UltraSwitch User agreement. (iv) Reservation Provider. A Reservation Provider is any person or entity with the present or future capability to connect with the UltraSwitch for the purpose of making reservations with an UltraSwitch User. -1- 2 (v) Net Reservations. Net Reservations within a particular time period equals the number of reservations processed through the UltraSwitch system within such time period, less the number of reservations as to which notice of cancellation in the UltraSwitch system is received by the UltraSwitch system within such time period. (vi) Status Change. A Status Change is a message indicating that either the availability or the rate of a room type has changed for a single date in a single property. (vii) UltraSwitch Specifications. THISCO's UltraSwitch(R) Ultra Connect Interface Specifications Revision 1.2.6 dated April 26, 1995. 2.0 THE ULTRASWITCH SYSTEM 2.1 Duties of THISCO. THISCO shall operate and maintain the UltraSwitch Interface for the use and benefit of HOTEL and other UltraSwitch Users meeting or exceeding the UltraSwitch Specifications. Subject to the duties of HOTEL set forth in Section 2.2 below, THISCO will provide all reasonable and necessary technical support, hardware and software, and modifications to the UltraSwitch system to maintain an Interface between Reservation Providers and HOTEL. Subject to Section 6.2 hereof, (delays caused by Reservation Providers, UltraSwitch Users or other third parties), the UltraSwitch Interface will provide room confirmation numbers for each booking at an UltraSwitch User's property made through a Reservation Provider within an average determined over each calendar month of: a. [*] seconds for UltraSwitch Users located within the contiguous 48 United States and District of Columbia; and b. [*] seconds for UltraSwitch Users located elsewhere. THISCO shall not be responsible for but will use its best efforts to require UltraSwitch Users to return response messages within the Response Time Requirements set forth in subpart (a) and (b) above. *Confidential Treatment Requested -2- 3 Subject to Section 6.2 hereof, the UltraSwitch will be available, operational and fully functional to process HOTEL's customer reservations 99% of the time each calendar month. Subject to Section 6.2 hereof, THISCO agrees to correct all failures or interruptions of the UltraSwitch and repair or replace all UltraSwitch parts causing or contributing to failure or interruption within 72 hours of the failure or interruption at THISCO's sole cost and expense. THISCO will not discriminate among UltraSwitch Users in processing reservations through the UltraSwitch. 2.2. Duties of HOTEL. Through the UltraSwitch Interface, HOTEL will permit access to all Reservation Providers utilizing the UltraSwitch and will permit all such Reservation Providers the full and complete right, provided there exists an appropriate agreement between HOTEL and the Reservation Providers and subject to the terms thereof at HOTEL'S option, to reserve and cancel rooms authorized for sale by HOTEL and receive a confirmation acknowledgment of any such transaction. HOTEL shall use reasonable efforts to ensure that information provided by HOTEL with respect to rooms and facilities shall be complete and accurate and shall be consistent with and inclusive of all the information provided and rates available to a direct caller of HOTEL reservation system to the fullest extent each Reservation Provider data base will permit. 2.3 Enhancement or Modification of the UltraSwitch System. THISCO may undertake to modify the operation or enhance the capability of the UltraSwitch. In such event, THISCO will provide notice to HOTEL of such enhancement at least 60 days prior to such modification or enhancement and will make such adjustments and modifications to THISCO's system, at THISCO's sole expense, as are reasonable and necessary to maintain the Interface with HOTEL and to comply with THISCO'S obligations under Section 2.1 above. HOTEL agrees to cooperate with THISCO, at THISCO'S expense, in modifying and enhancing the UltraSwitch. 2.4 Modification of UltraSwitch User System. In the event HOTEL modifies its central reservation system, or modification of its central reservation system is required for the implementation, operation, modification or enhancement of the UltraSwitch, HOTEL shall pay all necessary costs associated with such modification to its system. In the event HOTEL modifies its central reservation system and such modification requires THISCO to modify the Interface, HOTEL shall pay THISCO its standard consulting rate and all -3- 4 expenses incurred as a result of the modification. In the event THISCO modifies or enhances the UltraSwitch and, as a result, it becomes necessary for HOTEL to modify its reservation system, HOTEL shall have the option to terminate this Agreement by notice to THISCO within thirty (30) days after receipt of the notice provided in Section 2.3 if the resulting cost to HOTEL for the particular modification exceeds $10,000.00. 3.0 FEES AND COSTS 3.1 Reservation and Status Change Fees. For the use of the UltraSwitch Interface, HOTEL shall pay THISCO as follows: For the first [*] Net Reservations during each calendar year [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For all Net Reservations in excess of [*] Net Reservations during each calendar year, [*] per Net Reservation; For the first [*] Status Changes during each calendar year, [*] for each Status Change; For the next [*] Status Changes during each calendar year, [*] for each Status Change; For all Status Changes in excess of [*] during each calendar year, [*] for each Status Change. In the event the ratio of Status Changes to Net Reservations exceeds [*] during a billing period, all Status Changes in excess of the [*] ratio shall be [*] *Confidential Treatment Requested -4- 5 THISCO may increase the Reservation and Status Change Fees by an amount equal to the annual increase in the U.S. Consumer Price Index to offset cost increases of THISCO's operations provided that such increase shall not take effect until the expiration of 60 days after notice of the increase. 3.2 Guaranteed Annual Minimum Reservation Fee. For each twelve (12) month period (expiring on each anniversary date) during which this Agreement is in effect, if HOTEL has paid to THISCO less than [*] pursuant to Section 3.1 hereof, for such period, HOTEL shall, within 30 days of the expiration of the 12-month period, make an additional payment to THISCO equal to the difference between the amounts paid during the 12-month period and [*] 3.3 Payment of Fees and Costs. THISCO will invoice HOTEL monthly for all fees, costs, and additional costs incurred by THISCO that are to be paid by HOTEL pursuant to this Agreement. HOTEL shall pay each invoice upon receipt and, in any event, within 30 days of each invoice date. In the event an invoice (all or a portion of which has not been materially disputed) is not paid within 60 days of mailing, HOTEL agrees to pay interest on all undisputed amounts over 60 days old at an annual rate of 15% or 1 1/4% per month. 3.4 Additional Costs. HOTEL shall pay its pro rata share of communication costs (based upon the number of UltraSwitch Users for that month for all lease lines, back up and dial up lines between the UltraSwitch User and the UltraSwitch) for all UltraSwitch Users who are operational and, with respect to those UltraSwitch Users who are not yet operational, for a 60 day period prior to becoming operational. HOTEL's share of communications costs shall not exceed $1,500.00 per month. HOTEL shall provide all necessary modems to specifications established by THISCO for connection with the UltraSwitch. 4.0 TERM 4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall be effective on the date first stated above and shall expire on the last day of the [*] after the effective date. This Agreement shall be automatically renewed and extended for addition al 12 month periods unless, at least 30 days prior to the expiration of the initial term or at *Confidential Treatment Requested -5- 6 least 30 days prior to the expiration of any additional 12 month period, either party provides written notice to the other of its decision not to renew and extend. 5.0 TERMINATION 5.1 Termination by HOTEL. Upon the occurrence of an Event of Default (as hereinafter defined) by THISCO and the failure of THISCO to cure such default after notice and opportunity to cure as provided by Section 6.3 hereof, HOTEL may terminate this Agreement at any time following the expiration of the cure period provided in Section 6.3. In addition, after the first year of this Agreement, HOTEL may terminate this Agreement at any time, regardless of default, upon payment to THISCO of a termination fee of $50,000.00 and the payment of any other amounts owing pursuant to this Agreement. 5.2 Termination by THISCO. Upon the occurrence of an Event of Default (as hereinafter defined) by HOTEL and the failure of HOTEL to cure such default after notice and opportunity to cure as provided by Section 6.3 hereof, THISCO may terminate this Agreement at any time within 30 days after the expiration of the cure period provided in Section 6.3. 6.0 DEFAULT 6.1 Events of Default. Subject to Section 6.2 hereof, any one of the following listed occurrences shall be considered an Event of Default: (i) The failure to pay any amount due hereunder within the time required; (ii) The refusal or failure to diligently and in good faith perform each and every material provision of this Agreement; (iii) The failure of the UltraSwitch to perform materially in accordance with UltraSwitch Specifications.; (iv) If either THISCO or HOTEL (the "Defaulting Party") becomes insolvent, takes any step leading to its cessation as a going concern, or ceases business operations for reasons -6- 7 other than a strike and other than assignment as allowed by this Agreement, then the other party (the "Insecure Party") may immediately terminate this Agreement upon written notice to the other party unless the Defaulting Party immediately gives the Insecure Party adequate assurance of the future performance of this Agreement. If bankruptcy proceedings are commenced with respect to the Defaulting Party, and if this Agreement has not otherwise terminated, then the Insecure Party may suspend all further performance of this Agreement until the Defaulting Party assumes or rejects this Agreement pursuant to Section 365 of the Bankruptcy Code or any similar or successor provision. Any such suspension of further performance by the Insecure Party pending the Defaulting Party's assumption or rejection will not be a breach of this Agreement. 6.2 Force Majeure. It shall not constitute a default if an Event of Default is caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if an Event of Default results from any such occurrence and continues for more than 30 consecutive days, either party may terminate this Agreement by providing notice as required herein. 6.3 Occurrence of Default. Upon the occurrence of an Event of Default, the non-defaulting party shall give written notice to the defaulting party specifying the alleged default. The defaulting party shall then be entitled to 10 days after receipt of such notice within which to cure any monetary default and 45 days within which to cure any non-monetary default. If the party entitled to cure the Event of Default does not cure the Event of Default within the cure period specified above, then such party shall be deemed to be in default of this Agreement. Any such default shall not relieve the defaulting party from any of its obligations hereunder, and in the event of a default, the non-defaulting party hereunder shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. -7- 8 7.0 CONFIDENTIALITY 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by HOTEL and THISCO that each will receive confidential and proprietary information which is the sole and exclusive property of the other party. All such confiden tial and proprietary information shall be marked or otherwise identified as such and shall be treated as confidential and proprietary subject only to disclosure where required by law or where such information becomes part of the public domain through no fault of the receiving party, is independently developed by the receiving party, or obtained by the receiving party from a third party free to disclose such information. Such designation may be removed by each party making the designation. HOTEL acknowledges that it shall have no access to and shall not use the UltraSwitch software or related property, other than as specifically provided for in this Agreement, and that such information is confidential and proprietary property of THISCO. THISCO acknowledges that information concerning HOTEL'S internal operations should be deemed confidential hereunder. Any use of the UltraSwitch name by HOTEL is subject to prior written approval of THISCO provided HOTEL may describe the Interface contemplated by this Agreement in its franchise offering circular and other materials as required by state or federal law. The provisions hereof shall remain binding and in force and effect forever, notwithstanding the expiration or termination of this Agreement at any time. 8.0 INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. HOTEL agrees to indemnify and hold harmless THISCO and THISCO's affiliates and their directors, officers, employees and other stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring on account of HOTEL's fault and through no fault of THISCO ("THISCO's Losses"). THISCO agrees to indemnify and hold harmless HOTEL, and HOTEL's affiliates and their directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("HOTEL's Losses") occurring on account of THISCO's fault and through no fault of HOTEL. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indemnified party shall give prompt notice thereof to the indemnifying party and the indemnifying party shall be entitled to participate therein or, to the extent that it shall wish, -8- 9 assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses, in each case sub sequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. 9.0 DISCLAIMER OF WARRANTIES 9.1 Waiver of Warranties. THISCO shall not be responsible or liable for any inaccuracies in the data base or the information processed by or through the UltraSwitch nor shall it have any liability for any act or failure to act except as expressly set forth herein, except gross negligence or willful misconduct. All warranties express or implied, including without limitation, any warranty of fitness for a particular purpose, merchantability, good and workmanlike product or service or otherwise, are disclaimed and waived. 9.2 No Consequential Damages. Neither party shall be liable to the other for any consequential damages proximately caused or resulting from any breach of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. 9.3 Right to Repair. Notwithstanding any other provision of this Agreement, the only obligation of THISCO in the event of a material failure in the operation or performance of the UltraSwitch shall be to repair the system within 24 hours of notice from HOTEL requesting such repair. 10. MISCELLANEOUS 10.01 Other UltraSwitch User Agreements. In the event any other UltraSwitch User Agreement shall contain provisions regarding Fees and Costs (Article 3 hereof), Term (Article 4 hereof), Termination (Article 5 hereof), Indemnification (Article 8 hereof), or Disclaimer of Warranties (Article 9 hereof) more favorable than those referenced provisions -9- 10 contained herein, THISCO shall promptly provide notice to HOTEL of such provision(s) and HOTEL shall have the right to amend this Agreement to include the effected provisions. 10.02 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party shall select one arbitrator and the two arbitrators selected shall select a third neutral arbitrator. All reasonable and necessary costs and fees (including attorney's fees) incurred in connection with the arbitration shall be borne by the losing party or assessed in the award as otherwise deemed appropriate except travel, food and lodging expenses shall be borne by the party incurring the same. If the demand for arbitration is initiated by HOTEL, venue of the arbitration proceedings shall be determined by THISCO. If the demand for arbitration is initiated by THISCO, venue of the arbitration proceedings shall be determined by HOTEL. 10.03 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to a direct link interface and that each party may contract with other parties providing same or similar services. 10.04 Status of Parties. This Agreement shall not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. THISCO shall not be deemed by this Agreement to be granting a license to HOTEL, with respect to UltraSwitch or any software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. 10.05 Assignment. This Agreement is not assignable by THISCO or HOTEL without the prior written consent of the non-assigning party, and such consent shall not be unreasonably withheld or delayed provided that HOTEL may assign this Agreement in connection with the sale of its reservation system or franchise system and either party may assign this Agreement without consent in the event of a merger, consolidation, or sale of substantially all of its assets. 10.06 Notices. All notices, requests, consents, payments and other communications contemplated hereby shall be in writing and (a) personally delivered, (b) -10- 11 deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, or (d) transmitted by facsimile/telecopy in combination with any other permitted form of notice as follows: If to If to THISCO: HOTEL: The Hotel Industry Switch Company HILTON HOTELS CORPORATION 3811 Turtle Creek Blvd., Suite 1100 9336 Civic Center Drive Dallas, Texas 75219 Beverly Hills, California 90210 Attention: Joseph W. Nicholson If by facsimile/telecopy to: If by facsimile/telecopy to: (214) 528-5675) (310) 859-2513 or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices shall be deemed given and received at the time of personal delivery or, if sent by U.S. mail, three (3) business days after mailing, or, if sent by overnight courier, one (1) business day after such sending or, if sent by facsimile or telecopy, upon verified receipt of same. 10.07 Controlling Law. This Agreement shall be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. 10.08 Entire Agreement. This Agreement and the exhibits attached hereto constitute the entire agreement between THISCO and HOTEL with respect to the implementation and operation of the UltraSwitch system and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement which are not contained in this Agreement. 10.09 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. -11- 12 10.10 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement shall be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. 10.11 Software and Intellectual Property. Each of the parties hereto represents and warrants to the other that, with respect to all software and other intellectual property in connection with the operation of the Interface furnished or required to be furnished pursuant to this Agreement (collectively, the "Intellectual Property"), each either owns the Intellectual Property furnished by it or is fully authorized to deliver the Intellectual Property and to allow the Intellectual Property to be used in connection with the Interface, as con templated by this Agreement. Should any claim be raised by any third party that the use of any of the Intellectual Property or the delivery of any of the Intellectual Property in connection with this agreement constitutes infringement of any patent, copyright, license or other property right (a "Claim"), the party furnishing such Intellectual Property shall, at its expense, defend any such Claim in accordance with the provisions of Section 8.1 of this Agreement. Should either party be temporarily or permanently enjoined from using any of the Intellectual Property as a result of any Claim, the other party, at its option and own expense, shall either procure the right to continue to use the Intellectual Property free from any Claim or replace or modify the offending Intellectual Property so that its use becomes non-infringing, within 15 days of the date on which it receives notice of the claim (either such corrective action being referred to herein as a "Correction"). If a Correction is not accomplished, the party who furnished the Intellectual Property resulting in the Claim shall be deemed to be in default of this Agreement, and in such event, Sections 5.2 and 6.3 of this Agreement shall control; provided, however, that the 15 day period specified above shall be deemed to be the applicable cure period under Section 6.3, and once that 15 day period has expired without a Correction having occurred, the applicable cure period under Section 6.3 shall be deemed to have expired. Without limiting Article 8 of this Agreement, the party who furnished the Intellectual Property resulting in the Claim shall also be obligated to indemnify the other party for any of its losses (such losses being THISCO's Losses or HOTEL's Losses, as the case may be, as defined in section 8.1 hereof) in connection with any Claim for which a Correction is not made within such 15 day period, in accordance with Article 8. -12- 13 AGREED to this 25th day of April, 1996. THE HOTEL INDUSTRY SWITCH HILTON HOTELS CORPORATION COMPANY By: /s/ JOSEPH W. NICHOLSON By: /s/ ROBERT E. DIRKS ------------------------------ ----------------------------------- Joseph W. Nicholson (name) Robert E. Dirks President -------------------------------- (title) Senior Vice President Marketing ------------------------------- -13-
1 EXHIBIT 10.43 ULTRASWITCH USER AGREEMENT This Agreement is entered into by and between THE HOTEL INDUSTRY SWITCH COMPANY, a Delaware corporation (hereinafter "THISCO"), and CHOICE HOTELS INTERNATIONAL, INC., a Delaware corporation (hereinafter "CHOICE"), to be effective the 16th day of August, 1995 (the "Agreement"). 1.0 DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) UltraSwitch. The UltraSwitch is a service of THISCO to provide an Interface (as hereinafter defined) between Reservation Providers (as hereinafter defined) and hotel reservation systems with the capability to provide immediate room confirmation numbers for each hotel property partici pating in UltraSwitch. (ii) Interface. Interface is the hardware and software and attendant technical support required to produce computer to computer communications between a Reservation Provider (as hereinafter defined) and an UltraSwitch User (as hereinafter defined). (iii) UltraSwitch User. An UltraSwitch User is an operator of a hotel reservation system that has executed an UltraSwitch User agreement. (iv) Reservation Provider. A Reservation Provider is any person or entity with the present or future capability to connect with the UltraSwitch for the purpose of making reservations with an UltraSwitch User. (v) Net Reservations. Net Reservations within a particular time period equals the number of reservations processed through the UltraSwitch system within such time period, less -1- 2 the number of reservations as to which notice of cancellation in the UltraSwitch system is received by the UltraSwitch system within such time period. (vi) Status Change. A Status Change is a message indicating that either the availability or the rate of a room type has changed for a single date in a single property. 2.0 THE ULTRASWITCH SYSTEM 2.1 Duties of THISCO. THISCO shall operate and maintain the UltraSwitch Interface for the use and benefit of CHOICE HOTELS INTERNATIONAL and other Ultra Switch Users meeting or exceeding the UltraSwitch Specifications. Subject to the duties of CHOICE set forth in Section 2.2 below, THISCO will provide all reasonable and necessary technical support, hardware and software, and modifications to the UltraSwitch system to maintain an Interface between Reservation Providers and CHOICE. Subject to Section 6.2 hereof, delays caused by Reservation Providers, UltraSwitch Users or other third parties, the UltraSwitch Interface will provide room confirmation numbers for each booking at an UltraSwitch User's property made through a Reservation Provider within an average determined over each calendar month of: a. [*] seconds for UltraSwitch Users located within the contiguous 48 United States and District of Columbia; and b. [*] seconds for UltraSwitch Users located elsewhere. THISCO shall not be responsible for but will use its best efforts to require UltraSwitch Users to return response messages within the Response Time Requirements set forth in subpart (a) and (b) above. Subject to Section 6.2 hereof, the UltraSwitch will be available, operational and fully functional to process CHOICE's customer reservations 99% of the time each calendar month. Subject to Section 6.2 hereof, THISCO agrees to correct all failures or interruptions of the UltraSwitch and repair or replace all UltraSwitch parts causing or contributing to failure or interruption within 72 hours of the failure or interruption at THISCO's sole cost and expense. *Confidential Treatment Requested -2- 3 THISCO will not discriminate among UltraSwitch Users in processing reservations through the UltraSwitch. 2.2. Duties of CHOICE. CHOICE has cooperated fully with THISCO personnel with respect to the operation of the UltraSwitch Interface between the Reservation Providers and CHOICE. CHOICE has provided technical support as necessary and agrees to undertake such reasonable and necessary programming and modification of its system as required to operate a dependable UltraSwitch Interface with its reservation system. Through the UltraSwitch Interface, CHOICE will permit access to all Reservation Providers utilizing the UltraSwitch and will permit all such Reservation Providers the full and complete right, subject to any agreement between CHOICE and the Reservation Providers, to reserve and cancel rooms authorized for sale by CHOICE and receive a confirmation acknowledgment of any such transaction. All information provided by CHOICE with respect to rooms and facilities shall be complete and accurate and shall be consistent with and inclusive of all the information provided and rates available to a direct caller of CHOICE reservation system to the fullest extent each Reservation Provider data base will permit. 2.3 Enhancement or Modification of the UltraSwitch System. THISCO may undertake to modify the operation or enhance the capability of the UltraSwitch. In such event, THISCO will provide notice to CHOICE of such enhancement at least 60 days prior to such modification or enhancement and will make such adjustments and modifications to THISCO's system, at THISCO's sole expense, as are reasonable and necessary to maintain the Interface with CHOICE. CHOICE agrees to cooperate with THISCO in modifying and enhancing the UltraSwitch. 2.4 Modification of UltraSwitch User System. In the event CHOICE modifies its central reservation system, or modification of its central reservation system is required for the implementation, operation, modification or enhancement of the UltraSwitch, CHOICE shall pay all necessary costs associated with such modification to its system. In the event CHOICE modifies its central reservation system and such modification requires THISCO to modify the Interface, CHOICE shall pay THISCO its standard consulting rate and all expenses incurred as a result of the modification. In the event THISCO modifies or enhances the UltraSwitch and, as a result, it becomes necessary for CHOICE to modify its reservation system, CHOICE shall have the option to terminate this Agreement by notice to THISCO within thirty (30) days after receipt of the notice provided in Section 2.4 if the resulting cost to CHOICE for the particular modification exceeds $10,000.00. -3- 4 3.0 FEES AND COSTS 3.1 Reservation and Status Change and Transaction Fees. For the use of the UltraSwitch Interface, CHOICE shall pay THISCO as follows: For the first [*] Net Reservations during each calendar year [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For all Net Reservations in excess of [*] Net Reservations during each calendar year, [*] per Net Reservation; For the first [*] Status Changes, [*] for each Status Change; For the next [*] Status Changes, [*] for each Status Change; For all Status Changes in excess of [*] , [*] for each Status Change. In the event the ratio of Status Changes to Net Reservations exceeds [*] during a billing period, all Status Changes in excess of the [*] ratio shall be [*] No other UltraSwitch User Agreement shall contain provisions regarding fees and costs which are more favorable than those contained herein. [*] *Confidential Treatment Requested -4- 5 THISCO may increase the Reservation and Status Change Fees by an amount equal to the annual increase in the U.S. Consumer Price Index to offset cost increases of THISCO's operations provided that such increase shall not take effect until the expiration of 60 days after notice of the increase. 3.2 Payment of Fees and Costs. THISCO will invoice CHOICE monthly for all fees, costs, and additional costs incurred by THISCO that are to be paid by CHOICE pursuant to this Agreement. CHOICE shall pay each invoice upon receipt and, in any event, within 30 days of each invoice date. In the event an invoice (all or a portion of which has not been materially disputed) is not paid within 30 days of mailing, CHOICE agrees to pay interest on all undisputed amounts over 30 days old at an annual rate of 15% or 1 1/4% per month. 3.3 Additional Costs. CHOICE shall pay its pro rata share of communication costs (based upon the number of UltraSwitch Users for that month for all lease lines, back up and dial up lines between the UltraSwitch User and the UltraSwitch) for all UltraSwitch Users who are operational and, with respect to those UltraSwitch Users who are not yet operational, for a 60 day period prior to becoming operational. CHOICE shall provide all necessary modems to specifications established by THISCO for connection with the UltraSwitch. 4.0 TERM 4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall be effective on the date first stated above and shall expire on the last day of the [*] after the effective date. This Agreement shall be automatically renewed and extended for addition al 12 month periods unless, at least 30 days prior to the expiration of the initial term or at least 30 days prior to the expiration of any additional 12 month period, either party provides written notice to the other of its decision not to renew and extend. 5.0 TERMINATION 5.1 Termination by CHOICE. Upon the occurrence of an Event of Default (as hereinafter defined) by THISCO and the failure of THISCO to cure such default after *Confidential Treatment Requested -5- 6 notice and opportunity to cure as provided by Section 6.3 hereof, CHOICE may terminate this Agreement at any time within 30 days after the expiration of the cure period provided in Section 6.3. 5.2 Termination by THISCO. Upon the occurrence of an Event of Default (as hereinafter defined) by CHOICE and the failure of CHOICE to cure such default after notice and opportunity to cure as provided by Section 6.3 hereof, THISCO may terminate this Agreement at any time within 30 days after the expiration of the cure period provided in Section 6.3. 6.0 DEFAULT 6.1 Events of Default. Subject to Section 6.2 hereof, any one of the following listed occurrences shall be considered an Event of Default: (i) The failure to pay any amount due hereunder within the time required; (ii) The refusal or failure to diligently and in good faith perform each and every material provision of this Agreement; (iii) The failure of the UltraSwitch to perform materially in accordance with its technical requirements; (iv) If either THISCO or CHOICE (the "Defaulting Party") becomes insolvent, takes any step leading to its cessation as a going concern, or ceases business operations for reasons other than a strike and other than assignment as allowed by this Agreement, then the other party (the "Insecure Party") may immediately terminate this Agreement upon written notice to the other party unless the Defaulting Party immediately gives the Insecure Party adequate assurance of the future performance of this Agreement. If bankruptcy proceedings are commenced with respect to the Defaulting Party, and if this Agreement has not otherwise terminated, then the Insecure Party may suspend all further performance of this Agreement until the Defaulting Party assumes or -6- 7 rejects this Agreement pursuant to Section 365 of the Bankruptcy Code or any similar or successor provision. Any such suspension of further performance by the Insecure Party pending the Defaulting Party's assumption or rejection will not be a breach of this Agreement. 6.2 Force Majeure. It shall not constitute a default if an Event of Default is caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if an Event of Default results from any such occurrence and continues for more than 30 consecutive days, either party may terminate this Agreement by providing notice as required herein. 6.3 Occurrence of Default. Upon the occurrence of an Event of Default, the non-defaulting party shall give written notice to the defaulting party specifying the alleged default. The defaulting party shall then be entitled to 10 days after receipt of such notice within which to cure any monetary default and 30 days within which to cure any non-monetary default. If the party entitled to cure the Event of Default does not cure the Event of Default within the cure period specified above, then such party shall be deemed to be in default of this Agreement. Any such default shall not relieve the defaulting party from any of its obligations hereunder, and in the event of a default, the non-defaulting party hereunder shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. 7.0 CONFIDENTIALITY 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by CHOICE and THISCO that each will receive confidential and proprietary information which is the sole and exclusive property of the other party. All such confiden tial and proprietary information shall be marked or otherwise identified as such and shall be treated as confidential and proprietary subject only to disclosure where required by law. Such designation may be removed by each party making the designation. CHOICE acknowledges that it shall have no access to and shall not use the UltraSwitch software or related property, other than as specifically provided for in this Agreement, and that such information is confidential and proprietary property of THISCO. Any use of the UltraSwitch name by CHOICE is subject to prior written approval of THISCO provided CHOICE may describe the Interface contemplated by this Agreement -7- 8 in its franchise offering circular and other materials as required by state or federal law. The provisions hereof shall remain binding and in force and effect forever, notwithstanding the expiration or termination of this Agreement at any time. 8.0 INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. CHOICE agrees to indemnify and hold harmless THISCO and THISCO's affiliates and their directors, officers, employees and other stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring on account of CHOICE's fault and through no fault of THISCO ("THISCO's Losses"). THISCO agrees to indemnify and hold harmless CHOICE, and CHOICE's affiliates and their directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("CHOICE's Losses") occurring on account of THISCO's fault and through no fault of CHOICE. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indemnified party shall give prompt notice thereof to the indemnifying party and the indemnifying party shall be entitled to participate therein or, to the extent that it shall wish, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses, in each case subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. 9.0 DISCLAIMER OF WARRANTIES 9.1 Waiver of Warranties. THISCO shall not be responsible or liable for any inaccuracies in the data base or the information processed by or through the UltraSwitch nor shall it have any liability for any act or failure to act except as expressly set forth herein, except gross negligence or willful misconduct. All warranties express or implied, including without limitation, any warranty of fitness for a particular purpose, -8- 9 merchantability, good and workmanlike product or service or otherwise, are disclaimed and waived. 9.2 No Consequential Damages. Neither party shall be liable to the other for any consequential damages proximately caused or resulting from any breach of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. 9.3 Right to Repair. Notwithstanding any other provision of this Agreement, the only obligation of THISCO in the event of a material failure in the operation or performance of the UltraSwitch shall be to repair the system within 24 hours of notice from CHOICE requesting such repair. 10. MISCELLANEOUS 10.01 Other UltraSwitch User Agreements. In the event any other UltraSwitch User Agreement shall contain provisions regarding Fees and Costs (Article 3 hereof), Term (Article 4 hereof), Termination (Article 5 hereof), Indemnification (Article 8 hereof), or Disclaimer of Warranties (Article 9 hereof) more favorable than those referenced provisions contained herein, THISCO shall promptly provide notice to CHOICE of such provision(s) and CHOICE shall have the right to amend this Agreement to include the effected provisions. 10.02 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party shall select one arbitrator and the two arbitrators selected shall select a third neutral arbitrator. All reasonable and necessary costs and fees (including attorney's fees) incurred in connection with the arbitration shall be borne by the losing party or assessed in the award as otherwise deemed appropriate except travel, food and lodging expenses shall be borne by the party incurring the same. If the demand for arbitration is initiated by CHOICE, venue of the arbitration proceedings shall be determined by THISCO. If the demand for arbitration is initiated by THISCO, venue of the arbitration proceedings shall be determined by CHOICE. -9- 10 10.03 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to a direct link interface and that each party may contract with other parties providing same or similar services. 10.04 Status of Parties. This Agreement shall not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. THISCO shall not be deemed by this Agreement to be granting a license to CHOICE, with respect to UltraSwitch or any software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. 10.05 Assignment. This Agreement is not assignable by THISCO or CHOICE without the prior written consent of the non-assigning party, and such consent shall not be unreasonably withheld or delayed provided that CHOICE may assign this Agreement in connection with the sale of its reservation system or franchise system and either party may assign this Agreement without consent in the event of a merger, consolidation, or sale of substantially all of its assets. 10.06 Notices. All notices, requests, consents, payments and other communications contemplated hereby shall be in writing and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, or (d) transmitted by facsimile/telecopy in combination with any other permitted form of notice as follows: If to If to THISCO: CHOICE: 3811 Turtle Creek Blvd. #1100 10750 Columbia Pike Dallas, TX 75219 Silver Spring, MD 20901 Attention: John F. Davis, III Attention: General Counsel If by facsimile/telecopy to: If by facsimile/telecopy to: (214) 528-5675) cc: Mr. James Yoakum Senior Vice President Inf. Systems Choice Hotels International 4225 E. Windrose Drive Phoenix, AZ 85032 -10- 11 or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices shall be deemed given and received at the time of personal delivery or, if sent by U.S. mail, three (3) business days after mailing, or, if sent by overnight courier, one (1) business day after such sending or, if sent by facsimile or telecopy, upon verified receipt of same. 10.07 Controlling Law. This Agreement shall be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. 10.08 Entire Agreement. This Agreement and the exhibits attached hereto constitute the entire agreement between THISCO and CHOICE with respect to the implementation and operation of the UltraSwitch system and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement which are not contained in this Agreement. 10.09 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 10.10 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement shall be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. 10.11 Software and Intellectual Property. Each of the parties hereto represents and warrants to the other that, with respect to all software and other intellectual property in connection with the operation of the Interface furnished or required to be furnished pursuant to this Agreement (collectively, the "Intellectual Property"), each either owns the Intellectual Property furnished by it or is fully authorized to deliver the Intellectual Property and to allow the Intellectual Property to be used in connection with the Interface, as con templated by this Agreement. Should any claim be raised by any third party that the use of any of the Intellectual Property or the delivery of any of the Intellectual Property in connection with this agreement constitutes infringement of any patent, -11- 12 copyright, license or other property right (a "Claim"), the party furnishing such Intellectual Property shall, at its expense, defend any such Claim in accordance with the provisions of Section 8.1 of this Agreement. Should either party be temporarily or permanently enjoined from using any of the Intellectual Property as a result of any Claim, the other party, at its option and own expense, shall either procure the right to continue to use the Intellectual Property free from any Claim or replace or modify the offending Intellectual Property so that its use becomes non-infringing, within 15 days of the date on which it receives notice of the claim (either such corrective action being referred to herein as a "Correction"). If a Correction is not accomplished, the party who furnished the Intellectual Property resulting in the Claim shall be deemed to be in default of this Agreement, and in such event, Sections 5.2 and 6.3 of this Agreement shall control; provided, however, that the 15 day period specified above shall be deemed to be the applicable cure period under Section 6.3, and once that 15 day period has expired without a Correction having occurred, the applicable cure period under Section 6.3 shall be deemed to have expired. Without limiting Article 8 of this Agreement, the party who furnished the Intellectual Property resulting in the Claim shall also be obligated to indemnify the other party for any of its losses (such losses being THISCO's Losses or CHOICE's Losses, as the case may be, as defined in section 8.1 hereof) in connection with any Claim for which a Correction is not made within such 15 day period, in accordance with Article 8. AGREED to this 16th day of August, 1995. THE HOTEL INDUSTRY SWITCH CHOICE HOTELS INTERNATIONAL, INC. COMPANY By: /s/ JOHN F. DAVIS, III By: /s/ JAMES R. YOAKUM ------------------------------ ----------------------------------- John F. Davis, III (name) James R. Yoakum President -------------------------------- (title) Senior Vice President, Reservations and Information Systems ------------------------------- -12-
1 EXHIBIT 10.44 ULTRASWITCH USER AGREEMENT This Agreement is entered into by and between THE HOTEL INDUSTRY SWITCH COMPANY, a Delaware corporation (hereinafter "THISCO"), and UTELL INTERNATIONAL LTD. (hereinafter "HOTEL"), to be effective the 10th day of February, 1996 (the "Agreement"). 1.0 DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) UltraSwitch. The UltraSwitch is a service of THISCO to provide an Interface (as hereinafter defined) between Reservation Providers (as hereinafter defined) and hotel reservation systems with the capability to provide immediate room confirmation numbers for each hotel property participating in UltraSwitch. (ii) Interface. Interface is the hardware and software and attendant technical support required to produce computer to computer communications between a Reservation Provider (as hereinafter defined) and an UltraSwitch User (as hereinafter defined). (iii) UltraSwitch User. An UltraSwitch User is an operator of a hotel reservation system that has executed an UltraSwitch User agreement. (iv) Reservation Provider. A Reservation Provider is any person or entity with the present or future capability to connect with the UltraSwitch for the purpose of making reservations with an UltraSwitch User. (v) Net Reservations. Net Reservations within a particular time period equals the number of reservations processed through the UltraSwitch system within such time period, less the number of reservations as to which notice of cancellation in the UltraSwitch system is received by the UltraSwitch system within such time period, less -1- 2 the number of reservations as to which notice of cancellation in the UltraSwitch system is received by the UltraSwitch system within such time perod. (vi) Status Change. A Status Change is a message indicating that either the availability or the rate of a room type has changed for a single date in a single property. 2.0 THE ULTRASWITCH SYSTEM 2.1 Duties of THISCO. THISCO shall operate and maintain the UltraSwitch Interface for the use and benefit of HOTEL and other UltraSwitch Users meeting or exceeding the UltraSwitch Specifications. Subject to the duties of HOTEL set forth in Section 2.2 below, THISCO will provide all reasonable and necessary technical support, hardware and software, and modifications to the UltraSwitch system to maintain an Interface between Reservation Providers and HOTEL. Subject to Section 6.2 hereof, delays caused by Reservation Providers, UltraSwitch Users or other third parties, the UltraSwitch Interface will provide room confirmation numbers for each booking at an UltraSwitch User's property made through a Reservation Provider within an average determined over each calendar month of: a. [*] seconds for UltraSwitch Users located within the contiguous 48 United States and District of Columbia; and b. [*] seconds for UltraSwitch Users located elsewhere. THISCO shall not be responsible for but will use its best efforts to require UltraSwitch Users to return response messages within the Response Time Requirements set forth in subpart (a) and (b) above. Subject to Section 6.2 hereof, the UltraSwitch will be available, operational and fully functional to process HOTEL's customer reservations 99% of the time each calendar month. Subject to Section 6.2 hereof, THISCO agrees to correct all failures or interruptions of the UltraSwitch and repair or replace all UltraSwitch parts causing or contributing to failure or interruption within 72 hours of the failure or interruption at THISCO's sole cost and expense. *Confidential Treatment Requested -2- 3 THISCO will not discriminate among UltraSwitch Users in processing reservations through the UltraSwitch. 2.2. Duties of HOTEL. Through the UltraSwitch Interface, HOTEL will permit access to all Reservation Providers utilizing the UltraSwitch and will permit all such Reservation Providers the full and complete right, subject to any agreement between HOTEL and the Reservation Providers, to reserve and cancel rooms authorized for sale by HOTEL and receive a confirmation acknowledgment of any such transaction. All information provided by HOTEL with respect to rooms and facilities shall be complete and accurate and shall be consistent with and inclusive of all the information provided and rates available to a direct caller of HOTEL reservation system to the fullest extent each Reservation Provider data base will permit. 2.3 Enhancement or Modification of the UltraSwitch System. THISCO may undertake to modify the operation or enhance the capability of the UltraSwitch. In such event, THISCO will provide notice to HOTEL of such enhancement at least 60 days prior to such modification or enhancement and will make such adjustments and modifications to THISCO's system, at THISCO's sole expense, as are reasonable and necessary to maintain the Interface with HOTEL. HOTEL agrees to cooperate with THISCO in modifying and enhancing the UltraSwitch. 2.4 Modification of UltraSwitch User System. In the event HOTEL modifies its central reservation system, or modification of its central reservation system is required for the implementation, operation, modification or enhancement of the UltraSwitch, HOTEL shall pay all necessary costs associated with such modification to its system. In the event HOTEL modifies its central reservation system and such modification requires THISCO to modify the Interface, HOTEL shall pay THISCO its standard consulting rate and all expenses incurred as a result of the modification. In the event THISCO modifies or enhances the UltraSwitch and, as a result, it becomes necessary for HOTEL to modify its reservation system, HOTEL shall have the option to terminate this Agreement by notice to THISCO within thirty (30) days after receipt of the notice provided in Section 2.3 if the resulting cost to HOTEL for the particular modification exceeds $10,000.00. 3.0 FEES AND COSTS 3.1 Reservation and Status Change Fees. For the use of the UltraSwitch Interface, HOTEL shall pay THISCO as follows: -3- 4 For the first [*] Net Reservations during each calendar year [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For all Net Reservations in excess of [*] Net Reservations during each calendar year, [*] per Net Reservation; For the first [*] Status Changes during each calendar year, [*] for each Status Change; For the next [*] Status Changes during each calendar year, [*] for each Status Change; For all Status Changes in excess of [*] during each calendar year, [*] for each Status Change. Notwithstanding the above-stated provisions, in the event the ratio of Status Changes to Net Reservations exceeds [*] during a billing period, there shall be no charge for Status Changes provided, however, in the event the ratio of Status Changes to Net Reservations exceeds [*] during a billing period, all Status Changes in excess of the [*] ratio shall be [*]. THISCO may increase the Reservation and Status Change Fees by an amount equal to the annual increase in the U.S. Consumer Price Index to offset cost increases of THISCO's operations provided that such increase shall not take effect until the expiration of 60 days after notice of the increase. 3.2 Guaranteed Annual Minimum Reservation Fee. During each calendar year of this Agreement, HOTEL shall pay THISCO a reservation fee for at least [*] Net Reservations, whether or not such Net Reservations actually occur. *Confidential Treatment Requested -4- 5 3.3 Payment of Fees and Costs. THISCO will invoice HOTEL monthly for all fees, costs, and additional costs incurred by THISCO that are to be paid by HOTEL pursuant to this Agreement. HOTEL shall pay each invoice upon receipt and, in any event, within 30 days of each invoice date. In the event an invoice (all or a portion of which has not been materially disputed) is not paid within 30 days of mailing, HOTEL agrees to pay interest on all undisputed amounts over 30 days old at an annual rate of 15% or 1 1/4% per month. 3.4 Additional Costs. HOTEL shall pay its pro rata share of communication costs (based upon the number of UltraSwitch Users for that month for all lease lines, back up and dial up lines between the UltraSwitch User and the UltraSwitch) for all UltraSwitch Users who are operational and, with respect to those UltraSwitch Users who are not yet operational, for a 60 day period prior to becoming operational. HOTEL shall provide all necessary modems to specifications established by THISCO for connection with the UltraSwitch. 4.0 TERM 4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall be effective on the date first stated above and shall expire on the last day of the [*] month after the effective date. This Agreement shall be automatically renewed and extended for additional 12 month periods unless, at least 30 days prior to the expiration of the initial term or at least 30 days prior to the expiration of any additional 12 month period, either party provides written notice to the other of its decision not to renew and extend. 5.0 TERMINATION 5.1 Termination by HOTEL. Upon the occurrence of an Event of Default (as hereinafter defined) by THISCO and the failure of THISCO to cure such default after notice and opportunity to cure as provided by Section 6.3 hereof, HOTEL may terminate this Agreement at any time within 30 days after the expiration of the cure period provided in Section 6.3. 5.2 Termination by THISCO. Upon the occurrence of an Event of Default (as hereinafter defined) by HOTEL and the failure of HOTEL to cure such default after notice and opportunity to cure as provided by Section 6.3 hereof, THISCO may terminate this *Confidential Treatment Requested -5- 6 Agreement at any time within 30 days after the expiration of the cure period provided in Section 6.3. 6.0 DEFAULT 6.1 Events of Default. Subject to Section 6.2 hereof, any one of the following listed occurrences shall be considered an Event of Default: (i) The failure to pay any amount due hereunder within the time required; (ii) The refusal or failure to diligently and in good faith perform each and every material provision of this Agreement; (iii) The failure of the UltraSwitch to perform materially in accordance with its technical requirements; (iv) If either THISCO or HOTEL (the "Defaulting Party") becomes insolvent, takes any step leading to its cessation as a going concern, or ceases business operations for reasons other than a strike and other than assignment as allowed by this Agreement, then the other party (the "Insecure Party") may immediately terminate this Agreement upon written notice to the other party unless the Defaulting Party immediately gives the Insecure Party adequate assurance of the future performance of this Agreement. If bankruptcy proceedings are commenced with respect to the Defaulting Party, and if this Agreement has not otherwise terminated, then the Insecure Party may suspend all further performance of this Agreement until the Defaulting Party assumes or rejects this Agreement pursuant to Section 365 of the Bankruptcy Code or any similar or successor provision. Any such suspension of further performance by the Insecure Party pending the Defaulting Party's assumption or rejection will not be a breach of this Agreement. -6- 7 6.2 Force Majeure. It shall not constitute a default if an Event of Default is caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if an Event of Default results from any such occurrence and continues for more than 30 consecutive days, either party may terminate this Agreement by providing notice as required herein. 6.3 Occurrence of Default. Upon the occurrence of an Event of Default, the non-defaulting party shall give written notice to the defaulting party specifying the alleged default. The defaulting party shall then be entitled to 10 days after receipt of such notice within which to cure any monetary default and 30 days within which to cure any non- monetary default. If the party entitled to cure the Event of Default does not cure the Event of Default within the cure period specified above, then such party shall be deemed to be in default of this Agreement. Any such default shall not relieve the defaulting party from any of its obligations hereunder, and in the event of a default, the non-defaulting party hereunder shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. 7.0 CONFIDENTIALITY 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by HOTEL and THISCO that each will receive confidential and proprietary information which is the sole and exclusive property of the other party. All such confidential and proprietary information shall be marked or otherwise identified as such and shall be treated as confidential and proprietary subject only to disclosure where required by law. Such designation may be removed by each party making the designation. HOTEL acknowledges that it shall have no access to and shall not use the UltraSwitch software or related property, other than as specifically provided for in this Agreement, and that such information is confidential and proprietary property of THISCO. Any use of the UltraSwitch name by HOTEL is subject to prior written approval of THISCO provided HOTEL may describe the Interface contemplated by this Agreement in its franchise offering circular and other materials as required by state or federal law. The provisions hereof shall remain binding and in force and effect forever, notwithstanding the expiration or termination of this Agreement at any time. -7- 8 8.0 INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. HOTEL agrees to indemnify and hold harmless THISCO and THISCO's affiliates and their directors, officers, employees and other stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring on account of HOTEL's fault and through no fault of THISCO ("THISCO's Losses"). THISCO agrees to indemnify and hold harmless HOTEL, and HOTEL's affiliates and their directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("HOTEL's Losses") occurring on account of THISCO's fault and through no fault of HOTEL. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indemnified party shall give prompt notice thereof to the indemnifying party and the indemnifying party shall be entitled to participate therein or, to the extent that it shall wish, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses, in each case subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. 9.0 DISCLAIMER OF WARRANTIES 9.1 Waiver of Warranties. THISCO shall not be responsible or liable for any inaccuracies in the data base or the information processed by or through the UltraSwitch nor shall it have any liability for any act or failure to act except as expressly set forth herein, except gross negligence or willful misconduct. All warranties express or implied, including without limitation, any warranty of fitness for a particular purpose, merchantability, good and workmanlike product or service or otherwise, are disclaimed and waived. 9.2 No Consequential Damages. Neither party shall be liable to the other for any consequential damages proximately caused or resulting from any breach of this Agreement -8- 9 or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. 9.3 Right to Repair. Notwithstanding any other provision of this Agreement, the only obligation of THISCO in the event of a material failure in the operation or performance of the UltraSwitch shall be to repair the system within 24 hours of notice from HOTEL requesting such repair. 10. MISCELLANEOUS 10.01 Other UltraSwitch User Agreements. In the event any other UltraSwitch User Agreement shall contain provisions regarding Fees and Costs (Article 3 hereof), Term (Article 4 hereof), Termination (Article 5 hereof), Indemnification (Article 8 hereof), or Disclaimer of Warranties (Article 9 hereof) more favorable than those referenced provisions contained herein, THISCO shall promptly provide notice to HOTEL of such provision(s) and HOTEL shall have the right to amend this Agreement to include the effected provisions. 10.02 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party shall select one arbitrator and the two arbitrators selected shall select a third neutral arbitrator. All reasonable and necessary costs and fees (including attorney's fees) incurred in connection with the arbitration shall be borne by the losing party or assessed in the award as otherwise deemed appropriate except travel, food and lodging expenses shall be borne by the party incurring the same. If the demand for arbitration is initiated by HOTEL, venue of the arbitration proceedings shall be determined by THISCO. If the demand for arbitration is initiated by THISCO, venue of the arbitration proceedings shall be determined by HOTEL. 10.03 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to a direct link interface and that each party may contract with other parties providing same or similar services. 10.04 Status of Parties. This Agreement shall not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities -9- 10 independently contracting with each other at arms length. THISCO shall not be deemed by this Agreement to be granting a license to HOTEL, with respect to UltraSwitch or any software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. 10.05 Assignment. This Agreement is not assignable by THISCO or HOTEL without the prior written consent of the non-assigning party, and such consent shall not be unreasonably withheld or delayed provided that HOTEL may assign this Agreement in connection with the sale of its reservation system or franchise system and either party may assign this Agreement without consent in the event of a merger, consolidation, or sale of substantially all of its assets. 10.06 Notices. All notices, requests, consents, payments and other communications contemplated hereby shall be in writing and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, or (d) transmitted by facsimile/telecopy in combination with any other permitted form of notice as follows: If to If to THISCO: HOTEL: The Hotel Industry Switch Company Utell International Ltd. 3811 Turtle Creek Blvd., Suite 1100 2 Kew Bridge Road Dallas, Texas 75219 Brentford, London TW8 OJF Attention: John F. Davis, III If by facsimile/telecopy to: If by facsimile/telecopy to: (214) 528-5675) 011 44 81 490 5855 or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices shall be deemed given and received at the time of personal delivery or, if sent by U.S. mail, three (3) business days after mailing, or, if sent by overnight courier, one (1) business day after such sending or, if sent by facsimile or telecopy, upon verified receipt of same. 10.07 Controlling Law. This Agreement shall be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. -10- 11 10.08 Entire Agreement. This Agreement and the exhibits attached hereto constitute the entire agreement between THISCO and HOTEL with respect to the implementation and operation of the UltraSwitch system and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement which are not contained in this Agreement. 10.09 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 10.10 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement shall be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. 10.11 Software and Intellectual Property. Each of the parties hereto represents and warrants to the other that, with respect to all software and other intellectual property in connection with the operation of the Interface furnished or required to be furnished pursuant to this Agreement (collectively, the "Intellectual Property"), each either owns the Intellectual Property furnished by it or is fully authorized to deliver the Intellectual Property and to allow the Intellectual Property to be used in connection with the Interface, as contemplated by this Agreement. Should any claim be raised by any third party that the use of any of the Intellectual Property or the delivery of any of the Intellectual Property in connection with this agreement constitutes infringement of any patent, copyright, license or other property right (a "Claim"), the party furnishing such Intellectual Property shall, at its expense, defend any such Claim in accordance with the provisions of Section 8.1 of this Agreement. Should either party be temporarily or permanently enjoined from using any of the Intellectual Property as a result of any Claim, the other party, at its option and own expense, shall either procure the right to continue to use the Intellectual Property free from any Claim or replace or modify the offending Intellectual Property so that its use becomes non-infringing, within 15 days of the date on which it receives notice of the claim (either such corrective action being referred to herein as a "Correction"). If a Correction is not accomplished, the party who furnished the Intellectual Property resulting in the Claim shall be deemed to be in default of this Agreement, and in such event, Sections 5.2 and 6.3 of -11- 12 this Agreement shall control; provided, however, that the 15 day period specified above shall be deemed to be the applicable cure period under Section 6.3, and once that 15 day period has expired without a Correction having occurred, the applicable cure period under Section 6.3 shall be deemed to have expired. Without limiting Article 8 of this Agreement, the party who furnished the Intellectual Property resulting in the Claim shall also be obligated to indemnify the other party for any of its losses (such losses being THISCO's Losses or HOTEL's Losses, as the case may be, as defined in section 8.1 hereof) in connection with any Claim for which a Correction is not made within such 15 day period, in accordance with Article 8. AGREED to this 10th day of February, 1996. THE HOTEL INDUSTRY SWITCH UTELL INTERNATIONAL LTD. COMPANY By: /s/ JOHN F. DAVIS, III By: /s/ MIKE HOPE ------------------------------- ------------------------------ John F. Davis, III (name) Mike Hope President ---------------------------- (title) President --------------------------- -12-
1 EXHIBIT 10.46 ULTRASWITCH USER AGREEMENT This Agreement is entered into by and between THE HOTEL INDUSTRY SWITCH COMPANY, a Delaware corporation (hereinafter "THISCO"), and MARRIOTT INTERNATIONAL, INC. (hereinafter "Hotel"), to be effective the 31st day of December, 1995 (the "Agreement"). 1.0 DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) UltraSwitch. The UltraSwitch is a service of THISCO to provide an Interface (as hereinafter defined) between Reservation Providers (as hereinafter defined) and hotel reservation systems with the capability to provide immediate room confirmation numbers for each hotel property participating in UltraSwitch. (ii) Interface. Interface is the hardware and software and attendant technical support required to produce computer to computer communications between a Reservation Provider (as hereinafter defined) and an UltraSwitch User (as hereinafter defined). (iii) UltraSwitch User. An UltraSwitch User is an operator of a hotel reservation system that has executed an UltraSwitch User agreement. (iv) Reservation Provider. A Reservation Provider is any person or entity with the present or future capability to connect with the UltraSwitch for the purpose of making reservations with an UltraSwitch User. -1- 2 (v) Net Reservations. Net Reservations within a particular time period equals the number of reservations processed through the UltraSwitch system within such time period, less the number of reservations as to which notice of cancellation in the UltraSwitch system is received by the UltraSwitch system within such time period. (vi) Status Change. A Status Change is a message indicating that either the availability or the rate of a room type has changed for a single date in a single property. (vii) Hotel. "Hotel" is Marriott International, Inc. and includes its subsidiaries and affiliates under its effective ownership or control. 2.0 THE ULTRASWITCH SYSTEM 2.1 Duties of THISCO. THISCO shall operate and maintain the UltraSwitch Interface for the use and benefit of Hotel and other UltraSwitch Users meeting or exceeding the UltraSwitch Specifications. Subject to the duties of Hotel set forth in Section 2.2 below, THISCO will provide all reasonable and necessary technical support, hardware and software, and modifications to the UltraSwitch system to maintain an Interface between Reservation Providers and Hotel. Subject to Section 6.2 hereof, delays caused by Hotel, Reservation Providers, UltraSwitch Users or other third parties (which delays are not the fault of THISCO), the UltraSwitch Interface will provide room confirmation numbers for each booking at an UltraSwitch User's property made through a Reservation Provider within an average determined over each calendar month of: a. [*] seconds for UltraSwitch Users located within the contiguous 48 United States and District of Columbia; and b. [*] seconds for UltraSwitch Users located elsewhere. THISCO shall not be responsible for but will use its best efforts to require UltraSwitch Users to return response messages within the Response Time Requirements set forth in subpart (a) and (b) above. *Confidential Treatment Requested -2- 3 Subject to Section 6.2 hereof, the UltraSwitch will be available, operational and fully functional to process Hotel's customer reservations 99% of the time each calendar month. Subject to Section 6.2 hereof, THISCO agrees to correct all failures or interruptions of the UltraSwitch and repair or replace all UltraSwitch parts causing or contributing to failure or interruption within 72 hours of the failure or interruption at THISCO's sole cost and expense. THISCO will not discriminate among UltraSwitch Users in processing reservations through the UltraSwitch. 2.2. Duties of Hotel. Through the UltraSwitch Interface, Hotel will, subject to other agreements Hotel may have with Reservation Providers, permit access to all Reservation Providers utilizing the UltraSwitch and will permit all such Reservation Providers the full and complete right, subject to any agreement between Hotel and the Reservation Providers, to reserve and cancel rooms authorized for sale by Hotel and receive a confirmation acknowledgment of any such transaction. All information provided by Hotel with respect to rooms and facilities shall be complete and accurate and shall be consistent with and inclusive of all the information provided and rates available to a direct caller of Hotel reservation system to the fullest extent each Reservation Provider data base will permit. 2.3 Enhancement or Modification of the UltraSwitch System. THISCO may undertake to modify the operation or enhance the capability of the UltraSwitch. In such event, THISCO will provide notice to Hotel of such enhancement at least 60 days prior to such modification or enhancement and will make such adjustments and modifications to THISCO's system, at THISCO's sole expense, as are reasonable and necessary to maintain the Interface with Hotel. Subject to Section 2.4 and 5.1 hereof, Hotel agrees to cooperate with THISCO in modifying and enhancing the UltraSwitch. 2.4 Modification of UltraSwitch User System. In the event Hotel modifies its central reservation system or, pursuant to an agreement between Hotel and a Reservation Provider, there is a modification of Hotel's or the Reservation Provider's system, and, in either case, such modification requires THISCO to modify the Interface, Hotel shall pay THISCO its reasonable costs and reasonable consulting rate consistent with industry standards and all reasonable expenses incurred as a result of the modification. In the event THISCO modifies or enhances the UltraSwitch and, as a result, it becomes -3- 4 necessary for Hotel to modify its reservation system, Hotel shall have the option to terminate this Agreement by notice to THISCO within thirty (30) days after receipt of the notice provided in Section 2.3 if the resulting cost to Hotel for the particular modification exceeds $10,000.00. In the event of a termination as provided by the preceding sentence, Hotel shall have no liability for the Guaranteed Annual Minimum Reservation Fee. 3.0 FEES AND COSTS 3.1 Reservation and Status Change Fees. For the use of the UltraSwitch Interface, Hotel shall pay THISCO as follows: For the first [*] Net Reservations during each calendar year [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For all Net Reservations in excess of [*] Net Reservations during each calendar year, [*] per Net Reservation; For the first [*] Status Changes during each calendar year, [*] for each Status Change; For the next [*] Status Changes during each calendar year, [*] for each Status Change; For all Status Changes in excess of [*] during each calendar year, [*] for each Status Change. Notwithstanding the above-stated provisions, in the event the ratio of Status Changes to Net Reservations exceeds [*] during a billing period, there shall be no charge for Status Changes provided, however, in the event the ratio of Status Changes to Net Reservations *Confidential Treatment Requested -4- 5 exceeds [*] during a billing period, all Status Changes in excess of the [*] ratio shall be [*] No more than once per year, THISCO may increase the Reservation and Status Change Fees by an amount equal to the annual increase in the U.S. Consumer Price Index for all Urban Consumers, U.S. City Average, for All Items to offset cost increases of THISCO's operations provided that such increase shall not take effect until the expiration of 60 days after notice of the increase. 3.2 Guaranteed Annual Minimum Reservation Fee. During each calendar year of this Agreement, Hotel shall pay THISCO a reservation fee for at least [*] Net Reservations, whether or not such Net Reservations actually occur. 3.3 Payment of Fees and Costs. THISCO will invoice Hotel monthly for all fees, costs, and additional costs incurred by THISCO that are to be paid by Hotel pursuant to this Agreement. Hotel shall pay each invoice upon receipt and, in any event, within 30 days of each invoice date. In the event an invoice (all or a portion of which has not been materially disputed) is not paid within 30 days of mailing, Hotel agrees to pay interest on all undisputed amounts over 30 days old at an annual rate of 15% or 1 1/4% per month. 3.4 Additional Costs. Hotel shall pay its pro rata share of communication costs (based upon the number of UltraSwitch Users for that month for all lease lines, back up and dial up lines between the UltraSwitch User and the UltraSwitch) for all UltraSwitch Users who are operational and, with respect to those UltraSwitch Users who are not yet operational, for a 60 day period prior to becoming operational in an amount which shall not exceed $1,500.00 per month. Hotel shall provide all necessary modems to specifications established by THISCO for connection with the UltraSwitch. 4.0 TERM 4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall be effective on the date first stated above and shall expire on the last day of the [*] after the effective date. This Agreement shall be automatically renewed and extended for additional 12 month periods unless, at least 30 days prior to the expiration of the initial term or at *Confidential Treatment Requested -5- 6 least 30 days prior to the expiration of any additional 12 month period, either party provides written notice to the other of its decision not to renew and extend. 5.0 TERMINATION 5.1 Termination by Hotel. Upon the occurrence of an Event of Default (as hereinafter defined) by THISCO and the failure of THISCO to cure such default after notice and opportunity to cure as provided by Section 6.3 hereof, Hotel may terminate this Agreement at any time within 30 days after the expiration of the cure period provided in Section 6.3. 5.2 Termination by THISCO. Upon the occurrence of an Event of Default (as hereinafter defined) by Hotel and the failure of Hotel to cure such default after notice and opportunity to cure as provided by Section 6.3 hereof, THISCO may terminate this Agreement at any time within 30 days after the expiration of the cure period provided in Section 6.3. 6.0 DEFAULT 6.1 Events of Default. Subject to Section 6.2 hereof, any one of the following listed occurrences shall be considered an Event of Default: (i) The failure to pay any amount due hereunder within the time required; (ii) The refusal or failure to perform each and every material provision of this Agreement; (iii) The failure of the UltraSwitch to perform materially in accordance with its technical requirements; (iv) If either THISCO or Hotel (the "Defaulting Party") becomes insolvent, takes any step leading to its cessation as a going concern, or ceases business operations for reasons other than a strike and other than assignment as allowed by this Agreement, then the other party (the "Insecure Party") may -6- 7 immediately terminate this Agreement upon written notice to the other party unless the Defaulting Party immediately gives the Insecure Party adequate assurance of the future performance of this Agreement. If bankruptcy proceedings are commenced with respect to the Defaulting Party, and if this Agreement has not otherwise terminated, then the Insecure Party may suspend all further performance of this Agreement until the Defaulting Party assumes or rejects this Agreement pursuant to Section 365 of the Bankruptcy Code or any similar or successor provision. Any such suspension of further performance by the Insecure Party pending the Defaulting Party's assumption or rejection will not be a breach of this Agreement. 6.2 Force Majeure. It shall not constitute a default if an Event of Default is caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if an Event of Default results from any such occurrence and continues for more than 30 consecutive days, either party may terminate this Agreement by providing notice as required herein. 6.3 Occurrence of Default. Upon the occurrence of an Event of Default, the non-defaulting party shall give written notice to the defaulting party specifying the alleged default. The defaulting party shall then be entitled to 10 days after receipt of such notice within which to cure any monetary default and 30 days within which to cure any non- monetary default. If the party entitled to cure the Event of Default does not cure the Event of Default within the cure period specified above, then such party shall be deemed to be in default of this Agreement. Any such default shall not relieve the defaulting party from any of its obligations hereunder, and in the event of a default, the non-defaulting party hereunder shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. 7.0 CONFIDENTIALITY 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by Hotel and THISCO that each will receive confidential and proprietary information which is the sole and exclusive property of the other party. All such confidential and proprietary -7- 8 information shall be marked or otherwise identified as such and shall be treated as confidential and proprietary subject only to disclosure where required by law. Such designation may be removed by each party making the designation. Except as is necessary in connection with the performance of this Agreement, information regarding the reservations of Hotel processed through the UltraSwitch, including any statistics or other information derived from Hotel reservations, shall be treated as confidential whether or not so marked or otherwise identified as confidential. Hotel acknowledges that it shall have no access to and shall not use the UltraSwitch software or related property, other than as specifically provided for in this Agreement, and that such information is confidential and proprietary property of THISCO. Any use of the UltraSwitch name by Hotel is subject to prior written approval of THISCO provided Hotel may describe the Interface contemplated by this Agreement in its franchise offering circular and other materials as required by state or federal law. The provisions hereof shall remain binding and in force and effect forever, notwithstanding the expiration or termination of this Agreement at any time. 8.0 INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. Hotel agrees to indemnify and hold harmless THISCO and THISCO's affiliates and their directors, officers, employees and other stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring on account of Hotel's fault and through no fault of THISCO ("THISCO's Losses"). THISCO agrees to indemnify and hold harmless Hotel, and Hotel's affiliates and their directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("Hotel's Losses") occurring on account of THISCO's fault and through no fault of Hotel. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indemnified party shall give prompt notice thereof to the indemnifying party and the indemnifying party shall be entitled to participate therein or, to the extent that it shall wish, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses, in each case subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both -8- 9 parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. 9.0 DISCLAIMER OF WARRANTIES 9.1 Waiver of Warranties. THISCO shall not be responsible or liable for any inaccuracies in the data base or the information processed by or through the UltraSwitch nor shall it have any liability for any act or failure to act except as expressly set forth herein, except gross negligence or willful misconduct. All warranties express or implied, including without limitation, any warranty of fitness for a particular purpose, merchantability, good and workmanlike product or service or otherwise, are disclaimed and waived. 9.2 No Consequential Damages. Neither party shall be liable to the other for any consequential damages proximately caused or resulting from any breach of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. 9.3 Right to Repair. Notwithstanding any other provision of this Agreement, the only obligation of THISCO in the event of a material failure in the operation or performance of the UltraSwitch shall be to repair the system within 24 hours of notice from Hotel requesting such repair. 10. MISCELLANEOUS 10.01 Other UltraSwitch User Agreements. In the event any other UltraSwitch User Agreement shall contain provisions regarding Fees and Costs (Article 3 hereof), Term (Article 4 hereof), Termination (Article 5 hereof), Indemnification (Article 8 hereof), or Disclaimer of Warranties (Article 9 hereof) more favorable than those referenced provisions contained herein, THISCO shall promptly provide notice to Hotel of such provision(s) and Hotel shall have the right to amend this Agreement to include the effected provisions. 10.02 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon -9- 10 the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party shall select one arbitrator and the two arbitrators selected shall select a third neutral arbitrator. All reasonable and necessary costs and fees (including attorney's fees) incurred in connection with the arbitration shall be borne by the losing party or assessed in the award as otherwise deemed appropriate except travel, food and lodging expenses shall be borne by the party incurring the same. If the demand for arbitration is initiated by Hotel, venue of the arbitration proceedings shall be determined by THISCO. If the demand for arbitration is initiated by THISCO, venue of the arbitration proceedings shall be determined by Hotel. 10.03 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to a direct link interface and that each party may contract with other parties providing same or similar services. 10.04 Status of Parties. This Agreement shall not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. THISCO shall not be deemed by this Agreement to be granting a license to Hotel, with respect to UltraSwitch or any software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. 10.05 Assignment. Except for the right to assign this Agreement to a subsidiary or affiliate under the effective control of the assigning party (with notice of such assignment being promptly given to the other party hereto), this Agreement is not assignable by THISCO or Hotel without the prior written consent of the non-assigning party, and such consent shall not be unreasonably withheld or delayed provided that Hotel may assign this Agreement in connection with the sale of its reservation system or franchise system and either party may assign this Agreement without consent in the event of a merger, consolidation, or sale of substantially all of its assets. 10.06 Notices. All notices, requests, consents, payments and other communications contemplated hereby shall be in writing and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, or (d) transmitted by facsimile/telecopy in combination with any other permitted form of notice as follows: -10- 11 If to If to THISCO: HOTEL: The Hotel Industry Switch Company MARRIOTT INTERNATIONAL, INC. 3811 Turtle Creek Blvd., Suite 1100 One Marriott Drive, Dept. 939.07 Dallas, Texas 75219 Washington, D.C. 20058 Attention: John F. Davis, III If by facsimile/telecopy to: If by facsimile/telecopy to: (214) 528-5675) (301) 380-6094 or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices shall be deemed given and received at the time of personal delivery or, if sent by U.S. mail, three (3) business days after mailing, or, if sent by overnight courier, one (1) business day after such sending or, if sent by facsimile or telecopy, upon verified receipt of same. 10.07 Controlling Law. This Agreement shall be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. 10.08 Entire Agreement. This Agreement and the exhibits attached hereto constitute the entire agreement between THISCO and Hotel with respect to the implementation and operation of the UltraSwitch system and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement which are not contained in this Agreement. 10.09 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 10.10 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement shall be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. -11- 12 10.11 Software and Intellectual Property. Each of the parties hereto represents and warrants to the other that, with respect to all software and other intellectual property in connection with the operation of the Interface furnished or required to be furnished pursuant to this Agreement (collectively, the "Intellectual Property"), each either owns the Intellectual Property furnished by it or is fully authorized to deliver the Intellectual Property and to allow the Intellectual Property to be used in connection with the Interface, as contemplated by this Agreement. Should any claim be raised by any third party that the use of any of the Intellectual Property or the delivery of any of the Intellectual Property in connection with this agreement constitutes infringement of any patent, copyright, license or other property right (a "Claim"), the party furnishing such Intellectual Property shall, at its expense, defend any such Claim in accordance with the provisions of Section 8.1 of this Agreement. Should either party be temporarily or permanently enjoined from using any of the Intellectual Property as a result of any Claim, the other party, at its option and own expense, shall either procure the right to continue to use the Intellectual Property free from any Claim or replace or modify the offending Intellectual Property so that its use becomes non-infringing, within 15 days of the date on which it receives notice of the claim (either such corrective action being referred to herein as a "Correction"). If a Correction is not accomplished, the party who furnished the Intellectual Property resulting in the Claim shall be deemed to be in default of this Agreement, and in such event, Sections 5.2 and 6.3 of this Agreement shall control; provided, however, that the 15 day period specified above shall be deemed to be the applicable cure period under Section 6.3, and once that 15 day period has expired without a Correction having occurred, the applicable cure period under Section 6.3 shall be deemed to have expired. Without limiting Article 8 of this Agreement, the party who furnished the Intellectual Property resulting in the Claim shall also be obligated to indemnify the other party for any of its losses (such losses being THISCO's Losses or Hotel's Losses, as the case may be, as defined in section 8.1 hereof) in connection with any Claim for which a Correction is not made within such 15 day period, in accordance with Article 8. 10.12 Good Faith and Due Diligence. Each party to this Agreement shall perform its obligations in good faith and with due diligence. -12- 13 AGREED to this 31st day of December, 1995. THE HOTEL INDUSTRY SWITCH MARRIOTT INTERNATIONAL, INC. COMPANY By: /s/ John F. Davis, III By: /s/ Bruce Wolff ----------------------------- ---------------------------------- John F. Davis, III (name) Bruce Wolff President -------------------------------- (title) V.P. Distribution Sales and ------------------------------- Marketing -13-
1 EXHIBIT 10.47 ULTRASWITCH USER AGREEMENT This Agreement is entered into by and between THE HOTEL INDUSTRY SWITCH COMPANY, a Delaware corporation (hereinafter "THISCO"), and FORTE HOTELS (hereinafter "HOTEL"), to be effective the 23rd day of February, 1996 (the "Agreement"). 1.0 DEFINITIONS 1.1 For purposes of this Agreement, the following definitions shall apply: (i) UltraSwitch. The UltraSwitch is a service of THISCO to provide an Interface (as hereinafter defined) between Reservation Providers (as hereinafter defined) and hotel reservation systems with the capability to provide immediate room confirmation numbers for each hotel property participating in UltraSwitch. (ii) Interface. Interface is the hardware and software and attendant technical support required to produce computer to computer communications between a Reservation Provider (as hereinafter defined) and an UltraSwitch User (as hereinafter defined). (iii) UltraSwitch User. An UltraSwitch User is an operator of a hotel reservation system that has executed an UltraSwitch User agreement. (iv) Reservation Provider. A Reservation Provider is any person or entity with the present or future capability to connect with the UltraSwitch for the purpose of making reservations with an UltraSwitch User. (v) Net Reservations. Net Reservations within a particular time period equals the number of reservations processed through the UltraSwitch system within such time period, less -1 2 the number of reservations as to which notice of cancellation in the UltraSwitch system is received by the UltraSwitch system within such time period. (vi) Status Change. A Status Change is a message indicating that either the availability or the rate of a room type has changed for a single date in a single property. 2.0 THE ULTRASWITCH SYSTEM 2.1 Duties of THISCO. THISCO shall operate and maintain the UltraSwitch Interface for the use and benefit of HOTEL and other UltraSwitch Users meeting or exceeding the UltraSwitch Specifications. Subject to the duties of HOTEL set forth in Section 2.2 below, THISCO will provide all reasonable and necessary technical support, hardware and software, and modifications to the UltraSwitch system to maintain an Interface between Reservation Providers and HOTEL. Subject to Section 6.2 hereof, delays caused by Reservation Providers, UltraSwitch Users or other third parties, the UltraSwitch Interface will provide room confirmation numbers for each booking at an UltraSwitch User's property made through a Reservation Provider within an average determined over each calendar month of: a. [*] seconds for UltraSwitch Users located within the contiguous 48 United States and District of Columbia; and b. [*] seconds for UltraSwitch Users located elsewhere. THISCO shall not be responsible for but will use its best efforts to require UltraSwitch Users to return response messages within the Response Time Requirements set forth in subpart (a) and (b) above. Subject to Section 6.2 hereof, the UltraSwitch will be available, operational and fully functional to process HOTEL's customer reservations 99% of the time each calendar month. Subject to Section 6.2 hereof, THISCO agrees to correct all failures or interruptions of the UltraSwitch and repair or replace all UltraSwitch parts causing or contributing to failure or interruption within 72 hours of the failure or interruption at THISCO's sole cost and expense. *Confidential Treatment Requested -2- 3 THISCO will not discriminate among UltraSwitch Users in processing reservations through the UltraSwitch. 2.2 Duties of HOTEL. Through the UltraSwitch Interface, HOTEL will permit access to all Reservation Providers utilizing the UltraSwitch and will permit all such Reservation Providers the full and complete right, subject to any agreement between HOTEL and the Reservation Providers, to reserve and cancel rooms authorized for sale by HOTEL and receive a confirmation acknowledgment of any such transaction. All information provided by HOTEL with respect to rooms and facilities shall be complete and accurate and shall be consistent with and inclusive of all the information provided and rates available to a direct caller of HOTEL reservation system to the fullest extent each Reservation Provider data base will permit. 2.3 Enhancement or Modification of the UltraSwitch System. THISCO may undertake to modify the operation or enhance the capability of the UltraSwitch. In such event, THISCO will provide notice to HOTEL of such enhancement at least 60 days prior to such modification or enhancement and will make such adjustments and modifications to THISCO's system, at THISCO's sole expense, as are reasonable and necessary to maintain the Interface with HOTEL. HOTEL agrees to cooperate with THISCO in modifying and enhancing the UltraSwitch. 2.4 Modification of UltraSwitch User System. In the event HOTEL modifies its central reservation system, or modification of its central reservation system is required for the implementation, operation, modification or enhancement of the UltraSwitch, HOTEL shall pay all necessary costs associated with such modification to its system. In the event HOTEL modifies its central reservation system and such modification requires THISCO to modify the Interface, HOTEL shall pay THISCO its standard consulting rate and all expenses incurred as a result of the modification. In the event THISCO modifies or enhances the UltraSwitch and, as a result, it becomes necessary for HOTEL to modify its reservation system, HOTEL shall have the option to terminate this Agreement by notice to THISCO within thirty (30) days after receipt of the notice provided in Section 2.3 if the resulting cost to HOTEL for the particular modification exceeds $10,000.00. 3.0 FEES AND COSTS 3.1 Reservation and Status Change Fees. For the use of the UltraSwitch Interface, HOTEL shall pay THISCO as follows: -3- 4 For the first [*] Net Reservations during each calendar year [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; For all Net Reservations in excess of [*] Net Reservations during each calendar year, [*] per Net Reservation; For the first [*] Status Changes during each calendar year, [*] for each Status Change; For the first [*] Status Changes during each calendar year, [*] for each Status Change; For all Status Changes in excess of [*] during each calendar year, [*] for each Status Change. Notwithstanding the above-stated provisions, in the event the ratio of Status Changes to Net Reservations exceeds [*] during a billing period, there shall be no charge for Status Changes provided, however, in the event the ratio of Status Changes to Net Reservations exceeds [*] during a billing period, all Status Changes in excess of the [*] ratio shall be [*]. THISCO may increase the Reservation and Status Change Fees by an amount equal to the annual increase in the U.S. Consumer Price Index to offset cost increases of THISCO's operations provided that such increase shall not take effect until the expiration of 60 days after notice of the increase. 3.2 Guaranteed Annual Minimum Reservation Fee. During each calendar year of this Agreement, HOTEL shall pay THISCO a reservation fee for at least [*] Net Reservations, whether or not such Net Reservations actually occur. *Confidential Treatment Requested -4 5 3.3 Payment of Fees and Costs. THISCO will invoice HOTEL monthly for all fees, costs, and additional costs incurred by THISCO that are to be paid by HOTEL pursuant to this Agreement. HOTEL shall pay each invoice upon receipt and, in any event, within 30 days of each invoice date. In the event an invoice (all or a portion of which has not been materially disputed) is not paid within 30 days of mailing, HOTEL agrees to pay interest on all undisputed amounts over 30 days old at an annual rate of 15% or 1 1/4% per month. 3.4 Additional Costs. HOTEL shall pay its pro rata share of communication costs (based upon the number of UltraSwitch Users for that month for all lease lines, back up and dial up lines between the UltraSwitch User and the UltraSwitch) or all UltraSwitch Users who are operational and, with respect to those UltraSwitch Users who are not yet operational, for a 60 day period prior to becoming operational. HOTEL shall provide all necessary modems to specifications established by THISCO for connection with the UltraSwitch. 4.0 TERM 4.1 Term of Agreement. The initial term of this Agreement, unless earlier terminated pursuant to the provisions of this Agreement, shall be effective on the date first stated above and shall expire on the last day of the [*] after the effective date. This Agreement shall be automatically renewed and extended for additional 12 month periods unless, at least 30 days prior to the expiration of the initial term or at least 30 days prior to the expiration of any additional 12 month period, either party provides written notice to the other of its decision not to renew and extend. 5.0 TERMINATION 5.1 Termination by HOTEL. Upon the occurrence of an Event of Default (as hereinafter defined) by THISCO and the failure of THISCO to cure such default after notice and opportunity to cure as provided by Section 6.3 hereof, HOTEL may terminate this Agreement at any time within 30 days after the expiration of the cure period provided in Section 6.3. 5.2 Termination by THISCO. Upon the occurrence of an Event of Default (as hereinafter defined) by HOTEL and the failure of HOTEL to cure such default after notice and opportunity to cure as provided by Section 6.3 hereof, THISCO may terminated this *Confidential Treatment Requested -5- 6 Agreement at any time within 30 days after the expiration of the cure period provided in Section 6.3. 6.0 DEFAULT 6.1 Events of Default. Subject to Section 6.2 hereof, any one of the following listed occurrences shall be considered an Event of Default: (i) The failure to pay any amount due hereunder within the time required; (ii) The refusal or failure to diligently and in good faith perform each and every material provision of this Agreement; (iii) The failure to the UltraSwitch to perform materially in accordance with its technical requirements; (iv) If either THISCO or HOTEL (the "Defaulting Party") becomes insolvent, takes any step leading to its cessation as a going concern, or ceases business operations for reasons other than a strike and other than assignment as allowed by this Agreement, then the other party (the "Insecure Party") may immediately terminate this Agreement upon written notice to the other party unless the Defaulting Party immediately gives the Insecure Party adequate assurance of the future performance of this Agreement. If bankruptcy proceedings are commenced with respect to the Defaulting Party, and if this Agreement has not otherwise terminated, then the Insecure Party may suspend all further performance of this Agreement until the Defaulting Party assumes or rejects this Agreement pursuant to Section 365 of the Bankruptcy Code or any similar or successor provision. Any such suspension of further performance by the Insecure Party pending the Defaulting Party's assumption or rejection will not be a breach of this Agreement. 6.2 Force Majeure. It shall not constitute a default if an Event of Default is -6- 7 caused by or results from acts of God, fire, war, civil unrest, accident, power fluctuations or outages, telecommunication fluctuations, outages or delays, utility failures, mechanical defects, or other events beyond the control of the defaulting party. However, if an Event of Default results from any such occurrence and continues for more than 30 consecutive days, either party may terminate this Agreement by providing notice as required herein. 6.3 Occurrence of Default. Upon the occurrence of an Event of Default, the non-defaulting party shall give written notice to the defaulting party specifying the alleged default. The defaulting party shall then be entitled to 10 days after receipt of such notice within which to cure any monetary default and 30 days within which to cure any non-monetary default. If the party entitled to cure the Event of Default does not cure the Event of Default within the cure period specified above, then such party shall be deemed to be in default of this Agreement. Any such default shall not relieve the defaulting party from any of its obligations hereunder, and in the event of a default, the non-defaulting party hereunder shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. 7.0 CONFIDENTIALITY 7.1 Proprietary Information. During the term of this Agreement, it is acknowledged by HOTEL and THISCO that each will receive confidential and proprietary information which is the sole and exclusive property of the other party. All such confidential and proprietary information shall be marked or otherwise identified as such and shall be treated as confidential and proprietary subject only to disclosure where required by law. Such designation may be removed by each party making the designation. HOTEL acknowledges that it shall have no access to and shall not use the UltraSwitch software or related property, other than as specifically provided for in this Agreement, and that such information is confidential and proprietary property of THISCO. Any use of the UltraSwitch name by HOTEL is subject to prior written approval of THISCO provided HOTEL may describe the Interface contemplated by this Agreement in its franchise offering circular and other materials as required by state or federal law. The provisions hereof shall remain binding and in force and effect forever, notwithstanding the expiration or termination of this Agreement at any time. 8.0 INDEMNIFICATION 8.1 Indemnification in the Event of Certain Losses. HOTEL agrees to indemnify -7- 8 and hold harmless THISCO and THISCO's affiliates and their directors, officers, employees and other stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring on account of HOTEL's fault and through no fault of THISCO ("THISCO's Losses"). THISCO agrees to indemnify and hold harmless HOTEL, and HOTEL's affiliates and their directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) ("HOTEL's Losses") occurring on account of THISCO's fault and through no fault of HOTEL. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this Section 8.1, such indemnified party shall give prompt notice thereof to the indemnifying party and the indemnifying party shall be entitled to participate therein or, to the extent that it shall wish, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses, in each case subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. 9.0 DISCLAIMER OF WARRANTIES 9.1 Waiver of Warranties. THISCO shall not be responsible or liable for any inaccuracies in the data base or the information processed by or through the UltraSwitch nor shall it have any liability for any act or failure to act except as expressly set forth herein, except gross negligence or willful misconduct. All warranties express or implied, including without limitation, any warranty of fitness for a particular purpose, merchantability, good and workmanlike product or service or otherwise, are disclaimed and waived. 9.2 No Consequential Damages. Neither party shall be liable to the other for any consequential damages proximately caused or resulting from any breach of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. -8- 9 9.3 Right to Repair. Notwithstanding any other provision of this Agreement, the only obligation of THISCO in the event of a material failure in the operation or performance of the UltraSwitch shall be to repair the system within 24 hours of notice from HOTEL requesting such repair. 10. MISCELLANEOUS 10.01 Other UltraSwitch User Agreements. In the event any other UltraSwitch User Agreement shall contain provisions regarding Fees and Costs (Article 3 hereof), Term (Article 4 hereof), Termination (Article 5 hereof), Indemnification (Article 8 hereof), or Disclaimer of Warranties (Article 9 hereof) more favorable than those referenced provisions contained herein, THISCO shall promptly provide notice to HOTEL of such provision(s) and HOTEL shall have the right to amend this Agreement to include the effected provisions. 10.02 Arbitration of Disputes. Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be a panel of three arbitrators. Each party shall select one arbitrator and the two arbitrators selected shall select a third neutral arbitrator. All reasonable and necessary costs and fees (including attorney's fees) incurred in connection with the arbitration shall be borne by the losing party or assessed in the award as otherwise deemed appropriate except travel, food and lodging expenses shall be borne by the party incurring the same. If the demand for arbitration is initiated by HOTEL, venue of the arbitration proceedings shall be determined by THISCO. If the demand for arbitration is initiated by THISCO, venue of the arbitration proceedings shall be determined by HOTEL. 10.03 Non-Exclusive Agreement. Each party acknowledges that this is not an exclusive agreement with respect to a direct link interface and that each party may contract with other parties providing same or similar services. 10.04 Status of Parties. This Agreement shall not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. THISCO shall not be deemed by this Agreement to be granting a license to HOTEL, with respect to UltraSwitch or any -9- 10 software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. 10.05 Assignment. This Agreement is not assignable by THISCO or HOTEL without the prior written consent of the non-assigning party, and such consent shall not be unreasonably withheld or delayed provided that HOTEL may assign this Agreement in connection with the sale of its reservation system or franchise system and either party may assign this Agreement without consent in the event of a merger, consolidation, or sale of substantially all of its assets. 10.06 Notices. All notices, requests, consents, payments and other communications contemplated hereby shall be in writing and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, or (d) transmitted by facsimile/telecopy in combination with any other permitted form of notice as follows: If to THISCO: The Hotel Industry Switch Company 3811 Turtle Creek Blvd., Suite 1100 Dallas, Texas 75219 Attention: John F. Davis, III If by facsimile/telecopy to: (214) 528-5675) If to HOTEL: Forte Hotels 1973 Friendship Drive El Cajon, California 92020 If by facsimile/telecopy to: (619) 562-0901 or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices shall be deemed given and received at the time of personal delivery or, if sent by U.S. mail, three (3) business days after mailing, or, if sent by overnight courier, one (1) business day after such sending or, if sent by facsimile or telecopy, upon verified receipt of same. 10.07 Controlling Law. This Agreement shall be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. -10- 11 10.08 Entire Agreement. This Agreement and the exhibits attached hereto constitute the entire agreement between THISCO and HOTEL with respect to the implementation and operation of the UltraSwitch system and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement which are not contained in this Agreement. 10.09 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the legal representatives, successors and duly authorized assigns of each party whether resulting from merger, acquisition, reorganization or assignment pursuant to the terms hereof. 10.10 Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement shall be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. 10.11 Software and Intellectual Property. Each of the parties hereto represents and warrants to the other that, with respect to all software and other intellectual property in connection with the operation of the Interface furnished or required to be furnished pursuant to this Agreement (collectively, the "Intellectual Property"), each either owns the Intellectual Property furnished by it or is fully authorized to deliver the Intellectual Property and to allow the Intellectual Property to be used in connection with the Interface, as contemplated by this Agreement. Should any claim be raised by any third party that the use of any of the Intellectual Property or the delivery of any of the Intellectual Property in connection with this agreement constitutes infringement of any patent, copyright, license or other property right (a "Claim"), the party furnishing such Intellectual Property shall, at its expense, defend any such Claim in accordance with the provisions of Section 8.1 of this Agreement. Should either party be temporarily or permanently enjoined from using any of the Intellectual Property as a result of any Claim, the other party, at its option and own expense, shall either procure the right to continue to use the Intellectual Property free from any Claim or replace or modify the offending Intellectual Property so that its use becomes non-infringing, within 15 days of the date on which it receives notice of the claim (either such corrective action being referred to herein as a "Correction"). If a Correction is not accomplished, the party who furnished the Intellectual Property resulting in the Claim shall be deemed to be in default of this Agreement, and in such event, Sections 5.2 and 6.3 of -11- 12 this Agreement shall control; provided, however, that the 15 day period specified above shall be deemed to be the applicable cure period under Section 6.3, and once that 15 day period has expired without a Correction having occurred, the applicable cure period under Section 6.3 shall be deemed to have expired. Without limiting Article 8 of this Agreement, the party who furnished the Intellectual Property resulting in the Claim shall also be obligated to indemnify the other party for any of its losses (such losses being THISCO's Losses or HOTEL's Losses, as the case may be, as defined in section 8.1 hereof) in connection with any Claim for which a Correction is not made within such 15 day period, in accordance with Article 8. AGREED to this 23rd day of February, 1996 THE HOTEL INDUSTRY SWITCH FORTE HOTELS COMPANY By: /s/ JOHN F. DAVIS, III By: /s/ WILLIAM J. HANLEY ---------------------------------- --------------------------- John F. Davis, III (name) William J. Hanley President --------------------------- (title) Exec Vice President --------------------------- Sales & Marketing -12-
1 EXHIBIT 10.48 PROPERTY INFORMATION DISTRIBUTION AGREEMENT This Agreement is entered into by and between Pegasus Systems, Inc. and the below named Participant on the following terms and conditions: 1. Property Information Database. Pegasus will provide Participant with the ability to create a digital database of Participant's properties which is (i) capable of being accessed by distribution systems with whom Pegasus contracts and (ii) where functionality exists, capable of permitting the accessor of the database to make, amend and cancel reservations with Participant. Participant shall be solely responsible for the creation and editing of the property database pursuant to Pegasus' prescribed methods. 2. Distribution of the Database. Pegasus will contract and develop interfaces with distribution systems to access Participant's database. Participant may elect to exclude certain distribution systems access to its database. 3. Distribution Systems Interface. For each distribution system, Pegasus will create an operable interface providing access to Participant's database and maintain the interface during the term of the Distribution Agreement. All updates and edits of the database shall be accessible by the distribution systems within two (2) business days of receipt by Pegasus. 4. Fees. (a) For the services provided by Pegasus as set forth herein, Participant shall pay to Pegasus the fees set forth on Schedule A. (b) For each hypertext link from Participant's database to a site with whom Pegasus has not contracted to receive Participant's database, Participant shall pay Pegasus a fee of [*] per year (c) For each Net Reservation originating with a distribution system with whom Pegasus contracts, Participant shall pay to Pegasus a fee of [*]. Net Reservations within a particular time period equal the number of reservations made by an accessor of a distribution system exhibiting Participant's database within such time period less the number of reservations to which notice of cancellation is received by the distribution system within such time period. (d) Pegasus will invoice Participant for all fees as set forth herein and as provided on Schedule A including any taxes applicable to such fees and Participant agrees to pay each invoice upon receipt. Each invoice shall be past due and it shall be a breach of this Agreement if it is not paid within thirty (30) days after the date of the invoice. All payments to Pegasus shall be made in U.S. Dollars. Pegasus may, once each year, increase the fees set forth in (a), (b) and (c) above up to 10% of the then-existing fee. Any fee changes resulting from an increase in the services or number of properties in the database will be invoiced upon notice of such increase or at the next scheduled invoice, at Pegasus' option. 5. Term. The initial term of this Agreement shall be for [*] from the date hereof provided that the Agreement shall be automatically renewed and extended for additional one (1) year terms thereafter unless, at least sixty (60) days prior to expiration of the initial [*] term or the expiration of any additional one (1) year term, either party hereto shall give notice of its intent not to renew and extend this Agreement. 6. Property Rights. The information provided by Participant is acknowledged to be the sole property of Participant and Pegasus may not distribute or allow access to any of the information in any manner other than pursuant to this Agreement. Participant shall be solely and exclusively responsible for the protection of any and all of its intellectual property including, but not limited to, the inclusion of any and all statutory or other notices customarily used or required for purposes of providing notice of ownership or protection of Participant's trademarks, trade names, service marks or copyrights. 7. Disclaimer, Limitation of Liabilities and Risk of Internet Usage. PEGASUS WILL NOT BE RESPONSIBLE OR LIABLE FOR (i) ANY FALSIFICATIONS OR INACCURACIES IN ANY OF THE INFORMATION, (ii) ANY ACT OR FAILURE TO ACT WITH RESPECT TO THE PUBLICATION OF THE INFORMATION ON THE INTERNET OR CREATION OR FUNCTIONALITY OF RESERVATION CAPABILITIES UNLESS EXPRESSLY SET FORTH HEREIN, (iii) *Confidential Treatment Requested 2 OP Page 2 ANY CLAIM, DAMAGE, OR LIABILITY OF ANY NATURE ARISING OUT OF A COMPUTER OPERATOR'$ OR DISTRIBUTION SYSTEM'S ACCESS TO PARTICIPANTS RESERVATION SYSTEM AND/OR THE MAKING, CHANGING OR CANCELING OF A RESERVATION AND THE USE OF A CREDIT CARD OR OTHER DEBIT DEVICE IN CONNECTION THEREWITH, OR (iv) ANY CLAIM RESULTING FROM ANY INTERRUPTION, MALFUNCTION OR CHANGE IN THE USE OF THE INTERNET OR A DISTRIBUTION SYSTEM, EXCEPT TO THE EXTENT RESULTING FROM PEGASUS' GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHER WISE ARE DISCLAIMED BY PEGASUS AND WAIVED BY PARTICIPANT. PARTICIPANT ACKNOWLEDGES AND AGREES THAT ALLOWING ACCESS TO ITS DATABASE AND RESERVATION SYSTEM TO COMPUTERS ACCESSING THE INTERNET VIA ANY DISTRIBUTION SYSTEM IS AT PARTICIPANT'S OWN RISK. Pegasus shall not be responsible for the order, completeness or format of Participants database being published by distribution systems. Participant acknowledges and agrees that the Internet is a communication medium over which Pegasus has no control and that its continued utilization in its present form at current costs is uncertain. Therefore, if at any time during the term of this Agreement the cost of access to the Internet increases or there is imposed a fee or cost for access to or use of the Internet communication lines, or there is imposed any law, governmental ruling, or regulation the result of which increases the cost of access to or usage of the Internet or otherwise makes it impractical, in Pegasus' sole discretion, to continue to perform this Agreement, Pegasus may, upon notice to Participant, immediately terminate this Agreement without such action constituting an event of default Pegasus shall not be liable for any breach of this Agreement resulting from an act of God, accidents, power or telecommunication outages or delays, mechanical defects or other events beyond its control. 8. Breach. In the event of a breach of this Agreement, the non-breaching party may terminate this Agreement after providing notice to the other party of such breach and the failure of the breaching party to cure the breach within ten (10) days of receipt of the notice. Upon breach by Participant and failure to timely cure Pegasus may immediately cease the distribution and/or publication of Participants database on distribution systems. 9. Miscellaneous. This Agreement shall be interpreted in accordance with the laws of the State of Texas and any legal proceeding arising out of this Agreement shall have venue in Dallas County, Texas. This Agreement shall be binding upon and inure to the benefit of the legal representatives, successors and assigns of the parties hereto. This Agreement contains all the provisions of any agreement between Pegasus and Participant with respect to the creation, maintenance and distribution of Participants database and Participant has not relied upon any promises or representations by Pegasus with respect to the subject matter except as set forth herein. This Agreement shall terminate and replace any existing agreement between Participant and TravelWeb, Inc. PEGASUS SYSTEMS, INC. PARTICIPANT: ANASAZI INC. By: /s/ JOHN F. DAVIS, III By: /s/ VERN L. SNIDER ------------------------------- ------------------------------- John F. Davis, III Vern L. Snider ------------------------------- President Its: Executive Vice President & CFO ------------------------------- Date: 3/7/97 Date: 2/21/97 ----------------------------- ------------------------------- 3 SCHEDULE A 1. Fees. Participant shall pay to Pegasus the following fees: (i) For 1 to 25 Participant properties in the database, [*] per Participant property per month; (ii) For 26 to 100 Participant properties in the database, [*] per Participant property per month; (iii) For 101 to 200 Participant properties in the database, [*] per Participant property per month; (iv) For 201 to 500 Participant properties in the database, [*] per Participant property per month; (v) For 501 to 1,000 Participant properties in the database, [*] per Participant property per month; (vi) For 1,001 to 2,000 Participant properties in the database, [*] per Participant property per month; and (vii) For in excess of 2,000 Participant properties in the database, [*] per Participant property per month. The fees for this service shall be paid quarterly in advance. April 21, 1997 *Confidential Treatment Requested
1 EXHIBIT 10.49 PROPERTY INFORMATION DISTRIBUTION AGREEMENT This Agreement is entered into by and between Pegasus Systems, Inc. and the below named Participant on the following terms and conditions: 1. Property Information Database. Pegasus will provide Participant with the ability to create a digital database of Participant's properties which is (i) capable of being accessed by distribution systems with whom Pegasus contracts and (ii) where functionality exists, capable of permitting the accessor of the database to make, amend and cancel reservations with Participant. Participant shall be solely responsible for the creation and editing of the property database pursuant to Pegasus' prescribed methods. 2. Distribution of the Database. Pegasus will contract and develop interfaces with distribution systems to access Participant's database. Participant may elect to exclude certain distribution systems access to its database. 3. Distribution Systems Interface. For each distribution system, Pegasus will create an operable interface providing access to Participant's database and maintain the interface during the term of the Distribution Agreement. All updates and edits of the database shall be accessible by the distribution systems within two (2) business days of receipt by Pegasus. 4. Fees. *With each invoice Pegasus will provide La Quinta a breakdown of bookings per property. (a) For the services provided by Pegasus as set forth herein, Participant shall pay to Pegasus the fees set forth on Schedule A. (b) For each hypertext link from Participant's database to a site with whom Pegasus has not contracted to receive Participant's database, Participant shall pay Pegasus a fee of [*] per month. (c) For each Net Reservation originating with a distribution system with whom Pegasus contracts, Participant shall pay to Pegasus a fee of [*]. The term "Net Reservations" is defined as the number of reservations made by an accessor of a distribution system exhibiting Participant's database within a given period less the number of reservations to which notice of cancellation is received by the distribution system within such time period. (d) Pegasus will invoice Participant for all fees as set forth herein and as provided on Schedule A including any taxes applicable to such fees and Participant agrees to pay each invoice upon receipt. Each invoice shall be past due and it shall be a breach of this Agreement if it is not paid within thirty (30) days after the date of the invoice. All payments to Pegasus shall be made in U.S. Dollars. Pegasus may, once each year after the initial year increase the fees set forth in (a), (b) and (c) above up to 8% of the then-existing fee. Any fee changes resulting from an increase in the services or number of properties in the database will be invoiced upon notice of such increase or at the next scheduled invoice, at Pegasus' option. 5. Term. The initial term of this Agreement shall be for [*] from the date hereof provided that the Agreement shall be renewed and extended on a month to month basis, year terms thereafter unless, at least sixty (60) days prior to expiration of the initial [*] or the expiration of any additional term. 6. Property Rights. The information provided by Participant is acknowledged to be the sole property of Participant and Pegasus may not distribute or allow access to any of the information in any manner other than pursuant to this Agreement. Participant shall be solely and exclusively responsible for the protection of any and all of its intellectual property including, but not limited to, the inclusion of any and statutory or other notices customarily used or required for purposes of providing notice of ownership or protection of Participant's trademarks, trade names, service marks or copyrights. 7. Disclaimer, Limitation of liabilities and Risk of Internet Usage. PEGASUS WILL NOT BE RESPONSIBLE OR LIABLE FOR (i) ANY FALSIFICATIONS OR INACCURACIES IN ANY OF THE INFORMATION, (ii) ANY ACT OR FAILURE TO ACT WITH RESPECT TO THE PUBLICATION OF THE INFORMATION ON THE INTERNET OR CREATION OR FUNCTIONALITY OF RESERVATION CAPABILITIES UNLESS EXPRESSLY SET FORTH HEREIN, (iii) *Confidential Treatment Requested 2 ANY CLAIM, DAMAGE, OR LIABILITY OF ANY NATURE ARISING OUT OF A COMPUTER OPERATOR'S OR DISTRIBUTION SYSTEM'S ACCESS TO PARTICIPANT'S RESERVATION SYSTEM AND/OR THE MAKING, CHANGING OR CANCELING OF A RESERVATION AND THE USE OF A CREDIT CARD OR OTHER DEBIT DEVICE IN CONNECTION THEREWITH, OR (iv) ANY CLAIM RESULTING FROM ANY INTERRUPTION, MALFUNCTION OR CHANGE IN THE USE OF THE INTERNET OR A DISTRIBUTION SYSTEM, EXCEPT TO THE EXTENT RESULTING FROM PEGASUS' GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE ARE DISCLAIMED BY PEGASUS AND WAIVED BY PARTICIPANT. PARTICIPANT ACKNOWLEDGES AND AGREES THAT ALLOWING ACCESS TO ITS DATABASE AND RESERVATION SYSTEM TO COMPUTERS ACCESSING THE INTERNET VIA ANY DISTRIBUTION SYSTEM IS AT PARTICIPANT'S OWN RISK. Pegasus shall not be responsible for the order, completeness or format of Participant's database being published by distribution systems. Participant acknowledges and agrees that the Internet is a communication medium over which Pegasus has no control and that its continued utilization in its present form at current costs is uncertain. Therefore, if at any time during the term of this Agreement, the cost of access to the Internet increases or there is imposed a fee or cost for access to or use of the Internet communication lines, or there is imposed any law, governmental ruling, or regulation the result of which increases the cost of access to or usage of the internet or otherwise makes it impractical, in Pegasus' sole discretion, to continue to perform this Agreement, Pegasus may, upon notice to Participant, immediately terminate this Agreement without such action constituting an event of default. Pegasus shall not be liable for any breach of this Agreement resulting from an act of God, accidents, power or telecommunication outages or delays, mechanical defects or other events beyond its control. 8. Breach. In the event of a breach of this Agreement, the non-breaching party may terminate this Agreement after providing notice to the other party of such breach and the failure of the breaching party to cure the breach within ten (10) days of receipt of the notice. Upon breach by Participant and failure to timely cure Pegasus may immediately cease the distribution and/or publication of Participant's database on distribution systems. 9. Miscellaneous. This Agreement shall be interpreted in accordance with the laws of the State of Texas and any legal proceeding arising out of this Agreement shall have venue in Dallas County, Texas. This Agreement shall be binding upon and inure to the benefit of the legal representatives, successors and assigns of the parties hereto. This Agreement contains all the provisions of any agreement between pegasus and Participant with respect to the creation, maintenance and distribution of Participant's database and Participant has not relied upon any promises or representations by Pegasus with respect to the subject matter except as set forth herein. This Agreement shall terminate and replace any existing agreement between Participant and TravelWeb, Inc. PEGASUS SYSTEMS, INC. PARTICIPANT: LA QUINTA INNS, INC. By: [ILLEGIBLE} By: /s/ JACKIE BURKE --------------------------- ------------------------------- ------------------------------- V. P. Sales Its: V.P. Reservation Services ------------------------------- Date: 3/4/97 Date: 3/4/97 --------------------------- ------------------------------- 3 SCHEDULE A 1. Fees. Participant shall pay to Pegasus the following fees: (i) For 1 to 25 Participant properties in the database, [*] per Participant property per month; (ii) For 26 to 100 Participant properties in the database, [*] per Participant property per month; (iii) For 101 to 200 Participant properties in the database, [*] per Participant property per month; (iv) For 201 to 500 Participant properties in the database, [*] per Participant property per month; (v) For 501 to 1000 Participant properties in the database, [*] per Participant property per month; (vi) For 1001 to 2000 Participant properties in the database, [*] per Participant property per month; and (vii) For in excess of 2000 Participant properties in the database, [*] per Participant property per month. The fees for this service shall be paid quarterly in advance. *Confidential Treatment Requested
1 EXHIBIT 10.50 PROPERTY INFORMATION DISTRIBUTION AGREEMENT This Agreement is entered into by and between Pegasus Systems, Inc. and the below named Participant on the following terms and conditions: 1. Property Information Database. Pegasus will provide Participant with the ability to create a digital database of Participant's properties which is (i) capable of being accessed by distribution systems with whom Pegasus contracts and (ii) where functionality exists, capable of permitting the accessor of the database to make, amend and cancel reservations with Participant. Participant shall be solely responsible for the creation and editing of the property database pursuant to Pegasus' prescribed methods. 2. Distribution of the Database. Pegasus will contract and develop interfaces with distribution systems to access Participant's database. Participant may elect to exclude certain distribution systems access to its database. 3. Distribution Systems Interface. For each distribution system, Pegasus will create an operable interface providing access to Participant's database and maintain the interface during the term of the Distribution Agreement. All updates and edits of the database shall be accessible by the distribution systems within two (2) business days of receipt by Pegasus. 4. Fees. (a) For the services provided by Pegasus as set forth herein, Participant shall pay to Pegasus the fees set forth on Schedule A. (b) For each hypertext link from Participant's database to a site with whom Pegasus has not contracted to receive Participant's database, Participant shall pay Pegasus a fee of [*] per month. (c) For each Net Reservation originating with a distribution system with whom Pegasus contracts, Participant shall pay to Pegasus a fee of [*]. Net Reservations within a particular time period equal the number of reservations made by an accessor of a distribution system exhibiting Participant's database within such time period less the number of reservations to which notice of cancellation is received by the distribution system within such time period. (d) Pegasus will invoice Participant for all fees as set forth herein and as provided on Schedule A including any taxes applicable to such fees and Participant agrees to pay each invoice upon receipt. Each invoice shall be past due and it shall be a breach of this Agreement if it is not paid within thirty (30) days after the date of the invoice. All payments to Pegasus shall be made in U.S. Dollars. Pegasus may, once each year, increase the fees set forth in (a), (b) and (c) above up to 10% of the then-existing fee. Any fee changes resulting from an increase in the services or number of properties in the database will be invoiced upon notice of such increase or at the next scheduled invoice, at Pegasus' option. 5. Term. The initial term of this Agreement shall be for [*] from the date hereof provided that the Agreement shall be automatically renewed and extended for additional one (1) year terms thereafter unless, at least sixty (60) days prior to expiration of the initial [*] term or the expiration of any additional one (1) year term, either party hereto shall give notice of its intent not to renew and extend this Agreement. 6. Property Rights. The information provided by Participant is acknowledged to be the sole property of Participant and Pegasus may not distribute or allow access to any of the information in any manner other than pursuant to this Agreement. Participant shall be solely and exclusively responsible for the protection of any and all of its intellectual property including, but not limited to, the inclusion of any and all statutory or other notices customarily used or required for purposes of providing notice of ownership or protection of Participant's trademarks, trade names, service marks or copyrights. *Confidential Treatment Requested 2 7. Disclaimer, Limitation of Liabilities and Risk of Internet Usage. PEGASUS WILL NOT BE RESPONSIBLE OR LIABLE FOR (i) ANY FALSIFICATIONS OR INACCURACIES IN ANY OF THE INFORMATION, (ii) ANY ACT OR FAILURE TO ACT WITH RESPECT TO THE PUBLICATION OF THE INFORMATION ON THE INTERNET OR CREATION OR FUNCTIONALITY OF RESERVATION CAPABILITIES UNLESS EXPRESSLY SET FORTH HEREIN, (iii) ANY CLAIM, DAMAGE, OR LIABILITY OF ANY NATURE ARISING OUT OF A COMPUTER OPERATOR'S OR DISTRIBUTION SYSTEM'S ACCESS TO PARTICIPANT'S RESERVATION SYSTEM AND/OR THE MAKING, CHANGING OR CANCELING OF A RESERVATION AND THE USE OF A CREDIT CARD OR OTHER DEBIT DEVICE IN CONNECTION THEREWITH, OR (iv) ANY CLAIM RESULTING FROM ANY INTERRUPTION, MALFUNCTION OR CHANGE IN THE USE OF THE INTERNET OR A DISTRIBUTION SYSTEM, EXCEPT TO THE EXTENT RESULTING FROM PEGASUS' GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE ARE DISCLAIMED BY PEGASUS AND WAIVED BY PARTICIPANT. PARTICIPANT ACKNOWLEDGES AND AGREES THAT ALLOWING ACCESS TO ITS DATABASE AND RESERVATION SYSTEM TO COMPUTERS ACCESSING THE INTERNET VIA ANY DISTRIBUTION SYSTEM IS AT PARTICIPANTS OWN RISK. Pegasus shall not be responsible for the order, completeness or format of Participant's database being published by distribution systems. Participant acknowledges and agrees that the Internet is a communication medium over which Pegasus has no control and that its continued utilization in its present form at current costs is uncertain. Therefore, if at any time during the term of this Agreement, the cost of access to the Internet increases or there is imposed a fee or cost for access to or use of the Internet communication lines, or there is imposed any law, governmental ruling, or regulation the result of which increases the cost of access to or usage of the Internet or otherwise makes it impractical, in Pegasus' sole discretion, to continue to perform this Agreement, Pegasus may, upon notice to Participant, immediately terminate this Agreement without such action constituting an event of default. Pegasus shall not be liable for any breach of this Agreement resulting from an act of God, accidents, power or telecommunication outages or delays, mechanical defects or other events beyond its control. 8. Breach. In the event of a breach of this Agreement, the non-breaching party may terminate this Agreement after providing notice to the other party of such breach and the failure of the breaching party to cure the breach within ten (10) days of receipt of the notice. Upon breach by Participant and failure to timely cure Pegasus may immediately cease the distribution and/or publication of Participants database on distribution systems. 9. Miscellaneous. This Agreement shall be interpreted in accordance with the laws of the State of Texas and any legal proceeding arising out of this Agreement shall have venue in Dallas County, Texas. This Agreement shall be binding upon and inure to the benefit of the legal representatives, successors and assigns of the parties hereto. This Agreement contains all the provisions of any agreement between Pegasus and Participant with respect to the creation, maintenance and distribution of Participant's database and Participant has not relied upon any promises or representations by Pegasus with respect to the subject matter except as set forth herein. This Agreement shall terminate and replace any existing agreement between Participant and TravelWeb, Inc. PEGASUS SYSTEMS, INC. PARTICIPANT: HFS INCORPORATED By: [ILLEGIBLE] By: /s/ DOUGLAS L. PATTERSON --------------------------- ------------------------------- Vice President Douglas L. Patterson --------------------------- ------------------------------- Its: Senior Vice President ------------------------------- Date: 4/2/97 Date: 4/2/97 --------------------------- ------------------------------- -2- 3 SCHEDULE A 1. Fees. Participant shall pay to Pegasus the following fees: (i) For 1 to 25 Participant properties in the database, [*] per Participant property per month; (ii) For 26 to 100 Participant properties in the database, [*] per Participant property per month; (iii) For 101 to 200 Participant properties in the database, [*] per Participant property per month; (iv) For 201 to 500 Participant properties in the database, [*] per Participant property per month; (v) For 501 to 1,000 Participant properties in the database, [*] per Participant property per month; (vi) For 1,001 to 2,000 Participant properties in the database, [*] per Participant property per month; (vii) For 2,001 to 4,899 Participant properties in the database, [*] per Participant property per month; and (viii) For in excess of 4,899 Participant properties in the database, [*] per Participant property per month. The fees for this service shall be paid monthly in advance. 2. Fees for additional services if requested: Manual Page Building [*] set up fee per property Manual Edits (text or graphics) [*] per edit The fees for these additional services shall be payable upon receipt of invoice. 3. Minimum data for each property in the database: Chain Code Property Name Property ID Address City State/Province Zip/Postal Code Country Phone Fax Reservations Phone Areas Served Currency Check-In Time Check-Out Time *Confidential Treatment Requested -3- 4 AMENDMENT TO PROPERTY INFORMATION DISTRIBUTION AGREEMENT The parties hereby mutually agree to the following amendments to the Property Information Distribution Agreement (the "Agreement): 1. As a condition to the effectiveness of this Agreement, the parties hereto shall have executed and fully performed that certain Agreement Terminating TravelWeb Participant Agreement to be executed concurrently herewith. 2. Section 2 of the Agreement is hereby amended to add the following: "Pegasus will notify Participant at least fourteen (14) days before an interface with a new distribution system becomes active." 3. Section 4.(b) of the Agreement is hereby deleted in its entirety and is hereby replaced with the following: "For each hypertext link from Participant's database to a site with whom Pegasus has not contracted to receive Participant's database, Participant shall pay Pegasus a fee of [*] per year." 4. Section 4.(e) of the Agreement is hereby amended to add the following: "Federal, state or local sales tax or other tax or assessment applicable to the fees set forth herein shall be paid by Participant." 5. Section 5 of the Agreement is hereby deleted in its entirety and is hereby replaced with the following: "5. Term. This Agreement shall be effective April 1, 1997 and the initial term shall be for [*] provided that this Agreement shall be automatically renewed and extended for additional one (1) year terms thereafter unless, at least thirty (30) days prior to expiration of the initial [*] term or the expiration of any additional one (1) year term, either party hereto shall give notice of its intent not to renew and extend this Agreement." 6. Notwithstanding the fees set forth in Section 1 of Schedule A, for a period from March 1, 1997 through April 30, 1997, Participant shall pay to Pegasus a fee of [*] per Participant property in the database during that time. 7. Notwithstanding the fees set forth in Section 1 of Schedule A, in the event Participant shall have provided to Pegasus the data listed in Section 2 of Schedule A with respect to a property, the property shall be considered a property within the database for purposes of the fees to be paid. 8. For the fee set forth in Section 1 of Schedule A, Pegasus will provide Participant the following: Inclusion of Participant's database in other distribution systems who contract with Pegasus for the database, remote authoring or batch processing of property information, remote authoring training, the ability to supply unlimited information and pictures with respect to Participant's properties through remote authoring or batch processing, unlimited edits by remote authoring or batch processing, interactive maps within the database, weather information within the database and maintenance of the interface with Participant and distribution systems. 9. The information provided by Participant is acknowledged to be the sole property of the Participant and Pegasus may not distribute or allow access to any of the information in any manner other than pursuant to this Agreement. Participant shall be solely and exclusively responsible for the protection of any and all of its intellectual property including, but not limited to, the inclusion of any and all statutory or other notices customarily used or required for the purposes of providing notice of ownership or protection of Participant's trademarks, trade names, service marks or copyrights. *Confidential Treatment Requested -4- 5 10. Pegasus agrees to provide Participant, on or before the expiration or termination of this Agreement, all property information received from Participant during the term of this Agreement in a useable industry accepted database format and/or generated in formatted HTML pages including graphics. 11. At all times during the term of this Agreement, persons who access Participant's data via TravelWeb shall have seamless and unimpeded access to and from the TravelWeb site. 12. Pegasus agrees to protect and keep confidential the information regarding accessors of Participant's database to the extent such information would identify Participant or any of its brands or its customers. PEGASUS SYSTEMS, INC. HFS INCORPORATED By: [ILLEGIBLE] By: [ILLEGIBLE] --------------------------- ------------------------------ Vice President Its: Senior Vice President --------------------------- ------------------------------ Date: 4/2/97 Date: 4/2/97 --------------------------- ------------------------------ -5-
1 EXHIBIT 10.51 PROPERTY INFORMATION DISTRIBUTION AGREEMENT This Agreement is entered into by and between Pegasus Systems, Inc. and Promus Hotels, Inc. (Participant) on the following terms and conditions: 1. Property Information Database. Pegasus will provide Participant with the ability to create a digital database of Participant's properties which is (i) capable of being accessed by distribution systems with whom Pegasus contracts and (ii) where functionality exists, capable of permitting the accessor of the database to make, amend and cancel reservations with Participant. Participant shall be solely responsible for the creation and editing of the property database pursuant to Pegasus' prescribed methods. 2. Distribution of the Database. Pegasus will contract and develop interfaces with distribution systems to access Participant's database. 3. Distribution Systems Interface. For each distribution system, Pegasus will create an operable interface providing access to Participant's database and maintain the interface during the term of the Distribution Agreement. All updates and edits of the database shall be accessible by the distribution systems within two (2) business days of receipt by Pegasus. 4. Fees. (a) For the services provided by Pegasus as set forth herein, Participant shall pay to Pegasus the fees set forth in Schedule A. (b) For providing reservation functionality to accessors of the database, Participant agrees to pay Pegasus the following: (i) For each Net Reservation processed through the on-line reservation functionality developed by Pegasus, Participant shall pay to Pegasus a fee of [*]. For each Net Reservation originating with a distribution system with whom Pegasus contracts, Participant shall pay to Pegasus a fee of [*] in addition to the [*] Net Reservation fee. Net Reservations within a particular time period equal the number of reservations made by an accessor of a distribution system exhibiting Participant's database within such time period less the number of reservations to which notice of cancellation is received by the distribution system within such time period. (ii) In the event the reservation processing originating with distribution systems is done via E-mail, Participant shall pay Pegasus a monthly fee of [*] per property in the database. (c) Pegasus will invoice Participant for all fees as set forth herein and as provided on Schedule A including any taxes applicable to such fees and Participant agrees to pay each invoice upon receipt. Each invoice shall be past due and it shall be a breach of this Agreement if it is not paid within thirty (30) days after the date of the invoice. All payments to Pegasus shall be made in U.S. Dollars. Pegasus may, once each year, increase the fees set forth in (b) above up to 10% of the then-existing fee. Any fee changes resulting from an increase in the services or number of properties in the database will be invoiced upon notice of such increase or at the next scheduled invoice, at Pegasus' option. 5. Term. The initial term of this Agreement shall be for [*] from the date hereof provided that the Agreement shall be automatically renewed and extended for additional one (1) year terms thereafter unless, at least sixty (60) days prior to expiration of the initial [*] term or the expiration of any additional one (1) year term, either party hereto shall give notice of its intent not to renew and extend this Agreement. 6. Property Rights. The information provided by Participant is acknowledged to be the sole property of Participant and Pegasus may not distribute or allow access to any of the information in any manner other than pursuant to this Agreement. Participant shall be solely and exclusively responsible for the protection of any and all if its intellectual property including, but not limited to, the inclusion of any and all statutory or other notices customarily used or required for purposes of providing notice of ownership or protection of Participant's trademarks, trade names, service marks or copyrights. *Confidential Treatment Requested 2 7. Disclaimer, Limitation of Liabilities and Risk of Internet Usage. PEGASUS WILL NOT BE RESPONSIBLE OR LIABLE FOR (i) ANY FALSIFICATIONS OR INACCURACIES IN ANY OF THE INFORMATION, (ii) ANY ACT OR FAILURE TO ACT WITH RESPECT TO THE PUBLICATION OF THE INFORMATION ON THE INTERNET OR CREATION OR FUNCTIONALITY OF RESERVATION CAPABILITIES UNLESS EXPRESSLY SET FORTH HEREIN, (iii) ANY CLAIM, DAMAGE, OR LIABILITY OF ANY NATURE ARISING OUT OF A COMPUTER OPERATOR'S OR DISTRIBUTION SYSTEM'S ACCESS TO PARTICIPANT'S RESERVATION SYSTEM AND/OR THE MAKING, CHANGING OR CANCELING OF A RESERVATION AND THE USE OF A CREDIT CARD OR OTHER DEBIT DEVICE IN CONNECTION THEREWITH, OR (iv) ANY CLAIM RESULTING FROM ANY INTERRUPTION, MALFUNCTION OR CHANGE IN THE USE OF THE INTERNET OR A DISTRIBUTION SYSTEM, EXCEPT TO THE EXTENT RESULTING FROM PEGASUS' GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE ARE DISCLAIMED BY PEGASUS AND WAIVED BY PARTICIPANT. PARTICIPANT ACKNOWLEDGES AND AGREES THAT ALLOWING ACCESS TO ITS DATABASE AND RESERVATION SYSTEM TO COMPUTERS ACCESSING THE INTERNET VIA ANY DISTRIBUTION SYSTEM IS AT PARTICIPANT'S OWN RISK. Pegasus shall not be responsible for the order, completeness or format of Participant's database being published by distribution systems. Participant acknowledges and agrees that the Internet is a communication medium over which Pegasus has no control and that its continued utilization in its present form at current costs is uncertain. Therefore, if at any time during the term of this Agreement, the cost of access to the Internet increases or there is imposed a fee or cost for access to or use of the Internet communication lines, or there is imposed any law, governmental ruling, or regulation the result of which increases the cost of access to or usage of the Internet or otherwise makes it impractical, in Pegasus' sole discretion, to continue to perform this Agreement, Pegasus may, upon notice to Participant, immediately terminate this Agreement without such action constituting an event of default. Pegasus shall not be liable for any breach of this Agreement resulting from an act of God, accidents, power or telecommunication outages or delays, mechanical defects or other events beyond its control. 8. Breach. In the event of a breach of this Agreement, the non-breaching party may terminate this Agreement after providing notice to the other party of such breach and the failure of the breaching party to cure the breach within ten (10) days of receipt of the notice. Upon breach by Participant and failure to timely cure Pegasus may immediately cease the distribution and/or publication of Participant's database on distribution systems. 9. Miscellaneous. This Agreement shall be interpreted in accordance with the laws of the State of Texas and any legal proceeding arising out of this Agreement shall have venue in Dallas County, Texas. This Agreement shall be binding upon the inure to the benefit of the legal representatives, successors and assigns of the parties hereto. This Agreement contains all the provisions of any agreement between Pegasus and Participant with respect to the creation, maintenance and distribution of Participant's database and Participant has not relied upon any promises or representations by Pegasus with respect to the subject matter except as set forth herein. This Agreement shall terminate and replace any existing agreement between Participant and TravelWeb, Inc. PEGASUS SYSTEMS, INC. PARTICIPANT: PROMUS HOTELS, INC. 3811 Turtle Creek Blvd. #1100 Dallas, TX 75219 By: M. NICHOLAS JENT By: [ILLEGIBLE] ------------------------- ------------------------------ M. Nicholas Jent Its: Vice President, Sales Its: Senior Vice President ----------------------------- Date: 6/2/97 Date: 5-30-97 ----------------------- ---------------------------- 3 SCHEDULE A 1. Fees. During the period commencing on the effective date hereof and through [*], Participant shall pay to Pegasus the following fees: (i) For 1 to 25 Participant properties in the database, [*] per Participant property per month; (ii) For 26 to 100 Participant properties in the database, [*] per Participant property per month; (iii) For 101 to 200 Participant properties in the database, [*] per Participant property per month; (iv) For 201 to 500 Participant properties in the database, [*] per Participant property per month; (v) For 501 to 900 Participant properties in the database, [*] per Participant property per month; (vi) For 901 to 2,000 Participant properties in the database, [*] per Participant property per month; and (vii) For in excess of 2,000 Participant properties in the database, [*] per Participant property per month. The fees for this service shall be paid quarterly in advance. Based upon Participant's notification to Pegasus of the number of hotels it anticipates being in the database for the following calendar quarter. The parties hereto agree that during the term of this agreement, Pegasus shall not charge any initial set-up fee. *Confidential Treatment Requested 4 RIDER TO PROPERTY INFORMATION DISTRIBUTION AGREEMENT BETWEEN PEGASUS SYSTEMS, INC. AND PROMUS HOTELS, INC. 1. The following sentences are added to the end of Section 1. Property Information Database: a. "As a condition to the continued effectiveness of this Agreement, Pegasus agrees that the TravelWeb distribution system will provide information and reservation capability for air travel (a minimum of three (3) major carriers covering primary city payers) and car rental (a minimum of one(l) major car rental firm covering all major markets) operational no later than December 31, 1997. b. Participant will be capable of including, at a minimum, the following information in the database: address, areas served, reservation information, telephone, fax, telex, hotel type, number of rooms, number of floors, meeting space, credit cards, currency, cancellation, guarantee, check-in, check-out, time zone, airport, courtesy van, services/facilities, amenities (brochure copy), quick description (brochure copy), area information (including brochure copy on area served and listing of selected points of interest with brochure copy with hotel address reinforced with quick recap referencing distance from major points of Interest), rooms (including brochure copy of overall hotel followed by brochure copy on various rooms/suite types available), rates (including information on rates, packages, promotions, family rates, government rates, etc.) restaurants (including information on area restaurants), recreation (including information on recreational activities available such as nearby golf, tennis, bike rentals, outdoor pool, exercise facilities, etc.), meetings (including information on meeting facilities), weather (including information on local weather), and pictures (including pictures of hotels, rooms and various points of interest)." It is agreed that there shall be no limit on the quantity of data in the database or the number of views of the data. c. Pegasus agrees to provide Participant with the following statistics as it pertains to total Travel/Web volume as well as to Participant's volume by specific hotel brand: Report Subject Timing -------------- ------ o Hits - Total and Average Hour, Day, Week, Month o Unique Visits - Total and Average Hour, Day, Week, Month o Page Views - Total and Average Hour, Day, Week, Month Number Per Visit o Page View Rankings - Top 50 Hour, Day, Week, Month, Year to Date (YTD) o Availability Checks - Total Number* Hour, Day, Week, Month, YTD o Reservation Retrievals - Total Number* Hour, Day, Week, Month, YTD o Reservation Cancels - Total Number Hour, Day, Week, Month, YTD o Reservation Confirmation - Total Number Hour, Day, Week, Month, YTD o Alternate Property Checks - Total Number* Hour, Day, Week, Month, YTD o Gross Bookings Hour, Day, Week, Month, YTD o Unsuccessful Reservations* Hour, Day, Week, Month, YTD -4 5 o Volume by Domain, Subdomain, Hour, Day, Week, Month, YTD Country, U S Regions o Click Stream Analysis* Hour, Day, Week, Month, YTD * Denotes reports which as of the date hereof are unavailable. Pegasus agrees however, that such reports shall be made available to Participant within a period of six (6) months from the date of this Agreement. d. Pegasus agrees to provide all reasonable and necessary technical support, hardware and software, and modifications to all of Participant's views to maintain the following system availability and response times. For purposes hereof, views shall mean any templates or pages on the world wide web which are served from the data in the Travel Web DAD database. a. Participant's views will be available for page serving (as hereinafter defined); and hotel booking 99.5% of the time each calendar month. b. Participant's views page response times will average 12 seconds or less for standard pages (as hereinafter defined) over each calendar month. * Available for page serving shall mean responding to any Internet request successfully reaching the Pegasus network that serves Participant's site. Pegasus will not be accountable for any Internet requests that do not reach the Pegasus network serving Participant or any Internet requests that are successfully responded to and exit the Pegasus network and fail before reaching the client. * Standard pages are defined as the following: - HTML 'static' page 65,000 bytes in size; or - Database driven 'dynamic' page 35,000 bytes in size Pegasus and Participant will evaluate the performance criteria and measurement tools periodically and adjust or modify upon mutual agreement of both parties". 2. The following language is inserted after the first sentence of 4(e): "Federal, state or local sales tax or other tax or assessment applicable to the fees set forth herein shall be paid by Participant". 3. Section 4(c) of the Agreement is hereby amended by deleting the fourth sentence and replacing it with the following: "After the second anniversary of this Agreement, Pegasus may once each calendar year increase the fees as set forth in 4(b) above up to ten percent (10%) of the then existing fee. Pegasus shall provide Participant written notice of the increased rate 60 days prior to the date of such rate's effectiveness. Upon receipt of such notice, Participant shall have 15 days in which it may provide Pegasus written notice of its intent to terminate the Agreement without penalty. Failure to provide notice during such 15 day period shall constitute acceptance of the revised rate." -5- 6 4. Section 5 of the Agreement is hereby deleted in its entirety and is hereby replaced with the following: "5. Term. This Agreement shall be effective beginning June 4, 1997, and the initial term shall be for [*] unless sooner terminated as provided herein. The Agreement shall be automatically renewed and extended for additional one (1) year terms thereafter unless either party provides the other written notice of its intention not to renew and extend the term of this Agreement at least sixty (60) days prior to the expiration of the term of the Agreement." 5. Section 7. Disclaims Limitation of Liabilities and Risk of Internet Usage is hereby amended by adding the phrase "SUPPLIED BY PARTICIPANT" at the end of the first sentence. 6. Section 8. Breach is hereby amended by adding the following language: The following acts shall constitute an Event of Default under the terms of this Agreement. a. failure by Participant to pay its monetary obligations hereunder within 15 days after receipt of notice from Pegasus as to non-receipt of payment b. failure of Pegasus to establish the requirements of the distribution system set forth in Section l.a. hereof; c. breach of performance criteria by Pegasus as set forth in Section l.d. hereof; or d. declaration of bankruptcy or insolvency or the inability of Pegasus to pay its debts as they become due. 7. The following new provision is hereby added: "10. Update of Information Supplied by Participant. It is hereby agreed that Participant may update any or all of its information as frequently as daily. The update process shall be an automated process utilizing either batch feeds from Participant to Pegasus which conform to Pegasus' interface format or the remote authoring browser supplied to Participant by Pegasus. Pegasus agrees to process these updates from both the remote authoring too[ and Participant's batch feed promptly and make them available to all views within two (2) business days. However, the parties agree to use the most efficient technology as such becomes available." PEGASUS SYSTEMS, INC. PROMUS HOTELS, INC. By: /s/ M. NICHOLAS JENT By: /s/ MARK C. WELLS ------------------------------ ------------------------------ Name: M. Nicholas Jent Name: Mark C. Wells ---------------------------- ---------------------------- Title: V. P. Sales Title: Senior Vice President --------------------------- --------------------------- 6/2/97 *Confidential Treatment Requested -6-
1 EXHIBIT 10.52 PROPERTY INFORMATION DISTRIBUTION AGREEMENT This Agreement is entered into by and between Pegasus Systems, Inc. (hereinafter called "Pegasus") and Best Western International, Inc. (hereinafter called "Participant") on the following terms and conditions: 1. Property Information Database. Pegasus will provide Participant with the ability to create a digital database of Participant's properties which is (i) capable of being accessed by distribution systems with whom Pegasus contracts, Best Western will be given thirty (30) days prior notification of any distribution system that Pegasus contracts with and Best Western may elect not to participate in said distribution system and (ii) where functionality exists, capable of permitting the accessor of the database to make, amend and cancel reservations with Participant. Participant shall be solely responsible for the creation and editing of the property database pursuant to Pegasus' prescribed methods. 2. Distribution of the Database. Pegasus will contract and develop interfaces with distribution systems to access Participant's database per the terms of this Agreement. 3. TravelWeb. Pegasus agrees during the term hereof to distribute Participant's database and provide the capability to make, amend and cancel reservations with Participant via its TravelWeb Internet site. In the event an update in the functionality or the creation of new functionality for TravelWeb results in any material failure of the TravelWeb site to permit accessors of the site to view Participant's database and make, amend and cancel reservations with Participant, it shall constitute a breach of this Agreement. 4. Distribution Systems Interface. For each distribution system, Pegasus will create an operable interface providing access to Participant's database and maintain the interface during the term of the Distribution Agreement. All updates and edits of the database shall be accessible by the distribution systems within two (2) business days of receipt by Pegasus. 5. Fees. (a) For the services provided by Pegasus as set forth herein, Participant shall pay to Pegasus the fees set forth on Schedule A. (b) For providing reservation functionality to accessors of the database, Participant agrees to pay Pegasus the following: (i) For each Net Reservation processed through the on-line reservation functionality developed by Pegasus and originating with a distribution system with whom Pegasus contracts, Participant shall pay to Pegasus a fee of [*]. Net Reservations within a particular time period equal the number of reservations made by an accessor of a distribution system exhibiting Participant's database within such time period less the number of reservations to which notice of cancellation is received by the distribution system within such time period. (ii) In the event a distribution system with whom Pegasus contracts charges a fee for Net Reservations originating with their system and there is no commission or other fee charged to Participant by the distribution system for the Net Reservation, Participant agrees to pay to Pegasus the fee charged, provided the fee to Participant shall not exceed [*] per Net Reservation. (c) Pegasus will invoice Participant for all fees as set forth herein and as provided on Schedule A including any taxes applicable to such fees and Participant agrees to pay each invoice upon receipt. Each invoice shall be past due and it shall be a breach of this Agreement if it is not paid within forty five (45) days after the date of the invoice. All payments to Pegasus shall be made in U.S. Dollars. Pegasus may, once each anniversary date of the contract, increase the fees set forth in (a) and (b) above up to 10% of the then-existing fee within thirty (30) days prior notice. Any fee changes resulting from an increase in the services or number of properties in the database will be invoiced upon notice of such increase or at the next scheduled invoice, at Pegasus' option. 6. Term. The initial term of this Agreement shall be for [*] from the date hereof provided that the Agreement shall be automatically renewed and extended for additional one (1) year terms thereafter. After the initial [*], this contract may be terminated at any time by either party within ninety (90) days notice. 7. Property Rights. The information provided by Participant is acknowledged to be the sole property of Participant and Pegasus may not distribute or allow access to any of the information in any manner other than pursuant to this Agreement. Participant shall be solely and exclusively responsible for the protection of any and all of its intellectual property including, but not limited to, the inclusion of any and all statutory or other notices customarily used or required for purposes of providing notice of ownership or protection of Participant's trademarks, trade names, service marks or copyrights. 8. Disclaimer, Limitation of Liabilities and Risk of Internet Usage. PEGASUS WILL NOT BE RESPONSIBLE OR LIABLE FOR (i) ANY FALSIFICATIONS OR INACCURACIES IN ANY OF THE INFORMATION, (ii) ANY ACT OR FAILURE TO ACT WITH RESPECT TO THE PUBLICATION OF THE INFORMATION ON THE INTERNET OR CREATION OR FUNCTIONALITY OF RESERVATION CAPABILITIES UNLESS EXPRESSLY SET FORTH HEREIN, (iii) ANY CLAIM, DAMAGE, OR LIABILITY OF ANY NATURE ARISING OUT OF A COMPUTER OPERATOR'S OR DISTRIBUTION SYSTEM'S ACCESS TO PARTICIPANT'S RESERVATION SYSTEM AND/OR THE MAKING, CHANGING OR CANCELING OF A RESERVATION AND THE USE OF A CREDIT CARD OR OTHER DEBIT DEVICE IN CONNECTION THEREWITH, OR (iv) ANY CLAIM RESULTING FROM ANY INTERRUPTION, MALFUNCTION OR CHANGE IN THE USE OF THE INTERNET OR A DISTRIBUTION SYSTEM, EXCEPT TO THE EXTENT RESULTING FROM PEGASUS' GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE ARE DISCLAIMED BY PEGASUS AND WAIVED BY PARTICIPANT. PARTICIPANT ACKNOWLEDGES AND AGREES THAT ALLOWING ACCESS TO ITS DATABASE AND RESERVATION SYSTEM TO COMPUTERS ACCESSING THE INTERNET VIA ANY DISTRIBUTION SYSTEM IS AT PARTICIPANT'S OWN RISK. Pegasus shall not be responsible for the order, completeness or format of participant's database being *Confidential Treatment Requested 2 published by distribution systems. Participant acknowledges and agrees that the Internet is a communication medium over which Pegasus has no control and that its continued utilization in its present form at current costs is uncertain. Therefore, if at any time during the term of this Agreement, the cost of access to the Internet increases or there is imposed a fee or cost for access to or use of the Internet communication lines, or there is imposed any law, governmental ruling, or regulation the result of which increases the cost of access to or usage of the Internet or otherwise makes it impractical, in Pegasus' sole discretion, to continue to perform this Agreement, Pegasus may, upon notice to Participant, immediately terminate this Agreement without such action constituting an event of default. Pegasus or Participant shall not be liable for any breach of this Agreement resulting from an act of God, accidents, power or telecommunication outages or delays, mechanical defects or other events beyond its control. 9. Breach; Limitation of Liability. In the event of a breach of this Agreement, the non-breaching party may terminate this Agreement after providing notice to the other party of such breach and the failure of the breaching party to cure the breach within ten (10) days of receipt of the notice. Upon breach by Participant and failure to timely cure Pegasus may immediately cease the distribution and/or publication of Participant's database on distribution systems. Notwithstanding and without waiving any other provision hereof, the parties hereto acknowledge and agree that a determination of the damages to be suffered by a breach of this Agreement by either party (other than a breach resulting from non-payment by Participant) would be difficult, if not impossible, to determine and, therefor, the parties hereto agree that the full extent of any liability of Pegasus for a breach hereof and failure to cure shall not exceed an amount equal to twenty five percent (25%) of the fee paid by Participant to Pegasus for the immediately preceding month. 10. Miscellaneous. This Agreement shall be interpreted in accordance with the laws of the State of Texas and any legal proceeding arising out of this Agreement shall have venue in Dallas County, Texas. This Agreement shall be binding upon and inure to the benefit of the legal representatives, successors and assigns of the parties hereto. This Agreement contains all the provisions of any agreement between Pegasus and Participant with respect to the creation, maintenance and distribution of Participant's database and Participant has not relied upon any promises or representations by Pegasus with respect to the subject matter except as set forth herein. This Agreement shall terminate and replace any existing agreement between Participant and TravelWeb, Inc. <TABLE> <S> <C> PEGASUS SYSTEMS, INC. PARTICIPANT: BEST WESTERN INTERNATIONAL, INC. 3811 Turtle Creek Blvd. #1100 Dallas, Texas 75219 By: /s/ M. NICHOLAS JENT By: /s/ [ILLEGIBLE] --------------------------- ------------------------------------------ M. Nicholas Jent Vice President, Sales ------------------------------------------ Its: Best Western International ----------------------------------------- Date: 5/2/97 Date: 5/2/97 -------------------------- ----------------------------------------- </TABLE> -2- 3 SCHEDULE A 1. Fees. Participant shall pay to Pegasus the following fees: (i) During 1997, [*] per property per month for each property in the database; and (ii) From January 1, 1998 to the date of termination of this Agreement, [*] per property per month for each property in the database. The fees for this service shall be paid quarterly in advance. *Confidential Treatment Requested -3-
1 EXHIBIT 10.53 PROPERTY INFORMATION DISTRIBUTION AGREEMENT This Agreement is entered into by and between Pegasus Systems, Inc. and the below named Participant on the following terms and conditions: 1. Property Information Database. Pegasus will provide Participant with the ability to create a digital database of Participant's properties which is (i) capable of being accessed by distribution systems with whom Pegasus contract and (ii) where functionality exists, capable of permitting the accessor of the database to make, amend and cancel reservations with Participant. Participant shall be solely responsible for the creation and editing of the property database pursuant to Pegasus' prescribed methods. 2. Distribution of the Database. Pegasus will contract and develop interfaces with distribution systems to access Participant's database. Participant may elect to exclude certain distribution systems access to its database. 3. Distribution Systems Interface. For each distribution system, Pegasus will create an operable interface providing access to Participant's database and maintain the interface during the term of the Distribution Agreement. All updates and edits of the database shall be accessible by the distribution systems within two (2) business days of receipt by Pegasus. 4. Fees. (a) For the services provided by Pegasus as set forth herein, Participant shall pay to Pegasus the fees set forth on Schedule A. (b) For each Net Reservation originating with a distribution system with whom Pegasus contracts, Participant shall pay to Pegasus a fee of [*]. Net Reservations within a particular time period equal the number of reservations made by an accessor of a distribution system exhibiting Participant's database within such time period less the number of reservations to which notice of cancellation is received by the distribution system within such time period. (c) Pegasus will invoice Participant for all fees as set forth herein and as provided on Schedule A including any taxes applicable to such fees and Participant agrees to pay each invoice upon receipt. Each invoice shall be past due and it shall be a breach of this Agreement if it is not paid within thirty (30) days after the date of the invoice. All payments to Pegasus shall be made in U.S. Dollars. Pegasus may, once each year, increase the fees set forth in (a), (b) and (c) above up to 10% of the then-existing fee. Any fee changes resulting from an increase in the services or number of properties in the database will be invoiced upon notice of such increase or at the next scheduled invoice, at Pegasus' option. Any notice must be provided at least 60 days in advance of any fee increase being incorporated. 5. Term. The initial term of this Agreement shall be for [*] from from the date hereof provided that the Agreement shall be automatically renewed and extended for additional [*] terms thereafter unless, at least thirty (30) days prior to expiration of the initial [*] term or the expiration of any additional one (1) year term, either party hereto shall give notice of its intent not to renew and extend this Agreement. 6. Property Rights. The information provided by Participant is acknowledged to be the sole property of Participant and Pegasus may not distributed or allow access to any of the information in any manner other than pursuant to this Agreement. Participant shall be solely and exclusively responsible for the protection of any and all of its intellectual property including, but not limited to, the inclusion of any and all statutory or other notices customarily used or required for purposes of providing notice of ownership or protection of Participant's trademarks, trade names, service marks or copyrights. 7. Disclaimer, Limitation of Liabilities and Risk of Internet Usage. PEGASUS WILL NOT BE RESPONSIBLE OR LIABLE FOR (i) ANY FALSIFICATIONS OR INACCURACIES IN ANY OF THE INFORMATION, (ii) ANY ACT OR FAILURE TO ACT WITH RESPECT TO THE PUBLICATION OF THE INFORMATION ON THE INTERNET OR CREATION OR FUNCTIONALITY OF RESERVATION CAPABILITIES UNLESS EXPRESSLY SET FORTH HEREIN, (iii) ANY CLAIM, DAMAGE, OR LIABILITY OF ANY NATURE ARISING OUT OF A COMPUTER OPERATOR'S OR DISTRIBUTION SYSTEM'S ACCESS TO PARTICIPANT'S RESERVATION SYSTEM AND/OR THE MAKING, CHANGING OR CANCELING OF A RESERVATION AND THE USE OF A CREDIT CARD OR OTHER DEBIT DEVICE IN *Confidential Treatment Requested 2 CONNECTION THEREWITH, OR (iv) ANY CLAIM RESULTING FROM ANY INTERRUPTION, MALFUNCTION OR CHANGE IN THE USE OF THE INTERNET OR A DISTRIBUTION SYSTEM, EXCEPT TO THE EXTENT RESULTING FROM PEGASUS' GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE ARE DISCLAIMED BY PEGASUS AND WAIVED BY PARTICIPANT. PARTICIPANT ACKNOWLEDGES AND AGREES THAT ALLOWING ACCESS TO ITS DATABASE AND RESERVATION SYSTEM TO COMPUTERS ACCESSING THE INTERNET VIA ANY DISTRIBUTION SYSTEM IS AT PARTICIPANT'S OWN RISK. Pegasus shall not be responsible for the order, completeness or format of Participant's database being published by distribution systems. Participant acknowledges and agrees that the Internet is a communication medium over which Pegasus has no control and that its continued utilization in its present form at current costs is uncertain. Therefore, if at any time during the term of this Agreement, the cost of access to the Internet increases or there is imposed a fee or cost for access to or use of the Internet communication lines, or there is imposed any law, governmental ruling, or regulation the result of which increases the cost of access to or usage of the Internet or otherwise makes it impractical, in Pegasus' sole discretion, to continue to perform this Agreement, Pegasus may, upon notice to Participant, immediately terminate this Agreement without such action constituting an event of default. Pegasus shall not be liable for any breach of this Agreement resulting from an act of God, accidents, power or telecommunication outages or delays, mechanical defects or other events beyond its control. 8. Breach. In the event of a breach of this Agreement, the non-breaching party may terminate this Agreement after providing notice to the other party of such breach and the failure of the breaching party to cure the breach within ten (10) days of receipt of the notice. Upon breach by Participant and failure to timely cure Pegasus may immediately cease the distribution and/or publication of Participant's database on distribution systems. 9. Miscellaneous. This Agreement shall be interpreted in accordance with the laws of the State of Texas and any legal proceeding arising out of this Agreement shall have venue in Dallas County, Texas. This Agreement shall be binding upon and inure to the benefit of the legal representatives, successors and assigns of the parties hereto. This Agreement contains all the provisions of any agreement between Pegasus and Participant with respect to the creation, maintenance and distribution of Participant's database and Participant has not relied upon any promises or representations by Pegasus with respect to the subject matter except as set forth herein. This Agreement shall terminate and replace any existing agreement between Participant and TravelWeb, Inc. The parties hereby agree to accept a facsimile signature as evidence of acceptance of these terms Hyatt Hotels Corporation, on behalf of its Hotels, owned, operated, leased and/or franchised by Hyatt Corporation, its affiliates, or subsidiaries. PEGASUS SYSTEMS, INC. PARTICIPANT: Hyatt Hotels Corporation BY: [Illegible] BY: ---------------------------- ------------------------------ John F. Davis III President ITS: [ILLEGIBLE] ----------------------------- DATE: [Illegible] DATE: Associate General Counsel -------------------------- ---------------------------- 3-11-97 3 SCHEDULE A 1. Fees. Participant shall pay to Pegasus the following fees: (i) For 1 to 25 Participant properties in the database, [*] per Participant properly per month; (ii) For 26 to 100 Participant properties in the database, [*] per Participant property per month; (iii) For 101 to 200 Participant properties in the database, [*] per Participant property per month; (iv) For 201 to 500 Participant properties in the database, [*] per Participant property per month; (v) For 501 to 1000 Participant properties in the database, [*] per Participant property per month; (vi) For 1001 to 2000 Participant properties in the database, [*] per Participant property per month; (vii) For in excess of 2000 Participant properties in the database, [*] per Participant property per month. The fees for this service shall be paid quarterly in advance. *Confidential Treatment Requested
1 EXHIBIT 10.54 HOTEL CLEARING CORPORATION UNITED STATES SUBSCRIBER AGREEMENT SUBSCRIBER hereby contracts with HOTEL CLEARING CORPORATION ("HCC") to provide records of hotel reservation bookings and to process hotel reservation commissions on the following terms and conditions: DEFINITIONS: "SUBSCRIBER" is the travel agency and all of its participating travel agent locations. "CASH SYSTEM" is a service mark of HCC for a clearing house system of accounting for reservations made by travel agents with HCC Hotels and processing commissions payable to those travel agents for the reservations. "HCC Hotel" is a hotel property who is a participant in the HCC System. "CASH Reservation" is a reservation at an HCC Hotel originated by SUBSCRIBER for which the HCC Hotel has been paid for all or a part of the reserved stay, including non-refundable deposits for reservations originated by SUBSCRIBER, for which SUBSCRIBER is entitled to a commission. CASH Reservations include reservations made by telephone or electronically. "HCC Management Report" is a record of all CASH Reservations for a specified month and a computation of the commission due SUBSCRIBER for those reservations. "HCC Fee" is the amount paid by SUBSCRIBER to HCC for the services set forth herein which shall be [*] of the total monthly commission paid by HCC Hotels to SUBSCRIBER as set forth on the HCC Management Report plus costs associated with tapes or diskettes, if any, requested by SUBSCRIBER. 1. The CASH System. During the term of this agreement, beginning with the implementation of the CASH System, HCC shall within fifteen (15) business days after the end of each calendar month (the "Month"), (i) submit a HCC Management Report to each HCC Hotel for payment to HCC of all commissions the HCC Hotel owes to SUBSCRIBER for CASH Reservations for the Month, (ii) transmit to SUBSCRIBER, by mail or electronically by modem (at the option of SUBSCRIBER), the monthly HCC Management Report and (iii) pay to SUBSCRIBER, by check or automated clearing house transfer (at the option of SUBSCRIBER), an amount in the local currency of SUBSCRIBER equal to the total commission paid by the HCC Hotel pursuant to the HCC Management Report for the Month (converted to U.S. dollars if necessary), less the HCC Fee. 2. Term and Termination. The initial term of this agreement shall be six (6) months but it shall continue in effect thereafter unless terminated upon seven (7) days prior written notice by either party. 3. Acknowledgment and Disclaimer. SUBSCRIBER acknowledges that the services rendered by HCC are those of a clearing house and, except as expressly set forth herein, under no circumstances shall HCC be responsible for collection of commissions owing SUBSCRIBER. HCC shall not be responsible or liable for any inaccuracy in the information provided to SUBSCRIBER in the HCC Management Report. HCC shall only be liable to SUBSCRIBER for the amount of commissions actually collected by HCC, less the HCC Fee described herein. In the event HCC shall fail in any respect to perform the services set forth herein, it shall, under no circumstances, be liable for uncollected commissions to SUBSCRIBER or any other liability resulting therefrom including, without limitation, consequential damages. SUBSCRIBER'S SOLE AND EXCLUSIVE REMEDY FOR ANY BREACH OF THIS AGREEMENT BY HCC SHALL BE TERMINATION OF THIS AGREEMENT AND THE AMOUNT OF COMMISSIONS ACTUALLY COLLECTED BY HCC LESS THE HCC FEE. ALL WARRANTIES EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE, OR OTHERWISE, ARE DISCLAIMED AND WAIVED. In the event a failure or delay in the performance of this agreement, except for the payment of money, results from an act of God, labor strike or other events beyond the control of the party obligated to perform, such failure or delay shall not constitute a breach of this agreement nor shall the parties hereto be liable for damages resulting from such event. 4. Dispute Resolution. In the event SUBSCRIBER shall initiate any action against HCC arising out of this agreement, governing law shall be that of Texas, without regard to choice of laws, and venue shall be Dallas, Texas. In the event HCC shall initiate any action against SUBSCRIBER arising out of this agreement, governing law shall be that of New York, without regard to choice of laws, and venue shall be New York, New York. In the event a dispute arises between SUBSCRIBER and a HCC Hotel with respect to a HCC Management Report, HCC shall have no obligation or liability with respect to such dispute and SUBSCRIBER agrees that SUBSCRIBER shall be solely responsible for any action to resolve the dispute and/or to collect its commission. 5. Miscellaneous. a) Any notice to be provided with respect to any matter arising out of this agreement shall be in writing and shall be delivered by certified mail. b) HCC and SUBSCRIBER may disclose the existence of this agreement in a press release to be issued at its inception and may verbally disclose that SUBSCRIBER has signed this agreement and endorses the CASH System. c) Any proprietary information disclosed to SUBSCRIBER by HCC or its representatives shall be so designated and shall be treated as confidential. d) This agreement contains all of the provisions of any agreement between HCC and SUBSCRIBER with respect to the subject matter set forth herein and SUBSCRIBER has not relied upon any promises or representations by HCC except as set forth herein. e) This agreement shall be binding upon and shall inure to the benefit of the heirs, successors and assigns of the parties hereto. THE HOTEL CLEARING CORPORATION SUBSCRIBER, 3811 Turtle Creek Blvd., #1100 AMERICAN EXPRESS TRAVEL RELATED SERVICES Dallas, TX, 75219 COMPANY, INC. BY:/s/ [ILLEGIBLE] BY: /s/ PRIYAN FERNANDO ------------------------------- -------------------------------------- (signature) (signature) PRIYAN FERNANDO ----------------------------------------- (printed name) VICE PRESIDENT & CONTROLLER ----------------------------------------- (title) ----------------------------------------- ARC/IATA# * Confidential Treatment Requested
1 EXHIBIT 10.55 DISTRIBUTION SERVICES AGREEMENT FOR HOLIDAY INN WORLDWIDE This Distribution Services Agreement is entered into by and between HOLIDAY HOSPITALITY CORPORATION (all of the rights, duties and interests of Holiday Inns, Inc. related to this Agreement having been assigned to and assumed by Holiday Hospitality Corporation on April 28, 1997) doing business as Holiday Inn Worldwide ("HIW"), hereinafter referred to as "HHC", and PEGASUS SYSTEMS, INC., hereinafter referred to as "Pegasus", to be effective as set forth herein. 1. General Purpose. It is intended by this Agreement to set forth the mutually agreed terms of an agreement pursuant to which Pegasus is to provide HHC services for the processing of transactions and distribution of information in connection with the reservation of HHC hotel rooms as more specifically set forth herein. 2. Definitions. In connection with this Agreement, the following definitions shall apply: (i) Corporate Travel Coordinators. Those persons or entities responsible for the coordination of travel arrangements for corporate travel departments who utilize UltraDirect. (ii) Effective Date. The Effective Date of this Agreement shall be the date both parties have executed this Agreement. (iii) GDS. One or more of the following Global Distribution Systems: Sabre, Galileo, System One, Worldspan or Amadeus or any other Global Distribution System created in the future resulting from a merger or acquisition of any of the GDS's named herein or newly formed at any time during the term of this Agreement with whom HHC has an agreement and with whom Pegasus or its affiliate has an interface. (iv) HCC Agreements. Those certain agreements between HCC and Rescom Services, Inc. and HCC and Holiday Inns, Inc. dated December 21, 1994. All of HII's rights, duties and interests under those agreements were assigned to, and assumed by HHC on April 28, 1997. (v) HHC Reservation System. HHC's central reservation system. (vi) HIW Hotels. HIW Hotels shall mean all Holiday Inn(R) Hotels and, Crowne Plaza(R) Hotels and Resorts Worldwide, and all other properties currently participating in the HHC Reservations System, and at HCC's option, other hotel brands or individual hotels which HCC may develop or acquire during the term of this Agreement. 2 (vii) Housing Reservation Provider. A Housing Reservation Provider is any person or entity who has entered into an agreement with Pegasus whereby Pegasus provides an Interface providing the Housing Reservation Provider with the ability to make reservations in the HHC Reservation System. (viii) Interface. An Interface is the hardware, software and attendant technical support required to produce computer to computer communications between the HII Reservation System and any one of the following: (i) Reservation Providers, (ii) Housing Reservation Providers, (iii) Third Party Distribution Systems, (iv) TravelWeb or (v) Corporate Travel Coordinators. (ix) Lodging Connect. A service of Pegasus providing a connection with hotel or other lodging entity reservation systems which enables accessors to make, modify and cancel reservations. (x) Lodging Select. A service of Pegasus providing a connection with hotel or other lodging entity reservation systems which enables accessors to obtain information, including, without limitation, availability and rates, on hotel and other lodging properties in response to selected search criteria. (xi) Net Reservations. Net Reservations within a particular time period equals the number of reservations processed through one of the Services within such time period, less the number of reservations as to which notice of cancellation in one of the Services is received electronically by one of the Services within such time period and includes Type A & B reservations and cancellations. (xii) Pegasus. Pegasus shall mean Pegasus Systems, Inc. and, to the extent the Services provided pursuant to this Agreement are provided by any subsidiary of Pegasus, its subsidiary companies The Hotel Industry Switch Company, The Hotel Clearing Corporation and TravelWeb, Inc. (xiii) Private Label Web Site. An Internet site on the World Wide Web initially developed and subsequently maintained by Pegasus in the name of and for the use and benefit of HHC and HIW Hotels with an Interface to Pegasus' Reservation Functionality and HHC's Property Information Database. (xiv) Property Information Database. A digital database of HIW Hotels which is (i) capable of being accessed by Third Party Distribution Systems and (ii) where functionality exists, capable of permitting the accessor of the Third Party Distribution System to make, amend and cancel reservations in the HHC Reservation System. -2- 3 (xv) Property Information Distribution Service. A service of Pegasus to provide access to the Property Information Database to Third Party Distribution Systems and, where available, to provide accessors of Third Party Distribution Systems the capability to make and cancel reservations at participating hotels. (xvi) Reservation Functionality. The capability to determine room availability for specific dates and to make, change and cancel reservations at a hotel participating in the Reservation Functionality. (xvii) Reservation Provider. A Reservation Provider is any person or entity with the present or future capability to connect directly with the UltraSwitch(R) or via a GDS, a Third Party Distribution System, the UltraRes Service, the UltraDirect Service, TravelWeb or HII's Private Label Web Site for the purpose of making reservations with hotels participating in UltraSwitch. (xviii) Services. The Services shall mean those services to be provided by Pegasus as set forth herein and specifically identified on Exhibits A, B, C, D, E and F hereof. (xix) Status Messages. A Status Message is a message indicating the availability of a room type has changed for a single date in a single property. (xx) Third Party Distribution Systems. Internet sites or providers of content to Internet sites with whom Pegasus contracts to provide the Property Information Database and/or Reservation Functionality. (xxi) Transactions. For purposes of Sections 7, 12(ii)(c) and 15 of this Agreement, Transactions shall mean a reservation processed through UltraSwitch for an HIW Property received via a GDS or from a person or entity providing Housing Reservation services for meetings and conventions or from a travel agent or Corporate Travel Coordinator or from an accessor of the Internet. Notwithstanding the above, any reservations made by third parties with whom HHC has created a direct UltraRes or UltraDirect interface shall not constitute Transactions for purposes of this definition. (xxii) TravelWeb. The registered trade name and service mark of Pegasus for its service to provide Internet access to information on hotels, resorts, airlines and other travel and lodging subjects with the interactive capability to permit an accessor of TravelWeb to make a reservation at an HIW Hotel. (xxiii) UltraDirect. A service of Pegasus to provide Corporate Travel Coordinators access to Lodging Select and Lodging Connect capabilities -3- 4 and direct access by travel agents to a participating hotel reservation system by-passing the GDSs. (xxiv) UltraRes(SM). UltraRes(SM) is a service of Pegasus to provide an Interface between Housing Reservation Providers and the HHC Reservation System with the capability to provide convention or meeting group room confirmation numbers. (xxv) UltraSwitch(R). The UltraSwitch(R) is a service of Pegasus to provide an Interface between Reservation Providers and hotel reservation systems with the capability to provide immediate room confirmation numbers for each hotel property participating in UltraSwitch(R). (xxvi) Warrant. The Warrant shall mean that certain Pegasus Systems, Inc. Common Stock Purchase Warrant substantially in the form attached hereto and marked Exhibit G. 3. Distribution Services Provided by Pegasus. Pegasus hereby agrees to provide to HHC the following distribution services: (i) UltraSwitch services as more specifically set forth on Exhibit A attached hereto; (ii) UltraDirect services as more specifically set forth on Exhibit B attached hereto; (iii) UltraRes services as more specifically set forth on Exhibit C attached hereto; (iv) Property Information Distribution Services as more specifically set forth on Exhibit D attached hereto; (v) Subject to the provisions of Exhibit E hereto, Private Label Web Site services as more specifically set forth on Exhibit E attached hereto; and (vi) TravelWeb service as more specifically set forth on Exhibit F attached hereto. 4. Schedule of Implementation. The parties hereto shall diligently and in good faith mutually agree upon a schedule of implementation with respect to the provision of the Services and, upon completion, such schedule shall be attached hereto as Schedule I (the -4- 5 "Schedule of Implementation"). The Schedule of Implementation may be modified or amended by written agreement of both parties and shall be subject to the terms and conditions set forth herein. 5. Modifications to HHC Reservation System. HHC agrees to diligently and in good faith cooperate with Pegasus to create an operable and dependable Interface as reasonable and necessary for Pegasus to provide the Services. HHC agrees to modify the HHC Reservation System as required for the Interface as reasonable and necessary to implement the Services. 6. Designation of Representative. HHC shall designate one person as the primary point of contact with respect to the coordination, implementation and provision of the Services as set forth herein. Pegasus shall designate one person as the primary point of contact with respect to the coordination, implementation and provision of the Services as set forth herein. 7. GDS Transactions. HHC agrees to process all of the HIW Hotels' GDS Transactions via UltraSwitch and to use its best efforts to migrate one hundred percent (100%) of its GDS Transactions to the UltraSwitch by December 31, 1997 but in no event later than March 31, 1998. 8. UltraRes and UltraDirect Specifications. Pegasus hereby grants to HHC a royalty free right for ten (10) years from the effective date hereof to use its UltraRes and UltraDirect specifications solely for the purpose of HHC entering into agreements with third parties with whom Pegasus has not contracted to create a direct interface between the HHC Reservation System and providers of meeting and convention reservation services for UltraRes and Corporate Travel Coordinators or travel agents for UltraDirect, as more specifically provided on Exhibits B and C hereto. 9. Reports. Pegasus shall provide HHC monthly reports providing the information set forth on the reports attached hereto as Schedule 2 and statistical reports of page accesses and reservation transactions on HHC's Private Label Web Site. HHC may request other reports or customized reports which Pegasus, if possible, shall provide to HHC for a mutually agreed fee. 10. Term of Agreement. Unless earlier terminated as provided herein, the term of this Agreement shall begin upon the Effective Date and shall terminate on the last day of the [*] month after the Effective Date. *Confidential Treatment Requested -5- 6 11. GDS Fees. Pegasus will use commercially reasonable efforts to prevent GDSs from charging HHC any fee or cost for the transfer of HHC's transactions to UltraSwitch. In the event and to the extent HHC is charged any incremental transaction fees by a GDS solely as a result of HHC processing transactions pursuant to this Agreement, Pegasus agrees that it will pay all such fees and agrees to indemnify HHC from and against the payment of such fees as provided in Section 23 hereof. 12. Fees and Costs. HHC shall pay to Pegasus a fee for each of the Services as follows: i. For Net Reservations processed via the UltraSwitch service -- a. For the first [*] Net Reservations during each calendar year, [*] per Net Reservation; b. For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; c. For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; d. For the next [*] Net Reservations during each calendar year, [*] per Net Reservation; and e. For all Net Reservations in excess of [*] during each calendar year, [*] per Net Reservation. For purposes of determining the number of Net Reservations processed via the UltraSwitch service, all Transactions shall be counted. ii. For Status Messages processed via the UltraSwitch service -- a. For the first [*] Status Messages during each calendar year, [*] for each Status Message; b. For the next [*] Status Messages during each calendar year, [*] for each Status Message; and c. For all Status Messages in excess of [*] during each calendar year, [*] for each Status Message provided however, in the event the ratio of Status Messages to Net Reservations exceeds [*] during a billing period, there shall be [*] for Status Messages provided, however, in the event the ratio of Status Messages to Net Reservations exceeds [*] during a billing period, all Status Messages in excess of the [*] ratio shall be [*]. Notwithstanding the above and foregoing set forth in this Section 12(ii), subject to HHC's rights of termination set forth herein, for so long as HHC fully performs this contract with respect to all of the Services *Confidential Treatment Requested -6- 7 and includes all HIW Hotels and Transactions in the Services, the total fee for all Status Messages during each month shall be [*]. iii. For each Net Reservation processed via TravelWeb or a Third Party Distribution System -- [*]. iv. For each Net Reservation originated by a Corporate Travel Coordinator processed via the UltraDirect service -- [*]. v. For each Net Reservation originated by a travel agent processed via the UltraDirect service -- the lesser of [*] or an amount equal to [*] the Average GDS Fee (as hereinafter defined) but in no event less than [*]. The Average GDS Fee is defined as the average per transaction fee charged during the immediately preceding month to HII by the three largest volume GDSs for processing a Net Reservation. vi. For each Net Reservation processed via the UltraRes service -- [*] during the period from the Effective Date to December 31, 1997, [*] during 1998 and [*] from January 1, 1999 to the date of termination of this Agreement. vii. For the inclusion of up to [*] properties in the Property Information Distribution Service -- [*] per property per month plus [*] per month for each property in excess of [*] included in the Property Information Distribution Service; provided however, in the event HHC elects to not utilize the Private Label Web Site service as provided in Exhibit E the fee for the Property Information Distribution Service shall be [*] per property included in the service per month. viii. Subject to the provisions of Exhibit E hereto, for the Private Label Web Site Services -- the total fee for all Private Label Web Site services shall be [*] per month. 13. HHC Internal Development Costs. Pegasus hereby agrees to pay HHC [*] for HHC's internal development costs associated with the provision of the Services. Such payment shall be made upon the date HHC begins processing one hundred percent (100%) of its GDS transactions via the UltraSwitch Service. 14. Waiver of Certain UltraRes and UltraDirect Fees. Notwithstanding the above, Pegasus shall not charge HHC any fee for Net Reservations or any other fee arising out of Net Reservations or other transactions made by third parties with whom HHC contracts direct for UltraRes and UltraDirect service pursuant to and during the term of the License Agreement attached hereto. *Confidential Treatment Requested -7- 8 15. Fee Contingency. Except as otherwise specifically permitted hereby, HHC acknowledges and agrees that the fees set forth herein above for the Services are premised upon and expressly contingent upon HHC fully performing this contract with respect to each and all of the Services and the continued performance by HHC of the HCC Agreements and HHC acknowledges and agrees that in the event HHC shall fail to comply with its obligations to include all HIW Hotels and Transactions in the Services provided hereby or fail to continue to perform HCC's obligations under the HCC Agreements, that such failure shall constitute a breach of the entirety of this Agreement and that HHC shall not be entitled to the benefit of any of the Services for the fees set forth herein. 16. Billing Statements. Pegasus will provide HHC a monthly billing statement setting forth the following: (i) the number of Net Reservations processed via the UltraSwitch Service and the total fee therefor; (ii) the number of Net Reservations processed via TravelWeb and Third Party Distribution Systems and the total fee therefor; (iii) the monthly fee for Status Messages; (iv) the number of Net Reservations originated by a Corporate Travel Coordinator processed via the UltraDirect Service and the fee therefor; (v) the number of Net Reservations originated by a travel agent processed via the UltraDirect Service and the fee therefor (including the calculation of the Average GDS Fee) and the fee therefor; (vi) the number of Net Reservations processed via the UltraRes Service and the fee therefor; (vii) the number of properties included in the Property Information Database and the fee therefor; (viii) the monthly fee for the Private Label Web Site Services; and (ix) any costs, credits or debits otherwise due pursuant to this Agreement. All fees and costs shall be paid in U.S. dollars. 17. Payment of Fees and Costs. Pegasus will invoice HHC monthly for all fees, and costs owed by HHC to Pegasus pursuant to this Agreement. HHC shall pay each invoice upon receipt and, in any event, within thirty (30) days of receipt of each invoice. 18. Pricing Guarantee. Pegasus hereby guarantees that the pricing offered to any other hotel company for any of the Services shall not be any more favorable than the pricing set forth herein for the Services provided to HHC. In the event Pegasus enters into an agreement with any other hotel company with more favorable pricing than as set forth in this Agreement, either for the individual services specified herein or for the package, or for any similar or comparable package of services, Pegasus shall notify of such pricing within thirty (30) days of any agreement for such more favorable pricing and shall make such pricing available to HHC and, if accepted by HHC, this Agreement shall be amended to include such pricing. 19. Right to Audit. HHC shall have the right, upon reasonable notice and exercisable no more than once each calendar year, to audit the records of Pegasus as reasonable and necessary to determine that the transactions reported and the fees paid pursuant to this Agreement are accurate. This right of audit shall be conducted by a reputable independent certified public accounting firm on behalf of HHC. The accounting firm shall execute a Confidentiality Agreement which shall preclude the dissemination of any information to HHC or any other person or entity except (i) confirmation that the transactions reported and fees paid are accurate or (ii) a statement that the transactions reported or the fees paid are inaccurate and a statement of the correct number of transactions and fees to be paid or (iii) any information consisting of, or based on, HHC's own data, transactions, or other information. Nothing in this Agreement shall preclude -8- 9 HHC from examining its own data transactions or other information during business hours and on reasonable notice. All costs incurred with respect to the audit shall be paid by HHC except in the event the audit reveals overpayment by HHC in excess of three percent (3%) of the fees payable during the preceding twelve (12) months or, in the event there has not been transaction processing for at least twelve (12) months during the term of this Agreement, such lesser term for which transaction processing has occurred Pegasus shall pay. Pegasus shall maintain and preserve for at least two (2) years following the end of this Agreement or any renewals complete and accurate records of transactions and fees related to the Services under this Agreement. The exercise of the right to audit by HHC or the acceptance by HHC of any audit reports, statements, credits, or refunds shall be without prejudice to any rights or remedies of HHC and shall not prevent HHC from thereafter disputing the accuracy of any such reports, statements, credits or refunds. 20. Confidential Information and Proprietary Rights. During the term of this Agreement, it is acknowledged by HHC and Pegasus that each may receive or have access to confidential and proprietary information of the other party including, but not limited to, software, codes, specifications, database and trade secrets ("Confidential Information"). Except as is necessary in connection with the performance of this Agreement and Pegasus' business, information regarding the reservations and other transactions of HHC processed by Pegasus shall be treated as confidential whether or not so marked or otherwise identified as confidential. Each party acknowledges that it shall not acquire any ownership or other rights in or to Confidential Information of the other, and shall use the Confidential Information only for the purposes of the performance of this Agreement, and shall keep confidential and not disclose the Confidential Information to any other person, firm or corporation without the prior written consent of the other party. Each party acknowledges that it will have no access to and will not use any of the confidential or proprietary information or related property of the other party, other than as specifically provided for in this Agreement. The provisions of this section will remain binding and in force and effect as long as such information remains confidential (other than by breach of this Agreement), notwithstanding the expiration or termination of this Agreement at any time. Any Confidential Information transmitted in writing or by other tangible media shall remain the property of the owner and all originals of such confidential information shall be returned to the owner at its request at the conclusion of this Agreement. Confidential Information shall not include any information which (i) was publicly known and made generally available in the public domain prior to the time of disclosure by the disclosing party; (ii) becomes publicly known and made generally available after disclosure by the disclosing party to the receiving party through no action or inaction of the receiving party; (iii) is already in the possession of the receiving party at the time of disclosure by the disclosing party as shown by the receiving party's files and records immediately prior to the time of disclosure; (iv) is obtained by the receiving party from a third party without a breach of such third party's obligations of confidentiality; (v) is independently developed by the receiving party without use of or reference to the disclosing party's Information, as shown by documents and other competent evidence in the receiving party's possession; or (vi) is required by law to be disclosed by the receiving party, provided that the receiving party gives the disclosing party prompt written notice of such requirement prior to such disclosure and assistance in obtaining an order protecting the information from public disclosure. 21. Use of Trademarks and Tradenames. HHC acknowledges and agrees that UltraSwitch, TravelWeb, UltraSelect, UltraRes, UltraDirect, Lodging Select, Lodging -9- 10 Connect, NetBooker and Click-it! Weekends are the service marks of Pegasus and those and any other trademarks owned by Pegasus may not be used by HHC without the prior written consent of Pegasus. Pegasus acknowledges and agrees that Holiday Inn(R), Crowne Plaza(R) and Holidex(R) are service marks of HHC and those and any other service marks owned by HHC may not be used by Pegasus without the prior written consent of HHC. HHC shall be solely and exclusively responsible for the inclusion of its trademark and other intellectual property notices on all information provided to Pegasus in connection with the Services. Pegasus agrees to take reasonable and necessary actions to prevent the deletion of such trademark and other intellectual property notices from the information provided by HHC. Neither party shall have the right to use any intellectual property rights, including without limitation, copyright, trademarks, service marks of the other party or any of its subsidiaries or affiliates except with prior written approval. Neither party acquires any rights in any intellectual property, including without limitation, any trademarks, service marks or copyrights of the other, its subsidiaries or affiliates. 22. Software and Intellectual Property. (i) Each of the parties hereto represents and warrants to the other that, with respect to all software and other intellectual property in connection with the Services or otherwise required to be furnished pursuant to this Agreement (collectively, the "Intellectual Property"), each either owns the Intellectual Property furnished by it or is fully authorized to deliver the Intellectual Property and to allow the Intellectual Property to be used in connection with the Interface, as contemplated by this Agreement. Should any claim be raised by any third party that the use of any of the Intellectual Property or the delivery of any of the Intellectual Property in connection with this agreement constitutes infringement of any patent, copyright, license or other property right (a "Claim"), the party furnishing such Intellectual Property shall, at its expense, defend any such Claim in accordance with the provisions of Section 23 of this Agreement. Should either party be temporarily or permanently enjoined from using any of the Intellectual Property as a result of any Claim, the other party, at its option and own expense, shall either procure the right to continue to use the Intellectual Property free from any Claim or replace or modify the offending Intellectual Property so that its use becomes non-infringing, within fifteen (15) days of the date on which it receives notice of the claim (either such corrective action being referred to herein as a "Correction"). If a Correction is not accomplished, the party who furnished the Intellectual Property resulting in the Claim shall be deemed to be in default of this Agreement, and in such event, Sections 25, 27 and 28 of this Agreement shall control; provided, however, that the fifteen (15) day period specified above shall be deemed to be the applicable cure period under Section 25, and once that fifteen (15) day period has expired without a Correction having occurred, the applicable cure period under Section 25 shall be deemed to have expired. Without limiting Article 23 of this Agreement, the party who furnished the Intellectual Property resulting in the Claim shall also be obligated to indemnify the other party for any of its losses (such losses being Pegasus' Losses or HHC's Losses, as the case may be, as defined in Section 23 hereof) in connection with any Claim for which a Correction is not made within such fifteen (15) day period, in accordance with this Article 22(i). -10- 11 (ii) All reservation transactions and HIW Hotel information and all other data collected by Pegasus pursuant to this Agreement shall remain the sole and exclusive property of HHC and such information and data may not be used in any manner other than in accordance with this Agreement. 23. Indemnification in the Event of Certain Losses. HHC agrees to indemnify and hold harmless Pegasus, its parents, subsidiaries, franchisees, affiliates and their directors, officers, employees and other stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) occurring on account of HHC's fault and through no fault of Pegasus ("Pegasus' Losses"). Pegasus agrees to indemnify and hold harmless HHC, its parents, subsidiaries, franchisees, affiliates and their directors, officers, employees and stockholders, from and against any losses, claims, liabilities, damages or expenses (including reasonable attorney's fees) (" HHC's Losses") occurring on account of Pegasus' fault and through no fault of HHC. Promptly after receipt by an indemnified party of notice of the commencement of any action or the presentation or other assertion of any claim which could result in any indemnification claim pursuant to this section, such indemnified party shall give prompt notice thereof to the indemnifying party and the indemnifying party shall be entitled to participate therein or, to the extent that it shall wish, assume the defense thereof with its own counsel. If the indemnifying party elects to assume the defense of any such action or claim, the indemnifying party shall not be liable to the indemnified party for any fees of other counsel or other expenses, in each case subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation and preparation, unless representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. 24. Events of Default. Subject to Section 25 hereof, any one of the following listed occurrences shall be considered an Event of Default: (i) The failure to pay any amount due hereunder within the time required; (ii) The refusal or failure to diligently and in good faith perform each and every material provision of this Agreement; (iii) The failure of Pegasus to provide the Services on a continual dependable basis; or (iv) If either Pegasus or HHC (the "Defaulting Party") becomes insolvent, takes any step leading to its cessation as a going concern, or ceases business operations for reasons other than a strike and other than assignment as allowed by this Agreement, then the other party (the "Insecure Party") may immediately terminate this Agreement upon written notice to the other party unless the Defaulting Party immediately gives the Insecure Party adequate assurance of the future performance of this Agreement. If bankruptcy proceedings are commenced with respect to the Defaulting Party, and if this Agreement has not otherwise terminated, then the Insecure -11- 12 Party may suspend all further performance of this Agreement until the Defaulting Party assumes or rejects this Agreement pursuant to Section 365 of the Bankruptcy Code or any similar or successor provision. Any such suspension of further performance by the Insecure Party pending the Defaulting Party's assumption or rejection will not be a breach of this Agreement. 25. Occurrence of Default; Notice and Opportunity to Cure. Upon the occurrence of an Event of Default, the non-defaulting party shall give written notice to the defaulting party specifying the alleged default. Except as otherwise specifically set forth herein, the defaulting party shall then be entitled to ten (10) days after receipt of such notice within which to cure any monetary default and thirty (30) days within which to cure any non-monetary default. If the party entitled to cure the Event of Default does not cure the Event of Default within the cure period specified above, then such party shall be deemed to be in default of this Agreement. Any such default shall not relieve the defaulting party from any of its obligations hereunder, and in the event of a default, the non-defaulting party hereunder shall, except as provided in this Agreement, be entitled to whatever remedies at law or in equity are available to it. 26. Licensee Acknowledgment. Pegasus understands and agrees that most participating hotels are independently owned and operated by licensees, that HHC does not control the day to day operations of licensed hotels, that HHC assumes no liability for the acts or omissions of a licensed hotel. HHC, its parents, subsidiaries, or affiliated companies shall not be liable for any activities of a licensed hotel or for any special, incidental, indirect or consequential damages even if it has been advised of the possibility of such damage. 27. Termination by HHC. Upon the occurrence of an Event of Default (as defined in paragraph 24 herein-above) by Pegasus and the failure of Pegasus to cure such default after notice and opportunity to cure as provided by Section 25 hereof, HHC may terminate this Agreement at any time within thirty (30) days after the expiration of the cure period provided in Section 25. Notwithstanding any other provision hereof, HII may terminate this Agreement without cause during any Additional Term upon one hundred eighty (180) days prior notice. 28. Termination by Pegasus. Upon the occurrence of an Event of Default (as defined in paragraph 24 herein-above) by HHC and the failure of HHC to cure such default after notice and opportunity to cure as provided by Section 25 hereof, Pegasus may terminate this Agreement at any time within thirty (30) days after the expiration of the cure period provided in Section 25. Notwithstanding any other provision hereof, Pegasus may terminate this Agreement without cause during any Additional Term upon one hundred eighty (180) days prior notice. 29. Termination of TravelWeb Service. Notwithstanding any other provision hereof, after the expiration of [*] from the date the TravelWeb service becomes operable, HHC may terminate the TravelWeb service upon at least sixty (60) days prior written notice to Pegasus. 30. Termination of UltraSwitch Service. Notwithstanding any other provision hereof, after the expiration of [*] after the date the UltraSwitch service *Confidential Treatment Requested -12- 13 described herein becomes operable, HHC may terminate the UltraSwitch Service upon at least ninety (90) days prior written notice to Pegasus provided that HHC has received a bona fide contract offer from a Commercially Viable Entity (as hereinafter defined) to provide services similar to the UltraSwitch Service with a per transaction fee of less than [*] per transaction and with guaranteed levels of performance exceeding those set forth in this Agreement and further provided HHC has provided the proposed third party agreement to Pegasus and Pegasus has failed and refused within sixty (60) days of receipt of such contract to agree to amend the terms of this Agreement to meet or exceed the terms of the third party contract. A Commercially Viable Entity is defined as a solvent entity which has, or whose parents, subsidiaries, affiliates, predecessors or principals have, at least three (3) years experience in providing substantially the same services as the UltraSwitch Service to the hotel industry and who has processed at least two million (2,000,000) Net Reservations during the previous twelve (12) month period. 31. Force Majeure. Except with respect to the payment obligations set forth herein, it will not constitute an Event of Default if such event listed in Section 24 hereof is caused by or results from acts of God; fire; war; civil unrest; power fluctuations or outages; telecommunication fluctuations; outages or delays; utility failures; or governmental action or other events beyond the control of the defaulting party. However, if any such occurrence results in any of the events described in Section 24, and the same continues for more than thirty (30) consecutive days, either party may terminate this Agreement by providing notice as required herein. 32. Disclaimer, Limitation of Liabilities and Risk of Internet Usage. EXCEPT TO THE EXTENT RESULTING FROM PEGASUS' GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, PEGASUS WILL NOT BE RESPONSIBLE OR LIABLE FOR (i) ANY FALSIFICATIONS OR INACCURACIES IN ANY OF THE INFORMATION PROCESSED OR DISTRIBUTED PURSUANT TO THIS AGREEMENT, (ii) ANY CLAIMS OF LIABILITY OF ANY NATURE ARISING OUT OF ANY RESERVATION TRANSACTION PROCESSED PURSUANT TO THIS AGREEMENT (iii) ANY ACT OR FAILURE TO ACT WITH RESPECT TO SUCH INFORMATION OR THE CREATION OR FUNCTIONALITY OF RESERVATION CAPABILITIES UNLESS EXPRESSLY SET FORTH HEREIN, (iv) ANY CLAIM, DAMAGE, OR LIABILITY OF ANY NATURE ARISING OUT OF ACCESS TO HHC'S PRIVATE LABEL WEB SITE AND/OR THE MAKING, CHANGING OR CANCELING OF A RESERVATION AND THE USE OF A CREDIT CARD OR OTHER DEBIT DEVICE IN CONNECTION THEREWITH, OR (v) ANY CLAIM RESULTING FROM ANY INTERRUPTION, MALFUNCTION OR CHANGE IN THE USE OF THE INTERNET OR A THIRD PARTY DISTRIBUTION SYSTEM. EXCEPT AS SET FORTH IN SECTION 33 BELOW, ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, GOOD AND WORKMANLIKE PRODUCT OR SERVICE OR OTHERWISE ARE DISCLAIMED BY PEGASUS AND WAIVED BY PEGASUS. HHC ACKNOWLEDGES AND AGREES THAT THE OPERATION OF A SITE ON THE INTERNET IS AT PEGASUS' OWN RISK. 33. Limited Warranty. Pegasus warrants that the purchased services will be fit for their intended purpose, will be free from defects, will conform to stated specifications, will comply with descriptions of the Services set forth herein and will conform to all applicable codes and standards. Pegasus warrants that it has obtained appropriate releases granting HHC complete and unrestricted rights during the term of this Agreement *Confidential Treatment Requested -13- 14 to use the services provided. The above warranty shall be for the benefit of HHC, its affiliates, franchisees, successors and assigns. The inspection or acceptance of the Services shall not be a waiver of rights under this warranty. This warranty shall survive delivery and acceptance of the purchased Services. Pegasus further warrants that it has, and shall maintain during the term of this Agreement, a commercially reasonable back-up disaster recovery system. Pegasus further warrants that it will provide reasonable and customary security procedures to protect the integrity of the Web sites and Web pages contemplated by this Agreement. 34. Right to Repair. Notwithstanding any other provision of this Agreement, in the event Pegasus repairs any material failure in the operation or performance of the Services within twelve (12) hours of notice from HHC requesting such repair or actual knowledge of Pegasus of need of the repair Pegasus shall not be in default of this Agreement and shall not be liable for any damage resulting from such failure, unless resulting from Pegasus' gross negligence or willful misconduct. 35. No Consequential Damages. Except with respect to the indemnification provisions set forth herein, neither party will be liable to the other for any consequential damages caused or resulting from any breach of this Agreement or arising out of the performance of this Agreement, and each party hereby expressly waives such damages. 36. Management Consultation. Pegasus agrees that it will periodically meet with and provide HHC representatives information regarding service and financial developments of Pegasus to the extent permitted by applicable law. 37. Warrants. Upon full execution hereof, Pegasus shall execute and deliver to HHC the Warrants (see Exhibit G). 38. HCC Agreements with Holiday Inns, Inc. and Rescom Services, Inc. It is acknowledged and agreed that there currently exists between HCC and Holiday Inns, Inc. on the one hand and HCC and Rescom Services, Inc. on the other hand two (2) separate agreements relating to Pegasus providing processing services for payment of travel agent commissions. It is also acknowledged and agreed that Rescom Services, Inc. has been issued an option to purchase stock in HCC (the "Option"). With respect to such agreements and the Option, the parties hereby agree: (a) upon execution hereof, HHC will execute as assignee of Holiday Inns, Inc. and Pegasus will cause HCC to execute the First Amendment to HCC Participant Agreement attached hereto as Exhibit H and HCC will cause Rescom Services, Inc. to execute and Pegasus will cause HCC to execute the First Amendment to Agreement Between Rescom Services, Inc. and The Hotel Clearing Corporation attached hereto as Exhibit I; and (b) HHC will cause Rescom Services, Inc. and Pegasus will cause HCC to execute the Termination of Option and Cancellation of Note agreement attached hereto as Exhibit K at the time of execution of this Agreement. 39. Insurance Certificates. Pegasus shall forward to the Risk Management Department of HHC at 3 Ravinia Drive, Suite 2900, Atlanta, Georgia 30346, certificates -14- 15 of general comprehensive liability insurance coverage issued by the insuring carrier or carriers for the benefit of Pegasus with limits of not less than those set forth on Exhibit L attached hereto. HHC shall be given thirty (30) days prior written notice of cancellation or adverse material change of the insurance to which the certificates relate. The fulfillment of these insurance obligations shall not relieve Pegasus of any liability assumed by Pegasus in this Agreement or in any way modify Pegasus' contractual or common law obligations to indemnify HHC. 40. Compliance With Law. Each party shall, at its own expense, comply with all applicable federal, state, county and local laws, ordinances, regulations and orders in the performance of this Agreement. Pegasus represents that the fees set forth herein include all applicable sales, use or other similar taxes and warrants that it is registered and will file and pay all such taxes which may arise as a result of this Agreement. 41. Equal Opportunity Company. Each party represents and warrants that it will not discriminate against any employee or applicant for employment because of race, color, religion, sex, national origin, age or any other unlawful criterion, and it shall comply with all applicable laws against discrimination and all applicable rules, regulations and orders issued thereunder or in implementation thereof. The Equal Opportunity clauses set forth in 41 C.F.R. Sections 60-1.4(a), 60-250.5(a) and 60-741.5(a) are incorporated by reference herein. 42. Severability. If any provision of this Agreement or the application of any provision hereof is held invalid, the remainder of this Agreement and the application of such provision shall not be affected unless the provision held invalid shall substantially impair the benefits of the remaining portions of this Agreement. 43. Notices. All notices, requests, consents, payments and other communications contemplated hereby shall be in writing and (a) personally delivered, (b) deposited in the United States mail, first-class, registered or certified mail, return receipt requested, with postage prepaid, (c) sent by overnight courier service (for next business day delivery), shipping prepaid, or (d) transmitted by facsimile/telecopy in combination with any other permitted form of notice as follows: If to If to PEGASUS: HHC: 3811 Turtle Creek Blvd. #1100 Three Ravinia Drive, Suite 2900 Dallas, TX 75219 Atlanta, GA 30346 Attention: John F. Davis, III Attention: Laurie Donachy If by facsimile/telecopy to: If by facsimile/telecopy to: 214-528-5675 770-604-5940 cc: Ric L. Floyd cc: D. Franklin Moore, Jr. 3811 Turtle Creek Boulevard Three Ravinia Drive, Suite 2900 1100 Turtle Creek Centre Atlanta, GA 30346 Dallas, Texas 75219 770-604-5052 (phone) 214-522-3888 (phone) 770-604-8442 (facsimile) 214-522-8488 (facsimile) -15- 16 or such persons or addresses as any party may request by notice duly given hereunder. Except as otherwise specified herein, notices shall be deemed given and received at the time of personal delivery or, if sent by U.S. mail, three (3) business days after mailing, or, if sent by overnight courier, one (1) business day after such sending or, if sent by facsimile or telecopy, upon verified receipt of same. 44. Non-Exclusive Arrangement. Except as otherwise provided herein, nothing in this Agreement shall be construed as requiring HHC to work with Pegasus exclusively with respect to the subject matter of this Agreement. 45. Assignment. This Agreement is not assignable by Pegasus or HHC without the prior written consent of the non-assigning party, and such consent shall not be unreasonably withheld or delayed provided that Pegasus or HHC may assign this Agreement to a parent, subsidiary or affiliate without consent and either party may assign this Agreement without consent in the event of a merger, consolidation, or sale of substantially all of its assets. 46. Controlling Law. This Agreement shall be interpreted pursuant to the laws of the State of Texas without reference to its conflict of laws principles. In the event litigation is initiated by HHC, venue for such action shall be in the state or federal courts located in Dallas County, Texas. In the event Pegasus initiates the litigation, venue for such litigation shall be in the state or federal courts located in Dekalb County, Georgia. 47. Entire Agreement. This Agreement and the exhibits attached hereto constitute the entire agreement between Pegasus and HHC with respect to the provision of the Services and supersedes and replaces any and all other agreements and representations, verbal or written, with respect to the subject matter of this Agreement. There are no representations, warranties or agreements made or relied upon by either party with respect to the subject matter of this Agreement which are not contained in this Agreement. Headings are for reference only and are not intended to affect the meaning of any terms. 48. Confidentiality of the Agreement. The parties agree that the terms and provisions of this Agreement shall be kept confidential and shall be disclosed only to those persons and entities as required by law or as permitted by the other party hereto. The parties may, however, disclose the existence of this Agreement to any person or entity. The Mutual Non-Disclosure Agreement to Protect Release of Confidential Information, executed by Pegasus on May 1, 1997 and by HHC on May 6, 1997, is incorporated herein and attached hereto as Exhibit J. 49. Status of Parties. This Agreement shall not constitute a partnership, joint venture or similar arrangement. The parties hereto are separate and distinct entities independently contracting with each other at arms length. Pegasus shall not be deemed by this Agreement to be granting a license to HHC, with respect to UltraSwitch(R) or any software or service mark related thereto, or otherwise, this being a contract for the use and rendering of services only. -16- 17 50. No Waiver. A party's failure at any time to enforce any of the provisions of this Agreement or any right with respect thereto, will not be construed to be a waiver of such provision or rights, not to affect the validity of this Agreement. The exercise by a party of any rights provided by this Agreement shall not preclude or prejudice the exercise thereafter of the same or other rights under this Agreement. 51. Amendments/Modifications. This Agreement may not be amended or modified except in a writing signed by an officer of both parties. Any attempted amendment or modification not in writing and signed by an officer of both parties shall be null and void. AGREED to this 13th day of May, 1997. PEGASUS SYSTEMS, INC. HOLIDAY HOSPITALITY CORPORATION By: /s/ JOHN F. DAVIS, III By: /s/ JOHN T. SWEETWOOD ----------------------------- ----------------------------- John F. Davis, III (name) John T. Sweetwood President ------------------------- (title) Executive Vice President ------------------------- May 12, 1997 By: ----------------------------- (name) ------------------------- (title) ------------------------- APPROVED BUSINESS TERMS ________________ LEGAL FORM ____________________ -17- 18 TABLE OF EXHIBITS Exhibit A UltraSwitch Service Exhibit B UltraDirect Service Exhibit C UltraRes Service Exhibit D Property Information Distribution Services Exhibit E Private Label Web Site Service Exhibit F TravelWeb Service Exhibit G Common Stock Purchase Warrant Exhibit H First Amendment to HCC Participant Agreement Exhibit I First Amendment to Agreement Between Rescom Services, Inc. and The Hotel Clearing Corporation Exhibit J Mutual Non-Disclosure Agreement to Protect Release of Confidential Information Exhibit K Termination of Option and Cancellation of Note Exhibit L Schedule of Insurance Schedule I Schedule of Implementation Schedule II Reports 19 EXHIBIT "A" ULTRASWITCH SERVICE Pegasus shall create, operate and maintain an Interface between the HHC Reservations System and all major GDSs. Subject to the duties of HHC set forth in this Exhibit A below, Pegasus shall provide all reasonable and necessary technical support, hardware and software and modifications to the UltraSwitch to maintain the Interface between HHC and all major GDSs. Subject to Section 31 hereof, delays caused by GDSs, HHC or other third parties, the UltraSwitch Interface will provide room confirmation numbers for each booking at an HIW Hotel made through a Reservation Provider within an average determined over each rolling ninety (90) day period of [ * ] within the contiguous forty eight (48) United States and District of Columbia and [ * ] elsewhere. Pegasus will provide host to host or bulk data transfer processes for the purposes of updating room rates in each of the GDSs. This will include, but not be limited to, adds, deletes, and total refresh application. Pegasus shall not be responsible for, but will use reasonable and necessary efforts to require, UltraSwitch users to return response messages within the response time requirements set forth in the immediately preceding sentence. Subject to Section 31 hereof, the UltraSwitch service will be available, operational and fully functional to process HIW Hotel's customer reservations ninety nine percent (99%) of the time each calendar month. Pegasus will not discriminate among hotel participants in processing reservations through the UltraSwitch. Through the UltraSwitch Interface, HHC will permit all Reservation Providers utilizing the UltraSwitch the full and complete right to check availability, reserve and cancel rooms authorized for sale by HIW Hotels and receive a confirmation acknowledgment of any such transaction. All information provided by HII Hotels with respect to rooms and facilities shall be complete and accurate and shall be consistent with and inclusive of all of the information provided and rates available to a direct caller to HII's (Central) Reservation System to the fullest extent each Reservation Provider database will permit. HHC is not responsible for information provided by HIW Hotels. HHC shall use all reasonable and necessary efforts and shall cooperate fully with and provide support for Pegasus' personnel with respect to the creation of the Interface with Pegasus UltraSwitch Service including, but not limited to, undertaking all reasonable and necessary modifications to the HHC Reservation System to cause it to be compatible with the UltraSwitch Interface. HHC shall use its best efforts to cause all of its GDS transactions to be processed via the UltraSwitch Service no later than December 31, 1997. *Confidential Treatment Requested 20 EXHIBIT "B" ULTRADIRECT SERVICE Pegasus shall create, operate and maintain on a continual basis a dependable and operative Interface between HHC's Reservation System and Corporate Travel Coordinators, travel agents and other entities utilizing UltraDirect and will provide access to Lodging Select and Lodging Connect capabilities. Pegasus will provide all reasonable and necessary technical support, hardware and software, without cost to HHC, so as to enable Corporate Travel Coordinators to access HHC's Reservation System and perform the capabilities of Lodging Select and Lodging Connect. Pegasus will provide to HHC specifications for its UltraDirect service and, for a period of ten (10) years from the effective date hereof, shall permit HHC to utilize the UltraDirect specifications to create a direct interface between HHC and any Corporate Travel Coordinator or travel agent with whom Pegasus is not under contract to provide the UltraDirect service. HHC shall be solely responsible for the creation and implementation of each UltraDirect interface it elects to create with any third party and, in connection with the utilization of the UltraDirect specifications to create the interface, HHC agrees to cause each third party to whom the UltraDirect specifications are disclosed to execute a Non-Disclosure Agreement to Protect Release of Confidential Information in form and substance identical to Exhibit L attached hereto. HHC shall be solely and exclusively responsible for the installation and operation of the UltraDirect interface and all maintenance in connection therewith provided however Pegasus shall, without incurring any cost, provide telephonic technical advice with respect to the initial installation of an UltraDirect interface by HHC. HHC hereby indemnifies and holds harmless Pegasus of and from any and all claims or liability of any nature arising out of the UltraDirect specifications and the creation of an UltraDirect interface by HHC, if caused by the negligent or intentional acts or omissions of HHC. In no event shall Pegasus be liable to HHC or any other person or entity for any damages, including any incidental or consequential damages, expenses, lost profits, lost savings, or other damages or any other form of liability arising out of the use of the UltraDirect specifications by HHC or any third party or any UltraDirect interface created by HHC unless caused by the negligent or intentional acts or omissions of Pegasus. 21 EXHIBIT "C" ULTRARES SERVICE Pegasus shall create, operate and maintain an Interface between HHC's Reservation System and Housing Reservation Providers utilizing Pegasus' UltraRes service. Pegasus will provide all reasonable and necessary technical support, hardware and software, at no cost to HHC, to maintain the Interface between HHC's Reservation System and a Housing Reservation Provider utilizing Pegasus' UltraRes service. Pegasus will provide to HHC specifications for its UltraRes service and shall, for a period of ten (10) years from the effective date hereof, permit HHC to utilize the UltraRes specifications to create a direct interface between HHC and any person or entity providing housing reservation services for meetings and conventions with whom Pegasus is not under contract to provide the UltraRes service. HHC shall be solely responsible for the creation and implementation of each UltraRes interface it elects to create with any third party and, in connection with the utilization of the UltraRes specifications to create the interface, HHC agrees to cause each third party to whom the UltraRes specifications are disclosed to execute a Non-Disclosure Agreement to Protect Release of Confidential Information in form and substance identical to Exhibit L attached hereto. HHC shall be solely and exclusively responsible for the installation and operation of the UltraRes interface and all maintenance in connection therewith provided however Pegasus shall, without incurring any cost, provide telephonic technical advice with respect to the initial installation of an UltraRes interface by HHC. HHC hereby indemnifies and holds harmless Pegasus of and from any and all claims or liability of any nature arising out of the UltraRes specifications and the creation of an UltraRes interface by HHC, if caused by the negligent or intentional acts or omissions of HHC. In no event shall Pegasus be liable to HHC or any other person or entity for any damages, including any incidental or consequential damages, expenses, lost profits, lost savings, or other damages or any other form of liability arising out of the use of the UltraRes specifications by HHC or any third party or any UltraRes interface created by HHC unless caused by negligent or intentional acts or omissions of Pegasus. 22 EXHIBIT "D" PROPERTY INFORMATION DISTRIBUTION SERVICES Pegasus will provide HHC with the ability to create a digital database of HIW Hotels which is (i) capable of being accessed by Third Party Distribution Systems with whom Pegasus contracts and (ii) where functionality exists, capable of permitting the accessors of the database to make, amend and cancel reservations with HIW Hotels. Pegasus will contract with Third Party Distribution Systems and develop Interfaces with Third Party Distribution Systems which will permit accessors of Third Party Distribution Systems to view HHC's HIW Hotels database and make, amend and cancel reservations for HIW Hotels. Pegasus shall maintain a continual operable Interface with those Third Party Distribution Systems with whom it contracts during the term of such contract, subject to the termination rights contained therein. All updates and edits of HHC's Property Information Database shall be accessible by Third Party Distribution Systems within two business days of receipt by Pegasus of such update or edit. HHC is solely responsible for providing to Pegasus the HHC Property Information Database pursuant to Pegasus' prescribed methods. HHC shall maintain an accurate and current Property Information Database. HHC is not responsible for information provided by HIW Hotels. 23 EXHIBIT "E" PRIVATE LABEL WEB SITE SERVICE Pursuant to mutually agreed commercially reasonable requirements, Pegasus shall create and maintain a Private Label Web Site for HII. Pegasus shall provide all reasonable and necessary technical support, hardware and software to provide a continually operable Private Label Web Site. The Private Label Web Site shall provide HHC and HIW Hotels with the capability to create multiple site views, make unlimited changes or modifications to the proprietary views, update HHC's Property Information Database using the remote authoring or batch processing and make changes to the Property Information Database to include additional property information as mutually agreed. The Private Label Web Site shall also include information and reservation functionality for other travel suppliers, weather information, mapping capability and an ad banner management system all of which may be accepted or rejected by HHC. No later than December 31, 1997, the Private Label Web Site shall have city availability search and alternate property display functionality. Pegasus shall conduct a semi-annual security audit and shall provide for commercially reasonable disaster recovery procedures. Subject to Sections 31 and 32 hereof, interruptions in the operation of the Internet and delays caused by HHC, accessors to the Private Label Web Site or other third parties, HHC's Private Label Web Site shall be available, operational and fully functional to process reservations by accessors to HHC's Private Label Web Site ninety nine point five percent (99.5%) of the time over a rolling one hundred eighty (180) day period and accessors shall receive a room confirmation for each reservation within an average determined over each calendar month of twelve (12) seconds or less. The Private Label Web Site shall contain the HHC Property Information Database created by HHC and Reservation Functionality. Pegasus will provide HHC with the ability to create a digital database of HIW Hotels (the HHC Property Information Database) which is capable of being accessed via the Private Label Web Site and capable of permitting accessors of the Private Label Web Site to make, amend and cancel reservations in the HHC Reservation System. Notwithstanding the above, HHC shall have a period of [*] from the date hereof to analyze and consider whether or not to utilize the Private Label Web Site service and HHC may, prior to the expiration of [*] from the date hereof, give written notice to Pegasus to not utilize the Private Label Web Site service and, in such event, Pegasus shall have no obligation to provide the Private Label Web Site service and HHC shall incur no fees for this service. *Confidential Treatment Requested 24 EXHIBIT "F" TRAVELWEB SERVICE Pegasus shall create, operate and maintain on a continual basis a dependable and operative Interface between HHC's Reservation System and Pegasus' TravelWeb Internet Site. Pegasus will provide all reasonable and necessary technical support, hardware and software so as to enable all accessors of Pegasus' TravelWeb site to access HHC's Reservation System and Property Information Database. 25 EXHIBIT G No.1 PEGASUS SYSTEMS, INC. For the purchase of 259,292 Shares COMMON STOCK PURCHASE WARRANT THIS CERTIFIES that HOLIDAY HOSPITALITY CORPORATION (hereinafter called the "Holder") is entitled to purchase from PEGASUS SYSTEMS, INC., a Delaware corporation (hereinafter called the "Company"), upon the surrender of this Warrant to the Company at the principal office in Dallas, Texas, at any time on and after May 13, 1997 (the "Detachment Date"), and before the close of business on May 12, 1999 (the"Termination Date"), the number of fully paid and nonassessable shares of Common Stock, par value $.01 per share ("Common Stock"), set forth above, evidenced by a certificate therefor, upon payment of the lesser of $9.60 per share or 85% of the initial public offering price per share of the Company's Common Stock (the "Warrant Price") for the number of shares set forth herein above; provided, however, that under certain conditions set forth hereinafter, the number of shares of Common Stock purchasable upon the exercise of this Warrant may be increased or reduced and the Warrant Price may be adjusted. The Warrant Price shall be payable in cash, or by certified or official bank check, in United States dollars, to the order of the Company. No adjustment shall be made for any cash dividends on any shares of stock issuable upon exercise of this Warrant. The right of purchase represented by this Warrant is exercisable by Holder, its parent, subsidiary, affiliate or any other successor to all or substantially all of its business by sale of stock, sale of assets, merger or otherwise only, in its entirety only and only in respect of all of such shares. In the event this Warrant has not been exercised as required herein before the close of business on the Termination Date, it shall automatically terminate and be of no force and effect. Subject to the provisions hereof, Holder shall have the right to purchase from the Company (and the Company shall issue and sell to Holder) the number of fully paid and nonassessable shares of Common Stock specified in this Warrant, upon surrender of this Warrant to the Company at its office in Dallas, Texas and upon payment to the Company of the Warrant Price for the number of shares of Common Stock for which this Warrant is issued and any applicable taxes. Upon surrender of this Warrant, and payment of the Warrant Price as aforesaid, the Company shall issue and cause to be delivered with all reasonable dispatch to Holder a certificate for the number of full shares of Common Stock so purchased upon the exercise of this Warrant. Such certificate shall be deemed to have been issued and Holder shall be deemed to have become a holder of record of such shares as of the date of the surrender of this Warrant and payment of the Warrant Price as aforesaid. The rights of purchase represented by this Warrant shall be exercisable, at the election of Holder, once only for all and not less than all of the shares specified herein and, in the event this Warrant is exercised in respect of less than all of the shares specified therein such exercise shall be invalid and of no force or effect. There have been reserved, and the Company shall at all times keep reserved, out of the authorized and issued shares of Common Stock, a number of shares sufficient to provide for the exercise of the rights of purchase represented by this Warrant, and the transfer Agent for the Common Stock and every subsequent Transfer Agent for any shares of the Company's capital stock issuable upon the exercise of any of the rights of purchase aforesaid are hereby irrevocably -1- 26 authorized and directed at all times to reserve such number of authorized and unissued shares as shall be requisite for such purpose. The Warrant Price and number of shares subject to this Warrant shall be subject to adjustment from time to time as follows: a. In case the Company shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the Warrant Price in effect immediately prior to such subdivision shall be proportionately reduced and, in case the outstanding shares of the Common Stock of the Company shall be combined into a smaller number of shares, the Warrant Price in effect immediately prior to such combination shall be proportionately increased. b. Upon each adjustment of the Warrant Price pursuant to the provisions hereof, the number of shares issuable upon the exercise of this Warrant shall be adjusted by multiplying the Warrant Price in effect prior to the adjustment by the number of shares of Common Stock covered by the Warrant and dividing the product so obtained by the adjusted Warrant Price. c. Except upon consolidation or reclassification of the shares of Common Stock of the Company as provided for in subsections (a) or (f) hereof, the Warrant Price in effect at any time may not be adjusted upward or increased in any manner whatsoever. d. Irrespective of any adjustment or change in the Warrant Price or the number of shares of Common Stock actually purchasable under this Warrant, this Warrant shall continue to express the Warrant Price per share and the number of shares purchasable hereunder as the Warrant Price per share and the number of shares purchasable were expressed in this Warrant when initially issued with the adjustment or change reflected as set forth in subsection (g) hereof. e. If any capital reorganization or reclassification of the capital stock of the Company or consolidation or merger of the Company with another corporation or the sale of all or substantially all of its assets to another corporation shall be effected, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provision shall be made whereby Holder shall have the right to purchase and receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented by each such Warrant, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of shares of such Common Stock purchasable upon the exercise of the rights represented by this Warrant had such reorganization, reclassification, consolidation, merger or sale not taken place, and in any such case appropriate provisions shall be made with respect the rights and interests of Holder to the end that the provisions hereof (including without limitation provisions for adjustment of the Warrant Price and of the number of shares purchasable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be in relation to the shares of stock thereafter deliverable upon the exercise of this Warrant. -2- 27 f. No adjustment of the Warrant Price shall be made in connection with the issuance or sale of Common Stock issuable pursuant to any stock option plan or incentive compensation arrangements now or hereafter granted to employees of the Company or any of its subsidiaries in connection with their employment or the issuance or sale of shares of Preferred Stock. g. Whenever the Warrant Price is adjusted as herein provided, the Company shall provide a written statement to Holder showing in detail the facts requiring such adjustment and the Warrant Price and the number of shares of Common Stock purchasable upon exercise of this Warrant after such adjustment. h. The Company may retain a firm of independent certified public accountants of recognized standing (which may be the firm that regularly examines the financial statements of the Company) selected by the Board of Directors of the Company or the Executive Committee of said Board to make any computation required hereunder and a certificate signed by such firm shall be conclusive evidence of the correctness of any such computation. If Holder does not agree as to the correctness of such computation. Holder at their own expense may retain a firm of independent certified public accountants of recognized standings to develop a second computation. Such accounting firms shall attempt to resolve any differences of opinion with respect to such computations, but in the absence of such resolution, the matter shall be submitted to binding arbitration in Dallas, Texas in accordance with the then applicable rules of the American Arbitration Association. Notwithstanding any other provision hereof, to the extent permitted by applicable law, the Company shall provide written notice to Holder at least ten (10) days prior to the record date or other effective date for any of the following actions: dividends, mergers, liquidations, consolidations, reclassifications of stock, sale of substantially all of the assets or any other action for which stockholder approval is required by Delaware law. The Company shall issue a new warrant to be issued in place of this Warrant in the event this Warrant has been lost, stolen, defaced, worn-out, or destroyed, upon the making of an affidavit of that fact by Holder. When issuing a new warrant, the Company may, as a condition precedent thereto, (a) require the Holder of a defaced or worn out warrant to deliver such warrant to the Company and order the cancellation of the same, and (b) require the Holder of any lost, stolen or destroyed warrant or its legal representative, to advertise the same in such manner as the Company shall require and to give the Company a bond in such sum as it may direct as indemnity against any claim that may be made against the Company with respect to the warrant alleged to have been lost, stolen or destroyed. Thereupon, the Company may cause to be issued to Holder a new warrant in replacement for the warrant alleged to have been lost, stolen, defaced, worn out or destroyed. Upon the new warrant so issued shall be noted the fact of such issue and the number, date, and name of the registered Holder of the lost, stolen, defaced, worn out, or destroyed warrant in lieu of which the new warrant is issued. Every warrant issued hereunder shall be issued without payment to the Company for such warrant, provided that, there shall be paid to the Company a sum equal to any exceptional expenses incurred by the Company in providing for or obtaining any such indemnity and security as is referred to herein. -3- 28 Notwithstanding any other provision hereof, in the event this Warrant is exercised in connection with an initial public offering of the Company's stock or the sale of the Company, such exercise may be conditioned upon and subject to the consummation of such initial public offering or sale. The Company shall not be required to issue fractions of shares of Common Stock on the exercise or conversion of this Warrant. If any fraction of a share of Common Stock would, except for the provisions of this paragraph, be issuable on the exercise or conversion of this Warrant, the Company shall purchase such fraction for an amount in cash equal to the current fair market value of such fraction. The right to exercise this Warrant and purchase the stock as provided herein is expressly contingent upon and conditioned upon Holder being in material compliance with all of the material terms of that certain Distribution Services Agreement for Holiday Inn Worldwide between the Company and Holder and further provided that Holder has not terminated any of the Services (as defined therein), unless as a result of a breach of the Agreement by the Company, as of the exercise of this Warrant. Except as otherwise provided herein, nothing contained in this Warrant shall be construed as conferring upon Holder the right to vote or to consent or to receive notice as a stockholder in respect of the meetings of stockholders for the election of directors of the Company or any other matters, or any rights whatsoever as a stockholder of the Company. Any notice pursuant to this Warrant to be given or made by Holder or the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, or by next day delivery service for personal delivery, addressed (until another address is provided in writing by the Company or Holder) as follows with a copy to the Company's or Holder's legal departments: President Senior Vice President, Worldwide Reservations Pegasus Systems, Inc. Holiday Hospitality Corporation 3811 Turtle Creek Boulevard Three Ravinia Drive Suite 1100 Suite 2900 Dallas, Texas 75219 Atlanta, Georgia 30346 All the covenants and provisions of this Warrant by or for the benefit of the Company or Holder shall bind and inure to the benefit of their respect successors and assigns hereunder. This Warrant shall be deemed to be a contract made under the laws of the State of Texas and for all purposes shall be construed in accordance with the laws of said State. Nothing herein shall be construed to give to any person or corporation other than the Company and Holder any legal or equitable right, remedy or claim hereunder, but the terms of this Warrant shall be for the sole and exclusive benefit of Holder and the Company. Except as otherwise provided herein, this Warrant is not transferable. -4- 29 In connection with the exercise of this Warrant, Holder agrees to execute the Investment Representative Statement (or a substantially similar document) attached hereto as Exhibit A. IN WITNESS WHEREOF, this Warrant is hereby executed by the President and Secretary of Pegasus Systems, Inc. as the act of the Company. Date: May 27, 1997 PEGASUS SYSTEMS, INC. By: /s/ JOHN F. DAVIS, III ---------------------------------- John F. Davis, III, President ATTEST: By: /s/ RIC L. FLOYD ---------------------------------- Ric L. Floyd, Secretary -5- 30 INVESTMENT REPRESENTATION STATEMENT In connection with the exercise of Warrant Number 1 of Pegasus Systems, Inc. and the purchase of the Securities described therein, the undersigned Holder represents to the Company the following: (a) Holder is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Holder is acquiring these Securities for investment for Holder's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). (b) Holder acknowledges and understands that the Securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Holder's investment intent as expressed herein. Holder further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Holder further acknowledges and understands that the Company is under no obligation to register the Securities. Holder understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company and any other legend required under then applicable state or federal securities laws. (c) Holder is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the issuance of the Warrant to the Holder, the exercise will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited "brokers transaction" or in transactions directly with a market maker (as said term is defined under the Exchange Act); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of Securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable. -6- 31 EXHIBIT "A" TO COMMON STOCK PURCHASE WARRANT In the event that the Company does not qualify under Rule 701 at the time of issuance of the Warrant, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than one year after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than two years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above. (d) Holder further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A under the Securities Act or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Holder understands that no assurances can be given that any such other registration exemption will be available in such event. HOLIDAY HOSPITALITY CORPORATION, HOLDER By: ------------------------------------- Its: ------------------------------- Date: ------------------------- -7- 32 EXHIBIT "H" FIRST AMENDMENT TO HCC PARTICIPANT AGREEMENT This First Amendment to HCC Participant Agreement is entered into by and between THE HOTEL CLEARING CORPORATION, hereinafter called "HCC", and HOLIDAY HOSPITALITY CORPORATION, Assignee of Holiday Inns, Inc. hereinafter called "Participant", to be effective the __ day of ___, 1997. AGREED FACTS 1. HCC and Participant have heretofore entered into an HCC Participant Agreement dated effective December 21, 1994 (hereinafter called the "Participant Agreement"). 2. HCC and Participant have mutually agreed to amend the term of the Participant Agreement. 3. HCC and Participant intend for this First Amendment to set forth in its entirety their agreement to amend the term of the Participant Agreement. AGREEMENT FOR AND IN CONSIDERATION of the above-stated facts, which are hereby acknowledged as true and correct, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, HCC and Participant hereby agree as follows: 1. Section 5.1 of the Participant Agreement is hereby deleted in its entirety and is replaced with the following: "5.1 Term of Agreement. Unless earlier terminated as provided herein, the term of this Agreement shall begin upon the Effective Date and shall terminate on the last day of the [*] after the Effective Date." 2. This First Amendment shall be and hereby is incorporated into the Participant Agreement for all intents and purposes and all terms, provisions and definitions of the Participant Agreement shall apply. 3. Except for the provisions inconsistent with the terms of this First Amendment, the Participant Agreement is hereby ratified and affirmed in all respects. This First Amendment is effective as of the date stated above and executed on the dates indicated below. THE HOTEL CLEARING CORPORATION By: ---------------------------- John F. Davis, III President Date: -------------------------- *Confidential Treatment Requested 33 HOLIDAY HOSPITALITY CORPORATION By: /s/ JOHN T. SWEETWOOD ---------------------------------------------- Its: John T. Sweetwood - Executive Vice President --------------------------------------------- Date: May 12, 1997 -------------------------------------------- APPROVED BUSINESS TERMS ________________ LEGAL FORM ____________________ 34 EXHIBIT "I" FIRST AMENDMENT TO AGREEMENT BETWEEN RESCOM SERVICES, INC. AND THE HOTEL CLEARING CORPORATION This First Amendment to AGREEMENT BETWEEN RESCOM SERVICES, INC. AND THE HOTEL CLEARING CORPORATION is entered into by and between THE HOTEL CLEARING CORPORATION, hereinafter called "HCC", and RESCOM SERVICES, INC., hereinafter called "Participant", to be effective the day of 1997. ---- ------------, AGREED FACTS ------------ 1. HCC and Participant have heretofore entered into an Agreement Between Rescom Services, Inc. and The Hotel Clearing Corporation dated effective December 21, 1994 (hereinafter called the "Rescom Agreement"). 2. HCC and Participant have mutually agreed to amend the Rescom Agreement as specifically set forth herein. 3. HCC and Participant intend for this First Amendment to set forth in its entirety their agreement to amend the Rescom Agreement with respect to the matters set forth herein. AGREEMENT --------- FOR AND IN CONSIDERATION of the above-stated facts, which are hereby acknowledged as true and correct and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, HCC and Participant hereby agree as follows: 1. On the first day of the month following the first month Holiday Hospitality Corporation processes all of its properties' GDS transactions via Pegasus Systems, Inc.'s UltraSwitch service, section 4.1 of the Rescom Agreement shall be deleted in its entirety and is hereby replaced with the following: "4.1 [*] For each [*] processed by a [*] pursuant to [*] a [*] (the [*]) as follows (based upon an [*] and hereinafter defined, of between [*] and [*] For any month wherein the [*] of [*] is greater than [*] of [*] each [*]; For any month wherein the [*] of [*] is greater than [*] a [*] of [*] each [*]; For any month wherein the [*] of [*] is greater than [*] of [*] each [*]; For any month wherein the [*] of [*] is greater than [*] a [*] of [*] each [*]; and For any month wherein the [*] of [*] processed each month in excess [*] each [*] *Confidential Treatment Requested 35 2. Section [*] of the Rescom Agreement is hereby amended to delete the [*] contained in the first line below [*] and replace it with [*] The following is also added to Section 4.2: <TABLE> <CAPTION> Average [*] Effect on [*] <S> <C> [*] to [*] reduced by $[*] [*] to [*] reduced by $[*] [*] to [*] reduced by $[*] [*] to [*] reduced by $[*] [*] to [*] reduced by $[*] [*] or less reduced by $[*] </TABLE> 3. Notwithstanding any other provision hereof, in the event Pegasus Systems, Inc. does not undertake an initial public offering of its stock within twenty four (24) months of the effective date of this First Amendment, Section 2 of this First Amendment shall be deleted as of the expiration of twenty four (24) months after the effective date of this First Amendment and the provisions contained within the original Rescom Agreement with respect to Section 4.2 shall be in force and effect as of that date forward. 4. Section 4.4 of the Rescom Agreement is hereby deleted in its entirety. 5. Section 5.1 of the Rescom Agreement is hereby deleted in its entirety. 6. This First Amendment shall be and hereby is incorporated into the Rescom Agreement for all intents and purposes and all terms, provisions and definitions of the Rescom Agreement shall apply. 7. Except for the provisions inconsistent with the terms of this First Amendment, the Rescom Agreement is hereby ratified and affirmed in all respects. This First Amendment is effective as of the date stated above and executed on the dates indicated below. THE HOTEL CLEARING CORPORATION By: ------------------------------------ John F. Davis, III President Date: ----------------------- RESCOM SERVICES, INC. By: ------------------------------------ Its: ------------------------------------ By: ------------------------------------ Its: ------------------------------------ Date: ------------------------------------ *Confidential Treatment Requested 36 MUTUAL NON-DISCLOSURE AGREEMENT TO PROTECT RELEASE OF CONFIDENTIAL INFORMATION In the course of our past, presently ongoing, and forthcoming discussions and negotiations involving Pegasus Systems, Inc. (including its affiliates and subsidiaries The Hotel Industry Switch Company, The Hotel Clearing Corporation and TravelWeb. Inc.), hereinafter collectively called "Pegasus," and Holiday Hospitality Corporation ("HHC") (all of the rights and interests of Holiday Inns, Inc. related to this Agreement having been assigned to, and assumed by, HHC on April 28, 1997), doing business as Holiday Inn Worldwide, and our respective company's products and/or services and relating to the consideration of a business transaction or the purchase of one or more products and/or services, we may reveal to each other certain confidential or proprietary information with respect to corporate existence, ownership and governance and/or produce and/or services, financial condition or otherwise. The confidential and proprietary information in this context includes but is not limited to all information relative to our respective businesses, business plans, strategies or affiliations, corporate existence, ownership and governance and products and services (now existing or proposed), and any and all information generated by such products or services. Furthermore, we may have prior to the date of this Agreement, disclosed to each other certain confidential and proprietary information with respect to products and/or services and our respective businesses. in the interest of avoiding any misunderstandings about the basis on which this information ("Information") has been or will be disclosed, we mutually agree to the following: We mutually agree to not disclose to any person, except our own respective employees on a need-to-know basis, any information disclosed except as may be specifically authorized in writing by an officer or authorized representative of the disclosing party or as otherwise permitted by this Agreement. We mutually agree to require each of our employees, representatives and agents to agree to comply with our obligations under this Agreement before authorizing them to have access to such Information and to obtain the prior approval of the disclosing party for any such further dissemination of the Information to persons other than our own employees. We also mutually agree to do all things reasonably necessary to prevent any of our employees, representatives and agents from disclosing any such Information to any third parties. Additionally, we mutually agree that we will disclose such Information solely to those additional persons to whom it is absolutely necessary to disclose such Information and only on a need-to-know-basis. We further agree to use any Information disclosed solely for the purpose of determining whether or not to enter into a business transaction with each other and/or to purchase each other's products and/or services. On termination or expiration of our discussions and the failure to enter into a business transaction or to purchase products and/or services, we agree to return all originals of all such Information to the disclosing party. Such Information shall not include any information which (i) was publicly known and made generally available in the public domain prior to the time of disclosure by the disclosing party; (ii) becomes publicly known and made generally available after disclosure by the disclosing party to the receiving party through no action or inaction of the receiving party; (iii) is already in the possession of the receiving party at the time of disclosure by he disclosing party as shown by the receiving party's files and records immediately prior to the time of disclosure and is not subject to another confidentiality agreement (iv) is obtained by the receiving party from a third party without a breach of such third party's obligations of confidentiality; (v) is independently acquired or developed by the receiving party without use of or reference to the disclosing party's Information, as shown by documents and other competent evidence in the receiving party's possession; or (vi) is required by law to be disclosed by the receiving party, provided that the receiving party gives the disclosing party prompt written notice of such requirement prior to such disclosure and assistance in obtaining an order protecting the Information from public disclosure. -1- 37 We mutually acknowledge that we would not enter into or continue discussions without mutual agreement to the terms hereof and we each confirm that it is not our intent to use the specific Information disclosed under this agreement except for the purposes stated herein. HHC may assign this Agreement to a parent, subsidiary, or affiliate without consent. A facsimile transmittal of signatures to this Agreement shall be sufficient for all purposes. ACCEPTED AND AGREED: HOLIDAY HOSPITALITY CORPORATION PEGASUS SYSTEMS, INC. By: [ILLEGIBLE] By: [ILLEGIBLE] ------------------------- ------------------------- Its: Its: ------------------------ ------------------------ Date: 5/1/97 Date: 5/6/97 ----------------------- ----------------------- -2- 38 EXHIBIT "K" TERMINATION OF OPTION AND CANCELLATION OF NOTE RESCOM SERVICES, INC. (hereinafter called "Rescom") and THE HOTEL CLEARING CORPORATION (hereinafter called "HCC") hereby agree as follows: AGREED FACTS 1. HCC granted to Rescom the option to purchase one share of HCC stock as specifically set forth in that certain Stock Purchase Option with an effective date of December 22, 1994 (the "Stock Purchase Option"). 2. As partial consideration for the Stock Purchase Option, Rescom executed and tendered to HCC a note in the principal amount of One Hundred Thousand Dollars ($100,000.00) dated December 21, 1994 payable to HCC (the "Note"). 3. For their mutual benefit, Rescom and HCC are desirous of terminating the Stock Purchase Option and canceling the Note and intend for this document to set forth their agreement in that regard. AGREEMENT In consideration of the above-stated agreed facts which are hereby acknowledged and confessed as true and correct by Rescom and HCC and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is hereby mutually agreed as follows: 1. The Stock Purchase Option is hereby terminated as of the effective date hereof and is declared to be void and of no further force and effect. 2. The Note is hereby canceled as of the effective date hereof and is declared to be void and of no further force and effect. 3. Any and all rights and/or obligations arising out of the Stock Purchase Option and/or the Note are hereby terminated effective as of the effective date hereof and declared to be void and of no further force and effect. 4. The effective date of this Agreement shall be the Effective Date as defined in that certain Distribution Services Agreement for Holiday Inn Worldwide entered into of even date herewith by and between Holiday Hospitality Corporation and Pegasus Systems, Inc. 39 REPRESENTATIONS The parties hereto represent as follows: 1. Rescom hereby represents and warrants to HCC that as of the effective date hereof it is the sole and exclusive holder and owner of the Stock Purchase Option, that no other person or entity has any other rights with respect to the Stock Purchase Option and that Rescom has the full and complete right and authority to enter into this Agreement and to effectuate the provisions hereof. 2. HCC hereby represents and warrants to Rescom that as of the effective date hereof it is the sole and exclusive holder and owner of the Note, that no other person or entity has any other rights with respect to the Note and that HCC has the full and complete right and authority to enter into this Agreement and to effectuate the provisions hereof. This Termination of Option and Cancellation of Note agreement is entered into this 13th day of May, 1997 with an effective date as provided herein. THE HOTEL CLEARING CORPORATION RESCOM SERVICES, INC. By: /s/ JOHN F. DAVIS, III By: /s/ MICHAEL L. GOODSON -------------------------- --------------------------- John F. Davis, III Michael L. Goodson President Its: Vice President -------------------------- May 12, 1997 -------------------- APPROVED BUSINESS TERMS [ILLEGIBLE] ----------- LEGAL FORM [ILLEGIBLE] -------------- -2- 40 EXHIBIT "L" SCHEDULE OF INSURANCE [RAGLAND STROTHER & LAFITTE PEGASUS SYSTEMS, INC.; THISCO & HOTEL LOGO] CLEARING CORP.; TRAVELWEB, INC. Two Turtle Creek Village 3838 Oak Lawn Ave., Suite 500 Dallas, Texas 75219-4506 (214)522-4880*FAX(214)520-3856 DATE: February 20, 1997 <TABLE> <CAPTION> COVERAGE LIMITS EXPIRES COMPANY POLICY # PREMIUM COMMENT <S> <C> <C> <C> <C> <C> <C> Commercial Package: Contents: $ 700,000 01/01/98 Kemper Insurance TKP76473903 $10,567.00 $1,000 Ded Extra Expense 200,000 Included $1,000 Ded General Liability Occurrence 1,000,000 Included Aggregate 2,000,000 Fire Damage 50,000 Medical Exp. 5,000 Electronic Equipment (Texas) 600,000 Included $1,000 Ded Transit/Temp. Loc. 25,000 Commercial Crime: 01/01/98 Kemper Insurance 3F78976604 $ 1,054.00 $5,000 Ded Employee Dishonesty $ 250,000 Forgery/Alteration $ 250,000 Workers Compensation 500/500/500 01/01/98 Kemper Insurance 3BG04035804 $11,624.00 Auto: Hired/Non Owned Liab. $1,000,000 01/01/98 Kemper Insurance E3H00650003 $ 675.00 Hired/Non Owned Phy. Damage ACV or $25,000 whichever less Umbrella $5,000,000 01/01/98 Kemper Insurance 3SB04723204 $ 2,250.00 $10,000 Retained Limit Electronic Equipment (Arizona) $1,500,000 01/01/98 Kemper Insurance 3AT62283804 $ 5,000.00 $1,000 Ded Business Interruption 500,000 Included $1,000 Ded </TABLE> THIS SCHEDULE LISTS THE INSURANCE POLICIES WE PROVIDE FOR YOU. IF YOU HAVE POLICIES FROM OTHER INSURANCE OFFICES, WE SUGGEST YOU ADD THEM TO THIS LIST. REMEMBER THIS SCHEDULE IS ONLY A SUMMARY. REFER TO THE ACTUAL POLICIES FOR SPECIFIC DETAILS. 41 SCHEDULE I SCHEDULE OF IMPLEMENTATION 42 SCHEDULE II REPORTS 43 ULTRASWITCH SYSTEM DOWNTIME REPORT HOTELS Saturday, 01 March, 1997 through Monday, 31 March, 1997 <TABLE> <CAPTION> LOG NUMBER RFC DATE TIME PARTICIPANT REASON MINUTES <S> <C> <C> <C> <C> <C> <C> 8302 0 24-Mar-97 14:29 -B UltraSwitch Software 9 PCD card link level software malfunction 8602 0 27-Mar-97 02:57 -A S/W Maintenance 18 Mike K. stopped kivanet to tpe1 to remount drives under the fallover program*********JEFF B. CHECK ON THIS WITH MIKE K. 8602 0 27-Mar-97 02:57 -B S/W Maintenance 18 Mike K. sopped kivanet to tpe1 to remount drives under this fallover program*********JEFF B. CHECK ON THIS WITH MIKE K. 8604 0 27-Mar-97 03:29 -A UltraSwitch Software 31 TPE1 panicked and went into kernal debugger. 8604 0 27-Mar-97 03:29 B UltraSwitch Software 31 TPE1 panicked and went into kernal debugger. 8605 0 27-Mar-97 03:03 -A S/W Maintenance 12 Software install-Adding hotels type A&B for all GDS's 8605 0 27-Mar-97 03:03 -B S/W Maintenance 12 Software install-Adding hotels type A&B for all GDS's </TABLE> 44 GRAPHICAL STATISTICS REPORT <TABLE> <CAPTION> ---------------------------------------------------------------------------------------------------------------------------------- HOTELS CORPORATION ---------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> NET BOOKINGS ------------ MAR '96 APR'96 MAY'96 JUN'96 JUL'96 AUG'96 SEP'96 OCT'96 NOV'96 DEC'96 JAN'97 FEB'97 MAR'97 ---------------------------------------------------------------------------------------------------------------------------------- Type A Net Bookings 52,847 46,229 45,534 41,484 34,114 6,697 8,127 10,742 8,588 6,460 10,472 9,997 8,901 ---------------------------------------------------------------------------------------------------------------------------------- Type B Net Bookings -22,321 -19,435 -20,958 -20,155 -12,872 -149 -112 -119 -247 -170 -304 -237 -688 ---------------------------------------------------------------------------------------------------------------------------------- Total Net Bookings 30,526 26,794 24,576 21,329 21,242 6,548 8,015 10,623 8,341 6,290 10,168 9,760 8,213 ---------------------------------------------------------------------------------------------------------------------------------- STATUS MESSAGES: ---------------------------------------------------------------------------------------------------------------------------------- Status Message Segments 1,196,924 2,891,098 5,306,908 4,819,517 4,319,454 2,024,576 1,992,662 2,181,671 1,735,110 1,302,636 1,869,098 2,128,449 2,147,646 ---------------------------------------------------------------------------------------------------------------------------------- Ratio of Status Messages to Net Bookings 39.21 107.90 215.94 225.96 203.34 309.19 248.62 205.37 208.02 207.10 183.82 218.08 261.49 ---------------------------------------------------------------------------------------------------------------------------------- UltraSwitch(R) Ratio 30.78 32.37 33.06 40.10 39.39 37.73 41.63 40.33 37.36 45.27 34.71 43.04 47.50 ---------------------------------------------------------------------------------------------------------------------------------- TYPE A RESPONSE TIME: 2.69 3.28 3.59 3.49 3.56 3.19 3.37 3.72 2.76 2.65 2.64 2.70 2.82 ---------------------------------------------------------------------------------------------------------------------------------- All Others 2.36 2.24 2.31 2.48 2.47 2.17 2.34 2.01 1.85 1.71 1.93 2.03 1.98 ---------------------------------------------------------------------------------------------------------------------------------- UltraSwitch(R) 0.22 0.21 0.21 0.22 0.22 0.22 0.25 0.21 0.22 0.23 0.23 0.23 0.23 ---------------------------------------------------------------------------------------------------------------------------------- TYPE B DWELL TIME IN ULTRASWITCH(R): ---------------------------------------------------------------------------------------------------------------------------------- Type B Bookings ---------------------------------------------------------------------------------------------------------------------------------- All Others ---------------------------------------------------------------------------------------------------------------------------------- Status Messages ---------------------------------------------------------------------------------------------------------------------------------- All Others ---------------------------------------------------------------------------------------------------------------------------------- </TABLE> [GRAPH] [GRAPH] [GRAPH] [GRAPH] [GRAPH] [GRAPH] 45 ULTRASWITCH SYSTEM DOWNTIME REPORT HOTELS Saturday, 01 March, 1997 through Monday, 31 March, 1997 <TABLE> <CAPTION> LOG NUMBER RFC DATE TIME PARTICIPANT REASON MINUTES <S> <C> <C> <C> <C> <C> <C> 6203 0 03-Mar-97 13:00 -B UltraSwitch Software 1 1A-KSF reported full. 1A-KSF had a stuck message. 6403 0 05-Mar-97 08:25 -A UltraSwitch Software 1 Kivanet Shared memory kill kivanet on tpe2. 6403 0 05-Mar-97 08:25 -B UltraSwitch Software 1 Kivanet Shared memory kill kivanet on tpe2. 7208 0 13-Mar-97 02:58 -A S/W Maintenance 3 Software install-RFC#3367 Remove ksf from statsub, increase max-outstanding on ksf for 1A to 8. 7208 0 13-Mar-97 02:58 -B S/W Maintenance 4 Software install-RFC#3367 Remove ksf from statsub, increase max-outstanding on ksf for 1A to 8. 7708 0 18-Mar-97 03:11 A S/W Maintenance 3 Software install-Poll test with sabre DCA and southern Pacific (sp), update statsub comm engines production comm engines will have letters, test comm engines will have numbers. New covia ip for rate changes. 7708 0 18-Mar-97 03:11 -B S/W Maintenance 3 Software install-Poll test with sabre DCA and southern Pacific (sp), update statsub comm engines production comm engines will have letters, test comm engines will have numbers. New covia ip for rate changes. 7807 0 19-Mar-97 20:18 -A Transaction Processing Engine Outage 61 Out of swap space. 7807 0 19-Mar-97 20:18 B Transaction Processing Engine Outage 61 Out of swap space. 7812 0 19-Mar-97 03:48 -A S/W Maintenance 9 Software install-RFC#3367. 7812 0 19-Mar-97 03:48 -B S/W Maintenance 9 Software install-RFC#3367 7904 0 20-Mar-97 02:44 -A S/W Maintenance 3 Software install-moving type A to comm engine CEF. 7904 0 20-Mar-97 02:44 -B S/W Maintenance 3 Software install-moving type A to comm engine CEF. </TABLE> 46 ULTRASWITCH PARTICIPANT DOWNTIME REPORT HOTELS Saturday, 01 March, 1997 through Monday, 31 March, 1997 <TABLE> <CAPTION> LOG NUMBER RFC DATE TIME PARTICIPANT REASON MINUTES <S> <C> <C> <C> <C> <C> <C> 0 0 11-Mar-97 14:05 -B Participant Related Downtime 1 Participant 0 0 13-Mar-97 -A Participant Related Downtime 4 Participant 0 0 17-Mar-97 14:14 -A Participant Related Downtime 4 Participant 0 0 17-Mar-97 14:14 -B Participant Related Downtime 4 Participant 0 0 25-Mar-97 02:00 -A Participant Related Downtime 1 Participant 0 0 26-Mar-97 14:23 -B Participant Related Downtime 1 Participant </TABLE> 47 UltraSwitch(R) Billing Summary 03/01/97 through 03/31/97 Global Distribution System: ALL Hotel Reservation System: TYPE-A TRANSACTION SUMMARY Booking Requests <TABLE> <S> <C> <C> <C> <C> <C> <C> <C> ET 0 HK 380 IG 0 IN 0 IS 0 IX 0 NN 0 SS 7590 XX 2346 ZZ 0 Other 0 </TABLE> Booking Responses <TABLE> <S> <C> <C> <C> <C> <C> <C> <C> EK 0 HK 7849 HX 2088 IK 0 NN 0 NO 0 UC 353 UX 26 XK 0 Other 0 </TABLE> TYPE-B TRANSACTION SUMMARY Booking Requests from Global Distribution Systems <TABLE> <S> <C> <C> <C> <C> <C> <C> <C> AS 0 CA 0 ET 0 FS 0 HK 0 0 HN 0 HQ 0 HS 0 IG 0 IN 0 IS 0 IX 0 KK 0 LK 0 LL 0 LQ 0 NA 0 NN 0 NO 0 NS 0 OX 0 PN 0 RL 0 SK 0 SQ 0 SS 0 TL 0 UC 0 XL 0 XR 0 XX 0 Other 0 </TABLE> Booking Responses from Hotels <TABLE> <S> <C> <C> <C> <C> <C> <C> <C> AS 0 CA 0 CC 0 EK 0 HK 980 HS 0 HX 0 IK 0 KK 0 KL 0 LL 0 NN 0 NO 283 SK 0 TK 0 TL 0 UC 174 UN 0 US 0 UU 0 UX 0 XR 0 XX 0 Other 0 </TABLE> Status/Rate Update Requests from Hotels <TABLE> <S> <C> <C> <C> <C> <C> <C> <C> HCV 0 HHU 0 HUM 0 HUR 0 HVA 90925 HVC 121135 HVM 0 HVN 0 HVO 74956 HVQ 0 HVR 0 HVS 0 Other 0 </TABLE> Status Responses from Global Distribution Systems <TABLE> <S> <C> AVH 7249 </TABLE> Unknown Type B messages to HRS: 0 Unknown Type B messages to GDS: 0 Other: Messages with action/status codes not on the list. 48 UltraSwitch(R) Transaction Report 03/01/97 through 03/31/97 Global Distribution System: ALL Hotel Reservation System: TYPE-A TRANSACTION SUMMARY Booking Requests <TABLE> <S> <C> <C> <C> <C> <C> <C> <C> ET 0 HK 1250 IG 0 IN 0 IS 0 IX 0 NN 0 SS 16532 XX 4417 ZZ 0 Other 0 </TABLE> Booking Responses <TABLE> <S> <C> <C> <C> <C> <C> <C> <C> EK 0 HK 15352 HX 1722 IK 0 NN 1 NO 0 UC 4842 UX 282 XK 0 Other 0 </TABLE> TYPE-B TRANSACTION SUMMARY Booking Requests from Global Distribution Systems <TABLE> <S> <C> <C> <C> <C> <C> <C> <C> AS 0 CA 0 ET 0 FS 0 HK 0 0 HN 0 HQ 0 HS 0 IG 0 IN 0 IS 0 IX 0 KK 0 LK 0 LL 0 LQ 0 NA 0 NN 0 NO 0 NS 0 OX 0 PN 0 RL 0 SK 0 SQ 0 SS 0 TL 0 UC 0 XL 0 XR 0 XX 0 Other 0 </TABLE> Booking Responses from Hotels <TABLE> <S> <C> <C> <C> <C> <C> <C> <C> AS 0 CA 0 CC 0 EK 0 HK 272 HS 0 HX 0 IK 0 KK 0 KL 0 LL 0 NN 0 NO 150 SK 0 TK 0 TL 0 UC 81 UN 0 US 0 UU 0 UX 0 XR 0 XX 0 Other 0 </TABLE> Status/Rate Update Requests from Hotels <TABLE> <S> <C> <C> <C> <C> <C> <C> <C> HCV 0 HHU 0 HUM 0 HUR 0 HVA 647657 HVC 956346 HVM 0 HVN 0 HVO 256627 HVQ 0 HVR 0 HVS 0 Other 0 </TABLE> Status Responses from Global Distribution Systems <TABLE> <S> <C> AVH 9331 </TABLE> Unknown Type B messages to HRS: 0 Unknown Type B messages to GDS: 0 Other: Messages with action/status codes not on the list. 49 UltraSwitch(R) Transaction Report 03/01/97 through 03/31/97 Global Distribution System: ALL Hotel Reservation System: TYPE-A TRANSACTION SUMMARY Booking Requests <TABLE> <S> <C> <C> <C> <C> <C> <C> <C> ET 0 HK 1630 IG 0 IN 0 IS 0 IX 0 NN 0 SS 24122 XX 6763 ZZ 0 Other 0 </TABLE> Booking Responses <TABLE> <S> <C> <C> <C> <C> <C> <C> <C> EK 0 HK 23201 HX 3810 IK 0 NN 0 NO 0 UC 5195 UX 308 XK 0 Other 0 </TABLE> TYPE-B TRANSACTION SUMMARY Booking Requests from Global Distribution Systems <TABLE> <S> <C> <C> <C> <C> <C> <C> <C> AS 0 CA 0 ET 0 FS 0 HK 0 0 HN 0 HQ 0 HS 0 IG 0 IN 0 IS 0 IX 0 KK 0 LK 0 LL 0 LQ 0 NA 0 NN 0 NO 0 NS 0 OX 0 PN 0 RL 0 SK 0 SQ 0 SS 0 TL 0 UC 0 XL 0 XR 0 XX 0 Other 0 </TABLE> Booking Responses from Hotels <TABLE> <S> <C> <C> <C> <C> <C> <C> <C> AS 0 CA 0 CC 0 EK 0 HK 1252 HS 0 HX 0 IK 0 KK 0 KL 0 LL 0 NN 0 NO 433 SK 0 TK 0 TL 0 UC 255 UN 0 US 0 UU 0 UX 0 XR 0 XX 0 Other 0 </TABLE> Status/Rate Update Requests from Hotels <TABLE> <S> <C> <C> <C> <C> <C> <C> <C> HCV 0 HHU 0 HUM 0 HUR 0 HVA 738582 HVC 1077481 HVM 0 HVN 0 HVO 331583 HVQ 0 HVR 0 HVS 0 Other 0 </TABLE> Status Responses from Global Distribution Systems <TABLE> <S> <C> AVH 16580 </TABLE> Unknown Type B messages to HRS: 0 Unknown Type B messages to GDS: 0 Other: Messages with action/status codes not on the list. 50 UltraSwitch(R) Billing Summary 03/01/97 through 03/31/97 Global Distribution System: ALL Hotel Reservation System: <TABLE> <S> <C> <C> BILLING FORMULA FOR TYPE A TRANSACTIONS Confirmed Booking Requests 5217 Cancellation Responses (-) 2320 --------------------------------------------------------------------------------------------------------- Total Type A Net Bookings 2897 BILLING FORMULA FOR TYPE B TRANSACTIONS Reservations IS to HRS (sell) 0 SS to HRS (sell) (+) 0 NN to HRS (Need, reply required) (+) 0 IN to HRS (sell, possible dup) (+) 0 UX from HRS (no cancel) (+) 0 --------------------------------------------------------------------------------------------------------- Total Type B Reservations 0 Cancellations XX to HRS (cancel) 0 IX to HRS (cancel) (+) 0 NO from HRS (+) 283 NN from HRS (denial of booking) (+) 0 UC from HRS (could not sell) (+) 174 --------------------------------------------------------------------------------------------------------- Total Type B Cancellations 457 Type B Net Booking Summary Reservations 0 Cancellations (-) 457 --------------------------------------------------------------------------------------------------------- Total Type B Net Bookings -457 NET BOOKING SUMMARY Type A Net Bookings 2897 Type B Net Bookings (+) -457 --------------------------------------------------------------------------------------------------------- Total Net Bookings 2440 BILLING FORMULA FOR STATUS MODIFICATIONS HVC (from HRS) 121135 HVO (from HRS) (+) 74956 HVA (from HRS) (+) 90925 HVR (from HRS) (+) 0 HVN (from HRS) (+) 0 HVS (from HRS) (+) 0 HVQ (from HRS) (+) 0 HVM (from HRS) (+) 0 --------------------------------------------------------------------------------------------------------- Total Status Modifications 287016 </TABLE> 51 UltraSwitch(R) Billing Summary 03/01/97 through 03/31/97 Global Distribution System: ALL Hotel Reservation System: <TABLE> <S> <C> <C> BILLING FORMULA FOR TYPE A TRANSACTIONS Confirmed Booking Requests 10138 Cancellation Responses (-) 4134 --------------------------------------------------------------------------------------------------------- Total Type A Net Bookings 6004 BILLING FORMULA FOR TYPE B TRANSACTIONS Reservations IS to HRS (sell) 0 SS to HRS (sell) (+) 0 NN to HRS (Need, reply required) (+) 0 IN to HRS (sell, possible dup) (+) 0 UX from HRS (no cancel) (+) 0 --------------------------------------------------------------------------------------------------------- Total Type B Reservations 0 Cancellations XX to HRS (cancel) 0 IX to HRS (cancel) (+) 0 NO from HRS (+) 150 NN from HRS (denial of booking) (+) 0 UC from HRS (could not sell) (+) 81 --------------------------------------------------------------------------------------------------------- Total Type B Cancellations 231 Type B Net Booking Summary Reservations 0 Cancellations (-) 231 --------------------------------------------------------------------------------------------------------- Total Type B Net Bookings -231 NET BOOKING SUMMARY Type A Net Bookings 6004 Type B Net Bookings (+) -231 --------------------------------------------------------------------------------------------------------- Total Net Bookings 5773 BILLING FORMULA FOR STATUS MODIFICATIONS HVC (from HRS) 956346 HVO (from HRS) (+) 256627 HVA (from HRS) (+) 647657 HVR (from HRS) (+) 0 HVN (from HRS) (+) 0 HVS (from HRS) (+) 0 HVQ (from HRS) (+) 0 HVM (from HRS) (+) 0 --------------------------------------------------------------------------------------------------------- Total Status Modifications 1860630 </TABLE> 52 UltraSwitch(R) Billing Summary 03/01/97 through 03/31/97 Global Distribution System: ALL Hotel Reservation System: <TABLE> <S> <C> <C> BILLING FORMULA FOR TYPE A TRANSACTIONS Confirmed Booking Requests 15355 Cancellation Responses (-) 6454 ------------------------------------------------------------------------- Total Type A Net Bookings 8901 BILLING FORMULA FOR TYPE B TRANSACTIONS Reservations IS to HRS (sell) 0 SS to HRS (sell) (+) 0 NN to HRS (Need, reply required) (+) 0 IN to HRS (sell, possible dup) (+) 0 UX from HRS (no cancel) (+) 0 ------------------------------------------------------------------------- Total Type B Reservations 0 Cancellations XX to HRS (cancel) 0 IX to HRS (cancel) (+) 0 NO from HRS (+) 433 NN from HRS (denial of booking) (+) 0 UC from HRS (could not sell) (+) 255 ------------------------------------------------------------------------- Total Type B Cancellations 688 Type B Net Booking Summary Reservations 0 Cancellations (-) 688 ------------------------------------------------------------------------- Total Type B Net Bookings -688 NET BOOKING SUMMARY Type A Net Bookings 8901 Type B Net Bookings (+) -688 ------------------------------------------------------------------------- Total Net Bookings 8213 BILLING FORMULA FOR STATUS MODIFICATIONS HVC (from HRS) 1077481 HVO (from HRS) (+) 331583 HVA (from HRS) (+) 738582 HVR (from HRS) (+) 0 HVV (from HRS) (+) 0 HVS (from HRS) (+) 0 HVQ (from HRS) (+) 0 HVM (from HRS) (+) 0 ------------------------------------------------------------------------- Total Status Modifications 2147646 </TABLE> 53 SUB-CHAIN STATISTICS REPORT <TABLE> <CAPTION> ------------------------------------------------------------------------------------------------------------------------------------ INTERNATIONAL MAR '96 APR '96 MAY '96 JUN '96 JUL '96 AUG '96 SEP '96 OCT '96 NOV '96 DEC '96 JAN '97 FEB '97 MAR'97 ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> NET BOOKINGS: ------------ ------------------------------------------------------------------------------------------------------------------------------------ Type A Net Bookings 5,876 5,852 6,292 5,952 5,245 2,788 3,437 3,899 3,416 2,344 3,904 3,667 2,897 ------------------------------------------------------------------------------------------------------------------------------------ Type B Net Bookings -2,021 -1,932 -2,314 -2,031 -1,428 -114 -71 -62 -174 -119 -198 -152 -457 ------------------------------------------------------------------------------------------------------------------------------------ Total Net Bookings 3,855 3,920 3,978 3,921 3,817 2,674 3,366 3,837 3,242 2,225 3,706 3,515 2,440 ------------------------------------------------------------------------------------------------------------------------------------ STATUS MESSAGES: ------------ ------------------------------------------------------------------------------------------------------------------------------------ Status Message Segments 65,041 279,476 588,223 652,903 624,085 262,016 316,791 261,590 235,216 158,968 304,652 419,970 287,016 ------------------------------------------------------------------------------------------------------------------------------------ Ratio of Status Messages to Net Bookings 16.87 71.29 142.84 166.51 163.50 97.99 94.11 68.18 72.55 70.55 82.21 119.48 117.63 ------------------------------------------------------------------------------------------------------------------------------------ UltraSwitch(R) Ratio 30.78 32.37 33.06 40.10 39.39 37.73 41.63 40.33 37.36 45.27 34.71 43.04 47.50 ------------------------------------------------------------------------------------------------------------------------------------ </TABLE>
1 EXHIBIT 10.56 OFFICE LEASE This Lease is made and executed as of this 1st day of October, 1995, by the parties hereinafter identified as Landlord and Tenant and upon the following terms and conditions: ARTICLE 1. BASIC LEASE PROVISIONS For purposes of this Lease, the following terms shall have the meanings ascribed to them in this Article 1: 1.01 LANDLORD AND ADDRESS: The Utah State Retirement Investment Fund c/o CB Commercial Realty Advisors 533 S. Fremont Avenue Los Angeles, CA 90071 Attn: Director of Asset Management 1.02 TENANT AND CURRENT ADDRESS: The Hotel Industry Switch Company 3811 Turtle Creek Blvd., Suite 1100 Dallas, Texas 75219 1.03 GUARANTOR(S) AND CURRENT ADDRESS(ES): N/A 1.04 BUILDING: That certain property, building and other improvements located on the land described in EXHIBIT A, attached hereto and incorporated herein by this reference, with the street address of 3811 Turtle Creek Boulevard, Dallas, Texas 75219, and commonly referred to as Turtle Creek Centre. 1.05 PREMISES: Suites No. 1100 and 1200, Floors 11 and 12 of the Building as shown on the floor plan attached hereto as EXHIBIT 1. 1.06 AREA OF PREMISES: approximately 29,750 square feet, which number is the final agreement of the parties and not subject to adjustment. 1.07 TERM: 7 years and 1 month 1.08 COMMENCEMENT DATE: The later of December 1, 1995 or the date Tenant first occupies any portion of Floor 12, but in no event later than February 1, 1996. 1.09 EXPIRATION DATE: December 31, 2002 1.10 MONTHLY BASE RENT: Dates Monthly Base Rent ----- ----------------- Commencement Date - June 30, 1996 $29,964.00 ($20,453.13 as to Floor 11 and $9,510.87 as to Floor 12) July 1, 1996 - December 31, 1996 $35,435.13 January 1, 1997 - September 30, 1998 $40,906.25 October 1, 1998 - December 31, 2002 $45,864.58 The foregoing Monthly Base Rent amounts have been calculated based upon an annual Monthly Base Rent of $16.50 per rentable square foot for years 1 through 3 and $18.50 per rentable square foot for years 4 through the remainder of the Term, provided that the foregoing Monthly Base Rent has been reduced by $16.50 per rentable square foot for 7,958 square feet from Commencement Date through June 30, 1996, and by $16.50 per rentable square foot for 3,979 square feet from July 1, 1996 through December 31, 1996. Commencing January 1, 1997, Tenant will pay $16.50 per rentable square foot for all 29,750 square feet. 1.11 TOTAL MONTHLY BASE RENT FOR THE TERM: $3,620,483.61 1.12 TENANT'S SHARE: 10.038%, which is calculated by dividing the number of rentable square feet contained in the Premises, which is 29,750, by the number of rentable square feet contained in the Building, which is 296,378. -1- 2 1.13 BASE OPERATING YEAR: 1996 1.14 BASE EXPENSES: The total amount of Operating Expenses for the Base Operating Year 1.15 SECURITY DEPOSIT: $1,528.58 1.16 LEASING BROKER(S) (IF ANY) AND ADDRESS(ES): Fults Associates 1.17 LANDLORD'S MANAGEMENT AGENT AND ADDRESS: Compass Management, Inc. 3811 Turtle Creek Boulevard, Suite 240 Dallas, Texas 75219 or such other Management Agent as Landlord may designate from time to time. 1.18 RENT PAYMENT ADDRESS: The Utah State Retirement Investment Fund P.O. Box 910517 Dallas, Texas 75391-0517 1.19 PARKING SPACES: the sum of (a) 89 parking spaces located in the parking facilities located inside the Building's adjacent parking garage ("Adjacent Garage Parking Spaces") all of which shall be designated non-reserved parking spaces ("Non-Reserved Parking Spaces"), provided that up to 12 Non-Reserved Parking Spaces may be converted to executive non-reserved parking spaces ("Executive Non-Reserved Parking Spaces"), plus (b) 2 parking spaces ("Reserved Executive Parking Spaces") located in the parking facilities located inside the Building's executive parking garage beneath the Building ("Executive Garage"). In addition, upon Tenant's request, Landlord will temporarily make additional Non-Reserved Parking Spaces ("Additional Non-Reserved Parking Spaces") available to Tenant if and to the extent available for an amount equal to the number of employees of Tenant in excess of 89, Additional Non-Reserved Parking Spaces shall be deemed available to Tenant only to the extent such spaces have not been leased or committed to other tenants or potential tenants of the Building. Landlord may terminate Tenant's right to use any Additional Non-Reserved Parking Spaces that Landlord determines to lease or make available to other tenants of the Building, provided that Landlord shall be permitted to terminate Tenant's right to use spaces only to the extent necessary to provide another tenant of the Building up to but no more than one (1) parking space for every three hundred thirty-three (333) rentable square feet contained in such other tenant's premises. ARTICLE 2. DEMISE 2.01 INITIAL PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises for the Term and upon the terms, covenants and conditions set forth in this Lease. Subject to the provisions of Section 30.15 below, this Lease shall be in full force and effect from the date it is fully executed by both parties. Tenant covenants as a material part of the consideration for this Lease to keep and perform each and all of the terms, covenants and conditions by it to be kept and performed. This Lease is made upon the condition of such performance. 2.02 RIGHT OF FIRST REFUSAL. If the Lease is then in full force and effect and there is no Default hereunder, Tenant shall have the right of first refusal to lease an additional 6,917 square feet of rentable area located on the third (3rd) floor identified as such on Exhibit 2 attached hereto and incorporated herein for all purposes and all of the rentable area on the tenth (10th) and thirteenth (13th) floors of the Building ("ROFR Area").Such right of first refusal shall be exercisable at the following times and upon the following conditions: (a) If Landlord receives a bona fide offer from a prospective tenant (the "Prospective Tenant") to lease premises (the "Offered Premises") in the Building containing all or any part of the ROFR Area (other than an offer to renew the term of or expand the premises demised under an existing lease, as Tenant's right of first refusal shall be subordinate to any renewal of the term of and any expansion of premises demised under an existing lease) and Landlord desires to accept such offer, then Landlord shall notify Tenant of such fact. Tenant shall have a period of five (5) business days from the date of delivery of such notice to notify Landlord whether Tenant elects to exercise the right granted hereby to lease the Offered Premises. If Tenant fails to give any notice to Landlord within the required five (5) business day period, Tenant shall be deemed to have refused its right to lease all or any portion of the ROFR Area. (b) If Tenant refuses its right to lease the Offered Premises, either by giving written notice thereof or by failing to give any notice, Landlord shall thereafter have the right to lease the Offered Premises to the Prospective Tenant on such terms and provisions as may be acceptable to Landlord, provided such terms and provisions are not materially more favorable to the Prospective Tenant than the terms and provision set forth in the notice from Landlord to Tenant. If Landlord and the Prospective Tenant fail to enter into a lease, Tenant shall have the right of first refusal described herein with respect to any subsequent bona fide offers from other prospective tenants. -2- 3 (c) If Tenant exercises its right to lease the Offered Premises, Landlord and Tenant shall, within thirty (30) days after Tenant delivers to Landlord notice of its election, enter into a lease agreement with respect to the Offered Premises on the same terms, covenants, and conditions as are contained in this Lease, except as follows: (i) The rentable area of the Offered Premises shall be equal to the area offered to be leased by the Prospective Tenant. (ii) The Monthly Base Rent rate to be paid for the Offered Premises shall be equal to the Monthly Base Rent offered to be paid by the Prospective Tenant, including any offered increases from time to time in such rental rate. (iii) The additional rental relating the Operating Expenses for the Offered Premises shall be equal to the additional rental relating Operating Expenses offered to be paid by the Prospective Tenant, including any offered increases from time to time in such rate. (iv) The payment of monthly installments of Monthly Base Rent with respect to the Offered Premises shall continence on the effective date of the lease of the Offered Premises as offered to the Prospective Tenant, or in the event no specific effective date was so offered on the date mutually acceptable to Landlord and Tenant, and rent for any partial month shall be prorated. (v) Possession of such portion of the Offered Premises shall be delivered to Tenant on the basis offered to the Prospective Tenant, subject to paragraph (vii) below. Landlord will use reasonable diligence to make the Offered Premises available to Tenant as soon after the effective date stated above as it can, Landlord shall not be liable for the failure to give possession of the Offered Premises on said date by reason of the holding over or retention of possession of any tenant, tenants, or occupants, nor shall such failure impair the validity of this Lease, nor extend the term hereof, but the rent for the Offered Premises shall be abated until possession is delivered to Tenant and such abatement shall constitute full settlement of all claims that Tenant might otherwise have against Landlord by reason of said failure to give possession of the Offered Premises to Tenant on the scheduled effective date. (vi) The term of the lease of the Offered Premises shall commence on the date determined pursuant to subparagraph (c)(iv) above, and shall continue thereafter until the date on which the initial Term terminates. (vii) If the term of the lease offered to the Prospective Tenant exceeds the remainder of the then current Term, any and all allowances and credits offered to the Prospective Tenant (including, without limitation, any leasehold improvement allowances and expenses) shall be multiplied by a fraction, the numerator of which shall be the total number of months remaining in the then current Term, and the denominator of which shall be equal to the number of months in the term offered to the Prospective Tenant. (d) Any assignment or subletting of the Premises by Tenant, or any termination of the Lease, shall terminate the refusal right of Tenant hereby granted. 2.03 TERMINATION OF EXISTING LEASE. Tenant leases the eleventh floor and a portion of the third floor pursuant to an existing lease entered into by Landlord's predecessor in interest as previously amended. Effective upon the Commencement Date, the existing lease shall automatically terminate, except for Tenant's obligations thereunder that expressly survive such termination or Tenant's obligations thereunder that have not been, but should have been, performed prior to the Commencement Date. ARTICLE 3. TERM 3.01 INITIAL TERM. The term of this Lease shall commence on the Commencement Date and expire on the Expiration Date unless sooner terminated as provided in this Lease. If Landlord shall be unable to deliver possession of the Premises to Tenant on the Commencement Date for any reason whatsoever, this Lease shall not be void or voidable and Landlord shall not be subject to any liability for the failure to deliver possession on said date nor shall such failure to deliver possession on the Commencement Date affect the validity of this Lease or the obligations of Tenant hereunder, provided that Tenant shall be entitled to an abatement of rent applicable to Floor 12 if and to the extent Landlord delivers Floor 12 to Tenant after December 1, 1995. 3.02 RENEWAL OPTION. Provided this Lease is then in full force and effect and if there is no Default by Tenant under this Lease, Tenant shall have the right to renew the Term, for an (1) additional period of five (5) years upon the same terms, conditions and provisions applicable to the preceding Term of this Lease (unless otherwise expressly provided herein), except that the Monthly Base Rent for the additional term of five (5) year shall be the product of (i) the number of rentable square feet then contained in the Premises multiplied by (ii) an amount equal to the then prevailing market base rental rate per rentable square foot per annum, as reasonably determined by Landlord, charged for comparable office space in comparable buildings located north of Woodall Rogers Freeway, south of Fitzhugh, west of McKinney Avenue and east of Oak Lawn Avenue. Tenant shall exercise its right of renewal by delivering to Landlord written notice ("Tenant's Notice") of Tenant's desire to renew the term of this Lease as aforesaid at least nine (9) months (but not more than twelve (12) -3- 4 Landlord shall deliver to Tenant a written notice ("Landlord's Notice") specifying the Monthly Base Rent rate per square foot per annum for the additional term of five (5) years. Tenant shall have until thirty (30) days following delivery of Landlord's Notice in which to notify Landlord of Tenant's continued exercise of its rights to renew the Term. Failure to notify Landlord within such period or to timely deliver Tenant's Notice shall automatically extinguish Tenant's rights to renew. ARTICLE 4. RENT 4.01 DEFINITIONS. For purposes of this Lease, the following terms shall have the meanings ascribed to them in this Section 4.01: (a) "ADJUSTMENT YEAR" shall mean each calendar year or part thereof during the Term exclusive of the Base Year. (b) "OPERATING EXPENSES" shall mean and include all amounts, expenses and costs of whatever nature that Landlord incurs or pays because of or in connection with the ownership, control, operation, repair, management, replacement or maintenance of the Building, all related improvements thereto or thereon and all machinery equipment, landscaping, fixtures and other facilities, including personal property, as may now or hereafter exist in or on the Building. Except as otherwise provided below, Operating Expenses shall be determined in accordance with generally accepted accounting principles consistently applied and shall include, but shall not be limited to, the following: (1) Wages, salaries, fees, related taxes, insurance costs, benefits (including amounts payable under medical, pension and welfare plans and any amounts payable under collective bargaining agreements) and reimbursement of expenses of and relating to all personnel engaged in operating, repairing, managing, replacing and maintaining the Property; (2) All supplies and materials for the Building, including sales tax imposed in connection with the purchase thereof; (3) Legal and accounting fees and expenses (except for legal fees incurred in connection with the negotiation of, or the collection of amounts due under, leases); (4) Cost of all utilities for the Building, including, without limitation, water, sewer, and fuel, exclusive of electrical service; (5) Fees and other charges payable under or in respect of all maintenance, repair, janitorial and other service agreements for or pertaining to the Building; (6) Cost of all insurance, including all deductibles thereunder, relating to the Building, or the ownership, its occupancy or operations thereof; (7) Cost of repairs and maintenance of the Building, excluding only such costs which are paid by the proceeds of insurance, by Tenant or by other third parties (other than payment by Tenant or other tenants of the Operating Expenses); (8) Amortization of the cost (plus interest at the then current market rate on the unamortized portion of such cost from time to time) of purchasing and installing capital investment items (including "retrofitting" or capital replacements) that are for the purpose of reducing costs includable in the definition of Operating Expenses or that may be required by governmental authority, including but not limited to, pursuant to the Americans with Disabilities Act. All such costs shall be amortized over the reasonable life of the capital investment items, with the reasonable life and amortization schedule being determined in accordance with sound management accounting principles; (9) Management fees and reimbursed expenses of Landlord's Management Agent (not to exceed a market management fee for comparable buildings in the Dallas metropolitan area) and administrative expenses not borne by the Landlord's Management Agent; (10) Fees and charges under any declaration of covenants, easements or restrictions affecting the Building; and (11) All federal, state and local government taxes, assessments and charges of any kind or nature, whether general, special, ordinary or extraordinary, paid by Landlord in a calendar year with respect to the Building ("Taxes"); provided, real estate taxes and special assessments (except as provided below) shall be included in Operating Expenses for a calendar year only to the extent such taxes and assessments are paid during such calendar year, regardless of when assessed. In addition, "Taxes" shall include, without limitation, real estate and transit district taxes and assessments, sales and use taxes, ad valorem taxes, personal property taxes, any lease or lease transaction tax and all taxes, assessments and charges in lieu of, substituted for, or in addition to, any or all of the foregoing taxes, assessments and charges. Taxes shall not include any federal, state or local government income, franchise, capital stock, inheritance or estate taxes, except to the extent such taxes are in lieu of or a substitute for any of the taxes, -4- 5 assessments and charges previously described in this Section 4.01 (b). "Taxes" shall also include the amount of all fees, costs and expenses (including, without limitation, attorneys' fees and court costs) paid or incurred by Landlord each calendar year in seeking or obtaining any refund or reduction of Taxes or for contesting or protesting any imposition of Taxes, whether or not successful and whether or not attributable to Taxes assessed, paid or incurred in such calendar year. If any special assessment payable in installments is levied against all or any part of the Property, then at the Landlord's discretion, Taxes for the calendar year in which such assessment is levied and for each calendar year thereafter shall include only the amount of any installments of such assessment plus interest thereon paid or payable during such calendar year (without regard to any right to pay, or payment of, such assessment in a single payment). Notwithstanding the foregoing, Operating Expenses shall not include: (1) Principal or interest payments with respect to mortgages against the Building; (2) Ground lease payments; (3) Depreciation; (4) The cost of replacement of capital investment items (except as provided in Section 4.01(b)(8)); (5) Charges for special items or services billed separately to (and in addition to Expense Adjustment Statements) and paid by tenants of the Building; (6) Leasing commissions or other expenses solely related to marketing space in the Building; (7) The cost of electrical service; or (8) For purposes of determining the Base Expenses only, any Operating Expense incurred during the Base Year which is not an ordinary, typical year-to-year Operating Expense for the Building. If at any time the Building is less than ninety-five percent (95%) occupied or Landlord is not supplying services to ninety-five percent (95%) of all rentable areas of the Building during an entire calendar year, then Landlord may adjust that portion of each element of actual Operating Expenses that vary with occupancy of the Building to Landlord's estimate of that amount which would have been paid or incurred by the Landlord as Operating Expenses had the Building been ninety-five percent (95%) occupied or serviced, and the Operating Expenses as so adjusted shall be deemed to be the actual Operating Expenses for such calendar year. If Landlord does not furnish during any Adjustment Year any particular work or service (the cost of which, if performed by Landlord, would constitute an Operating Expense) to a tenant which has undertaken to perform such work or service in lieu of the performance thereof by Landlord, then Operating Expenses shall be deemed to be increased by an amount equal to the additional expense which would reasonably have been incurred during such Adjustment Year by Landlord if it had, at its cost, furnished such work or service to such tenant. The provisions of the preceding sentences will apply only to those Operating Expenses that either vary with occupancy or by reason of one or more tenants not receiving goods or services the cost of which constitutes all or part or such Operating Expenses. If the Property is not assessed as fully improved for any calendar year or part thereof, Landlord may make an adjustment to the amount of Taxes for each such calendar year to reflect the amount of Taxes which would have been assessed if the Property had been assessed as fully improved, and the amount of any such adjustment shall be included in the amount of Taxes for such calendar year. If the Building is not fully leased and occupied by tenants during all or any portion of a calendar year, then Landlord may make an adjustment to the amount of Taxes for such calendar year to reflect the amount of Taxes which would have been assessed if the Building had been fully leased and occupied by tenants during such calendar year, and the amount of any such adjustment shall be included in the amount of Taxes for such calendar year. Landlord shall calculate Operating Expenses (and any adjustment thereto as provided above) during 1996 in the same manner as, and consistent with, calculations to be made during subsequent years. 4.02 PAYMENT OF RENT. Tenant shall pay to Landlord's Management Agent, at the address set forth in Article I above as the Rent Payment Address or to such other person or entity and/or at such other place as Landlord may from time to time direct in writing, all amounts due Landlord from Tenant hereunder, including, without limitation, Monthly Base Rent, Expense Adjustment and Electrical Cost (all amounts due hereunder being referred to collectively as "Rent"). Except as specifically provided in this Lease, Rent shall be paid without abatement, deduction or setoff of any kind, it being the intention of the parties that, to the full extent permitted by law, Tenant's covenant to pay Rent shall be independent of all other covenants contained in this Lease, including Tenant's continued occupancy of the Premises. Tenant's obligation hereunder to pay Rent accruing during the Term (whether or not the amount thereof is determined or determinable as of the date of termination or expiration of this Lease) shall survive the termination of this Lease, except as otherwise provided herein. 4.03 PAYMENT OF MONTHLY BASE RENT. Monthly Base Rent shall be payable monthly, in advance, on the first day of each calendar month during the Term, except that Monthly Base Rent for the first full calendar month of the Term for which Monthly Base Rent is due shall be paid concurrently with the execution of this Lease by Tenant. If the Term commences on a day other than the first day of a calendar month, then Monthly Base Rent for such month will be prorated on a per diem basis based on a 30 day month and the excess of the installment or Monthly Base Rent paid concurrently with the execution of this Lease by Tenant over such prorated amount for the first calendar month of the Term shall be applied against Monthly Base Rent for the first full calendar month of the Term. -5- 6 4.04 EXPENSE ADJUSTMENT. In addition to Monthly Base Rent, Tenant shall pay with respect to each Adjustment Year an amount equal to Tenant's Share of Operating Expenses for the Adjustment Year in excess of the Base Expenses ("Expense Adjustment"). As to any Adjustment Year during the Term which does not begin on January 1st or does not end on December 31st, Expense Adjustment with respect to such Adjustment Year shall be prorated on a per diem basis. Notwithstanding anything contained herein to the contrary, Operating Expenses shall be deemed not to increase more than $.50 per rentable square foot per calendar year (determined on a cumulative basis throughout the Term of the Lease); provided that the foregoing cap on Operating Expenses shall not apply to the following components of Operating Expenses: taxes, insurance, and utilities. 4.05 PAYMENT OF ADJUSTMENTS. The Expense Adjustment with respect to each Adjustment Year shall be paid in monthly installments in advance on the first day of each calendar month during such Adjustment Year in amounts sufficient to satisfy payment of the Expense Adjustment for such Adjustment Year as reasonably estimated by Landlord from time to time prior to or during any Adjustment Year and communicated to Tenant by written notice ("Estimated Expense Adjustment"). If Landlord does not deliver such a notice ("Estimate") prior to commencement of any Adjustment Year, Tenant shall continue to pay Estimated Expense Adjustment as provided in the most recently received Estimate (or Updated Estimate, as defined below) or the latest determined Expense Adjustment, whichever is greater, until the Estimate for such Adjustment Year is delivered to Tenant. If, during any Adjustment Year, Landlord reasonably determines that Operating Expenses for such Adjustment Year have increased or will increase, Landlord may deliver to Tenant an updated Estimate ("Updated Estimate") for such Adjustment Year. Monthly installments of Estimated Expense Adjustment paid subsequent to Tenant's receipt of the Estimate or Updated Estimate for any Adjustment Year shall be in the amounts provided in such Estimate or Updated Estimate, as the case may be. In addition, Tenant shall pay to Landlord within thirty (30) days after receipt of such Estimate or Updated Estimate, the amount, if any, by which the aggregate installments or the Estimated Expense Adjustment provided in such Estimate or Updated Estimate, as the case may be, with respect to prior months in such Adjustment Year exceed the aggregate installments of the Estimated Expense Adjustment paid by Tenant with respect to such prior months. Within one hundred twenty (120) days after the end of each Adjustment Year, or as soon thereafter as practicable, Landlord shall send to Tenant a statement ("Final Adjustment Statement") showing (i) the calculation of the Expense Adjustment for such Adjustment Year, (it) the aggregate amount of the Estimated Expense Adjustment previously paid by Tenant for such Adjustment Year, and (iii) the amount, if any, by which the aggregate amount of the installments of Estimated Expense Adjustment paid by Tenant with respect to such Adjustment Year exceeds or is less than the Expense Adjustment for such Adjustment Year. Tenant shall pay the amount of any deficiency to Landlord within thirty (30) days after the date of such statement. Any excess shall be refunded by Landlord, provided Tenant is not then in default under this Lease, within thirty (30) days after the delivery of the Final Adjustment Statement to Tenant. In addition, Tenant shall have the right, within three (3) months after Tenant's receipt of the Final Adjustment Statement, on written notice to Landlord, to have Landlord's books and records relating to Operating Expenses audited by a qualified professional selected by Tenant and approved by Landlord. Landlord shall have an opportunity to verify the findings of the audit. If such audit, as verified by Landlord, reveals any errors, Tenant's payments of its share of Operating Expenses shall be adjusted, and appropriate payments shall be made by Landlord or Tenant, as the case may be, within forty-five (45) days after completion of such audit. If the audit reveals that Operating Expenses reflected in the Final Adjustment Statement were overstated by more than five percent (5%), then Landlord shall pay the costs of such audit. Otherwise all costs incurred by Tenant in connection with such audit shall be paid by Tenant. 4.06 ELECTRICAL SERVICE. In addition to Monthly Base Rent and Tenant's Share of Operating Expenses, Tenant shall pay with respect to the Base Year and each Adjustment Year, as additional rental, (i) Tenant's Share of all electrical service to the common areas of the Building ("Common Area Electrical Service") and (ii) the cost of electrical service to the Premises ("Premises Electrical Service") (the cost of the Common Area Electrical Service and the Premises Electrical Service, the "Electrical Cost"). In the event the electrical service to the Premises is submetered or otherwise measured in accordance with the provisions of Section 8.03, Tenant shall pay to Landlord the cost of such electrical service based upon rates determined by Landlord from time to time (which shall not exceed the amount Tenant would have been charged for such service by the local utility company furnishing such service). In the event electrical service to the Premises is not measured by a submeter or periodic determination by Landlord's engineers or other competent consultants selected by Landlord (or a combination of such methods), then Tenant shall pay to Landlord Tenant's Share of the cost of all electrical service to tenants in the Building which does not exceed Building standard consumption as established from time to time by Landlord. Tenant's Share shall be based upon the statements therefor received by Landlord from the electrical utility company providing such service, adjusted as Landlord determines appropriate to eliminate over-standard consumption. In the event that other tenants of the Building pay directly either to Landlord or third parties for electricity supplied to their respective premises (e.g. separately metered electricity), then Landlord shall adjust Tenant's Share by excluding from its calculation the rentable area of all tenants making such payments. The cost of electrical service shall include without limitation all fuel adjustment charges, demand charges, and taxes. If, during any period of time, the area of the Building is not ninety-five percent (95%) occupied, then, for purposes of this Section 4.06, Landlord may adjust the actual costs of electrical service that vary with the occupancy of the Building to Landlord's estimate of that amount which would have been paid or incurred by Landlord for electrical service had the Building been ninety-five percent (95%) occupied, and the costs of electrical service as so adjusted shall be deemed to be actual electrical costs for such calendar year. Landlord shall calculate the costs of electrical service (and any adjustment thereto as provided above) during 1996 in the same manner as, and consistent with, calculations to be made during subsequent years. 4.07 ESTIMATED PAYMENTS. Tenant's Share of Electrical Costs with respect to the Base Year and each Adjustment Year shall be paid in monthly installments in advance on the first day of each calendar month during the Base Year and each such Adjustment Year in amounts sufficient to satisfy payment of Tenant's Share of Electrical Costs for the Base Year and each such Adjustment Year as reasonably estimated by Landlord from time to time prior to or during the Base Year and any -6- 7 Adjustment Year and communicated to Tenant by written notice ("Estimated Electrical Cost Payments"). If Landlord does not deliver such a notice ("Electrical Estimate") prior to the commencement of any Adjustment Year, Tenant shall continue to pay Estimated Electrical Cost Payments as provided in the most recently received Electrical Estimate (or Updated Electrical Estimate, as defined below) or the latest determined Estimated Electrical Cost Payment, whichever is greater, until the Electrical Estimate for such Adjustment Year is delivered to Tenant. If, during the Base Year or any Adjustment Year, Landlord reasonably determines that the Electrical Costs for such Adjustment Year have increased or will increase, Landlord may deliver to Tenant an updated Electrical Estimate ("Updated Electrical Estimate") for the Base Year or such Adjustment Year. Monthly installments of Estimated Electrical Cost Payments paid subsequent to Tenant's receipt of the Electrical Estimate or Updated Electrical Estimate for the Base Year or any Adjustment Year shall be in amounts provided in such Electrical Estimate or Updated Electrical Estimate, as the case may be. In addition, Tenant shall pay to landlord within thirty (30) days after receipt of such Electrical Estimate or Updated Electrical Estimate, the amount, if any, by which the aggregate installments of the Estimated Electrical Cost Payments provided in such Electrical Estimate or Updated Electrical Estimate, as the case may be,with respect to prior months in the Base Year or such Adjustment Year exceed the aggregate installments of the Estimated Electrical Cost Payments paid by Tenant with respect to such prior months. Within one hundred twenty (120) days after the end of each Adjustment year, or as soon thereafter as practicable, Landlord shall send to Tenant a statement ("Final Electrical Cost Statement") showing (i) the calculation of Tenant's Share of Electrical Cost for the Base Year or such Adjustment Year, (ii) the aggregate amount of the Estimated Electrical Cost Payments previously paid by Tenant with respect to such Adjustment Year, and (iii) the amount, if any, by which the aggregate amount of the installments of the Estimated Electrical Cost Payments paid by Tenant with respect to such Adjustment Year exceeds or is less than Tenant's share of the Electrical Costs for the Base Year or such Adjustment Year. Tenant shall pay the amount of any deficiency to Landlord within thirty (30) days after the date of such statement. Any excess shall be refunded by Landlord, provided Tenant is not then in default under this lease within thirty (30) days after the delivery of the final Adjustment Statement to Tenant. ARTICLE 5. SECURITY DEPOSIT As security for the performance of its obligations under this Lease, Tenant, on execution of this Lease, shall deposit with Landlord a security deposit in the amount set forth in Article I hereof ("Security Deposit"), and agrees from time to time to pay Landlord within three (3) business days following receipt of a request therefor, any sum or sums of money paid or deducted therefrom by Landlord pursuant to the provisions of this Lease, in order that at all times during the Term there shall be continually deposited with the Landlord, a sum which shall never be less than the amount originally deposited. The Security Deposit shall not be deemed an advance payment of Rent, nor a measure of damages for any default by Tenant under this Lease, nor shall the Security Deposit be a bar or a defense to any action that Landlord may commence against Tenant. In the event of any default by Tenant hereunder, Landlord shall have the right, but shall not be obligated, to apply or retain all or any portion of the Security Deposit in payment of Tenant's obligations hereunder, but any such application or retention shall not be obligated to hold the Security Deposit as a separate fund, but may commingle the same with its other funds. Upon expiration of the Term hereof, the Security Deposit (or the balance thereof remaining after payment out of the same or deductions therefrom as provided above) shall be returned to the Tenant within a reasonable period of time following such expiration. No interest shall be payable with respect to the Security Deposit. Landlord may commingle the Security Deposit with other monies of Landlord. Landlord or any owner of the Building may transfer or assign the Security Deposit to any new owner of the Building or to any assignee or transferee of this Lease or may credit the Security Deposit against the purchase price of the Building and upon such transfer or credit all liability of the transferor or assignor of such security shall cease and come to an end. No Mortgagee (as hereinafter defined) or person or entity who acquires legal or beneficial title to the Building from such Mortgagee shall be liable for the return of the Security Deposit unless such funds are actually received by such Mortgagee or purchaser. ARTICLE 6. USE OF PREMISES; PARKING 6.01 PERMITTED USE. Tenant shall use and occupy the Premises solely for general office purposes and for no other use or purpose. Notwithstanding anything to the contrary in this Lease, the Premises shall not be used for any purpose which would (i) adversely affect the appearance of the Building, (ii) be visible from the exterior of, or the public areas of, the Building, (iii) adversely affect ventilation in other areas of the Building (including without limitation, the creation of offensive odors), (iv) create unreasonable elevator loads, (v) cause structural loads to be exceeded, (vi) create unreasonable noise levels, (vii) otherwise unreasonable interfere with Building operations or other tenants of the Building, or (viii) violate legal requirements. In all events, Tenant shall not engage in any activity which is not in keeping with the first-class standards of the Building. Without limiting the foregoing, Tenant will not use any part of the Premises for the following uses: health care services, telephone or telegraph agency, radio, television or other communication station, employment agency, public restaurant or bar, retail, wholesale or discount shop for the sale of merchandise, retail service shop, school or classroom (except as incidental to office uses but not as the principal use thereof), or governmental or quasi-governmental bureau, department or agency. 6.02 NO NUISANCE. Tenant shall not commit, or suffer to be committed, any annoyance, waste, nuisance,act or thing against public policy, or which may disturb the quiet enjoyment of Landlord or any other tenant or occupant of the building. Tenant agrees not to deface or damage the Building in any manner. 6.03 PARKING. Landlord shall provide and Tenant shall lease and pay for, from the commencement Date until expiration of the Term, the Parking Spaces. Tenant does not have the right to use any specific parking spaces but only has the right to use the number of Parking Spaces located in the parking facilities generally. Tenant may not use additional -7- 8 parking spaces without the prior written consent of Landlord, in its sole discretion. Tenant and its agents, employees, contractors, invitees or licensees shall not interfere with the rights of Landlord or others entitled to similar use of the parking facilities. All parking facilities furnished by Landlord shall be subject to the reasonable control and management of Landlord, who may, from time to time, establish, modify and enforce reasonable rules and regulations with respect thereto. Landlord further reserves the right to change, reconfigure, or rearrange the parking areas, to construct or repair any portion thereof, and to restrict or eliminate the use of any parking areas and do such other acts in and to such areas as Landlord deems necessary or desirable without such actions being deemed an eviction of Tenant or a disturbance of Tenant's use of the Premises and without Landlord being deemed in default hereunder. Landlord may, in its sole discretion, convert the parking facilities to a reserved and/or controlled parking facility. If specific parking spaces are not assigned pursuant to the terms of this Lease, Landlord reserves the right at any time to assign specific parking spaces and Tenant shall thereafter be responsible to insure that its employees park in the specifically designated parking spaces. Tenant shall, if requested by Landlord, furnish to Landlord a complete list of the license plate numbers of all vehicles operated by Tenant, Tenant's employees and agents. Landlord shall not be liable for any damage of any nature to, or any theft of, vehicles, or contents thereof, in or about such parking facility. At Landlord's request, Tenant shall cause its employees and agents using Tenant's parking spaces to execute an agreement confirming the foregoing. Excessive use of the parking facilities by another tenant shall not be a default or breach of this Lease by Landlord, and shall not suspend or terminate any of Tenant's obligations under this Lease, and shall not entitle Tenant to exercise any other right or remedy it may be afforded hereunder or at law or in equity. For the Parking Spaces, Tenant shall pay Landlord during the term additional rental hereunder (a) the sum of $0 per month during the first five years of the Term of this Lease and thereafter $40.00 per month (plus any applicable sales tax) for each Non-Reserved Parking Space, (b) if Tenant elects to convert a Non-Reserved Parking Space to an Executive Non-Reserved Parking Space, then the sum of $60.00 per month (plus any applicable sales tax) for each Executive Non-Reserved Parking Space, (c) the sum of $100.00 per month (plus any applicable sales tax) for each Reserved Executive Parking Space, and (d) the sum of $40.00 per month (plus any applicable sales tax) for each Additional Non-Reserved Parking Space, such sums to be payable monthly in advance on the first day of each and every month during the Term, and a pro rata portion of such sum shall be payable for any partial calendar month in the event this Lease commences or ends on a date other than the first or last day of a calendar month. Tenant's obligation to pay the above described parking rental shall be considered an obligation to pay Rent for all purposes hereunder and shall be secured in a like manner as is Tenant's obligation to pay any other Rent. If the Parking Spaces are not available to Tenant during any portion of the term of this Lease due to causes beyond the control of Landlord (including casualty or condemnation), this Lease shall continue without abatement of Rent and Landlord shall use reasonable efforts to make available to Tenant sufficient substitute parking spaces within a one-half (.5) mile radius of the Building until the Parking Spaces are again made available to Tenant at a rental rate not to exceed the above described rental rate. Tenant shall have the right at any time to convert up to twelve (12) Non-Reserved Parking Spaces to twelve (12) Executive Non-Reserved Parking Spaces, provided Tenant provides Landlord fifteen (15) days prior written notice. The sums described above payable for each Executive Non-Reserved Parking Space shall be prorated for any partial month. ARTICLE 7. RULES AND REGULATIONS Tenant agrees to observe the reservations and rights reserved to Landlord in this Lease. Tenant shall comply, and shall cause its employees, agents, clients, customers, guests and invitees to comply, with the rules and regulations attached hereto as EXHIBIT 3, and such revised or additional rules and regulations adopted by Landlord during the Term and applied generally to all office tenants of the Building. Any violation by Tenant or any of its employees, agents, clients, customers, guests or invitees of any of the rules and regulations so adopted by Landlord shall be a default by Tenant under this Lease and may be restrained by court injunction; but whether or not so restrained, Tenant acknowledges and agrees that it shall be and remain liable for all damages, loss, costs and expense resulting from any violation by Tenant or such other persons of any of said rules and regulations. Landlord shall use reasonable efforts to cause tenants to comply with said rules and regulations on a non-discriminatory basis, provided nothing in this Lease contained shall be construed to impose upon Landlord any duty or obligation to enforce said rules and regulations or the terms, covenants and conditions of any other lease against any other tenant or any other persons, and Landlord shall not be liable to Tenant for violation of the same by any other tenant, its employees, agents, guests, invitees, licensees, customers, clients, family members, or by any other person. ARTICLE 8. SERVICES PROVIDED 8.01 LANDLORD'S SERVICES. Landlord shall furnish: (a) Cooled or heated air in season to provide a temperature condition required, in Landlord's reasonable judgment, for comfortable occupancy of the Premises under normal business operations and in the absence of the use of equipment which affects the temperature or humidity which would otherwise be maintained in the Premises, daily from 7:00 A.M. to 6:00 P.M. (Saturdays 8:00 A.M. to 1:00 P.M.), Sundays and Holidays (as defined below) excepted. If Tenant shall request, at least one (1) business day in advance, Landlord shall provide after hours cooled or heated air for the Premises; provided, that the Tenant shall pay Landlord's charges for such service currently in the amount of Landlord's cost (including reasonable overhead) per hour with a two (2) hour minimum charge (which hourly or minimum charges are subject to change from time to time without notice) within ten (10) days after receipt of Landlord's invoices therefor. Further, if the use of heat generating equipment in the Premises different from that already maintained in the Premises already occupied by Tenant as of the date hereof, affects the temperatures otherwise maintained by the air conditioning system for normal business operations, and thereby requires, in the sole judgment of Landlord, the modification of the air conditioning or ventilation systems (including installation of supplementary air conditioning units in the Premises) Landlord may elect to perform such modification, and the cost thereof shall be paid by Tenant to Landlord at the time of completion of such modification, or Landlord may elect to require Tenant to perform such modification, at Tenant's sole cost and expense. Any increased -8- 9 expense in maintaining or operating the system resulting, in Landlord's sole opinion, from such modification shall be paid by Tenant. In addition, Tenant shall, at Tenant's expense, perform all maintenance on any supplementary air conditioning units installed in accordance with this Section 8.01(a) unless, in the exercise of its right hereby expressly reserved, Landlord elects to perform part or all of such maintenance at Tenant's expense. Tenant agrees to keep and cause to be kept closed all windows in the Premises and at all times to cooperate fully with Landlord in the operation of said system and to abide by all reasonable regulations and requirements which Landlord may prescribe to permit the proper functioning and protection of said heating, ventilation and air conditioning systems. For purposes of this Lease, "Holidays" means those federal or state holidays or such other days which Landlord, in its reasonable discretion, designates to Tenant as "Holidays" for purposes of this Lease, such designation being subject to change from time to time; (b) Washroom facilities, not within the Premises (unless Tenant leases an entire floor), for use by Tenant in common with other tenants in the Building; (c) Janitor service in and about the Premises as customarily provided in similar office buildings in the submarket area that the Building is located within; (d) Passenger elevator service in common with other tenants and occupants, daily from 8:00 A.M. to 6:00 P.M., Saturdays, Sundays and Holidays excepted. Such normal passenger elevator service, if furnished at other times, shall be optional with Landlord and shall never be deemed a continuing obligation. Landlord, however, shall provide limited passenger service daily at all times such normal passenger service is not furnished. Landlord shall provide limited freight elevator service at such times as Landlord shall determine; and (e) Replacement of fluorescent lamps, bulbs, ballasts, and starters in the building with standard ceiling mounted fixtures installed by Landlord and incandescent bulb replacements in all public areas. 8.02 GOVERNMENT RESTRICTIONS. Tenant agrees that compliance with any mandatory or voluntary energy conservation measures or other legal requirements instituted by any appropriate governmental authority shall not be considered a violation of any terms of this Lease and shall not entitle Tenant to terminate this Lease or require abatement or reduction of Rent hereunder. 8.03 ELECTRICAL CONSUMPTION. Landlord shall provide or cause to be provided to the Premises all electrical current required by Tenant in the normal use and occupancy of the Premises. Without Landlord's prior written consent, Tenant shall not install any equipment which would result in Tenant's connected load exceeding, either in voltage, rated capacity, or overall load, that which Landlord deems to be standard for the Building ("Building Standard Load") or which would generate sufficient heat to affect the temperature otherwise maintained in the Premises by the normal operation of the Building air conditioning equipment serving the Premises. The obligation of Landlord to provide or cause to be provided electrical service shall be subject to the rules and regulations of the supplier of such electricity and of any municipal or other governmental authority regulating the business of providing electrical utility service. Except to the extent of Landlord's gross negligence, Landlord shall not be liable or responsible to Tenant for any loss, damage or expense which Tenant may sustain or incur if either the quantity or character of the electric service is changed or is no longer available or no longer suitable for Tenant's requirements. At any time when Landlord is furnishing electric current to the Premises, Landlord may, at its option, upon not less than thirty (30) days prior written notice to Tenant, discontinue the furnishing of such electric current. If Landlord gives such notice of discontinuance, Landlord shall make all reasonably necessary arrangements with the public utilities supplying the electric current with respect to connecting electric current to the Premises, but tenant shall contract directly with such public utility with respect to supplying such service. Landlord shall have the right to measure electrical usage in the Premises (1) by installing a submeter, (2) by periodic determinations by Landlord's engineers or other competent consultants selected by Landlord, or (3) by any combination of such methods. If Tenant's electrical usage exceeds Building Standard Load, the cost of purchase and installation of a submeter in the Premises shall be borne by Tenant. If Tenant's connected load for electrical design exceeds the Building Standard Load, Tenant shall pay as Additional Rent a surcharge of a proportionate part of all electrical service costs which are attributable to the aggregate over-standard electrical consumption by all tenants in the Building. Such proportion shall be equal to the product of the aggregate cost of all over-standard electrical consumption in the Building (as determined by Landlord) times a fraction in which the numerator is Tenant's electrical design load in excess of the Building Standard Load and the denominator is the aggregate of the total electrical design load of all tenants in the Building in excess of the Building Standard Load. Tenant's proportionate share of such sums shall be due within ten (10) days after the date of receipt of a statement therefor from Landlord setting forth the amount of the charges involved and calculating Tenant's proportionate share thereof. If the electrical current consumed relative to the Premises shall be separately metered, Tenant shall pay for all such electrical current directly to the utility company supplying said service. Tenant agrees to purchase from Landlord all replacement lamps, bulbs, ballasts and starters used in the Premises and to pay Landlord a standard charge for furnishing and replacing such lamps, bulbs, ballasts and starters. At no time shall Tenant permit the use of electricity consumed in the Premises to exceed the capacity of feeders to the Building or the risers or wiring installation. Landlord does not warrant or represent that such capacity shall be adequate for Tenant's purposes. 8.04 ADDITIONAL SERVICES. Landlord shall in no event be obligated to furnish any services or utilities, other than those specified in Article 8. Tenant acknowledges that it shall be responsible for making arrangements for and shall pay the cost of the installation, repair and maintenance of its own telephone system. If Landlord elects to furnish services or utilities requested by Tenant in addition to those specified herein (including utility services at times other than those specified), Tenant shall pay to Landlord, Landlord's then prevailing rates for such services and utilities within ten (10) days after receipt of Landlord's invoices therefor. If Tenant shall fail to make any such payment, Landlord may, without notice to Tenant, and in addition to Landlord's other remedies under this Lease, discontinue any or all of the additional services. Failure by Landlord to any extent to furnish any of the aforementioned services to Tenant, the Premises or the Building, or any cessation -9- 10 Landlord to any extent to furnish any of the aforementioned services to Tenant, the Premises or the Building, or any cessation (including any partial curtailment) thereof, shall not render Landlord liable in any respect for damages to person, property or otherwise, nor to be construed as an eviction of Tenant, nor work an abatement of Rent, nor relieve Tenant from fulfillment of any covenant or agreement hereof. Should any of the equipment or machinery utilized in supplying the services listed herein break down, or for any cause cease to function properly, such failure shall not work as an abatement of Rent, nor be construed as an eviction of Tenant, nor relieve Tenant from fulfilling any covenant or agreement contained herein, nor render Landlord liable for damages; however, Landlord shall use reasonable diligence to repair same promptly. Notwithstanding the foregoing, if Tenant is prevented from making reasonable use of the Premises for more than fifteen (15) consecutive days, as its exclusive remedy therefor, Tenant shall be entitled to a reasonable abatement of rent for each consecutive day (after such fifteen (15) day period) that Tenant is so prevented from making reasonable use of the Premises. In addition, and notwithstanding the foregoing, if Tenant is unable to operate its business in the Premises as a result of such unavailability of such services, and such unavailability is due to Landlord's gross negligence or willful misconduct, then, if such unavailability continues for five (5) consecutive business days, Tenant shall have the right, as its sole and exclusive remedy, to a reasonable abatement of rent for each consecutive day (after such five (5) day period) that Tenant is unable to operate its business in the Premises. 8.05 MONUMENT SIGNAGE. The monument sign currently located on Blackburn Driveway is encumbered by the rights of another tenant. Landlord also may use such monument sign for purposes of identifying the Building generally. Tenant shall be entitled to the non-exclusive use of the Tenant Portion of such sign as identified on Exhibit 5, provided all uses thereof, including the signage placed thereon, are approved by Landlord in all respects in Landlord's reasonable discretion. In addition, to the extent of the portion of the sign used by Tenant (but in no event less than 50%), Tenant shall pay its proportionate share (but in no event less than 50%) of all costs in connection therewith, provided Landlord will pay the costs of causing the monument sign to comply with applicable law, Tenant acknowledging that such sign or the use thereof may not currently comply with such laws and may have to be moved or reconfigured to so comply. Landlord shall have the right to add the names of other tenants and signage identifying the Building generally to such monument sign before or after Tenant uses such monument sign and/or causes such monument sign to comply with applicable laws, provided Tenant shall be entitled to use at least 50% of the Tenant Portion of the signage surface area. Landlord shall have the right to use the Landlord Portion of such sign, as identified on Exhibit 5, to identify the Building generally. Landlord shall have the right to determine whether the names of Tenant and other tenants are side by side (horizontal), on top of each other (vertical), and the order of names. ARTICLE 9. LEASEHOLD IMPROVEMENTS; ALTERATIONS 9.01 ALTERATIONS. Except as may be otherwise provided in this Lease as to initial Tenant improvements in accordance with Exhibit 4. Tenant shall not, without Landlord's prior written consent, permit any alteration, improvement, addition or installation in or to the Premises (all of which is collectively referred to as "Work"), including installation of telephone, computer or internal sound or paging systems or other similar systems, or the performance of any decorating, painting and other similar work in the Premises. In the event Landlord consents to any Work, Landlord reserves the right to cause such Work to be performed by contractors and subcontractors designated by Landlord. Tenant shall pay the cost of preparation of the plans for the Work, all permit fees and the fees of said contractors and subcontractors. Except with respect to Work performed by Landlord's designated contractor as general contractor, Tenant shall pay to Landlord's then applicable construction supervision fee. Before commencement of any Work or delivery of any materials into the Premises or the Building, Tenant shall furnish to Landlord, for its prior written approval, which approval shall not be unreasonably withheld or delayed, architectural plans and specifications certified by a licensed architect or engineer reasonably acceptable to Landlord, and such other documentation as Landlord shall reasonably request. Tenant agrees to hold Landlord, its beneficiaries and their respective agents, partners, officers, servants and employees forever harmless against all claims and liabilities of every kind, nature and description which may arise out of or in any way be connected with any such Work, except to the extent caused by Landlord's gross negligence. At the request of Landlord, Tenant will deliver a written indemnity against claims or damages to tenants or occupants of any other premises affected by such Work. Tenant shall pay Landlord's reasonable costs of reviewing plans and materials submitted to Landlord for approval. Tenant shall pay the cost of all such Work and the cost of decorating and altering the Premises and the Building occasioned by any such Work. Landlord shall have the right to require Tenant to deliver to Landlord cash or other security in an amount and form acceptable to Landlord be held in escrow by Landlord to assure prompt payment for the cost of any such Work and to require Tenant's contractors to evidence workman's compensation, general liability and other insurance coverage, as reasonably required by Landlord. All alterations, improvements, additions and installations to or in the Premises shall become part of the Premises at the time of installation. 9.02 TENANT'S WORK. In the event that Landlord permits Tenant to hire its own contractors for the performance of any Work, then in addition to the provisions of Section 9.01, the following shall apply: (i) prior to the commencement of the Work or the delivery of any materials to the Building, Tenant shall submit to Landlord for Landlord's approval, the names and addresses of all contractors, contracts, necessary permits and licenses, certificates of insurance (including, without limitation, Workmen's Compensation, comprehensive general liability and adequacy of design insurance) and instruments of indemnification and waivers of lien against any and all claims, costs, expenses, damages and liabilities which may arise in connection with the Work, all in such form and amount as shall be satisfactory to Landlord; (ii) all such Work shall be done only by contractors or mechanics approved by Landlord and at such time and in such manner as Landlord may from time to time designate; (iii) upon completion of any Work, Tenant shall furnish Landlord with as-built plans, contractors' affidavits, full and final waivers of lien, receipted bills covering all labor and materials expended and used in connection with such Work, and (iv) all such Work shall comply with all insurance requirements, all laws, ordinances, rules and regulations -10- 11 good and workmanlike manner and with the use of new, quality grade materials. 9.03 NO MECHANIC'S LIENS. Without limitation of the provisions of Section 9.01, Tenant agrees not to suffer or permit any lien on any mechanic or materialman to be placed or filed against the Premises or the Building. In case any such lien shall be filed, Tenant shall immediately satisfy and release such lien of record. If Tenant shall fail to have such lien satisfied, released of record, or bonded around within thirty (30) days after its filing, Landlord may, on behalf of Tenant, without being responsible for making any investigation as to the validity of such lien and without limiting or affecting any other remedies Landlord may have, pay the same and Tenant shall pay Landlord on demand the amount so paid by Landlord. 9.04 REMOVAL OF TENANT'S PROPERTY. Subject to the rules and regulations, Tenant, at any time Tenant is not in default hereunder, may remove from the Premises its movable trade fixtures and personal property. Tenant shall repair any damage to the Premises caused by such removal, failing which Landlord may remove the same and repair the Premises and Tenant shall pay the cost thereof to Landlord on demand. 9.05 INITIAL TENANT IMPROVEMENT. Initial Tenant improvements shall be made to the Premises in accordance with Exhibit 4. 9.06 REFURBISHMENT ALLOWANCE. On December 1, 2000, Landlord shall pay to Tenant a refurbishment allowance not to exceed $2.00 per rentable square foot in the Premises of $59,500.00, for use by Tenant to refurbish the Premises, upon satisfaction of the same conditions as set forth in Section 9.05. ARTICLE 10. CONDITION OF PREMISES 10.01 PREMISES CONDITION. No agreements or representations, except such as are expressly contained herein and in the Work Letter attached hereto, if any, have been made to Tenant respecting the condition of the Premises. By taking possession, except as provided in the Work Letter, Tenant conclusively waives all claims relating to the condition of the Premises and accepts the Premises as being free from defects and in good, clean and sanitary order, condition and repair, and agrees to keep the Premises in such condition, ordinary wear and tear excepted. Landlord shall be responsible to cause restrooms and elevator lobbies on each floor of the Premises to comply with applicable ADA standards for handicapped persons, provided Tenant does not make alterations that require changes to the elevator lobbies or restrooms, in which case Tenant shall then be responsible for causing compliance. 10.02 CARE OF THE PREMISES. Subject to Article 12, and ordinary wear and tear excepted, Tenant shall, at its own expense, keep the Premises clean and safe and in as good repair and condition as when all of the work described in the Work Letter was completed (or as to subsequent Work, as and when such Work was completed) and shall promptly and adequately repair all damage to the Premises and the Building caused by Tenant or any of its employees, agents, guests or invitees, including replacing or repairing all damaged or broken glass, fixtures and appurtenances resulting from any such damage, under the supervision and with the approval of Landlord. If Tenant does not promptly and adequately make such repairs or replacements, Landlord may, but need not, make such repairs and replacements and Tenant shall pay Landlord the cost thereof on demand. Tenant, at its sole expense, shall comply with all laws, orders and regulations of federal, state, county and municipal authorities and with any directive of any public officer or officers pursuant to law which shall impose any violation, order or duty upon Landlord or Tenant with respect to the Premises or the use, condition, or occupation thereof, including all handicapped access laws. Tenant shall not do or permit to be done any act or thing in, on or about the Premises or store anything therein which (i) will in any way conflict with any law, statute, ordinance or governmental rule or regulation now in force or which may hereafter be enacted or promulgated, (ii) is not appropriate to the permitted use of the Premises, or (iii) will in any way increase the existing rate of, or adversely affect, or cause a cancellation of, any fire or other insurance policies covering the Building or any of its contents. 10.03 CARE OF THE BUILDING. Landlord, subject to Articles 12 and 14, shall be obligated only to maintain and make necessary repairs to the structural elements of the Building, the public corridors, public washrooms and lobby of the Building, the exterior windows of the Building, and subject to the provisions of Articles 8, 12 and 14, the electrical, plumbing, heating, ventilation and air conditioning systems of the Building. ARTICLE 11. SURRENDER OF THE PREMISES 11.01 SURRENDER. At the termination of this Lease, by lapse of time or otherwise, Tenant shall surrender possession of the Premises to Landlord and deliver all keys to the Premises and all locks therein to Landlord and make known to the Landlord the combination of all combination locks in the Premises, and shall, subject to Articles 12 and 13, return the Premises and all equipment and fixtures of the Landlord therein to Landlord in broom clean condition and in as good condition as when Tenant originally took possession, ordinary wear and tear excepted, failing which Landlord may restore the Premises and such equipment and fixtures to such condition and the Tenant shall pay the cost thereof to Landlord on demand. 11.02 REMOVAL OF FIXTURES. Upon termination of this Lease or of Tenant's right to possession of the Premises, by lapse of time or otherwise, all installations, additions, partitions, hardware, light fixtures, floor coverings, non-trade fixtures and improvements, temporary or permanent, whether placed there by Tenant or Landlord, shall be Landlord's property and shall remain upon the Premises, all without compensation, allowance or credit to Tenant. 11.03 SURVIVAL. All obligations of Tenant under this Article II shall survive the expiration or earlier termination of this -11- 12 Lease. ARTICLE 12. DAMAGE OR DESTRUCTION 12.01 DAMAGE BY FIRE OR OTHER CASUALTY. If, during the Term, more than twenty-five percent (25%) of either of the Premises or the Building is damaged or made untenantable by fire or other casualty, cause, condition or thing whatsoever, Landlord may, by written notice to Tenant given within sixty (60) days after such damage, terminate this Lease. Such termination shall become effective as of the date of such damage. Unless this Lease is terminated, if the Premises are made partially or wholly untenantable as aforesaid, Landlord, subject to the provisions of this Article 12 shall restore the same at Landlord's expense with reasonable promptness. If, as a result of a fire or other casualty, the Premises are made partially or wholly untenantable, Tenant may terminate this Lease if (A) Landlord fails to commence such restoration within sixty (60) days after Landlord is able to take possession of the damaged space in the Premises and fails to reasonably diligently complete the restoration of the Premises, by giving notice thereof to Landlord (i) not later than seventy (70) days after Landlord is able to take possession if Landlord has not theretofore commenced such restoration or (ii) prior to the substantial completion of such restoration, if Landlord commences such restoration within said sixty (60) day period, but fails to complete the restoration of the Premises within one hundred eighty (180) days from the date of casualty, and such termination shall be effective as of the fifth (5) day after receipt of said notice by Landlord, or (B) the restoration will take more than one hundred eighty (180) days to complete by giving notice thereof to Landlord prior to Landlord's commencement of restoration and within twenty (20) days after Landlord notifies Tenant in writing of the estimated time necessary to complete such restoration determined by an architect selected by Landlord, provided Tenant shall have the right to select an architect to make such determination if Landlord has not done so within thirty (30) days after such casualty, and Tenant's termination right, if applicable shall be exercised within twenty (20) days after Tenant's receipt of such architect's estimate. In the event of termination of this Lease, Monthly Base Rent and Adjustments shall be prorated on a per diem basis and paid only the effective date of such termination. If all of the Premises are untenantable but this Lease is not terminated, all Monthly Base Rent and Adjustments shall abate from the date of the fire or other casualty until the Premises are ready for occupancy and reasonably accessible to Tenant; if part of the Premises is untenantable, Monthly Base Rent and Adjustments shall be prorated on a per diem basis and apportioned in accordance with the part of the Premises which is usable by Tenant until the damaged part is ready for Tenant's occupancy. In all cases, with respect to Landlord's obligations under this Article 12, such obligations shall be adjusted and all time periods extended by the period on account of delay caused by adjustment or insurance loss, strikes, governmental approvals, labor difficulties or any cause beyond Landlord's reasonable control. Notwithstanding anything to the contrary in this Section 12.01, Tenant shall not have the right to terminate this Lease and Rent shall in no event abate if such fire or other casualty, cause, condition or thing was caused by the act or neglect of Tenant, its employees or agents. 12.02 RENT CONCESSION AND CASUALTY. This following provision shall apply if, as an economic concession set forth in the Rider hereto, Landlord has granted Tenant a credit against Monthly Base Rent, Expense Adjustment, or Electrical Cost, or has granted Tenant an abatement period with respect to Monthly Base Rent, Expense Adjustment, or Electrical Cost (such credits or the amount of Monthly Base Rent, Expense Adjustment, or Electrical Cost, which would have accrued but for such abatement period being hereinafter referred to as "Rent Concession"): In the event that, pursuant to any provision of this Lease, Monthly Base Rent, Expense Adjustment, or Electrical Cost abate, in whole or in part, by reason of the occurrence of a fire or other casualty ("Casualty Abatement") and this Lease is not terminated, then to the extent that the period of any Casualty Abatement coincides with any period that a Rent Concession would otherwise have been applicable, the Rent Concession or such portion thereof as would otherwise have been applicable if the Casualty Abatement had not occurred ("Rent Concession Balance") will be deferred until the Casualty Abatement period expires and the Rent Concession Balance will be effective and applied at the rate set forth in the Rider during the period immediately following the expiration of the Casualty Abatement. Notwithstanding the foregoing, (a) the Rent Concession Balance will not be applicable to the extent it exceeds the amount of rent loss insurance proceeds recovered by Landlord with respect to the Casualty Abatement, (b) Tenant will not be entitled to any cash refund or credit against any other amounts due Landlord by reason of the foregoing provision and (c) the Term will not be extended by reason of the applicability of the foregoing provision. 12.03 RESTORATION. If Landlord repairs and restores the Premises as provided in Section 12.01 above, Landlord shall repair or restore any decorations (excluding personal property), alterations or improvements to the Premises installed or approved by Landlord; provided, and to the extent, Landlord's and/or Tenant's casualty insurance proceeds, as hereinafter provided under Article 15.02, applicable to such decorations, alterations and improvements are received by or provided to Landlord for such purposes. Tenant shall be responsible for repair and replacement of trade fixtures, furnishings, equipment, personalty property or leasehold improvements belonging to Tenant. Notwithstanding any provision of this Article 12 to the contrary, Landlord shall not be obligated to make any restorations or repairs to the Premises, the cost of which would exceed the proceeds of insurance received by Landlord with respect thereto. ARTICLE 13. EMINENT DOMAIN 13.01 CONDEMNATION OF THE PREMISES. In the event that the whole or a substantial part of the Building or the Premises shall be condemned or taken in any manner for any public or quasi-public use (or sold under threat of such taking), and as a result thereof, the remainder of the Premises cannot be used for the same purpose as prior to such taking, the Lease shall terminate as of the date possession is taken. 13.02 PARTIAL CONDEMNATION OF THE PREMISES. If less than a substantial part of the Premises shall be so condemned or taken (or sold under threat thereof) and after such taking the Premises can be used for the same purposes as prior thereto, the Lease shall cease only as to the part so taken as of the date possession shall be taken by such authority, and Tenant shall -12- 13 pay full Rent up to that date (with appropriate refund by Landlord of such Rent attributable to the part so taken as may have been paid in advance for any period subsequent to the date possession is taken) and thereafter Monthly Base Rent, Expense Adjustment, and Electrical Cost shall be equitably adjusted to reflect the reduction in the Premises by reason of such taking. Landlord shall, at its expense, make all necessary repairs or alterations to the Building so as to constitute the remaining Premises a complete architectural unit, provided that Landlord shall not be obligated to undertake any such repairs or alterations if the cost thereof exceeds the award actually received by Landlord resulting from such taking. 13.03 BUILDING CONDEMNATION. If part of the Building shall be so condemned or taken (or sold under threat thereof), or if any adjacent property or street shall be condemned or improved by a public or quasi-public authority in such a manner as to alter the use of any part of the Premises or the Building and, in the opinion of Landlord, the Building or any part thereof should be altered, demolished or restored in such a way as to materially alter the Premises, Landlord may terminate this Lease by notifying Tenant of such termination within sixty (60) days following the taking of possession by such public or quasi-public authority, and this Lease shall expire on the date of the taking, as fully and completely as if such date were the date hereinbefore set forth as the expiration of the Term, and the Monthly Base Rent and Adjustments hereunder shall be apportioned as of such date. 13.04 AWARD. Landlord shall be entitled to receive the entire award, including the damages for the property taken and damages to the remainder, with respect to any condemnation proceedings affecting the Building. Tenant agrees not to make any claim against Landlord or the condemning authority for any portion of such award or compensation, whether attributable to the value of any unexpired portion of the Term, the loss of profits, goodwill, leasehold improvements or otherwise, Tenant irrevocably assigning any and all such claims to Landlord. ARTICLE 14. WAIVER OF CERTAIN CLAIMS 14.01 RELEASE. To the extent not expressly prohibited by law, Tenant releases Landlord, its mortgage, stockholders, agents, partners, officers, servants and employees, and their respective stockholders, agents, partners, officers, servants and employees (collectively, "Related Parties"), from and waives all claims for damages to person or property sustained by Tenant or by any occupant of the Premises, the Building, or by any other person, resulting directly or indirectly from fire or other casualty, any existing or future condition, defect, matter or thing in the Premises, the Building, or any portions thereof, or from any equipment or appurtenance therein, or from any accident in or about the Building, or from any act of neglect of any tenant or other occupant of the Building or of any other person, other than Landlord or its agents. The foregoing provision shall not limit or reduce Landlord's maintenance and repair obligations contained herein. 14.02 INDEMNIFICATION. Except as provided otherwise in this Lease, Tenant agrees to hold harmless and indemnify Landlord and Landlord's Related Parties against claims and liabilities, including reasonable attorneys' fees, from any damage to person or property caused by the negligence or intentional torts of Tenant or its agents. Landlord may, at its option, repair such damage or replace such loss, and Tenant shall upon demand by Landlord reimburse Landlord for all costs of such repairs, replacement and damages in excess of amounts, if any, paid to Landlord under insurance covering such damages. In the event any action or proceeding is brought against Landlord or Landlord's Related Parties by reason of any such claims, then, upon notice from Landlord, Tenant covenants to defend such action or proceeding by counsel reasonably satisfactory to Landlord. In addition, except as provided otherwise in this Lease, Landlord agrees to hold harmless and indemnify Tenant against claims and liabilities, including reasonable attorneys' fees, from any damage to person or property caused by the negligence or intentional torts of Landlord or its agents. 14.03 TENANT'S FAULT. If any damage to the Building or any equipment or appurtenance therein, whether belonging to Landlord or to other tenants in the Building, results from any act or neglect of Tenant, its agents, employees, guests or invitees, Tenant shall be liable therefor and Landlord may, at Landlord's option repair such damage, and Tenant shall, upon demand by Landlord, reimburse Landlord the total cost of such repairs and damages to the Building. If Landlord elects not to repair such damage, Tenant shall promptly repair such damages at its own cost and in accordance with the provisions of Sections 9.02 and 9.03 as if such repair constituted Work under such Sections. If Tenant occupies space in which there is exterior glass, then Tenant shall be responsible for the damage, breakage or repair of such glass, except to the extent such loss or damage is recoverable under Landlord's insurance, if any. ARTICLE 15. INSURANCE; WAIVER OF SUBROGATION 15.01 TENANT'S INSURANCE. Tenant shall procure and maintain at its own cost policies of comprehensive general public liability and property damage insurance with contractual liability coverage for the agreements of indemnity provided for under this Lease and a broad form general liability endorsement to afford protection with such limits as may be reasonably requested by Landlord from time to time (which as of the date hereof shall be not less than $3,000,000 under a combined single limit of coverage) insuring Landlord and Landlord's Related Parties from all claims, demands or actions for injury to or death of any person or persons and for damage to property made by, or on behalf of, any person or persons, firm or corporation, arising from, related to or connected with the Premises. The insurance shall be issued by companies and be in form and substance satisfactory to Landlord and any mortgagee of the Building and shall name Landlord and Landlord's Managing Agent (and, if requested by Landlord or any mortgagee, include any mortgagee) and their respective agents and employees as additional insureds. The aforesaid insurance policies shall provide that they shall not be subject to cancellation except after at least thirty (30) days' prior written notice to Landlord and all such mortgagees (unless such cancellation is due to non-payment of premiums, in which event ten (10) days' prior written notice shall be required). The original insurance policies (or certificates thereof satisfactory to Landlord), together with satisfactory evidence of payment of the premium thereof, shall be deposited with Landlord prior to the commencement of the Term and renewals thereof not less -13- 14 than fifteen (15) days prior to the end of the term of each such coverage. 15.02 CASUALTY INSURANCE. Tenant shall carry fire and extended coverage insurance of the type typically referred to as "all risk" insurance, including water damage, insuring its interest in the tenant improvements in the Premises (to the extent not covered by Landlord's property insurance) and its interest in all its personal property and trade fixtures located on or within the Building, including, without limitation, its office furniture, equipment and supplies. 15.03 WAIVER OF SUBROGATION. NOTWITHSTANDING ANY OTHER PROVISION OF THIS LEASE TO THE CONTRARY, LANDLORD AND TENANT EACH HEREBY WAIVE ALL RIGHTS OF ACTION AGAINST THE OTHER FOR LOSS OR DAMAGE TO THE PREMISES, OR THE BUILDING AND PROPERTY OF LANDLORD AND TENANT IN THE BUILDING, WHICH LOSS OR DAMAGE IS INSURED OR IS REQUIRED PURSUANT TO THIS LEASE TO BE INSURED BY VALID AND COLLECTIBLE INSURANCE POLICIES TO THE EXTENT OF THE PROCEEDS COLLECTED OR COLLECTIBLE UNDER SUCH INSURANCE POLICIES, SUBJECT TO THE CONDITION THAT THIS WAIVER SHALL BE EFFECTIVE ONLY WHEN THE WAIVER IS PERMITTED BY SUCH INSURANCE POLICIES OR WHEN, BY THE USE OF GOOD FAITH EFFORT, SUCH WAIVER COULD HAVE BEEN PERMITTED IN THE APPLICABLE INSURANCE POLICIES, EVEN IF CAUSED BY THE NEGLIGENCE OF SUCH OTHER PARTY. THE POLICIES OF INSURANCE REQUIRED TO BE MAINTAINED BY TENANT UNDER THE TERMS OF THIS LEASE SHALL CONTAIN WAIVER OF SUBROGATION CLAUSES IN FORM AND CONTENT SATISFACTORY TO LANDLORD. 15.04 INCREASED COSTS. Tenant shall not conduct or permit to be conducted by its employees, agents guests or invitees any activity, or place any equipment in or about the Premises or the Building that will in any way increase the cost of fire insurance or other Landlord insurance on the Building. If any increase in the cost of fire insurance or other insurance is stated by any insurance company or by the applicable Insurance Rating Bureau, if any, to be due to any activity or equipment of Tenant in or about the Premises or the Building, such statement shall be conclusive evidence that the increase in such cost is due to such activity or equipment and, as a result thereof, Tenant shall be liable for the amount of such increase. Tenant shall reimburse Landlord for such amount upon written demand from Landlord and any such sum shall be considered additional Rent payable hereunder. Tenant, at its sole expense, shall comply with any and all requirements of any insurance organization or company necessary for the maintenance of reasonable fire and public liability insurance covering the Premises and the Building. ARTICLE 16. LANDLORD'S RIGHT OF ACCESS 16.01 ENTRY INTO PREMISES. Landlord and its contractors and representatives shall have the right to enter the Premises at all reasonable times to perform janitorial, cleaning, security, and other services and, after reasonable verbal notice (except in the case of emergencies), to inspect the same, to make repairs, alterations and improvements, to maintain the Premises and the Building, specifically including, but without limiting the generality of the foregoing, to make repairs, additions or alterations within the Premises to mechanical, electrical and other facilities serving other premises in the Building, to post such reasonable notices as Landlord may desire to protect its rights, to exhibit the Premises to mortgagees and purchasers, and, during the one hundred eighty (180) days prior to the expiration of the term, to exhibit the Premises to prospective tenants. In the event the Premises are vacant, Landlord may place upon the doors or in the windows of the Premises any usual or ordinary ""To Let,'' "To Lease," or "For Rent" signs. To the extent that Tenant's conduct of its business from the Premises is not materially interfered with, Tenant shall permit Landlord to erect, use, maintain and repair pipes, cables, conduit, plumbing, vents and wires, in, to and through the Premises to the extent Landlord may now or hereafter deem necessary or appropriate for the proper operation, maintenance and repair of the Building and any portion of the Premises. 16.02 LANDLORD'S REPAIRS. Landlord shall also have the right to take all material into the Premises that may be required for the purposes set forth in the foregoing Section 16.01 without the same constituting a constructive eviction of Tenant, in whole or in part, and, except as otherwise provided in this Lease, Rent shall not abate (except as provided in Article 12) while said repairs, alterations, improvements or additions are being made, by reason of loss or interruption of business of Tenant, or otherwise. If Tenant shall not be personally present to open and permit entry into the Premises, at any time, when for any reason entry therein shall be reasonably necessary under the circumstances, such as in an emergency or to make repairs, Landlord or Landlord's agents may enter the Premises by a master key, or may forcibly enter the same, without rendering Landlord or such agents liable therefor (if during such entry Landlord or Landlord's agents shall accord reasonable care to Tenant's property), and without in any manner affecting the obligations and covenants of this Lease. 16.03 MINIMIZE INTERFERENCE. In exercising its rights under this Article 16, Landlord will use reasonable efforts in minimize any interference with Tenant's use or occupancy of the Premises, provided that Landlord will not be obligated to provide overtime labor or perform work after regular Building hours. ARTICLE 17. RIGHTS RESERVED TO LANDLORD Landlord shall have the following rights exercisable without notice and without liability to Tenant for damage or injury to property, person or business (all claim's for damage being hereby waived and released by Tenant) and without effecting an eviction or disturbance of Tenant's use or possession giving rise to any claim for set-offs or abatement of Rent: (a) To change the name or street address of the Building (but not the suite number of the Premises); (b) To install and maintain signs on the exterior and interior of the Building (without adversely affecting -14- 15 Tenant's signage rights granted in this Lease); (c) To designate all sources furnishing sign painting and lettering, towels, coffee cart service, vending machines or toilet supplies used or consumed on the Premises and the Building; (d) To have pass keys to the Premises; (e) To grant to anyone the exclusive right to conduct any business or render any service in the Building, provided such exclusive right shall not operate, to exclude Tenant from the use expressly permitted by this Lease; (f) To make repairs, additions or alterations to the Building which may change, eliminate or remove common areas, parking areas, if any, or the method of ingress to or egress from the Building and such areas, to convert common areas into leasable areas, or otherwise alter, repair or reconstruct the common areas or change the use thereof, to change the arrangement or location of entrances or passageways, doors and doorways, corridors, elevators, stairs, toilets or other public parts of the Building, and to close entrances, doors, corridors, elevators, plaza or other facilities, and to perform any acts related to the safety, protection, preservation, reletting, sale or improvement of the Premises or the Building; (g) To have access to all mail chutes or boxes according to the rules of the United States Postal Service; (h) To require all persons entering or leaving the Building during such hours as Landlord may from time to time reasonably determine to identify themselves to security personnel by registration or otherwise, and to establish their right to enter or leave and to exclude or expel any peddler, solicitor or beggar at any time from the Premises or the Building; (i) To close the Building at 7:00 p.m. on weekdays, 1:00 p.m. on Saturdays, and all day on Sundays and Holidays, or at such other reasonable times as Landlord may determine, subject, however, to Tenant's right to admittance under such regulations as shall be prescribed from time to time by Landlord in its sole discretion. ARTICLE 18. ABANDONMENT Tenant shall not abandon the Premises at any time during the Term. Any re-entry by Landlord following abandonment by Tenant shall not, unless Landlord so elects in a written notice to Tenant, constitute or be deemed to constitute acceptance by Landlord of a surrender of this Lease, but rather, upon such abandonment, Tenant's right to possession of the Premises shall cease, but Tenant shall remain liable for all of its obligations under this Lease. Without limitation of the foregoing, upon any such abandonment, Landlord shall have the remedies provided for in Article 21 below. If Tenant shall abandon or surrender the Premises or be dispossessed by process of law or otherwise during the Term or at termination of the Term, any personal property left on the Premises shall be deemed to be abandoned at the option of Landlord, and title thereto shall pass to Landlord under this Lease as a bill of sale. For purposes of this Lease, and at the option of Landlord, the Premises shall be deemed vacated or abandoned if Tenant, or an agent or employee of Tenant, shall not have conducted Tenant's ordinary business upon the Premises during any period of fifteen (15) consecutive days or shall have transferred all or substantially all of its personnel, furniture and fixtures from the Premises without replacement. ARTICLE 19. TRANSFER OF LANDLORD'S INTEREST As used in this Lease, the term "Landlord" means only the current owner of the fee title to the Building or the leasehold estate under a ground lease of the Building at the time in question. Each Landlord is obligated to perform the obligations of Landlord under this Lease only during the time such Landlord owns such interest or title. Any Landlord who transfers its title or interest in the Building is relieved of all liabilities for the obligations of Landlord under this Lease to be performed on or after the date of transfer. Tenant agrees to look solely to the transferee with respect to all matters in connection with this Lease. ARTICLE 20. TRANSFER OF TENANT'S INTEREST 20.01 LANDLORD'S CONSENT. Tenant shall not sell, assign, encumber, mortgage or transfer this Lease or any interest therein, sublet or permit the occupancy or use by others of the Premises or any part thereof, or allow any transfer hereof of any lien upon Tenant's interest by operation of law or otherwise (collectively, a "Transfer") without the prior written consent of Landlord in its sole discretion. Any Transfer which is not in compliance with the provisions of this Article 20 shall, at the option of Landlord, be void and of no force or effect. Tenant shall, by written notice in the form specified in the following sentence, advise Landlord of Tenant's intention on a stated date (which shall not be less than sixty (60) days after the date of Tenant's notice) to sublet, assign, mortgage or otherwise Transfer any part or all of the Premises or its interest therein for the balance or any part of the Term, and, in such event, Landlord shall have the right, to be exercised by giving written notice to Tenant within thirty (30) days after receipt of Tenant's notice, to recapture the space described in Tenant's notice and such recapture notice shall, if given, cancel and terminate this Lease with respect to the space therein described as of the date stated in Tenant's notice. Tenant's notice shall state the name and address of the proposed subtenant, assignee, pledgee, mortgage or transferee, and a true and complete copy of the proposed sublease, assignment, pledge, mortgage or other conveyance and all related documentation, executed by both parties, shall be delivered to Landlord with said notice. If Tenant's notice shall cover all of the space hereby demised, and Landlord shall elect to give the aforesaid recapture notice -15- 16 with respect thereto, then the Term shall expire and end on the date stated in Tenant's notice as fully and completely as if that date had been herein definitely fixed for the expiration of the Term. If, however, this Lease is terminated pursuant to the foregoing with respect to less than the entire Premises, the Monthly Base Rent, Expense Adjustment, and Electrical Cost then in effect shall be adjusted on the basis of the number of rentable square feet retained by Tenant in proportion to the original Area of the Premises, and this Lease as so amended shall continue thereafter in full force and effect. In such event, Tenant shall pay the cost of erecting demising walls and public corridors and making other required modifications to physically separate the portion of the Premises remaining subject to this Lease from the rest of the Premises. If Landlord, upon receiving Tenant's notice that it intends to sublet or assign any such space, shall not exercise its right to recapture the space described in Tenant's notice. Landlord will, as hereinabove provided, determine whether to approve the Tenant's request to sublet or assign the space covered by its notice. Notwithstanding the foregoing provisions, Landlord will not unreasonably withhold such consent to an assignment or sublease if the following conditions are satisfied: (a) In the reasonable judgment of Landlord, the subtenant or assignee (A) is of a character or engaged in a business or proposes to use the Premises in a manner which is in keeping with the standards of Landlord for the Building, (B) will not violate the provisions of any lease or agreement affecting the Building, and (C) does not have an unfavorable reputation or credit standing; (b) Either the area of the Premises to be sublet or the remaining area of the Premises is regular in shape with appropriate means of ingress or egress suitable for normal renting purposes; (c) Tenant is not in default under this Lease; (d) The proposed sublease or assignee is not a person or entity with whom Landlord is then negotiating to lease space in the Building; (e) The amount of the aggregate rent to be paid by the proposed assignee or subtenant is not less than the current prevailing rent for comparable direct lease space in the Building; (f) The use of the Premises by such proposed assignee or sublessee is permitted under this Lease; and (g) In no event shall the following be considered as suitable assignees or sublessees under this subsection; any governmental body, agency or bureau (of the United States, any state, county, municipality or any subdivision thereof); any foreign government or subdivision thereof; any health care professional or health care service organization; schools or similar organizations; employment agencies; radio; television or other communication stations; restaurants; and retailers offering retail services from the Premises. If Landlord consents to such sublet or assignment, such consent shall be expressly contingent upon Tenant's payment to Landlord, as Rent, the Landlord's costs and expenses incurred in connection therewith, including, but not limited to, attorney's fees and Landlord's construction supervision fee, if applicable. Without limiting the foregoing, in no event shall the following be considered suitable assignees or sublessees under this Section 20.01: any governmental body, agency or bureau (of the United States, any state, county, municipality or any subdivision thereof); any foreign government or subdivision thereof; any health care professional or health care service organization; schools or similar organizations; employment agencies; radio, television or other communication stations; restaurants; and retailers. 20.02 EXCESS RENT. If Tenant individually, or as debtor or debtor in possession or if a trustee in bankruptcy acting on behalf of Tenant pursuant to the Bankruptcy Code, 11 U.S.C. 101 et seq., shall sublet or assign the Premises or any part thereof or assign any interest in this Lease at a rental rate (or additional consideration) in excess of the then current Monthly Base Rent, Expense Adjustment, and Electrical Cost per rentable square foot, said excess Rent (or additional consideration) shall be and become the property of Landlord and shall be paid to Landlord as it is received by Tenant, less the Tenant's reasonable brokerage (excluding commissions paid to brokers who are Tenant's affiliates), legal and other expenses ("Tenant's Costs") incurred in connection with such assignment or, in the case of a sublease, less the monthly pro rata share of such Tenant's Costs as determined by dividing such Tenant's Costs by the number of months in the term of such sublease. If Tenant shall sublet the Premises or any part thereof, Tenant shall be responsible for all actions and neglect of the subtenant and its officers, partners, employees, agents, guests and invitees as if such subtenant and such persons were employees of Tenant. Nothing in this Section 20.02 shall be construed to relieve Tenant from the obligation to obtain Landlord's prior written consent to any proposed sublease. 20.03 NO WAIVER. The consent by Landlord to any Transfer shall not be construed as a waiver or release of Tenant from liability for the performance of all covenants and obligations to be performed by Tenant under this Lease, and Tenant shall remain liable therefor, nor shall the collection or acceptance of Rent from any assignee, subtenant or occupant constitute a waiver or release of Tenant from any of its obligations or liabilities under this Lease. Any consent given pursuant to this Article 20 shall not be construed as relieving Tenant from the obligation of obtaining Landlord's prior written consent to any subsequent assignment or subletting. 20.04 INCLUDED TRANSFERS. If Tenant is a partnership, a withdrawal or change, whether voluntary, involuntary or by operation of law or in one or more transactions, of partners owning a controlling interest in Tenant shall be deemed a voluntary assignment of this Lease and subject to the provisions of this Article 20. If Tenant is a corporation, any dissolution, merger, consolidation or other reorganization of Tenant, or the sale, transfer or redemption of a controlling interest of the capital stock of Tenant in one or more transactions, shall be deemed a voluntary assignment of this Lease and subject to the provisions of this Article 20. However, the preceding sentence shall not apply to corporations the stock of which is traded through a national or regional exchange or over-the-counter. Neither this Lease nor any interest therein nor any estate -16- 17 created thereby shall pass by operation of law or otherwise to any trustee, custodian or receiver in bankruptcy of Tenant or any assignee for the assignment of the benefit of creditors of Tenant. ARTICLE 21. DEFAULT: LANDLORD'S RIGHTS AND REMEDIES 21.01 DEFAULT. The occurrence of any one or more of the following matters constituted a default ("Default") by Tenant under this Lease: (a) Failure by Tenant to pay any Rent or any other amounts due and payable by Tenant under this Lease and such failure continues for five (5) days after the giving of written notice of such failure by Landlord to Tenant provided Landlord shall not be obligated to give more than two (2) notices in any calendar year, and Tenant shall for all subsequent failures to pay be in default immediately without the requirement of Landlord to give notice of such failure to Tenant; (b) Failure by Tenant to observe or perform any of the covenants in this Lease in respect to assignment and subletting; (c) Abandonment of the Premises as prohibited in Article 18; (d) Failure by Tenant to cure forthwith, after notice thereof from Landlord or another tenant acquiring knowledge thereof, any hazardous condition that Tenant has created in violation of law or of this Lease; (e) Failure by Tenant to observe or perform any other covenant, agreement, condition or provision of this Lease, if such failure shall continue for twenty (20) days after written notice thereof to Tenant by Landlord; (f) The levy upon execution of the attachment by legal process of the leasehold interest of Tenant, or the filing or creation of a lien in respect of such leasehold interest; (g) Tenant or any guarantor of this Lease becomes insolvent or bankrupt or admits in writing its inability to pay its debts as they mature, makes an assignment for the benefit of creditors, or applies for or consents to the appointment of a trustee or receiver for itself or for all or a part of its property; (h) Proceedings for the appointment of a trustee, custodian or receiver of Tenant or any guarantor of this Lease or for all or a part of Tenant's or such guarantor's property are filed against Tenant or such guarantor and are not dismissed within thirty (30) days; (i) Proceedings in bankruptcy, or other proceedings for relief under any law for the relief of debtors, are instituted by or against Tenant or any guarantor of this Lease, and, if instituted against Tenant or such guarantor, are allowed against either or are consented to by either or are not dismissed within sixty (60) days thereof; (j) Tenant shall repeatedly default in the timely payment of Rent or any other charges required to be paid, or shall repeatedly default in keeping, observing or performing any other covenant, agreement, condition or provision of this Lease, whether or not Tenant shall timely cure any such payment or other default. For the Purposes of this subsection, the occurrence of similar defaults three (3) times during any twelve (12) month period shall constitute a repeated default. Any notice periods provided for under this Article 21.01 shall run concurrently with any statutory notice periods, and any notice given hereunder may be given simultaneously with or incorporated into any such statutory notice. 21.02 LANDLORD'S REMEDIES. If a Default occurs, Landlord shall have the following rights and remedies, which shall be distinct, separate and cumulative, and which may be exercised by Landlord concurrently or consecutively in any combination and which shall not operate to exclude or deprive Landlord of any other right or remedy which Landlord may have in law or equity: (a) Landlord may terminate this Lease by giving to Tenant notice of the Landlord's intention to do so, in which event the Term shall end, and all right, title and interest of Tenant hereunder shall expire, on the date stated in such notice; (b) Landlord may terminate the right of Tenant to possession of the Premises without terminating this Lease by giving notice to Tenant that Tenant's right of possession shall end on the date stated in such notice, whereupon the right of Tenant to possession of the Premises or any part thereof shall cease on the date stated in such notice but Tenant's obligations under this Lease shall continue in full force and effect; and (c) Landlord may enforce the provisions of this Lease and may enforce and protect the rights or Landlord hereunder by a suit or suits in equity or at law for the specific performance of any covenant or agreement contained herein, or for the enforcement of any other appropriate legal or equitable remedy, including injunctive relief and recovery of all moneys due or to become due from Tenant under any of the provisions of this Lease. 21.03 SURRENDER OF POSSESSION. If Landlord exercises either of the remedies provided for in subparagraphs (a) and (b) of Article 21.02, Tenant shall surrender possession and vacate the Premises immediately and deliver possession thereof to -17- 18 Landlord, and Landlord may then, or at any time thereafter, re-enter and take complete and peaceful possession of the Premises, full and complete license so to do being granted to Landlord, and Landlord may remove all property therefrom, without being deemed in any manner guilty of trespass, eviction or forcible entry and detainer and without relinquishing Landlord's right to Rent or any other right given to Landlord hereunder or by operation of law. 21.04 DAMAGES. If Landlord terminates the right of Tenant to possession of the Premises without terminating this Lease, such termination of possession shall not release Tenant, in whole or in part, from Tenant's obligation to pay the Rent hereunder for the full stated Term, and Landlord shall have the right to the immediate recovery of all such amounts. Alternatively, at Landlord's option, Landlord shall have the right, from time to time, to recover from Tenant, and Tenant shall remain liable for, all Monthly Base Rent, Expense Adjustment, Electrical Cost and any other sums then due under this Lease during the period from the date of such notice or termination of possession to the end of the Term. Landlord may file suit from time to time to recover any such sums and no suit or recovery by Landlord of any such sums or portion thereof shall be a defense to any subsequent suit brought for any other sums due under this Lease. Alternatively, if Landlord elects to terminate this Lease, Landlord shall be entitled to recover from Tenant all Monthly Base Rent, Expense Adjustment, and Electrical Cost accrued and unpaid for the period up to and including such termination date, as well as all other additional sums payable by Tenant hereunder. In addition, Landlord shall be entitled to recover, as damages for loss of the benefit of its bargain and not as a penalty, the sum of (x) the unamortized cost to Landlord, computed and determined in accordance with generally accepted accounting principles, of any tenant improvements provided by Landlord at its expense, (y) the aggregate sum which at the time of such termination represents the excess, if any, of the present value of the aggregate Monthly Base Rent, Expense Adjustment, and Electrical Cost (as reasonably estimated by Landlord) for the remainder of the Term over the then present value of the then aggregate fair rental value of the Premises for the balance of the Term, immediately prior to such termination, such present worth to be computed in each case on the basis of a six percent (6%) per annum discount from the respective dates upon which rentals would have been payable hereunder had the Term not been terminated, and (z) any damages in addition thereto, including reasonable attorney's fees and court costs, which Landlord shall have sustained by reason of the breach of any of the covenants of this Lease other than for the payment of Rent. 21.05 RELETTING. In the event Landlord terminates the right of Tenant to possession of the Premises without terminating this Lease as aforesaid, Landlord shall have no obligation to, but may relet the Premises or any part thereof for the account of Tenant for such rent, for such time (which may be for a term extending beyond the Term) and upon such terms as Landlord in Landlord's sole discretion shall determine, and Landlord shall not be required to accept any tenant offered by Tenant or to observe any instructions given by Tenant relative to such reletting and may give the leasing of any unleased space in the Building priority over the reletting of the Premises. Also, in any such event, Landlord may make repairs, alterations and additions in or to the Premises and redecorate (using only Building standard materials in substantially the same configuration as the Premises) the same to the extent deemed by Landlord necessary or desirable, and, in connection therewith, change the locks to the Premises, and Tenant shall upon demand pay the cost thereof together with Landlord's expenses of reletting. Landlord may collect the rents from any such reletting and apply the same first to the payment of the expenses of re-entry, redecoration, repair and alterations and the expense of reletting (including without limitation brokers' commissions and attorneys' fees) and second to the payment of Rent herein provided to be paid by Tenant. Any excess of residue shall operate only as an offsetting credit against the amount of Rent as the same theretofore became or thereafter becomes due and payable hereunder, but the use of such offsetting credit to reduce the amount of Rent due Landlord, if any, shall not be deemed to give Tenant any right, title or interest in or to such excess or residue and any such excess or residue shall belong solely to Landlord. No such re-entry or repossession, repairs, alterations and additions, or reletting shall be construed as an eviction or ouster of Tenant, an election on Landlord's part to terminate this Lease or an acceptance of a surrender of this Lease, unless a written notice of such intention be given to Tenant, or shall operate to release Tenant in whole or in part from any of Tenant's obligations hereunder. Landlord may, at any time and from time to time, sue and recover judgment for any deficiencies remaining after the application of the proceeds of any such reletting. 21.06 REMOVAL OF TENANT'S PROPERTY. All property removed from the Premises by Landlord pursuant to any provisions of this Lease or of law shall be handled, removed or stored by Landlord at the cost, expense and risk of Tenant, and Landlord, shall in no event be responsible for the value, preservation or safekeeping thereof. Tenant shall pay Landlord upon demand for all expenses incurred by Landlord in such removal and storage. 21.07 COSTS. Tenant shall pay all costs, charges and expenses, including court costs and reasonable attorneys' fees incurred by Landlord or its beneficiaries in enforcing Tenant's obligations under this Lease, in the exercise by Landlord of any of its remedies in the event of a default, in any litigation, negotiation or transactions in which Tenant causes Landlord, without Landlord's fault, to become involved or concerned, or in consideration of any request for approval of or consent to any action by Tenant which is prohibited by this Lease or which may be done only with Landlord's approval or consent, whether or not such approval or consent is given. 21.08 CUMULATIVE RIGHTS. All of Landlord's rights and remedies under this Lease shall be cumulative with and in addition to any and all rights and remedies which Landlord may have at law or equity. Any specific remedy provided for in any provision of this Lease shall not preclude the concurrent or consecutive exercise of a remedy provided for in any other provision hereof. 21.09 LOCK-OUT. If a Default occurs, Landlord is entitled and is hereby authorized, without any notice to Tenant whatsoever, to enter upon the Premises by use of a master key, a duplicate key, picking the locks, or other peaceable means, and to change, alter, and/or modify the door locks on all entry doors of the Premises, thereby excluding Tenant, and its officers, principals, agents, employees, visitors and representatives therefrom. In the event that Landlord has either terminated Tenant's right of possession to the Premises pursuant to the foregoing provisions of this Lease, or has terminated this Lease by reason of the Default, Landlord shall not thereafter be obligated to provide Tenant with a key to the Premises at any time; provided, however, that in any such instance, during Landlord's normal business hours and at the convenience -18- 19 of Landlord, and upon the written request of Tenant accompanied by such written waivers and releases as Landlord may require, Landlord will escort Tenant or its authorized personnel to the Premises to retrieve any personal belongings or other property of Tenant not subject to Landlord's liens or security interests described in this Lease or available under applicable laws. If Landlord elects to exclude Tenant from the Premises without permanently repossessing the Premises or terminating this Lease pursuant to the foregoing provisions of this Lease, then Landlord (at any time prior to permanent repossession or termination) shall not be obligated to provide Tenant a key to re-enter the Premises until such time as all delinquent Rent has been paid in full and all other Defaults, if any, have been completely cured to Landlord's satisfaction, and Landlord has been given assurance reasonably satisfactory to Landlord evidencing Tenant's ability to satisfy its remaining obligations under this Lease. During any such temporary period of exclusion, Landlord will, during Landlord's regular business hours and at Landlord's convenience, upon written request by Tenant, escort Tenant or its authorized personnel to the Premises to retrieve personal belongings of Tenant or its employees, and such other property of Tenant as is not subject to Landlord's liens and security interests described in this Lease or available under applicable laws. The provisions hereof shall override and control any conflicting provisions of Section 93.002 of the Texas Property Code (as amended). ARTICLE 22. LIMITATION OF LIABILITY 22.01 LIMITATION. If Tenant obtains a money judgment against Landlord resulting from any default or other claim arising under this Lease, that judgment shall be satisfied only out of the rents, issues, profits, and other income thereafter actually received on account of Landlord's right, title and interest in the Building, and no other real, personal or mixed property of Landlord (or of any of the partners which comprise Landlord, or of partners, officers, shareholders, directors or principals of such partners comprising Landlord, if any, or of Landlord's officers, shareholders, directors, or owners, if any) wherever situated, shall be subject to levy, attachment or execution, or otherwise used to satisfy any such judgment. Tenant hereby waives any right to satisfy a judgment against Landlord except from the rents, issues, profits and other income thereafter actually received on account of Landlord's right, title and interest in the Building. ARTICLE 23. HOLDING OVER If Tenant retains possession of the Premises or any part thereof after the termination of the Term or any extension thereof, by lapse of time or otherwise, Tenant, unless Landlord otherwise elects, shall become a tenant at sufferance and shall pay Landlord monthly Rent, at one and one-half times the rate of Monthly Base Rent, Expense Adjustment, and Electrical Cost in effect for the month immediately preceding said holding over, computed on a per month basis, for each month or part thereof (without reduction for any such partial month) that Tenant thus remains in possession. Alternatively, at the election of Landlord expressed in a written notice to Tenant and not otherwise, such retention of possession shall constitute a renewal of this Lease for one (1) year, requiring the payment by Tenant of Monthly Base Rent, Expense Adjustment, and Electrical Cost then in effect, as adjusted for said year as if said year were an extension of the Term. The provisions of this Article 23 do not exclude Landlord's right of reentry or any other right hereunder. ARTICLE 24. SUBORDINATION AND ATTORNMENT 24.01 SUBORDINATION. Landlord may have heretofore encumbered or may hereafter encumber with a mortgage or trust deed the Building, or any interest therein, and may have heretofore sold and leased back or may hereafter sell and lease back the land on which the Building is located, and may have heretofore encumbered or may hereafter encumber the leasehold estate under such lease with a mortgage or trust deed. (Any such mortgage or trust deed is herein called a "Mortgage" and the holder of any such mortgage or the beneficiary under any such trust deed is herein called a "Mortgagee." Any such lease of the underlying land is herein called a "Ground Lease", and the lessor under any such lease is herein called a "Ground Lessor." Any Mortgage which is a first lien against the Building, the land on which the Building is located, the leasehold estate or the lessor under a Ground Lease (if the property is not then subject to an unsubordinated mortgage) is herein called a "First Mortgage" and the holder or beneficiary of or Ground Lessor under any First Mortgage is herein called a "First Mortgagee.") This Lease is, or shall be, subject and subordinate to any First Mortgage now or hereafter encumbering the Building. This provision shall be self-operative, and no further instrument of subordination shall be required to effectuate such subordination. If requested by a First Mortgagee, Tenant will either (i) subordinate its interest in this Lease to said First Mortgage, and to any and all advances made thereunder and to the interest thereon, and to all renewals, replacements, supplements, amendments, modifications and extensions thereof, or (ii) make certain of Tenant's rights and interest in this Lease superior thereto; and Tenant will promptly execute and deliver such agreement or agreements as may be reasonably required by such Mortgagee or Ground Lessor, provided, however, Tenant covenants it will not subordinate this Lease to any Mortgage or Ground Lease other than a First Mortgage (including a Ground Lease defined as a First Mortgage hereunder) without the prior written consent of the First Mortgagee. Tenant agrees that Landlord may assign the rents and interests in this Lease to the holder of any Mortgage or Ground Lease. In conjunction with the foregoing provisions, Tenant hereby acknowledges its agreement to execute the Subordination, Non-Disturbance and Attornment Agreement and/or the Lease Estoppel Certificate required by such Mortgagee and/or Ground Lessor within ten (10) days following the receipt of a written request therefor. Landlord shall attempt to obtain a non-disturbance agreement reasonably satisfactory to Tenant from any future First Mortgagee, provided Landlord's failure to obtain such an agreement shall not create any liability on the part of Landlord to Tenant, create a default by Landlord under this Lease, or create a defense, offset, or counterclaim to Tenant's obligations under this Lease. 24.02 ATTORNMENT. It is further agreed that (a) if any Mortgage shall be foreclosed, or if any Ground Lease be terminated, (i) the liability of the Mortgagee or purchaser at such foreclosure sale or the liability of a subsequent owner designated as Landlord under this Lease shall exist only so long as such Mortgagee, purchaser or owner is the owner of the Building or -19- 20 the land on which the Building is located, and such liability shall not continue or survive after further transfer of ownership; and (ii) upon request of the Mortgagee, if the Mortgage shall be foreclosed, Tenant will attorn, as Tenant under this Lease, to the purchaser at any foreclosure sale under any Mortgage or upon request of the Ground Lessor, if any Ground Lease shall be terminated, Tenant will attorn as Tenant under this Lease to the Ground Lessor, and Tenant will execute such instruments as may be necessary or appropriate to evidence such attornment; (b) this Lease may not be modified, amended, canceled or surrendered, without the prior written consent, in each instance, of the First Mortgagee; and (c) Tenant waives the provisions of any statute or rule of law, now or hereafter in effect, that may give or purport to give Tenant any right to terminate or otherwise adversely affect Landlord's interest in this Lease or reduce or limit the obligations of Tenant hereunder in the event of the prosecution or completion of any such foreclosure proceeding. No Mortgagee or any purchaser at a foreclosure sale shall be liable for any act or omission of the Landlord which occurred prior to such sale or conveyance, nor shall Tenant be entitled to any offset against or deduction from Rent due after such date by reason of any act or omission of the Landlord prior to such date. Further, Tenant agrees that no Mortgagee shall be bound by the prepayment of Rent made in excess of thirty days before the date on which such payment is due or any amendment or modification made with such Mortgagee's consent to the extent such consent is required as provided above. 24.03 MORTGAGEE REQUIREMENTS. Should any prospective First Mortgagee require a modification or modifications of this Lease, which modification or modifications will not cause an increased cost or expense to Tenant or in any other way materially and adversely change the rights and obligations of Tenant hereunder, in the reasonable judgment of Tenant, then and in such event, Tenant agrees that this Lease may be so modified and agrees to execute whatever documents are required therefor and deliver the same to Landlord within fifteen (15) days following the request therefor. Should any prospective Mortgagee or Ground Lessor require execution of a short form of lease for recording (containing, among other customary provisions, the names of the parties, a description of the Premises and the Term of this Lease), Tenant agrees to execute such short form of Lease and deliver the same to Landlord within fifteen (15) days following the request therefor. 24.04 POWER OF ATTORNEY. If Tenant fails within fifteen (15) days after written demand therefor to execute and deliver any instruments as may be necessary or proper to effectuate any of the covenants of Tenant set forth above in this Article, Tenant hereby makes, constitutes and irrevocably appoints any one of the Landlord or its representatives as its attorney-in-fact (such power of attorney being coupled with an interest) to execute and deliver any such instruments for and in the name of Tenant. ARTICLE 25. ESTOPPEL CERTIFICATE Tenant agrees that from time to time, upon not less than seven (7) days' prior written request by Landlord, Tenant will, and Tenant will cause any subtenant, licensee, concessionaire or other occupant of the Premises to, promptly complete, execute and deliver to Landlord or any party or parties designated by Landlord a statement in writing certifying: (i) that this Lease is unmodified and in full force and effect (or if there have been modifications that the same are in full force and effect as modified and identifying the modifications); (ii) the dates to which the Rent and other charges have been paid; (iii) that the Premises have been unconditionally accepted by the Tenant (or if not, stating with particularity the reasons why the Premises have not been unconditionally accepted); (iv) the amount of any Security Deposit held hereunder; (v) that, so far as the party making the certificate knows, Landlord is not in default under any provisions of this Lease, if such is the case, and if not, identifying all defaults with particularity; and (vi) any other matter reasonable requested by Landlord. Any purchaser or Mortgagee of any interest in the Building shall be entitled to rely on said statement. Failure to give such a statement within seven (7) days after said written request shall be conclusive evidence, upon which Landlord and any such purchaser or Mortgagee shall be entitled to rely that this Lease is in full force and effect and Landlord is not in default and Tenant shall be estopped from asserting against Landlord or any such purchaser or Mortgagee any defaults of Landlord existing at that time but Tenant shall not thereby be relieved of the affirmative obligation to give such statement. Moreover, if Tenant fails to deliver or cause to be delivered such statement within said seven (7) day period, Landlord shall be entitled to collect from Tenant upon demand, as liquidated damages occasioned by such delay and not as a penalty (the actual damages resulting from such delay being impossible to ascertain), a sum equal to one-fifteenth of the Monthly Base Rent for each day, up to fifteen (15) days, after the expiration of said seven (7) day period that Tenant fails to deliver such statement. If such failure persists after such fifteen (15) day period, Landlord shall be entitled to pursue any and all remedies it may have with respect to such Default, including termination of this Lease or Tenant's right to possession and collection of damages, including consequential damages, arising by reason for such Default. ARTICLE 26. INTENTIONALLY DELETED ARTICLE 27. NOTICES AND DEMANDS 27.01 PARTIES' NOTICES. All notices, demands, approvals, consents, requests for approval or consent or other writings in this Lease provided to be given, made or sent by either party hereto to the other ("Notice") shall be in writing and shall be deemed to have been fully given, made or sent when made by personal service or two (2) business days after deposit in the United States mail, certified or registered and postage prepaid and properly addressed as follows: To Landlord: The Utah State Retirement Investment Fund c/o CB Commercial Real Estate Group, Inc. 533 South Fremont Avenue Los Angeles, California 90071 -20- 21 Attn: Managing Director with a copy to: The Utah State Retirement Investment Fund c/o CB Commercial Realty Advisors, Inc. 533 South Fremont Avenue Los Angeles, California 90071 Attn: Director of Asset Management and a copy to: Compass Management, Inc. 3811 Turtle Creek Boulevard, Suite 240 Dallas, Texas 75219 Attn: Property Manager for Turtle Creek To Tenant: (i) If any Notice is to be given Tenant prior to occupancy, to the address set forth in Section 1.02. (ii) If any Notice is to be given Tenant after occupancy, to the Premises; provided, however, if the Premises shall have been vacated, Notice may be posted on the door to the Premises, except as Landlord may be otherwise notified in writing. The address to which any Notice should be given, made or sent to either party may be changed by written notice given by such party as above provided. 27.02 MORTAGEE'S NOTICE AND CURE RIGHTS. Tenant agrees to give any First Mortgagee, by registered or certified mail, a copy of any notice or claim of default served upon the Landlord by Tenant, provided that prior to such notice Tenant has been notified in writing (by way of service on Tenant of a copy or an assignment of Landlord's interests in leases, or otherwise) of the address of such First Mortgagee. Tenant further agrees that if Landlord shall have failed to cure such default within twenty (20) days after such notice to Landlord (or if such default cannot be cured or corrected within that time, then such additional time as may be necessary if Landlord has commenced within such twenty (20) days and is diligently pursuing the remedies or steps necessary to cure or correct such default), then the First Mortgagee shall have an additional thirty (30) days within which to cure or such default (or if such default cannot be cured or corrected within that time, then such additional time as may be necessary if such First Mortgagee has commenced within such thirty (30) days and is diligently pursuing the remedies or steps necessary to cure or correct such default, including the time necessary to obtain possession if ion is to cure or correct such default) before Tenant may exercise any right or remedy which it may have on account of any such default of Landlord. The foregoing provision shall not limit Tenant's right to abate rent under Sections 8.04, 12.01, and 13.02. 27.03 NOTICE TO TENANT. Any notice, demand, request or consent to be made by or required of Landlord, may be made and given by Landlord's Management Agent with the same force and effect as if made and given by Landlord. ARTICLE 28. CONSTRUCTION OF LEASE 28.01 CONSTRUCTION. The language in all parts of this Lease shall in all cases be construed as a whole according to its fair meaning and neither strictly for nor against either Landlord or Tenant. Article and Section headings in this Lease are for convenience only and are not to be construed as part of this Lease or in any way defining, limiting, amplifying, construing, or describing the provisions hereof. Time is of the essence of this Lease and every term, covenant and condition hereof. The words "Landlord" and "Tenant," as herein used, shall include the plural as well as the singular. The neuter gender includes the masculine and feminine. In the event there is more than one person or entity which executes this Lease as Tenant, the obligations to be performed and liability of all such persons and entities shall be joint and several. All of the covenants of Tenant here under shall be and deemed construed to be "conditions" as well as "covenants" as though the words specifically expressing or importing conditions were used in each separate instance. Landlord and Tenant agree that in the event any term, covenant or condition herein contained (other than with respect to the payment of Rent) is held to be invalid or void by any court of competent jurisdiction, the invalidity of any such term, covenant or condition shall in no way affect any other term, covenant or condition herein contained. 28.02 Amendments. This Lease contains and embodies the entire agreement of the parties hereto, and no representation, inducements or agreements, oral or otherwise, not contained in this Lease shall be of any force or effect. This Lease may not be modified in whole or in part in any manner other than by an instrument in writing duly signed by both parties hereto. ARTICLE 29. REAL ESTATE BROKERS Tenant represents and warrants unto Landlord that Tenant has directly dealt with and only with the Broker(s), if any, identified in Article 1 of this Lease as broker in connection with this Lease, and agrees to indemnify and hold harmless Landlord from and against any and all claims or demands, damages, liabilities and expenses of any type or nature whatsoever arising by reason of the incorrectness or breach of the aforesaid representation or warranty. Landlord shall pay, and agrees -21- 22 to indemnify and hold harmless Tenant from and against any claim by the Broker(s) for its commission arising out of the execution and delivery of this Lease pursuant to a separate agreement between Landlord and Broker. ARTICLE 30. MISCELLANEOUS 30.01 BENEFIT. Subject to the provisions of Articles 19 and 20 hereof, all terms, covenants and conditions on this Lease shall be binding upon and inure to the benefit of and shall apply to the respective heirs, executors, administrators, successors, assigns and legal representatives or Landlord and Tenant. 30.02 EXECUTION AND DELIVERY. The execution of this Lease by Tenant and delivery of the same to Landlord or Landlord's Management Agent do not constitute a reservation of or option to lease the Premises or an agreement by Landlord to enter into a Lease, and this Lease shall become effective only if and when Landlord executes and delivers a counterpart hereof to Tenant; provided, however, the execution and delivery by Tenant of this Lease to Landlord or Landlord's Management Agent shall constitute an irrevocable offer by Tenant to lease the Premises on the terms and conditions herein contained, which offer may not be withdrawn or revoked for thirty (30) days after such execution and delivery. If Tenant is a corporation, it shall deliver to Landlord concurrently with the delivery to Landlord of an executed Lease, a certified resolution of Tenant's directors authorizing execution and delivery of this Lease and the performance by Tenant of its obligations hereunder. If Tenant is a partnership, it shall deliver to Landlord concurrently evidence of execution and performance authority. Tenant shall not record this Lease or any memorandum or other evidence hereof. 30.03 DEFAULT UNDER OTHER LEASE. If the term of any lease (other than this Lease) made by Tenant for any demised premises in the Building shall be terminated or terminable after the making of this Lease, because of any default by Tenant under such other lease, such fact shall empower Landlord, at Landlord's sole option, to declare this Lease to be in default by written notice to Tenant. 30.04 APPLICABLE LAW. This Lease shall be governed by and construed in accordance with the laws of the state in which the Building is located. 30.05 LATE CHARGES AND DEFAULT INTEREST. At the option of Landlord, Landlord may impose a late payment fee equal to the lesser of five percent (5%) of the amount due or the maximum amount permitted by applicable law if any payment of Rent is paid more than five (5) days after its due date. In addition, any amount due hereunder shall bear interest after default in the payment thereof at the annual rate of the lesser of (i) the rate of eighteen percent (18%) per annum or (ii) the maximum lawful interest rate permitted by applicable law. 30.06 NON-WAIVER OF DEFAULTS. No waiver of any provision of this Lease shall be implied by any failure of Landlord to enforce any remedy on account or the violation of such provision, even if such violation be continued or repeated subsequently, and no express waiver shall affect any provision other than the one specified in such waiver and in that event only for the time and in the manner specifically stated. No receipt of monies by Landlord from Tenant after the termination of this Lease will in any way alter the length of the Term of Tenant's right of possession hereunder or, after the giving of any notice, shall reinstate, continue or extend the Term or affect any notice given Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit or after final judgment for possession of the Premises, Landlord may receive and collect any Rent due, and the payment of Rent shall not waive or affect said notice, suit or judgment, nor shall any such payment be deemed to be other than an account of the amount due, nor shall the acceptance of Rent be deemed a waiver of any breach by Tenant of any term, covenant or condition of this Lease. No endorsement or statement on any check or any letter accompanying any check or payment of Rent shall be deemed an accord and satisfaction. Landlord may accept any such check or payment without prejudice to Landlord's right to recover the balance due of any installment or payment of Rent or pursue any other remedies available to Landlord with respect to any existing Defaults. None of the terms, covenants or conditions of this Lease can be waived by either Landlord or Tenant except by appropriate written instrument. 30.07 FORCE MAJEURE. Neither Landlord nor Tenant shall not be deemed in default with respect to the failure to perform any of the terms, covenants and conditions of this Lease on its part to be performed, if such failure is due in whole or in part to any strike, lockout, labor dispute (whether legal or illegal), civil disorder, inability to procure materials, failure of power, restrictive governmental laws and regulations, riots, insurrections, war, fuel shortages, accidents, casualties, Acts of God, acts caused directly or indirectly by the other (or the other's agents, employees, guest or invitees), acts of other tenants or occupants of the Building or any other cause beyond reasonable control. In such event, the time for performance shall be extended by an amount of time equal to the period of the delay so caused. Except to extent such release is prohibited by law, Landlord shall not be liable to Tenant for any expense, injury, loss or damage resulting from work done in or upon, or the use of, any adjacent or nearby building, land, street, alley or underground vault or passageway. The foregoing shall not limit, reduce, or otherwise affect Tenant's obligation to make payments due under this Lease, except for abatement provided for in Sections 8.04, 12.01, and 13.02. 30.08 LANDLORD'S RIGHT TO PERFORM TENANT'S DUTIES. If Tenant fails timely to perform any of its duties under this Lease, Landlord shall have the right (but not the obligation), after the expiration of any grace period specifically provided by this Lease, to perform such duty on behalf and at the expense of Tenant without further notice to Tenant, and all sums expended or expenses incurred by Landlord in performing such duty shall be deemed to be Rent under this Lease and shall be due and payable to Landlord upon demand by Landlord. 30.09 RIDER, WORK LETTER AND EXHIBITS. Any Rider, Work Letter and/or Exhibit attached hereto are hereby -22- 23 incorporated in this Lease by reference. 30.10 FINANCIAL STATEMENTS. Tenant shall, when requested by Landlord from time to time, furnish a true and accurate audited statement of its financial condition prepared in conformity with generally accepted accounting principles and in a form reasonably satisfactory to Landlord. 30.11 RELATIONSHIP OF PARTIES. Nothing contained in this Lease shall create any relationship between the parties hereto other than that of Landlord and Tenant, and it is acknowledged and agreed that Landlord shall not be deemed to be a partner of Tenant in the conduct of its business, or a joint venturer or a member of a joint or common enterprise with Tenant. 30.12 NO RECORDING. Tenant shall not record this Lease or any memorandum thereof without the prior written consent of Landlord. 30.13 HAZARDOUS WASTE. During the term of the Lease, Tenant shall comply with all statutes, ordinances, rules, orders, regulations and requirements of the federal, state, county and city governments and all departments thereof applicable to the presence, storage, use, maintenance and removal of petroleum or petroleum products, natural or synthetic gas, urea formaldehyde foam insulation, radon gas, asbestos, PCB transformers, other toxic, hazardous, contaminated or pollutant substances, and underground storage tanks (collectively, "Hazardous Materials") in, on or about the Premises, which generation treatment, release, presence, storage, use, maintenance, removal or disposition is caused or permitted by Tenant. In no event shall the aforesaid be construed to mean that Landlord acquiesces, has given or will give its consent or that Tenant need not obtain Landlord's consent prior to Tenant's storing, using, maintaining, or removing Hazardous Materials in, on or about the Premises, and Tenant shall not store, use, maintain, or remove Hazardous Materials in, on or about the Premises. Tenant agrees to indemnify and forever hold harmless Landlord, its agents, successors, and assigns, and Landlord's Mortgagee(s), as their interest may appear, from all claims, losses, damages, expenses and costs, including, but not limited to, losses, damages, expenses and costs, incurred by reason of Tenant's use, storage, maintenance or removal of Hazardous Materials in, on, or about the Premises, or any part of the Property. 30.14 BANKRUPTCY. Landlord and Tenant understand that, notwithstanding certain provisions to the contrary contained herein, a trustee or debtor in possession under the United States Bankruptcy Code ("Code") may have certain rights to assume or assign this Lease. Landlord and Tenant further understand that, in such event, Landlord is entitled under the Code to adequate assurance of future performance of the terms and provisions of this Lease. The parties hereto agree that, with respect to any such assumption or assignment, the term "adequate assurance" shall include at least the following: (1) since the financial condition and resources of Tenant were a material inducement to Landlord in entering into this Lease, in order to assure Landlord that the proposed assignee will have the resources with which to pay all Rent payable pursuant to the terms hereof, any proposed assignee must have, as demonstrated to Landlord's satisfaction, a net worth (as defined in accordance with generally accepted accounting principles consistently applied) of not less than the net worth of tenant on the date this Lease became effective, increased by seven percent (7%), compounded annually, for each year from the Commencement Date through the date of the proposed assignment; (2) since Landlord's asset will be substantially impaired if the trustee in bankruptcy or any assignee of this Lease makes any use of the Premises other than the Permitted Use, any proposed assignee must have been engaged in the conduct of business for the five (5) years prior to any such proposed assignment, which business does not violate the Permitted Use, and such proposed assignee shall continue to engage in the Permitted Use; and (3) any proposed assignee of this Lease must assume and agree to be personally bound by the terms, covenants and provisions of this Lease. 30.15 LANDLORD'S CONTINGENCY. Tenant acknowledges and agrees that the terms and conditions of this Lease are specifically contingent upon the approval by Landlord's Mortgagee(s) of this Lease. Accordingly, in the event that Landlord's Mortgagee(s) fails to approve this Lease, this Lease shall automatically terminate and be of no further force or effect. 30.16 SECURITY. LANDLORD SHALL HAVE NO RESPONSIBILITY TO PREVENT, AND SHALL NOT BE LIABLE TO TENANT, ITS AGENTS, EMPLOYEES, CONTRACTORS, VISITORS OR INVITEES FOR, LOSSES DUE TO THEFT OR BURGLARY, OR FOR DAMAGES OR INJURY TO PERSONS OR PROPERTY DONE BY PERSONS GAINING ACCESS TO THE PREMISES OR THE BUILDING, AND TENANT HEREBY RELEASES LANDLORD FROM ALL LIABILITY FOR SUCH LOSSES, DAMAGES OR INJURY, EVEN IF CAUSED BY LANDLORD'S NEGLIGENCE, EXCEPT TO EXTENT SUCH WAIVER IS PROHIBITED BY LAW. 30.17 LIMITATION ON WARRANTIES. LANDLORD'S DUTIES AND WARRANTIES ARE LIMITED TO THOSE EXPRESSLY STATED IN THIS LEASE AND SHALL NOT INCLUDE ANY IMPLIED DUTIES OR IMPLIED WARRANTIES, NOW OR IN THE FUTURE. NO REPRESENTATIONS OR WARRANTIES HAVE BEEN MADE BY LANDLORD OTHER THAN THOSE CONTAINED IN THIS LEASE. TENANT HEREBY WAIVES ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE PREMISES WHICH MAY EXIST BY OPERATION OF LAW OR IN EQUITY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF HABITABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and year first above written. -23- 24 LANDLORD: TENANT: THE UTAH STATE RETIREMENT THE HOTEL INDUSTRY SWITCH COMPANY INVESTMENT FUND, an independent agency of the By: /s/ JOHN F. DAVIS, III State of Utah -------------------------------- Name: John F. Davis, III By: CB Commercial Realty Title: President Advisors, Inc., a Delaware corporation, Agent By: /s/ MATTHEW C. HURLBUT -------------------------------- Name: Matthew C. Hurlbut Title Vice President By: /s/ JOSEPH W. MARKLING -------------------------------- Name: Joseph W. Markling Title: First Vice President -24- 25 EXHIBIT A LEGAL DESCRIPTION BEING a tract of land situated in the City of Dallas, Dallas County, Texas, and being part of the W. Grigsby Survey, Abstract 501, and also being part of Block 1345 in the City of Dallas, and being the tracts of land conveyed to Turtle Creek Square Limited, an Illinois partnership, with Turtle Creek Square, Inc., a Texas corporation, sole general partner, by deed dated 8/31/79, and recorded in Volume 79172, Page 580, Deed Records, Dallas County, Texas, and being more particularly described as follows: BEGINNING at the intersection of the Northeasterly Line of Blackburn Street with the Northwesterly Line of Turtle Creek Boulevard; THENCE N 44 degrees 35' 00" W along said Northeasterly line of Blackburn Street a distance of 326.65 feet to an iron rod set for corner; THENCE N 45 degrees 25' 00" E departing along said Northeasterly Line of Blackburn Street a distance of 1.92 feet to an iron rod set for corner, said iron rod also being the beginning of a curve to the right; THENCE along said curve to the right having a central angle of 40 degrees 22' 00", a radius of 70.00 feet and an arc length of 49.32 feet to an iron rod set for corner; THENCE N 85 degrees 47' 00" E a distance of 110.25 feet to an iron rod set for corner, said iron rod also being the beginning of a curve to the left; THENCE along said curve to the left having a central angle of 74 degrees 47' 00", a radius of 110.00 feet, and an arc length of 143.57 feet to an iron rod set for corner; THENCE N 11 degrees 00' 00" E a distance of 438.38 feet to an iron rod set for corner; THENCE S 79 degrees 00' 00" E a distance of 132.75 feet to an iron rod set for corner; THENCE S 11 degrees 00' 00" W a distance of 92.16 feet to an iron rod set for corner; THENCE S 79 degrees 00' 00" E a distance of 13.00 feet to an iron rod set for corner; THENCE S 11 degrees 00' 00" W a distance of 17.60 feet to an iron rod set for corner; THENCE S 79 degrees 00' 00" E a distance of 364.33 feet to an iron rod set for corner situated in said Northwesterly Line of Turtle Creek Boulevard; THENCE S 22 degrees 44' 30" W along said Northwesterly Line of Turtle Creek Boulevard a distance of 212.69 feet to an iron rod set for corner; THENCE N 79 degrees 00' 00" W departing said Northwesterly Line of Turtle Creek Boulevard a distance of 309.80 feet to an iron rod set for corner; THENCE S 11 degrees 00' 00" W a distance of 16.00 feet to an iron rod set for corner; THENCE N 79 degrees 00' 00" W a distance of 33.0 feet to an iron rod set for corner; THENCE S 11 degrees 00' 00" W a distance of 102.00 feet to an iron rod set for corner; THENCE N 79 degrees 00' 00" W a distance of 12.99 feet to an iron rod set for corner; THENCE S 33 degrees 30' 00" W a distance of 92.76 feet to an iron rod set for corner; THENCE S 56 degrees 30' 00" E a distance of 113.36 feet to an iron rod set for corner; THENCE S 33 degrees 30' 00" W a distance of 57.96 feet to an iron rod set for corner; THENCE S 56 degrees 30' 00" E a distance of 39.57 feet to an iron rod set for corner; THENCE N 86 degrees 57' 48" E a distance of 53.17 feet to an iron rod set for corner; THENCE S 56 degrees 35' 49" E a distance of 30.82 feet to an iron rod set for corner; THENCE S 56 degrees 30' 00" E a distance of 90.43 feet to an iron rod set for corner situated in said Northwesterly Line of Turtle Creek Boulevard, said iron rod also the beginning of a curve to the right; THENCE along said Northwesterly Line of Turtle Creek Boulevard the following: -1- 26 Along said curve to the right having a central angle of 26 degrees 48' 58", a radius of 274.10 feet and an arc length of 128.13 feet to an iron rod set for corner; S 84 degrees 44' 30" W a distance of 56.00 feet to an iron rod set for corner, said iron rod the beginning of a curve to the left; Along said curve to the left having a central angle of 23 degrees 25' 02", a radius of 403.34 feet an arch length of 164.85 feet to the POINT OF BEGINNING and containing 5.0237 acres or 218,831 square feet of land, more or less. -2- 27 EXHIBIT 1 FLOOR PLAN [FLOOR PLAN] TURTLE CREEK CENTRE FLOOR 11 14,386 USF 2/21/92 14,875 RSF [FLOOR PLAN] TURTLE CREEK CENTRE FLOOR 12 12,498 USF 14,875 RSF -1- 28 EXHIBIT 2 THIRD FLOOR ROFR AREA [FLOOR PLAN] TURTLE CREEK CENTRE FLOOR 3 12,577 USF 14,653 RSF -2- 29 EXHIBIT 3 RULES AND REGULATIONS (1) Tenant shall not, whether temporarily, accidentally or otherwise, allow anything to remain in, place or store anything in, or obstruct in any way, any portion of the Building other than the Premises, including any sidewalk, plaza area, driveway, passageway, entrance, exit, stairway, lobby, corridor, hall, elevator, shipping platform, truck concourse or vault area in or about the Building. All passageways, entrances, exits, elevators, stairways, corridors, halls and roofs of the Building are not for the use of the general public, and Landlord shall in all cases retain the right to control and prevent access thereto by all persons in whose presence, in the judgment of Landlord, shall be prejudicial to the safety, character, reputation or other interests of the Building, its tenants or Landlord; provided, however, that nothing herein contained shall be construed to prevent ingress and egress to persons with whom Tenant deals within the normal course of Tenant's business. Tenant shall not enter nor permit its employees, agents, guests or invitees to enter into areas of the Building designated for the exclusive use of Landlord, its employees, guests or invitees. Tenant shall not use, nor permit the use by its employees, agents, guests or invitees, if any common area in the Building other than for access to and from the Premises. No bicycle or motorcycle shall be brought into the Building or kept on the Premises without the consent of Landlord. (2) No deliveries of any nature nor freight, furniture or bulky matter of any description will be received into the Building or carried into the elevators except in such a manner, during such hours and using only the freight elevators and those passageways as may be approved by Landlord, and then only upon having been scheduled in advance. Any hand trucks, carryalls or similar appliances used for the delivery or receipt of merchandise, supplies or equipment shall be equipped with rubber tires, side guards and such other safeguards as Landlord shall require. (3) Tenant, or the employees, agents, servants, visitors or licensees of Tenant shall not at any time place, leave or discard any rubbish, paper, articles, or objects of any kind whatsoever outside the doors of the Premises or in the corridors or passageways of the Building. No animals (except for guide dogs for sight impaired persons) of any kind shall be brought or kept in or about the Building. Tenant shall not permit any noise, odor or litter which is objectionable to Landlord or other tenants of the Building to emanate from the Premises. (4) Any person in the Building will be subject to identification by employees and agents of Landlord. All persons in or entering the Building shall be required to comply with the security policies of the Building. Tenant shall keep doors to unattended areas locked and shall otherwise exercise reasonable precautions to protect property from theft, loss, or damage. Tenant shall not attach or permit to be attached additional locks or similar devices to any door or window, change existing locks or the mechanism thereof, or make or permit to be made any keys for any door other than those provided by Landlord. If more than two keys for one lock area desired, Landlord will provide them upon payment therefor by Tenant. Upon termination of this Lease, or of the Tenant's possession, the Tenant shall surrender to Landlord all keys to the Premises. Landlord shall not be responsible for the theft, loss or damage of any property. Landlord may at all times keep a pass key to the Premises. Canvassing, soliciting or peddling in the Building is prohibited, and Tenant shall cooperate to prevent same. (5) Except for portions of the Premises specifically designated by Tenant and consented to in writing by Landlord in advance to be used for an employee kitchen or lounge area, Tenant shall not cook, sell, purchase or permit the preparation, sale or purchase of food on the Premises. (6) Tenant shall not mark, paint, drill into or in any way deface any part of the Building or Premises. No boring, driving of nails or screws, cutting or stringing of wires shall be permitted, except with the prior written consent of Landlord, and as Landlord may direct. Tenant shall not install any resilient tile or similar floor covering in the Premises except with the prior approval of Landlord. (7) Tenant shall give immediate notice to Landlord in case of theft, unauthorized solicitation or accident in the Premises or in the Building or of defects therein or in any fixtures or equipment, or of any known emergency in the Building. (8) Tenant shall not use the Premises or permit the Premises to be used for any other purpose than the Permitted Use, without Landlord's prior permission. (9) Tenant shall not advertise for laborers giving the Premises as an address, nor pay such laborers at a location in the Premises. (10) The requirements of Tenant will be attended to only upon application at the office of Landlord in the Building. Employees of Landlord shall not perform any Work or do anything outside of their regular duties, unless under special instructions from the office of Landlord. (11) Tenant shall at all times keep the Premises neat and orderly. (12) Tenant shall not make excessive noises, cause disturbances or vibrations or use or operate any electrical or mechanical devices that emit excessive sound or other waves or disturbances or create obnoxious odors, any of which may be offensive to the other tenants and occupants of the Building, or that would interfere with the operation of any device, equipment, radio, television broadcasting or reception from or within the Building or elsewhere and shall not place or install any projections, antennas, aerials or similar devices inside or outside of the Premises or on the Building without Landlord's -3- 30 prior written approval. (13) Tenant shall comply with all applicable federal, state and municipal laws, ordinances and regulations, and building rules and shall not directly or indirectly make any use of the Premises which may be prohibited by any of the foregoing or which may be dangerous to persons or property or may increase the cost of insurance or require additional insurance coverage. Tenant shall not use, suffer or permit the Premises or any part hereof to be used for the manufacture, sale or distribution by gift or otherwise of any spirituous, fermented or intoxicating liquors or any drugs. Tenant shall not bring or store firearms of any kind into the Building. Tenant shall not use the Premises for the manufacture, distribution or sale of any merchandise or other materials. Tenant shall not install any equipment utilizing an ammonia or other process necessitating venting. Tenant shall not permit any odors, acids, vapors or other gases or materials to be discharged from the Premises into the common areas, waste lines, vents, flues or other tenant spaces in the Building. Tenant shall not use, suffer or permit the use of the Premises or any part thereof for housing accommodations, for lodging or sleeping purposes or for any immoral or illegal purpose. (14) The water and wash closets, drinking fountains and other plumbing fixtures shall not be used for any purpose other then those for which they were constructed, and no sweepings, rubbish, rags, coffee grounds or other substances shall be thrown therein. All damages resulting from any misuse of the fixtures shall be borne by the Tenant who, or whose servants, employees, agents, visitors or licensees, shall have caused the same. No person shall waste water by interfering or tampering with the faucets or otherwise. (15) Tenant, its servants, employees, customers, invitees and guests shall, when using the parking facilities in and around the building, observe and obey all signs regarding fire lanes and no parking zones, and when parking always park between the designated lines. Landlord reserves the right to tow away, at the expense of the owner, any vehicle which is improperly parked or parked in a no-parking zone. All vehicles shall be parked at the sole risk of the owner, and Landlord assumes no responsibility for any damage to or loss of vehicles, except to the extent of Landlord's gross negligence. (16) Except as otherwise provided in the Lease, Tenant shall not employ persons to do janitor, repair or decorating work in the Premises, and no persons other than the janitors or contractors designated by Landlord shall clean, decorate, remodel or repair the Premises without prior written consent of Landlord. (17) Tenant shall not install or operate any refrigerating, heating or air-conditioning equipment, nor any equipment of any type or nature that will or may necessitate any changes, replacements or additions to, or in the use or, the water system heating system, plumbing system, air-conditioning system or electrical system of the Premises or the Building, without first obtaining the prior written consent of Landlord. Business machines and mechanical equipment belonging to or installed by or at the direction of Tenant that cause noise or vibration capable of being transmitted to the structure of the Building or to any space therein to such a degree as to be objectionable to Landlord or to any tenant in the Building shall be installed and maintained by Tenant, at Tenant's expense, on vibration eliminators or other devices sufficient to reduce such noise and vibration to a level satisfactory to Landlord and such other tenants. (18) Landlord reserves the right to prescribe and to approve the weight, size and location of safes, book shelves and other heavy equipment, fixtures and articles in and about the Premises and the Building and to require all such items to be moved in and out of the Building and the Premises only at such times and in such manner as Landlord shall direct and in all events at Tenant's sole risk and responsibility. Tenant shall not overload any floors. (19) Tenant shall not, without the prior written consent of Landlord, install any shades, draperies, blinds or other window covering, awning, sign, lettering, picture, notice, advertisement or object unacceptable to Landlord on or against glass partitions, doors or windows that would be visible outside the Premises or any sign, lettering, picture, notice or advertisement within the Premises that would be visible outside the Premises. Landlord shall have the right to prohibit any advertisement of or by Tenant in any public media, by direct solicitation or otherwise, which advertisement, in Landlord's opinion, tends to impair the reputation of Building or its desirability as a high-quality office building. Upon written notice from Landlord, Tenant shall immediately refrain from and discontinue any such advertisement. (20) Landlord reserves the right to rescind, add to and amend any rules or regulations, to add reasonable new rules or regulations, and to waive any rules or regulations with respect to any tenant or tenants. (21) The Building shall be a no-smoking building, with no smoking allowed in the Premises or in any other area of the Building, including any exterior portions thereof, provided that Landlord may provide for a smoking area, in which case Tenant shall ensure that its employees smoke only in such smoking area. 31 EXHIBIT 4 Work Letter The terms used herein shall have the meanings ascribed to them in the Lease, unless otherwise stated herein. 1. Construction of the Premises. The Landlord and the Tenant agree that their respective rights and obligations in reference to the construction of the Premises shall be as provided herein. Floor 11 either is complete or will be subject to a minor amount of work. None of such work will have an impact on the Commencement Date for Floor 11, which shall be the date provided in Section 1.08. The Allowance, as defined below, shall be determined based on the square footage of both Floor 11 and Floor 12, though Landlord and Tenant acknowledge and agree that Tenant need not spend it equally on the cost of work on Floor 11 and Floor 12, but may spend proportionally more on Floor 12. In addition, the Landlord's Work will be completed in phases and Tenant shall be entitled to apply those portions of the Allowance not spent in early phases to the cost of the work in later phases. 1.01 Tenant's Plans and Specifications. (a) Landlord shall cause to be prepared detailed architectural, telephone, mechanical and engineering plans including all dimensions and specifications for all work to be performed by Landlord in the Premises substantially in accordance with the space plan provided by Tenant or Tenant's architect and previously submitted to Landlord ("Plans"). (b) Tenant shall cooperate as necessary in connection with the preparation of the Plans, in a complete and timely manner, and without limiting the foregoing, shall provide to Landlord all information as shall be required by Landlord's engineers to prepare mechanical plans pursuant to Section 1.02 hereof, which information shall include, but not be limited to, the following: (1) any special floor-loading conditions which may exceed the structural weight limits of the floor. (2) specifications of any heat emanating equipment to be installed by Tenant which may require special air conditioning, (3) electrical specifications of any equipment that requires non-standard electrical power outlets, and (4) complete specifications of any data-line wiring required, including cable routing, conduit size, cable type and similar items (provided Landlord shall have the right to approve but shall not perform, and the Landlord's Work, as hereinafter defined, shall exclude all data-line wiring and cable routing in and to the Premises). (c) The Plans shall be delivered to Tenant for its review and consideration as soon as reasonably possible. Any change or modification of such Plans shall not be valid or binding unless consented to by Landlord in writing. 1.02 Landlord's Work. (a) Landlord shall furnish and install substantially in accordance with the Plans the materials and items described therein ("Landlord's Work"). The Plans, the costs of Tenant's space plan, Landlord's Work, and the installation of cable described in Section 1.01 (b)(4), shall be at Tenant's sole cost and expense, provided that Tenant shall be entitled to a credit against the cost of the Plans, the costs of Tenant's space plan, Landlord's Work, and the installation of cable described in Section 1.01(b)(4), in an amount up to the lesser of (a) $178,500, (i.e., $6.00, multiplied by the area of the Premises) or (b) the actual costs of the Plans and the Landlord's Work (the "Allowance"). (b) If Landlord determines that the cost of the Landlord's Work, will exceed the Allowance, then prior to commencement of the Landlord's Work, Landlord will submit to Tenant a cost estimate for the Landlord's Work ("Cost Estimate") which Tenant shall approve or reject within seven (7) days after receipt thereof. It is understood that the cost of Landlord's Work shall include Landlord's then applicable construction supervision fee which shall not exceed four percent (4%) of the total cost of the Landlord's Work, the cost of Tenant's space plan, the cost of the Plans, and the costs of the installation of the cable described in Section 1.01(b)(4). Tenant's failure to reject the Cost Estimate within said seven (7) day period shall be to be an acceptance thereof. If Tenant rejects the Cost Estimate, Tenant shall, together with such rejection, propose such changes to the Plans as will cause the Cost Estimate to be acceptable. If the accepted Cost exceeds the Allowance, then Tenant shall pay to Landlord the amount of such excess within ten (10) business days after receipt by Tenant of a bill therefor, but in no event later than the Commencement Date. 1.03 Extra Work. (a) Tenant may request substitutions, additional or extra work and/or materials over and above Landlord's Work ("Extra Work") to be performed by Landlord provided that the Extra Work, in Landlord's judgment, (1) shall not delay completion of Landlord's Work or the Commencement Date of the Lease; (2) shall be practicable and consistent with existing physical conditions in the Building and any other plans for the Building which have been filed with the appropriate municipality or other governmental authorities having jurisdiction thereover (3) shall not impair Landlord's ability to perform any of Landlord's obligation hereunder or under the Lease or any other lease of space in the Building; and (4) shall not affect any portion of the Building other than the Premises. -1- 32 (b) (1) In the event Tenant requests Landlord to perform Extra Work and if Landlord accedes to such request, then and in that event, prior to commencing such Extra Work, Landlord shall submit to Tenant a written estimate ("Estimate") for said Extra Work to be performed. Within seven (7) days after Landlord's submission of the Estimate, Tenant shall, in writing, either accept or reject the Estimate. Tenant's failure either to accept or reject the Estimate within said seven (7) day period shall be deemed rejection thereof. (2) In the event that Tenant rejects the Estimate or the Estimate is deemed rejected, Tenant shall within seven (7) days after such rejection propose to Landlord such necessary revisions of the Plans so as to enable Landlord to proceed as though no such Extra Work had been requested. Should Tenant fail to submit such proposals regarding necessary revisions of the Plans within said seven (7) day period, Landlord, in its sole discretion, may proceed to complete Landlord's Work in accordance with the Plans already submitted, with such variations as in Landlord's sole discretion may be necessary so as to eliminate the Extra Work. (c) (1) All Extra Work shall require the installation of new materials at least comparable to Building standards and any substitution shall be of equal or greater quality than that for which it is substituted. (2) Tenant may request the omission of an item of Landlord's Work, provided that such omission shall not delay the completion of Landlord's Work and Landlord thereafter shall not be obligated to install the same. Credits for items deleted or not installed shall be granted in amounts equal to credits obtainable from subcontractors or materialmen. In no event shall there be any cash credits. (d) In the event Landlord performs Extra Work hereunder, Tenant shall pay to Landlord, upon acceptance of the Estimate or submission of Landlord's bid therefor, as the case may be, a sum equal to twenty percent (20%) of the Estimate or bid price to the extent the Estimate together with the amount set forth in the Cost Estimate exceeds the Allowance. In the event of any such excess, Tenant shall pay to Landlord such excess cost for the Extra Work within seven (7) days after receipt by Tenant of a bill therefore or at such other time or times as agreed to, but in no event shall the entire balance be paid later than the completion of the Extra Work. 2. COMPLETION-PUNCH LIST. When the Landlord is of the opinion that the Landlord's Work is complete, then the Landlord shall so notify the Tenant. The Tenant agrees that upon such notification, the Tenant promptly (and not later than two (2) business days after the date of Landlord's said notice) will inspect the Premises and furnish to the Landlord a written statement that the Landlord's Work have been completed and are complete as required by the provisions of this EXHIBIT 4 and the Lease with the exception of certain specified and enumerated items (hereinafter referred to as the "Punch List"). The Tenant agrees that at the request of the Landlord from time to time thereafter, the Tenant will indicate in writing to Landlord whether any prior Punch List items have been completed. If the Punch List consists only of items which would not materially impair the Tenant's use or occupancy of the Premises, then, in such event, the Landlord's Work shall be deemed complete and Tenant shall be deemed to have accepted possession of the Premises, provided, Landlord shall promptly complete all such Punch List items; provided, however, that in no event shall Landlord be obligated to repair latent defects, not originally listed on the Punch List, beyond a period of six (6) months after the Completion Date. The date on which the Landlord's Work is complete, pursuant to the provisions of this subsection, is sometimes referred to as the "Date of Substantial Completion" or "Substantial Completion Date." The Landlord's Work shall be deemed to be substantially complete and the Date of Substantial Completion will be deemed to have occurred upon the issuance of a certificate of occupancy or other similar license, permit, or authorization. Promptly after the Substantial Completion Date, upon Landlord's request, Tenant will execute an instrument in the form attached hereto as EXHIBIT 4.1, setting forth the Commencement Date of the Lease, so that said date is certain and such instrument, when executed, is hereby made part of this Lease and incorporated herein by reference. 3. POSSESSION-EXTENSION OF TERM AND ACKNOWLEDGMENTS. (a) The Tenant will take possession of the Premises as of and on the Commencement Date which, as set forth in Section 1.08 of the Lease, shall be the later of (a) the date set forth in Section 1.08(a) or (b) the date which is two (2) days following the Date of Substantial Completion of the Landlord's Work as to 6917 rentable square foot area on Floor 12, but in no event later than February 1, 1996. Landlord has not agreed or represented that the Premises will be substantially ready for occupancy on the date specified in Section 1.08(a) of the Lease. If for any reason whatsoever the Landlord's Work as to such 6917 rentable square feet on Floor 12 is not complete on said date, this Lease shall nevertheless continue in full force and effect, and no liability shall arise against Landlord because of any such delay, provided, however, that all Rent due hereunder shall abate on a per diem basis and, as hereinabove provided, the Commencement Date shall be deferred until the Date of Substantial Completion of the Landlord's Work as to such 6917 rentable square foot area on Floor 12. Notwithstanding the foregoing, there shall be no abatement of Rent and no deferral of the Commencement Date if the Landlord's Work is not substantially complete due to any special equipment, fixtures or materials, changes, alterations or additions requested by Tenant, any delay of Tenant in submitting information necessary for the preparation of the Plans, the failure of Tenant to timely approve or reject the Cost Estimate, the failure of the Tenant to submit revisions following rejection or deemed rejection of the Estimate, the requirement of Tenant for any Extra Work, or the failure of the Tenant in supplying information of approving or authorizing plans, specifications, estimates or other matters, or any other act or omission of Tenant ("Tenant Delay"). If Tenant shall occupy all or any part of the Premises prior to the Commencement Date, all of the covenants and conditions of this Lease, including the obligation to pay Rent, shall be binding upon the parties hereto in respect to such occupancy as if the first day of the Term had been the date when Tenant began such occupancy. (b) In the event the Date of Substantial Completion of the Landlord's Work as to such 6917 rentable square foot area on Floor 12, or the date Landlord's Work would have been complete but for any Tenant Delays, is later than the date setforth in Section 1.08(a) of the Lease, (1) the Date of Substantial Completion of the Landlord's Work as to such -2- 33 6917 rentable square foot area on Floor 12, shall be modified to be the earlier of the Date of Substantial Completion of the Landlord's Work as to such 6917 rentable square foot area on Floor 12, or the date Landlord's Work would have been complete but for any Tenant Delays and Monthly Base Rent, Expense Adjustment, and Electrical Cost will commence accordingly, (2) the Expiration Date shall be on the last day of the calendar month in which the original Term as set forth in Article I would expire if it were measured from the earlier of the Date of Substantial Completion of the 6917 rentable square foot area on Floor 12, or the date Landlord's Work would have been complete but for any Tenant Delays, and (3) the Term shall be modified to be the period from the Date of Substantial Completion of the 6917 rentable square foot area on Floor 12 to the Expiration Date. Promptly after the Date of Substantial Completion of the 6917 rentable square foot area on Floor 12, the parties will execute an instrument in the form attached as Addendum 1 hereto, setting forth the Expiration Date of the Lease, as so modified, so that said dates are certain and such instrument, when executed, is hereby made a part of this Lease and incorporated herein by reference. 4. TENANT'S ENTRY PRIOR TO COMPLETION DATE. Landlord may permit Tenant or its agents or laborers to enter the Premises at Tenant's sole risk prior to the Commencement Date in order to perform through Tenant's own contractors such work as Tenant may desire, at the same time that Landlord's contractors are working in the Premises. The foregoing License to enter prior to the Commencement Date, however, is conditioned upon Tenant's labor not interfering with Landlord's contractors or with any other tenant or its labor. If at any time such entry shall cause disharmony. interference or union disputes of any nature whatsoever, or if Landlord shall, in Landlord's reasonable judgment, determine that such entry, such work or the continuance thereof shall interfere with, hamper or prevent Landlord from proceeding with the completion of the Building or Landlord's Work at the earliest possible date, this license may be withdrawn by Landlord immediately upon written notice to Tenant. Such entry shall be deemed to be under and subject to all of the terms, covenants and conditions of the Lease, and Tenant shall comply with all of the provisions of the Lease which are the obligations or covenants of the Tenant, including, but not limited to, the provisions of Section 9.01 of the Lease, except that the obligation to pay Rent shall not commence until the Commencement Date. In the event that Tenant's agents or laborers incur any charges from Landlord, including, but not limited to, charges for use of construction or hoisting equipment on the Building site, such charges shall be deemed an obligation of Tenant and shall be collectible as Rent pursuant to the Lease, and upon default in payment thereof, Landlord shall have the same remedies as for a default in payment of Rent pursuant to the Lease. 5. LANDLORD'S ENTRY AFTER SUBSTANTIAL COMPLETION. At any time after the Commencement Date, Landlord may enter the Premises to complete Punch List items, and such entry by Landlord, its agents, servants, employees or contractors for such purpose shall not constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of Rent, or relieve Tenant from any obligation under this Lease, or impose any liability upon Landlord or its agents. 6. DELAYS. Landlord and Tenant mutually acknowledge that the Landlord's construction process in order to complete the Premises requires a coordination of activities and a compliance by the Landlord and Tenant without delay of all obligations imposed upon the Landlord and Tenant pursuant to this EXHIBIT 4 and that time is of the essence in the performance of Landlord's and Tenant's obligations hereunder and Landlord's and Tenant's compliance with the terms and provisions or this EXHIBIT 4. 7. PROVISIONS SUBJECT TO LEASE. The provisions of this EXHIBIT 4 are specifically subject to the provisions of the Lease. -3- 34 EXHIBIT 4.1 NOTICE OF LEASE TERM DATES Re: Office Building Lease (the "Lease") dated _________,199__ between The Utah State Retirement Investment Fund, an independent agency of the State of Utah ("Landlord") and _______________ a ____________ corporation ("Tenant") for the premises located at 3811 Turtle Creek Boulevard, Suite _______, Dallas, Texas and commonly known as Turtle Creek Centre ("Premises") The undersigned, as Tenant, hereby confirms as of this _____ day of ______, 199_, the following: 1. The Substantial Completion Date for the Premises occurred on ______, 199_, and Tenant is currently occupying the same. 2. The Commencement Date, Expiration Date, and expiration date of the Abatement Period, as each is defined in the Lease, are as follows: Commencement Date:__________________ Expiration Date:____________________ 3. All alterations and improvements required to be performed by Landlord pursuant to the terms of the Lease to prepare the entire Premises for Tenant's initial occupancy have been satisfactorily completed. 4. As of the date hereof, Landlord has fulfilled all of its obligations under the Lease. 5. The Lease is in full force and effect and has not been modified, altered, or amended. 6. There are no offsets or credits against Rent. LANDLORD: THE UTAH STATE RETIREMENT INVESTMENT FUND, an independent agency of the State of Utah By: CB Commercial Realty Advisors, Inc. a Delaware corporation, Agent By: ----------------------------------------- Its: ----------------------------------------- By: ----------------------------------------- Its: ----------------------------------------- Date: ----------------------------------------- TENANT: ----------------------------------------- ----------------------------------------- By: ----------------------------------------- Its: ----------------------------------------- Date: ----------------------------------------- -1-
1 EXHIBIT 11.1 EXHIBIT 11.1 -- COMPUTATION OF PER SHARE LOSS (IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> QUARTER YEAR ENDED ENDED DECEMBER 31, MARCH 31, 1996 1997 ------------ --------- <S> <C> <C> PRO FORMA NET LOSS PER SHARE: Net loss.............................. $(3,485) $ (388) ======= ====== Weighted average common shares outstanding........................ 5,274 5,190 Assumed conversion of Series A preferred stock into common stock on date of issuance................ 758 1,538 Application of SAB 83 for preferred stock, common stock, stock options and warrants issued subsequent to June 1, 1996....................... 1,170 753 ------- ------ Pro forma weighted average number of common shares and common share equivalents outstanding............ 7,202 7,481 ======= ====== Pro forma net loss per common share... $ (0.48) $(0.05) ======= ====== SUPPLEMENTAL PRO FORMA NET LOSS PER SHARE: Net loss.............................. $(3,485) $ (388) Pro forma interest expense adjustment reflecting repurchase of debt with proceeds from offering............. 539 131 ------- ------ Supplemental pro forma net loss....... $(2,946) $ (257) ======= ====== Weighted average common shares outstanding (excluding options and common share equivalents).......... 5,274 5,190 Assumed conversion of Series A preferred stock into common stock on date of issuance................ 758 1,538 Application of SAB 83 for preferred stock, common stock, stock options and warrants issued subsequent to June 1, 1996....................... 1,170 753 Assumed issuance of shares needed to repurchase debt of $5.4 million.... 542 Assumed issuance of shares needed to repurchase debt of $5.2 million.... 525 ------- ------ Pro forma weighted average shares used in the supplemental pro forma net loss per share calculation......... 7,744 8,006 ======= ====== Supplemental pro forma net loss per share.............................. $ (0.38) $(0.03) ======= ====== </TABLE>
1 EXHIBIT 16.1 [BELEW AVERITT LLP LETTERHEAD] June 5, 1997 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20540 Ladies and Gentlemen: We have read the third paragraph of the item titled "Experts" in the Form S-1 Registration Statement of Pegasus Systems, Inc., filed with the Securities and Exchange Commission on June 5, 1997, and are in agreement with the statements contained therein. Yours very truly, Belew Averitt LLP By: /s/ Terry L. Orr -------------------- Terry L. Orr
1 EXHIBIT 21.1 LIST OF SUBSIDIARIES The Hotel Industry Switch Company Delaware The Hotel Clearing Corporation Delaware TravelWeb, Inc. Delaware Pegasus Systems, Inc. (UK) Limited UK
1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 of Pegasus Systems, Inc. of our report dated February 21, 1997, relating to the financial statements of Pegasus Systems, Inc., which appears in such Prospectus. We also consent to the application of such report to the Financial Statement Schedule for the year ended December 31, 1996 listed under Item 16(b) of this Registration Statement when such schedule is read in conjunction with the financial statements referred to in our report. The audit referred to in such report also included this schedule. We also consent to the references to us under the headings "Experts" and "Selected Consolidated Financial Data" in such Prospectus. However, it should be noted that Price Waterhouse LLP has not prepared or certified such "Selected Consolidated Financial Data." PRICE WATERHOUSE LLP Dallas, Texas June 5, 1997
1 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 of our report dated March 2, 1996, relating to the financial statements of Pegasus Systems, Inc. (formerly The Hotel Industry Switch Company in 1994) and our report dated April 4, 1995, except for Note 12, as to which the date is August 21, 1995, relating to the financial statements of The Hotel Clearing Corporation, which appear in the Prospectus of Pegasus Systems, Inc. We also consent to the application of such reports to the Financial Statement Schedules for the years ended December 31, 1993, 1994 and 1995 listed under Item 16(b) of this Registration Statement when such schedules are read in conjunction with the financial statements referred to in our reports. The audits referred to in such reports also include these schedules. We also consent to the references to us under the headings "Experts" and "Selected Financial Data" in such Prospectus. However, it should be noted that Belew Averitt LLP has not prepared or certified such "Selected Financial Data". Belew Averitt LLP Dallas, Texas June 5, 1997
<TABLE> <S> <C> <ARTICLE> 5 <LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COMPANY'S FORM S-1 FILED JUNE 5, 1997 WITH SECURITIES AND EXCHANGE COMMISSION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH S-1. </LEGEND> <MULTIPLIER> 1,000 <S> <C> <C> <PERIOD-TYPE> 12-MOS 3-MOS <FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 <PERIOD-START> JAN-01-1996 JAN-01-1997 <PERIOD-END> DEC-31-1996 MAR-31-1997 <CASH> 2,487 3,287 <SECURITIES> 2,705 984 <RECEIVABLES> 1,724 2,512 <ALLOWANCES> 45 61 <INVENTORY> 0 0 <CURRENT-ASSETS> 7,062 6,970 <PP&E> 14,561 15,048 <DEPRECIATION> 9,446 10,123 <TOTAL-ASSETS> 13,892 13,601 <CURRENT-LIABILITIES> 4,994 5,565 <BONDS> 6,353 5,957 <PREFERRED-MANDATORY> 0 0 <PREFERRED> 15 15 <COMMON> 53 53 <OTHER-SE> 1,886 1,532 <TOTAL-LIABILITY-AND-EQUITY> 13,892 13,601 <SALES> 15,869 4,377 <TOTAL-REVENUES> 15,869 4,377 <CGS> 0 0 <TOTAL-COSTS> 6,199 1,558 <OTHER-EXPENSES> 2,206 623 <LOSS-PROVISION> 25 17 <INTEREST-EXPENSE> 893 212 <INCOME-PRETAX> (3,364) (388) <INCOME-TAX> 15 0 <INCOME-CONTINUING> (3,485) (388) <DISCONTINUED> 0 0 <EXTRAORDINARY> 0 0 <CHANGES> 0 0 <NET-INCOME> (3,485) (388) <EPS-PRIMARY> (0.48) (0.05) <EPS-DILUTED> (0.48) (0.05) </TABLE>